<PAGE>
As filed with the Securities and Exchange Commission on October 8, 1999
Registration No. 333-86459
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
MEDIAPLEX, INC.
(Exact name of Registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 7372 94-3295822
(tateSor other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
ncorporationior organization) Classification Code Number) Identification Number)
</TABLE>
131 Steuart Street, Fourth Floor
San Francisco, California 94105-1230
(415) 808-1900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
Gregory R. Raifman
Chairman and Chief Executive Officer
Mediaplex, Inc.
131 Steuart Street, Fourth Floor
San Francisco, California 94105-1230
(415) 808-1900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
Aaron J. Alter, Esq. Laird H. Simons, III, Esq.
Tamara G. Mattison, Esq. Robert A. Freedman, Esq.
Linda M. Cuny, Esq. R. Gregory Roussel, Esq.
Robert E. Dawson, Esq. Fenwick & West LLP
Wilson Sonsini Goodrich & Rosati Two Palo Alto Square
Professional Corporation Palo Alto, California 94306
650 Page Mill Road (650) 494-0600
Palo Alto, California 94304-1050
(650) 493-9300
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall hereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in the prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion, dated October 8, 1999
6,000,000 Shares
[LOGO OF MEDIAPLEX]
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering 6,000,000 shares. No public market currently exists for our shares.
We propose to list the shares on the Nasdaq National Market under the symbol
"MPLX." Anticipated price range of $8.00 to $10.00 per share.
Investing in the shares involves risks. "Risk Factors" begin on page 7.
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price............................................... $ $
Underwriting Discount............................................... $ $
Proceeds to Mediaplex............................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 900,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers expects to deliver the shares on or about , 1999.
- --------------------------------------------------------------------------------
Lehman Brothers
SG Cowen
U.S. Bancorp Piper Jaffray
Fidelity Capital Markets
a division of National Financial Services
Corporation
Facilitating Electronic Distribution
, 1999
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
[GRAPHIC OF MEDIAPLEX LINKING A COMPANY WITH CUSTOMERS]
Caption: Mediaplex connects the enterprise.
Inside Front Cover Gatefold
[GRAPHIC OF WEB SITE SCREEN SHOTS FOR A SAMPLE APPLICATION OF A MEDIAPLEX
ADVERTISING CAMPAIGN]
Heading across gatefold: MOJO Technology. Integrating enterprise data with
online marketing campaigns to deliver the most relevant message to the right
target . . . all in real time.
Captions:
EXAMPLE:
Mediaplex managing an online marketing campaign for Tickets.com on the
AudioFind.com Web site.
1.An Internet user in Fort Lauderdale on the AudioFind.com Web site accesses a
page on Female Pop Vocalists.
2.The MOJO platform serves a banner ad for Tickets.com with a message
determined by business rules regarding the geographic profile of the user,
their interest in a particular artist or music category, and the current
Tickets.com auction inventory.
3.The Internet user clicks on the banner ad, arrives at the specific
Tickets.com auction Web site to bid on concert tickets.
4.The MOJO platform records impressions, click-throughs and bid activity for
reporting and return on investment analysis.
*****
Using Mediaplex, Tickets.com:
.Increased the click-through rates on targeted auction banners 440% over the
generic default banners
.Improved management of auction ticket inventory
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Selected Pro Forma Financial Data........................................ 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 33
Management................................................................. 49
Related Party Transactions................................................. 58
Principal Stockholders..................................................... 61
Description of Capital Stock............................................... 63
Shares Eligible for Future Sale............................................ 66
Underwriting............................................................... 68
Legal Matters.............................................................. 70
Experts.................................................................... 70
Where You Can Find Additional Information.................................. 71
Index to Financial Statements.............................................. F-1
</TABLE>
ABOUT THIS PROSPECTUS
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 common stock.
This preliminary prospectus is subject to completion prior to this offering.
Among other things, this preliminary prospectus describes our company as we
currently expect it to exist at the time of this offering.
See the section of this prospectus entitled "Risk Factors" for a discussion
of various factors that you should consider before investing in the common
stock offered by this prospectus.
Certain 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, but are
not limited to, 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."
Mediaplex(TM), MOJO(TM), the Mediaplex logo, Storyboard Messaging(TM),
Multiple Messaging(TM) and eBusiness Messaging(TM) are our trademarks. We have
applied to register Mediaplex and MOJO, our trademarks. All trademarks and
trade names appearing in this prospectus are the property of their respective
holders.
Until , 1999, all dealers selling shares of the common stock, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and the financial statements and notes to those statements appearing
elsewhere in this prospectus.
Except as otherwise indicated, all information in this prospectus assumes
that the underwriters do not exercise the option granted by Mediaplex to
purchase additional shares in this offering, assumes the conversion of all of
our preferred stock into common stock upon the closing of this offering, and
reflects our reincorporation into Delaware to be effected prior to the
effectiveness of this offering. See "Underwriting."
Mediaplex
We provide technology-based services that enable companies to integrate their
internal business data with their online advertising and direct marketing
activities to deliver customized messages and offers to Web site visitors. Our
services encompass the planning, execution, monitoring and analysis of Web-
based advertising and marketing campaigns and are based upon our proprietary
technology, tradenamed "MOJO." MOJO is an acronym for "mobile Java
objects,"which are mobile software objects written in Java code. Our technology
allows companies to change the content of Internet messages and offers in real
time, or virtually instantaneously, in response to changes in their underlying
business variables, such as inventory levels, product pricing and customer
data.
For example, companies try to avoid marketing goods that are out of stock,
and often want to discount items that are overstocked or perishable, such as
hotel rooms or airline seats. In addition, marketers may wish to target a
particular geography or group of consumers. Our technology draws upon a
company's up-to-the-minute business data to tailor the message for an adjusted
price, a different product or mix of products, or any other message or offer
the company would like to communicate. We believe customized, real-time
messaging will increase consumer response to online advertisements and
marketing, thereby improving companies' returns on advertising and marketing
expenditures.
The rapid growth in the worldwide online population and e-commerce spending
has established the Internet as an important advertising medium. Forrester
Research, Inc. anticipates that U.S. online advertising spending will grow from
$2.8 billion in 1999 to $17.2 billion in 2003. To date, online advertising has
not achieved effective "one-to-one" marketing, which requires delivery of the
right message to the right consumer at the right time. The ability to send the
right message in real time remains a significant challenge, which, if met,
would enable companies to use the Internet as an effective marketing and sales
channel.
We believe we are the first company to offer a solution for businesses that
integrates their internal business data with online advertising and direct
marketing campaigns to deliver customized messages to consumers in real time.
The benefits of our services include the following:
. Comprehensive Online Advertising Campaigns. We provide a wide range of
online campaign services including strategic planning, consumer
targeting, media buying, ad serving, and measurement and reporting of
results.
. Real-time Tracking and Measuring of Campaign Results. We continually
monitor a variety of measures, such as click-through and conversion
rates, and provide Internet access to performance reports 24 hours a day.
. Data Capture and Analysis. We place advertisements on Web sites
frequented by consumers who match an advertiser's requested profile using
data capture and analysis of a variety of consumer characteristics such
as geography, demography, areas of interest and site visitation
information.
3
<PAGE>
. Real-time Messaging. We can change the content and site placement of
online advertisements in real time. This enables a company to tailor a
message based on predefined business parameters and a consumer's profile
in order to deliver the right message virtually instantaneously.
. Integration of Customers' Business Information. Our MOJO technology
enables us to integrate business information with an online advertising
campaign to customize and deliver advertisements in real time based on
consumer profiles and relevant business information such as inventory and
pricing levels.
Our top ten clients, based on revenues from January 1, 1999 to September 30,
1999, were Ashford, DATEK Online Brokerage Services, Corp., FreeShop,
MyShopNow.com, OfficeMax, ShopNow.com, Strong Funds and uBid and the
advertising agencies McCann-Erickson and Publicis & Hal Riney, who use our
services on behalf of their clients such as Hewlett-Packard, Siebel Systems,
Silicon Graphics and Sprint PCS. We depend on a limited number of clients for
our revenues. In 1998, DATEK and uBid accounted for approximately 56% and 21%
of our revenues, respectively, and in the first half of 1999, DATEK, Publicis &
Hal Riney and uBid accounted for approximately 15%, 10% and 10% of our
revenues, respectively.
We currently generate the substantial majority of our revenues from
advertising campaign management services. To date, we have not generated
significant revenue from our message management services. We have deployed two
campaigns for our message management services utilizing the real-time messaging
and enterprise integration components of our MOJO technology. Although our
revenues have increased from $3.6 million for all of 1998 to $7.3 million for
the first six months of 1999, we have lost approximately $8.9 million since
inception. We have not been profitable in any quarter and expect to continue to
incur losses in the foreseeable future. We currently operate in a highly
competitive market with no significant barriers to entry.
After the consummation of this offering, our executive officers and directors
will, directly or indirectly, control approximately 18,914,738 million shares
of our common stock, representing approximately 53.7% of the total shares that
will be outstanding. As a result, these persons will be able to control the
election of our directors and other matters requiring stockholder approval.
Our principal executive offices are located at 131 Steuart Street, Fourth
Floor, San Francisco, California 94105-1230 and our telephone number is (415)
808-1900. Our Web site is located at www.mediaplex.com. Information contained
on our Web site does not constitute part of this prospectus.
We were incorporated in California in September 1996 as Internet Extra
Corporation. On April 1, 1998, we set up a wholly-owned subsidiary, MediaPlex,
Inc., a California corporation, to carry out our current business. We expect to
merge MediaPlex, Inc. with Internet Extra Corporation and reincorporate the
merged entity under the name "Mediaplex, Inc." in Delaware in October 1999.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Mediaplex..... 6,000,000 shares
Common stock outstanding after the
offering............................. 30,717,365 shares
Use of proceeds....................... We estimate that we will receive net
proceeds from this offering of
$ 49.2 million, or $56.7 million if
the underwriters exercise their over-
allotment option in full. We expect to
use the net proceeds for general
corporate purposes, including working
capital and potential acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol............................... "MPLX"
</TABLE>
In addition to the 30,717,365 shares of common stock outstanding after this
offering, as of the closing of this offering and based on the number of shares
issued and options and warrants granted as of September 30, 1999, we expect to
have additional shares of common stock available for issuance under the
following plans and arrangements:
. 12,243,000 shares issuable under our stock option plans, consisting of:
. 9,278,498 shares underlying options outstanding at a weighted average
exercise price of $0.82 per share, of which 5,036,301 were exercisable;
and
. 2,852,002 shares available for future issuance;
. 875,000 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $0.97 per share; and
. 400,000 shares available for issuance under our 1999 Employee Stock
Purchase Plan.
5
<PAGE>
Summary Financial Data
The following table is a summary of our statement of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The financial results for the six months ended June 30, 1998 are
unaudited.
<TABLE>
<CAPTION>
September 10, Years Ended Six Months
1996 (inception) December 31, Ended June 30,
to December 31, -------------------- ---------------------
1996 1997 1998 1998 1999
---------------- --------- --------- --------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 426 $ 3,588 $ 1,522 $ 7,323
Gross profit (loss)..... -- (19) 817 309 1,561
Loss from operations.... (255) (1,115) (1,772) (782) (5,525)
Net loss................ (255) (1,117) (2,019) (1,016) (5,511)
Net loss per share--
basic and diluted...... $(0.07) $ (0.13) $ (0.25) $ (0.11) $ (0.46)
Weighted average shares
used to compute net
loss per share--basic
and diluted............ 3,795,714 8,457,464 8,186,127 9,408,557 12,070,449
Pro forma net loss per
share--basic and
diluted (unaudited).... $(0.25) $(0.41)
Weighted average shares
used to compute pro
forma net loss per
share--basic and
diluted (unaudited).... 8,186,127 13,501,001
</TABLE>
The following table is a summary of our balance sheet as of June 30, 1999.
The pro forma column reflects the sale of 4,000,000 shares of our convertible
preferred stock in August 1999 for gross proceeds of $14.4 million and the
conversion of all outstanding shares of preferred stock into common stock upon
the closing of this offering. The pro forma as adjusted column also reflects
our receipt of the estimated net proceeds from the sale of the 6,000,000 shares
of common stock offered in this offering at an assumed initial public offering
price of $9.00 per share after deducting the estimated underwriting discount
and offering expenses payable by us. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
As of June 30, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $ 7,602 $22,002 $71,172
Working capital................................... 5,010 19,410 68,580
Total assets...................................... 15,430 29,830 79,000
Long-term debt.................................... 263 263 263
Total stockholders' equity........................ 8,623 23,023 72,193
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the following risks actually
occurs, our business could be harmed. In that case, the trading price of our
common stock could decline, and you might lose all or part of your investment.
You should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes.
Risks Related to Our Company
Our limited operating history makes financial forecasting and evaluation of our
business difficult.
We were founded in 1996 and began selling our advertising campaign management
services in April 1998. In addition, we have only recently begun deploying our
MOJO technology in client campaigns. Our limited operating history makes it
difficult to forecast our future operating results, and for you to evaluate our
future revenue and income potential, as well as your investment in our common
stock. In particular, our limited operating history makes it difficult to
evaluate our ability to:
. purchase appropriate media space at reasonable costs;
. attract new advertisers and maintain current client relationships;
. achieve effective ad campaign results for our clients;
. develop new relationships and maintain existing relationships with
advertising agencies, our marketing alliance partners and other third
parties;
. continue to develop and upgrade our MOJO platform and other technology to
keep pace with the growth of the Internet advertising industry and
changes in technology; and
. continue to expand the number of services we offer.
In addition to the factors listed above, we have spent significant resources
on our MOJO technology, the cornerstone of our company. However, we have only
recently introduced message management services using our MOJO technology and
these services remain largely untested. If our MOJO technology does not perform
as anticipated, demand for our MOJO-based services will decline and our stock
price may fall.
We have a history of losses, expect future losses and may never become
profitable.
We have not achieved profitability in any period to date and, given the level
of planned operating and capital expenditures, we expect to continue to incur
losses and negative cash flows for the foreseeable future. Our accumulated
deficit as of June 30, 1999 was approximately $8.9 million. For the year ended
December 31, 1998 and the six months ended June 30, 1999, we incurred losses of
$2.0 million and $5.5 million, respectively. If our revenues grow more slowly
than we anticipate, or if our operating expenses exceed our expectations and
cannot be adjusted accordingly, our business will be harmed.
Variations in quarterly operating results, due to factors such as changes in
demand and the mix of services we provide, may cause our stock price to
decline.
It is possible that in future periods our results of operations will be below
the expectations of securities analysts. If so, the market price of your shares
would likely decline. Our quarterly operating results have fluctuated in the
past and are likely to continue to do so in the future. We believe that
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance and should not be relied upon to predict
our future performance or our stock price.
7
<PAGE>
Our quarterly revenues, expenses and operating results could vary
significantly from quarter-to-quarter for several other reasons, many of which
are beyond our control. These factors include:
. demand for our advertising services and mix of services we provide;
. addition of new or loss of current advertisers and advertising agencies;
. decisions by advertisers or advertising agencies to implement or delay
campaigns;
. deployment of new services we may offer;
. changes in availability and pricing of advertising space;
. changes in our pricing policies or the pricing policies of our
competitors; and
. costs related to acquisitions of technology or businesses.
Our current and future expense estimates are based, in large part, on
estimates of future revenues, which are difficult to predict, and on our
investment plans. In particular, we plan to increase our operating expenses
significantly in order to expand our sales and marketing operations, to enhance
our proprietary software and to expand internationally. We may be unable to, or
may elect not to, adjust spending quickly enough to offset any unexpected
revenues shortfall. If these expenses are not accompanied by increased
revenues, our results of operations and financial condition would be harmed.
Our revenues depend upon a few key clients, and if we lose a major client, our
revenues may be significantly reduced.
Our revenues have been derived from a limited number of advertisers and
advertising agencies that use our services. Our quarterly and annual results of
operations would be harmed by the loss of any of these clients. In 1998, DATEK
Securities, Inc. and uBid accounted for approximately 56% and 21% of our
revenues, respectively. In the first half of 1999, DATEK Online Brokerage
Services, Corp., Publicis & Hal Riney and uBid accounted for approximately 15%,
10% and 10% of our revenues, respectively, and five of our clients accounted
for approximately 68% of our total revenues. In addition, four customers
accounted for 76% of our outstanding accounts receivable at December 31, 1998
and three customers accounted for 48% of our outstanding accounts receivable at
June 30, 1999. We expect that some of these entities may continue to account
for a significant percentage of our revenues for the foreseeable future.
Advertisers typically purchase advertising that runs for a limited time under
short-term arrangements ranging from 30 days to one year. None of our clients
is currently purchasing our advertising services under a long-term contract.
Current advertisers may not continue to purchase advertising from us or we may
not be able to successfully attract additional advertisers. In addition, the
non-payment or late payment of amounts due to us from a significant advertiser
or ad agency could harm our financial condition.
If we fail to establish, maintain and expand our business and marketing
alliances, our ability to grow could be limited, we may not achieve desired
revenues, and our stock price may decline.
In order to grow our business, we must generate, retain and strengthen
successful business and marketing alliances with companies in industries
including:
. Internet and traditional media advertising;
. enterprise software;
. Web site development and consulting;
. information technology consultants.
We depend, and expect to continue to depend, on our business and marketing
alliances to refer business from their clients and customers to us. If
companies with which we have business and marketing alliances do
8
<PAGE>
not refer their clients and customers to us to perform their online campaign
and message management, our revenues and results of operations would be
severely harmed. We currently expect that a significant amount of our future
revenues will need to be generated through these relationships. In addition, if
companies with which we have business and marketing alliances do not provide
high quality products and services to our mutual clients, our sales could
suffer. We have little control over the amount of resources these companies
will devote to online advertising or referring their clients to our services.
We may not be able to generate and maintain adequate relationships to offset
the significant resources that are necessary to develop marketing efforts to
reach clients of our business and marketing alliances.
Our MOJO technology is relatively new and untested; if our MOJO technology does
not perform as anticipated, we would need to devote significant resources to
address defects, and our reputation would be damaged.
Our MOJO technology is complex and has had, and may have in the future,
errors, defects or performance problems. In particular, we may encounter
problems when it is more broadly used or when it is updated to expand and
enhance its capabilities. We began using our MOJO technology to provide
advertising and direct marketing services in April 1999. Although we have
internally tested our MOJO technology extensively, we have deployed it in
connection with only two message management campaigns to date. Consequently,
our technology may still malfunction or suffer from design defects. If our
technology malfunctions or contains such defects, our services may not be
reliable or compatible in certain online environments used by our clients. In
such instances, we would need to devote significant resources to address these
defects, and any problems could result in lost revenues and damage to our
reputation.
If our MOJO technology suffers from design defects, we may need to expend
significant resources to address resulting product liability claims.
Our business will be harmed if our MOJO technology suffers from design
defects and, as a result, we become subject to significant product liability
claims. Technology as complex as ours may contain design defects which are not
detectable even after extensive internal testing. Such defects may become
apparent only after widespread commercial use. Our contracts with our clients
currently do not contain provisions to limit our exposure to liabilities
resulting from product liability claims. We currently do not carry any
insurance against product liabilities. Although we have not experienced any
product liability claims to date, we cannot assure you that we will not do so
in the future. Any product liability claim brought against us could materially
harm our business.
If we fail to effectively manage our growth, our management and resources could
be strained and our ability to capture new business could suffer.
We have grown significantly since our inception and expect to grow quickly in
the future. Future expansion could be expensive and strain our management and
other resources.
As we continue to increase the scope of our operations, we will need an
effective planning and management process to implement our business plan
successfully in the rapidly evolving market for Internet advertising. Our
failure to manage this growth could seriously harm our business. We have
increased our number of employees from 7 at September 30, 1998 to 109 at
September 30, 1999. In addition, we have recently opened a sales office in
Germany and we anticipate that we will further expand international operations
in late 1999.
. hire, train and integrate new personnel;
. augment our financial and accounting systems;
. expand and manage our sales operations, which are in several locations;
and
. expand our facilities.
9
<PAGE>
The loss of our key personnel, including our chief executive officer, president
and chief operating officer, or any inability to attract and retain additional
personnel, could affect our ability to grow our business.
Our future success depends to a significant extent on the continued service
of our key senior management, technical and professional service and support
personnel. The loss of the services of any member of our management team, in
particular our chief executive officer, president and chief operating officer,
would harm our business. Because many of our executives, including our chief
financial officer, have only recently joined us, our management team has only
worked together for a short time and may not work effectively together. We
would also be harmed if one or more of our officers or key employees decided to
join a competitor or otherwise compete with us.
Our future success also depends on our continuing ability to attract, retain
and motivate highly skilled employees. Competition for qualified personnel in
the high technology industry is intense, particularly in the San Francisco Bay
region of Northern California, where our principal offices are located. If we
fail to hire and retain a sufficient number of sales, marketing, technical,
service and support personnel, we will not be able to maintain or expand our
business.
Our sales and implementation cycle is lengthy, which could divert our financial
and other resources, and is subject to delays, which could result in delayed
revenues.
If the sales and implementation cycle of our services is delayed, our
revenues will likewise be delayed. Our sales and implementation cycle is
lengthy, causing us to recognize revenues long after our initial contact with a
client. During our sales effort, we spend significant time educating
prospective clients on the use and benefit of our campaign and message
management services. As a result, the sales cycle for our products and services
is long, ranging from a few weeks to several months for our larger clients. The
sales cycle for our new message management services is likely to be longer than
the sales cycle for our other current campaign management services because we
believe that clients may require more extensive approval processes related to
integrating internal business information with their online advertising
campaigns. In addition, in order for a client to implement our services, the
client must commit a significant amount of resources over an extended period of
time. Furthermore, even after a client purchases our services, the
implementation cycle is subject to delays. These delays may be caused by
factors within our control, such as possible technology defects, as well as
those outside our control, such as clients' budgetary constraints, internal
acceptance reviews and the complexity of clients' online advertising needs.
If we are unable to develop relationships with suppliers of profiling services
or obtain or develop profiling technology, we may not be able to attract new
clients or retain our existing clients, which could limit our growth.
In order for our services to be effective, we rely on the technology of
third-party vendors that implement technologies, called profiling technologies,
which can identify the particular audience to be targeted with an advertising
message. If we are unable to develop relationships with suppliers of profiling
services or obtain or develop profiling technology, our clients will not be
able to realize the full potential that our services and technology offer. As a
result, our ability to attract new clients will be hampered and we may lose
clients. We cannot assure you that we can obtain or develop profiling
technology in a cost-effective and timely manner, if at all.
Sustained or repeated system failures could significantly disrupt our
operations, cause client dissatisfaction and reduce our revenues.
The continuing and uninterrupted performance of our computer systems is
critical to our success. Our operations depend on our ability to protect our
computer systems against damage from fire, power loss, water damage,
telecommunications failures, viruses, vandalism and other malicious acts, and
similar unexpected adverse events, including earthquakes. Although we maintain
system backup and auxiliary systems to mitigate
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the damage from the occurrence of any of these events, we may not have taken
adequate steps to guard against every difficulty that could occur. Clients may
become dissatisfied by any system failure that interrupts our ability to
provide our services to them, including failures affecting the ability to
deliver advertisements quickly and accurately to the targeted audiences.
Sustained or repeated system failures would reduce significantly the
attractiveness of our solutions to advertisers.
In addition, interruptions in our services could result from the failure of
our telecommunications providers to provide the necessary data communications
capacity in the time frame required. Our ad network operations and computer
hardware is primarily housed at Verio, Inc. and AboveNet Communications, Inc.,
third-party providers of Internet communication services located in San
Francisco and San Jose, California, respectively. In addition, the failure of
any advertising server system such as ours or DoubleClick's, including failures
that delay the delivery of advertisements to Internet sites, could reduce
client satisfaction and severely harm our business, results of operations and
financial condition.
In the past, users have occasionally experienced difficulties due to software
incompatibility or system failures unrelated to our systems. In particular, on
two occasions our network operations and computer hardware located in San
Francisco experienced power failures that affected our ability to deliver our
ad serving services for fifteen minutes and one hour, respectively. On another
occasion, the same facility had network routing problems that caused a high
number of retries to serve ads, which slowed down our ad serving operations.
Although these disruptions have not had a material effect on our business, any
further disruption in the Internet access provided by third-party providers or
any failure of third-party providers to handle higher volumes of user traffic
could seriously harm our business, results of operations and financial
condition.
Our technology has not yet been fully tested at higher capacities, and capacity
constraints could reduce our advertising revenues.
The volume of advertising delivered through our servers has increased from 1
million impressions per day in January 1999 to up to 36 million impressions per
day as of September 1999. Although to date we have not had difficulties in
meeting demand for our services, further increases in the volume of advertising
delivered through our servers could strain the capacity of our MOJO technology
platform, which could lead to slower response times or system failures. This
would adversely affect the availability of advertisements, the number of
impressions received by advertisers and our advertising revenues. If we do not
effectively address capacity constraints or system failures, our business,
results of operations and financial condition would be harmed.
Acquisitions or strategic investments may divert our management's attention and
consume resources necessary to sustain our business.
In March 1999, we acquired Netranscend Software, Inc., a Java-based
enterprise automation solutions software company. We intend to continue
pursuing selective acquisitions of businesses and technologies to complement
our current business. Any future acquisition or investment may result in the
use of significant amounts of cash, potentially dilutive issuances of equity
securities, the incurrence of debt, and amortization expenses related to
goodwill and other intangible assets. In addition, acquisitions involve
numerous risks, any of which could harm our business, operating results or
financial condition including:
. difficulties in the integration and assimilation of the operations,
technologies, services and personnel of an acquired business;
. diversion of management's attention from other business concerns;
. unavailability of favorable financing for future acquisitions; and
. potential loss of key employees in any acquired business.
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The patent application related to our MOJO technology is pending; if a patent
does not issue, we may not be able to prevent competitors from using our
technology.
In July 1999, we filed a patent application related to our key proprietary
technology platform, MOJO, with the U.S. Patent and Trademark Office. Our
application is currently being reviewed by the U.S. Patent and Trademark
Office, and we have no assurance that a patent will issue. If no patent issues,
we will rely primarily on trade secret law to protect our MOJO technology,
which may be more difficult to monitor and enforce. Even if we are issued a
patent, third parties could successfully design around the patent to offer a
competing service, and we could still be subject to claims of infringement from
third parties.
If we fail to develop new technology-based services or improve our existing
technology-based services to adapt to the changing needs and standards of the
Internet advertising industry, sales of our services will decline.
The Internet advertising markets are characterized by rapidly changing
technologies, evolving industry standards, frequent new product and service
introductions and changing client demands. The introduction of new services
embodying new technologies and the emergence of new industry standards and
practices could render our existing services obsolete and unmarketable or
require unanticipated investments in research and development. Our failure to
adapt successfully to these changes could harm our business, results of
operations and financial condition.
Our future success will depend on our ability to adapt to rapidly changing
technologies, to enhance existing technologies and to partner or develop and
introduce a variety of new technology-based services to address our clients'
changing demands. For example, advertisers may require the ability to deliver
advertisements utilizing new rich media formats and more precise consumer
targeting techniques. In addition, increased availability of broadband Internet
access is expected to enable the development of new services that take
advantage of this expansion in delivery capability. We may also experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our technology-based services. In addition, any
new technologies or enhancements that we develop must meet the requirements of
our current and prospective clients and must achieve significant market
acceptance. Material delays in introducing new technology-based services and
enhancements may cause clients to forego purchases of our services and purchase
those of our competitors.
A key component of our strategy is to enhance the return on investment and
other performance measurements for our advertiser and advertising agency
clients. We have limited experience in implementing and following such a
strategy and this strategy may not succeed.
We intend to expand our international sales efforts but do not have substantial
experience in international markets.
We opened a sales office in Germany in August 1999 and expect to initiate
operations in selected additional international markets in 2000. As of
September 30, 1999, we had not generated any revenues from international
operations. We have limited experience in marketing, selling and supporting our
services abroad, and we consequently may not be successful in these
international markets. Expansion into international markets will require
extensive management attention and resources.
We also may enter into a number of international alliances as part of our
international strategy and rely on these prospective business alliances to
conduct operations, establish local networks, aggregate Internet sites and
coordinate sales and marketing efforts. Our success in international markets
will depend on the success of our business alliances and their willingness to
dedicate sufficient resources to our relationships. International operations
are subject to other inherent risks, including:
. difficulties and costs of staffing and managing foreign operations;
. seasonal reductions in business activity;
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<PAGE>
. the impact of recessions in economies outside the United States;
. changes in regulatory requirements;
. export restrictions, including export controls relating to encryption
technology;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences;
. political and economic instability;
. tariffs and other trade barriers; and
. fluctuations in currency exchange rates.
Our failure to address these risks adequately may severely harm our business.
If others claim that we are infringing their intellectual property, we could
incur significant expenses or be prevented from selling our services.
Third parties may claim that we are infringing their intellectual property
rights. In particular, third parties may claim that our MOJO technology, on
which our success depends in large part, infringes their intellectual property
rights. While we do not believe that our technology infringes the proprietary
rights of third parties, we may be unaware of intellectual property rights of
others that may cover some of our technology. If any claims of infringement are
brought against us, we could incur significant expenses defending against those
claims, and suffer additional damages if our defense is not successful.
Any litigation regarding our intellectual property could be costly and time-
consuming and divert the attention of our management and key personnel from our
business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into royalty
or license agreements; however, we may not be able to obtain royalty or license
agreements on terms acceptable to us, or at all. We also may be subject to
significant damages or an injunction against the use of our services. A
successful claim of patent or other intellectual property infringement against
us would immediately harm our business and financial condition.
We may not be able to protect our technology from unauthorized use, which could
diminish the value of our services, weaken our competitive position and reduce
our revenues.
Our success depends in large part on our proprietary technology, including
our MOJO platform. In addition, we believe that our Mediaplex and MOJO
trademarks are key to identifying and differentiating our services from those
of our competitors. We may be required to spend significant resources to
monitor and police our intellectual property rights. If we fail to successfully
enforce our intellectual property rights, the value of our services could be
diminished and our competitive position may suffer.
We rely on a combination of patent, copyright, trademark and trade secret
laws, confidentiality procedures and licensing arrangements to establish and
protect our proprietary rights. Third-party software providers could copy or
otherwise obtain and use our technology without authorization or develop
similar technology independently which may infringe our proprietary rights. We
may not be able to detect infringement and may lose competitive position in the
market before we do so. In addition, competitors may design around our
technology or develop competing technologies. Intellectual property protection
may also be unavailable or limited in some foreign countries.
We generally enter into confidentiality or license agreements with our
employees, consultants, vendors, clients and corporate partners, and generally
control access to and distribution of our technologies,
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documentation and other proprietary information. Despite these efforts,
unauthorized parties may attempt to disclose, obtain or use our services or
technologies. Our precautions may not prevent misappropriation of our services
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.
Potential year 2000 problems with our internal systems or third-party systems
could disrupt operations and harm our business.
We and our clients depend, to a substantial degree, upon the proper
functioning of computer systems. A failure of these systems to correctly
recognize dates beyond December 31, 1999 could disrupt operations and harm our
business. In the worst case, any failure in the Internet infrastructure could
prevent us from serving advertisements for our clients for a period of time,
resulting in lower revenues and client complaints. We currently do not have any
special contingency plans for a failure of the Internet infrastructure due to
year 2000 issues. A lengthy Internet infrastructure failure could materially
harm our business, financial condition and results of operations.
Many currently installed computer systems and software products worldwide are
coded to accept only two-digit entries to identify a year in the date code
field. Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they are not able to distinguish between the year 1900 and
the year 2000. Accordingly, many companies, including ourselves and our
clients, potential clients, vendors and business and marketing alliances, may
need to continue to upgrade their systems to comply with applicable year 2000
requirements.
Additionally, our failure to provide year 2000 compliant services to our
clients could result in financial loss, reputational harm and legal liability
to us. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
Risks Related to Our Industry
Future restrictions or regulations related to privacy concerns and inadequate
security on the Internet could limit the effectiveness of and reduce the demand
for our services and technology.
The effectiveness of our services and technology rely on the effectiveness of
techniques for profiling Internet users, which may raise privacy concerns. Our
clients generally have implemented security features to protect the privacy and
integrity of the data collected from their users. However, this data may be
susceptible to hacker interception, break-ins and disruption. If any of these
were to occur, or if a well-publicized compromise of security were to occur,
Internet usage may not increase at the rate we expect, and consequently, our
services would be perceived as less effective or desirable by our clients.
Visitors to Web sites on which our advertising messages are placed may not be
aware that data regarding them is being collected by third-party data profiling
companies. There currently exists software that can limit the effectiveness of
data profiling technology from capturing information for a particular viewer to
a Web site. Widespread use of this limiting or inhibiting technology would
decrease the effectiveness of our services for our clients, that are dependent
upon the reliability of the information we obtain from profiling companies,
which would decrease the attractiveness of those services to our clients. If
this occurs, our business would be significantly harmed.
In addition, due to privacy concerns, some Internet commentators, advocates
and governmental bodies have suggested that the use of some of these techniques
for profiling users be limited or eliminated altogether. It is possible in the
future that federal, state or other governmental entities may restrict the
gathering and use of such profile information. If the gathering of profiling
information were to be curtailed in any way, our services would be less
effective, which would harm our business.
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The European Union has recently adopted a directive addressing data privacy
that may result in limitations on the collection and use of certain information
regarding Internet users. These limitations may limit our ability to target
advertising or collect and use information in most European countries. Since
most EU member states have not implemented regulations with respect to the
directive at this time, we cannot yet determine the impact of the directive on
us. However, we are aware that Germany, in particular, has adopted significant
restrictions on the use of some kinds of profiling techniques, including
techniques third party profiling companies, on which we rely for data, often
use. Widespread adoption of these kinds of restrictions in other European or
other countries could decrease our ability to provide our advertising and
direct marketing services effectively in those countries, which would hamper
our ability to expand our operations internationally.
Our business model and ability to generate significant revenues depend upon
broad market acceptance of Internet advertising.
Our business model relies on revenues generated primarily by providing
Internet advertising services to response-oriented advertisers. The Internet as
an advertising medium has not been in existence for a sufficient period of time
to demonstrate its effectiveness. Internet banner advertising, response-
oriented marketing and other types of Internet advertising, as well as
technology-based methods for targeting advertising and tracking, measuring and
reporting the results of Internet advertising may not achieve broad market
acceptance. Our ability to generate significant revenues from advertisers will
depend, in part, on our ability to:
. demonstrate to advertisers that banner advertising and direct response
advertising on the Internet will add value and increase marketing
effectiveness;
. attract and retain advertisers and advertising agencies by
differentiating the services and technology we offer; and
. obtain adequate available advertising inventory from a large base of
Internet sites.
There are filter software programs available that limit or prevent
advertising from being delivered to a user's computer. The commercial viability
of Internet advertising would be limited by widespread adoption of these
programs.
Intense competition in the Internet advertising industry could reduce our
ability to gain clients and might require us to reduce prices, which could
reduce our revenues.
We face intense competition in the Internet advertising services industry.
The following categories represent current and potential competition:
. providers of online media planning and buying services, such as Avenue A;
. ad serving companies, such as AdForce, DoubleClick and Engage
Technologies, Inc.;
. publisher networks that provide services directly to clients, such as
Flycast Communications and 24/7 Media, Inc.;
. organizations that manage affiliate programs, such as LinkShare; and
. advertising agencies with in-house online media management capabilities,
such as Lowe Interactive.
We believe that our ability to compete depends upon many factors both within
and outside of our control, including:
. the effectiveness, ease of use, performance and features of our
technology;
. client perceptions of the effectiveness of our services and technology;
. the price of our services;
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. our ability to service our clients effectively over a broad geographic
basis; and
. the timing and acceptance of new services and enhancements to existing
solutions developed by us or our competitors.
The intense competition among Internet sites has led to the creation of a
number of pricing alternatives for Internet advertising. These alternatives
make it difficult for us to project future levels of advertising revenues and
applicable gross margins that can be sustained either by us or the Internet
advertising industry in general.
We expect competition to continue to increase in our industry because there
are no substantial barriers to entry. Competition may also increase as a result
of industry consolidation. Companies doing business on the Internet, including
ours, must also compete with television, radio, cable and print media for a
share of advertisers' total advertising budgets. Advertisers may be reluctant
to devote a significant portion of their advertising budget to Internet
advertising if they perceive the Internet to be a limited or ineffective
advertising medium. In addition, as we expand the scope of our Internet
advertising and direct marketing services, we may compete with a greater number
of Internet sites and other media companies across a wide range of different
Internet services. Competitive pressures could prevent us from growing, reduce
our market share or require us to reduce prices on our services, any of which
could harm our business.
Many of our existing competitors have significantly greater financial,
technical, marketing, service and other resources, have a larger installed base
of users, have been in business longer or have greater name recognition than we
do. Some of our competitors' services may be more effective than our services
at performing particular functions or be more customized for particular needs.
Some large companies may attempt to build functions into their services that
are similar to functions of our services. Even if these functions are more
limited than those provided by our services, those services could discourage
potential clients from purchasing our services, as well as lead to price
reductions that could harm our revenues. In addition, companies larger than
ourselves may be more successful in purchasing advertising space.
Seasonality and cyclical spending may cause fluctuations in our quarterly
revenue, which may cause us to miss our projected revenue and result in a
decline in our stock price.
We believe that our revenues will be subject to seasonal fluctuations because
advertisers generally place fewer advertisements during the first and third
calendar quarters of each year. In addition, expenditures by advertisers tend
to be cyclical, reflecting overall economic conditions as well as budgeting and
buying patterns. A decline in the economic prospects of advertisers or the
economy generally could cause companies to discontinue, delay or reduce online
advertising spending. These events could reduce the demand for our services and
cause a decline in our stock price.
Potential clients in specific industries may require us to refuse business from
their competitors, limiting our business opportunities and stunting our revenue
growth.
To use our services most effectively, advertisers must integrate their
internal business data into their advertising campaigns to deliver a targeted
message. This type of integration may raise privacy concerns and prompt our
clients to require us to contract with them exclusively within their specific
industry. If our clients impose these restrictions on us, our potential client
base and revenue growth would be limited.
To fully utilize our MOJO-based services, we must have access to our clients'
proprietary enterprise data. Many companies are wary of third parties having
access to their enterprise business information, because access by third
parties increases the risk that confidential enterprise data may become known,
even if unintentionally, to outsiders that are not the intended recipients of
the data. These privacy concerns may be so great as to prompt our clients to
attempt to contractually prohibit us from managing the online advertising
campaigns of their competitors. If our potential client base in a particular
industry was limited in this way, our
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business and future revenues could be harmed. To date, a few clients have
requested that we do not service their competitors; however, we have not agreed
to these requests. To address our clients' concerns, we have established
procedures to ensure the protection of our clients' data, such as the use of
separate teams to work with each client and the use of separate, secure servers
for clients' advertising and message campaigns where a conflict may exist.
However, we cannot assure you that these measures will be adequate for our
client to continue to use our services.
Government regulation and legal uncertainties of doing business on the Internet
may inhibit the commercial acceptance of the Internet and result in decreased
demand for our services.
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the
costs of communicating on the Internet and adversely affect the growth in use
of the Internet. In turn, these regulations could result in decreased demand
for our services or otherwise harm our business.
Recently, the United States Congress enacted Internet legislation regarding
children's privacy, copyrights and taxation. A number of other laws and
regulations may be adopted covering issues such as user privacy, pricing,
acceptable content, taxation and quality of products and services. This
legislation could hinder growth in the use of the Internet generally and
decrease the acceptance of the Internet as a communications, commercial and
advertising medium. In addition, the growing use of the Internet has burdened
existing telecommunications infrastructure and has caused interruptions in
telephone service. Certain telephone carriers have petitioned the government to
regulate and impose fees on Internet service providers and online service
providers in a manner similar to long distance carriers.
Due to the global nature of the Internet, it is possible that, while our
transmissions originate in California, the governments of other states or
foreign countries might attempt to regulate our transmissions or levy sales or
other taxes relating to our activities. The laws governing the Internet remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws including those
governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising. In addition, the growth and development of
the market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet. Our
business could be adversely affected by the adoption or modification of laws or
regulations relating to the Internet.
Spending by our clients to evaluate and address year 2000 compliance could
result in lower demand for our services.
In 1999, a significant number of companies, including some of our current
clients, may be required to devote a substantial amount of their information
technology resources to test systems for year 2000 compliance and fix existing
year 2000 problems. If these clients also defer purchases of our services until
year 2000 problems have been resolved, it will depress our sales in the near
term.
Additional Risks That May Affect Our Stock Price
Because our directors and executive officers together own a large percentage of
our voting stock, your voting power may be limited, which may prevent an
acquisition of our company or depress our stock price.
After this offering, it is anticipated that our executive officers and
directors will beneficially own or control, directly or indirectly, 18,914,738
million shares of common stock, which in the aggregate will represent
approximately 53.7% of the outstanding shares of common stock. As a result, if
these persons act together, they will have the ability to control all matters
submitted to our stockholders for approval, including the election and removal
of directors and the approval of any business combination. This may delay or
prevent an acquisition or affect the market price of our stock.
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As a new investor, you will experience immediate and substantial dilution of
your investment.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution in pro forma net tangible book
value of $6.73 per share. If the holders of outstanding options and warrants
exercise those options, you will experience further dilution.
An active public market for our common stock may not develop, which could
impede your ability to sell your shares and depress our stock price.
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 fall below the initial public offering price.
Future sales of our common stock, including those purchased in this offering,
may depress our stock price.
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. Based on shares outstanding as of
September 30, 1999, upon completion of this offering we will have outstanding
30,717,365 shares of common stock, assuming no exercise of the underwriters'
overallotment option. Of these shares, the 6,000,000 shares of common stock
sold in this offering and an additional 55,000 shares of common stock will be
freely tradable, without restriction, in the public market. An additional
75,814 shares of common stock will become freely tradeable 90 days from the
date of this prospectus. After the lockup agreements pertaining to this
offering expire 180 days from the date of this prospectus, an additional
15,826,551 shares will be eligible for sale in the public market.
In addition, the 4,968,885 shares subject to outstanding options and warrants
will be exercisable, and if exercised, available for sale 180 days after the
date of this prospectus. See "Shares Eligible for Future Sale" for a
description of shares of common stock that are available for future sale.
We have adopted anti-takeover provisions in our charter documents that could
delay or prevent an acquisition of our company.
Our certificate of incorporation and bylaws contain provisions, such as
undesignated preferred stock, a staggered board and the restriction on the
persons that can call special board or stockholder meetings, which could make
it more difficult for a third-party to acquire us without the consent of our
board of directors. While we believe these provisions provide for an
opportunity to receive a higher bid by requiring potential acquirors to
negotiate with our board of directors, these provisions may apply even if the
offer may be considered beneficial by some stockholders.
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USE OF PROCEEDS
Our net proceeds from the sale of the 6,000,000 shares of common stock
offered in this offering at an assumed initial public offering price of $9.00
per share, after deducting the estimated underwriting discount and offering
expenses payable by us will be approximately $49.2 million. If the
underwriters' over-allotment option is exercised in full, our net proceeds will
be approximately $56.7 million.
We expect to use approximately $7.5 million of the net proceeds for capital
expenditures and the majority of the net proceeds for working capital and other
general corporate purposes. In addition, we may use a portion of the net
proceeds to acquire complementary products, technologies or businesses;
however, we currently have no commitments or agreements and are not involved in
any negotiations to do so.
Pending use of the net proceeds of this offering, we intend to invest the net
proceeds in short-term, interest-bearing, investment-grade marketable
securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. Our
capitalization is presented:
. on an actual basis;
. on a pro forma basis to give effect to the sale of 4,000,000 shares of
convertible preferred stock subsequent to June 30, 1999 for gross
proceeds of $14.4 million and the automatic conversion of all outstanding
shares of convertible preferred stock into shares of common stock
effective upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of the 6,000,000 shares of common stock
offered in this offering at an assumed initial public offering price of
$9.00 per share and after deducting the estimated underwriting discount
and offering expenses payable by us.
<TABLE>
<CAPTION>
June 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt.................................. $ 263 $ 263 $ 263
------- ------- -------
Stockholders' equity:
Convertible preferred stock, $.0001 par value,
8,206,000 shares authorized, 5,706,000 issued
and outstanding, actual; 10,000,000 shares
authorized, no shares issued or outstanding,
pro forma and pro forma as adjusted............ $ 1 -- --
Common stock, $.0001 par value; 40,000,000
shares authorized, 14,838,865 shares issued and
outstanding, actual; 150,000,000 shares
authorized, 24,544,865 shares issued and
outstanding, pro forma; 150,000,000 shares
authorized, 30,544,865 shares issued and
outstanding, pro forma as adjusted............. 1 2 3
Additional paid-in capital...................... 20,239 34,639 83,808
Warrants........................................ 757 757 757
Deferred stock compensation..................... (3,232) (3,232) (3,232)
Receivable from sale of Series B preferred
stock.......................................... (240) (240) (240)
Accumulated deficit............................. (8,578) (8,578) (8,903)
------- ------- -------
Total stockholders' equity...................... 8,623 23,023 72,193
------- ------- -------
Total capitalization.......................... $ 8,886 $23,286 $72,456
======= ======= =======
</TABLE>
In addition to the 30,544,865 shares of common stock to be outstanding after
this offering, as of the closing of this offering and based on the number of
shares issued and options and warrants granted as of June 30, 1999, we expect
to have additional shares of common stock available for issuance under the
following plans and arrangements:
. 12,243,000 shares issuable under our stock option plans, consisting of:
. 8,625,698 shares underlying options outstanding at a weighted average
exercise price of $0.56 per share, of which 4,704,435 were exercisable;
and
. 3,617,302 shares available for future issuance;
. 875,000 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $0.97 per share; and
. 400,000 shares available for issuance under our 1999 Employee Stock
Purchase Plan.
Please read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements included in this prospectus.
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DILUTION
As of June 30, 1999, our net tangible book value, on a pro forma basis to
give effect to the sale of 4,000,000 shares of our convertible preferred stock
subsequent to June 30, 1999 for gross proceeds of $14.4 million and the
conversion of our preferred stock into common stock at the closing of this
offering, was $20.2 million, or $0.83 per share of common stock. "Net tangible
book value" per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities, divided by the number of shares
of common stock outstanding. As of June 30, 1999, our net tangible book value,
on a pro forma basis as adjusted for the sale of the 6,000,000 shares offered
in this offering at an assumed initial public offering price of $9.00 per share
and after deducting the estimated underwriting discount and offering expenses
payable by us, would have been approximately $2.27 per share. This represents
an immediate increase of $1.44 per share to existing stockholders and an
immediate dilution of $6.73 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $9.00
Pro forma net tangible book value per share as of June 30, 1999.... $0.83
Increase per share attributable to new investors................... 1.44
-----
Pro forma net tangible book value per share after the offering...... $2.27
-----
Dilution per share to new investors................................. $6.73
=====
</TABLE>
The following table summarizes, as of June 30, 1999, on the pro forma basis
described above, the differences between the total consideration paid and the
average price per share paid by our existing stockholders and the new investors
with respect to the number of shares of common stock purchased from us, based
on an assumed initial public offering price of $9.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ---------------------- Price
Number Percentage Amount Percentage Per Share
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 24,544,865 80.4% $20,240,901 27.3% $ 0.82
New investors........... 6,000,000 19.6 54,000,000 72.7 $ 9.00
---------- ----- ----------- -----
Total.................. 30,544,865 100.0% $74,240,901 100.0%
========== ===== =========== =====
</TABLE>
In addition to the 30,544,865 shares of common stock outstanding after this
offering, as of the closing of this offering and based on the number of shares
issued and options and warrants granted as of June 30, 1999, we expect to have
additional shares of common stock available for issuance under the following
plans and arrangements:
. 12,243,000 shares issuable under our stock option plans, consisting of:
. 8,625,698 shares underlying options outstanding at a weighted average
exercise price of $0.56 per share, of which 4,704,435 were exercisable;
and
. 3,617,302 shares available for future issuance;
. 875,000 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $0.97 per share; and
. 400,000 shares available for issuance under our 1999 Employee Stock
Purchase Plan.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included elsewhere
in this prospectus. The balance sheet data as of December 31, 1997 and 1998 and
June 30, 1999 and the statement of operations data for the period from
September 10, 1996 (inception) to December 31, 1996, the years ended December
31, 1997 and 1998 and the six months ended June 30, 1999 have been derived from
our audited financial statements and related notes included elsewhere in this
prospectus. The statement of operations data for the six months ended June 30,
1998 are derived from our unaudited interim financial statements included
elsewhere in this prospectus. The balance sheet data as of December 31, 1996 is
derived from audited financial statements not included in this prospectus. In
management's opinion, the unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results of operations for such periods. Historical
results are not necessarily indicative of the results to be expected in the
future, and the results of interim periods are not necessarily indicative of
results for the entire year.
<TABLE>
<CAPTION>
September 10,
1996
(inception) Years Ended Six Months Ended
to December 31, June 30,
December 31, ---------------------- -----------------------
1996 1997 1998 1998 1999
------------- ---------- ---------- ---------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 426 $ 3,588 $ 1,522 $ 7,323
Cost of revenues........ -- 445 2,771 1,213 5,762
---------- ---------- ---------- ---------- -----------
Gross profit (loss).... -- (19) 817 309 1,561
---------- ---------- ---------- ---------- -----------
Operating expenses:
Sales and marketing.... 23 481 820 395 1,647
Research and
development........... 49 347 556 220 815
General and
administrative........ 31 256 635 325 1,082
Stock-based
compensation.......... 152 11 578 151 3,291
Amortization of
goodwill and
intangibles........... -- -- -- -- 251
---------- ---------- ---------- ---------- -----------
Total operating
expenses............. 255 1,095 2,589 1,091 7,086
---------- ---------- ---------- ---------- -----------
Loss from operations.... (255) (1,114) (1,772) (782) (5,525)
Interest income
(expense), net......... -- (3) (247) (234) 14
---------- ---------- ---------- ---------- -----------
Net loss................ $ (255) $ (1,117) $ (2,019) $ (1,016) $ (5,511)
========== ========== ========== ========== ===========
Net loss per share--
basic and diluted...... $ (0.07) $ (0.13) $ (0.25) $ (0.11) $ (0.46)
========== ========== ========== ========== ===========
Weighted average shares
outstanding............ 3,795,714 8,457,464 8,186,127 9,408,557 12,070,449
========== ========== ========== ========== ===========
Pro forma net loss per
share--basic and
diluted................ $ (0.25) $ (0.41)
========== ===========
Weighted average shares
used to compute
pro forma net loss per
share--basic and
diluted................ 8,186,127 13,501,001
========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------- June 30,
1996 1997 1998 1999
---- ----- ------- --------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $ 27 $ 142 $ 375 $ 7,602
Working capital.................................. (46) (586) (1,863) 5,010
Total assets..................................... 52 262 1,444 15,430
Long-term debt .................................. -- 65 232 263
Shareholders' equity (deficit):.................. (22) (558) (1,962) 8,623
</TABLE>
22
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
On March 25, 1999, we acquired Netranscend Software, Inc., a Java-based
enterprise automation solutions software company. The acquisition was accounted
for using the purchase method of accounting and, accordingly, the purchase
price was allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their fair values on the acquisition date.
The following unaudited pro forma statement of operations data reflect the
acquisition of Netranscend Software, Inc. as if the acquisition had occurred on
January 1, 1998. The pro forma statement of operations data may not be
indicative of the results of operations had the acquisition actually occurred
on January 1, 1998, nor do they purport to indicate our future results of
operations.
<TABLE>
<CAPTION>
Year Ended
December 31,
1998
--------------
(in thousands,
except share
and per share
data)
<S> <C>
Pro Forma Statement of Operations Data:
Revenues....................................................... $ 3,588
Cost of revenues............................................... 2,771
----------
Gross profit.................................................. 817
----------
Operating expenses:
Sales and marketing........................................... 819
Research and development...................................... 557
General and administrative.................................... 645
Stock-based compensation...................................... 578
Amortization of goodwill and intangibles...................... 1,003
----------
Total operating expenses..................................... 3,602
----------
Loss from operations........................................... (2,785)
Interest income (expense), net................................. (247)
----------
Net loss....................................................... $(3,032)
==========
Pro forma net loss per share--basic and diluted (1)............ $ (0.30)
==========
Weighted average shares used to compute pro forma net loss per
share--basic and diluted (1).................................. 10,165,127
==========
</TABLE>
- --------
(1) See Note B of Notes to Pro Forma Financial Information for a description of
the method used to compute basic and diluted pro forma net loss per share.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read together with the financial statements and related notes that
are included later in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those set forth under "Risk Factors" or in
other parts of this prospectus.
Overview
We provide technology-based advertising and marketing services for companies
and advertising agencies that seek to optimize their Internet marketing
campaigns. Although we were incorporated in September 1996, we did not begin
offering our advertising campaign management services until April 1998. Before
April 1998, we operated under a different business model, which generated
revenues primarily from the sale of advertising space on two Web sites formerly
operated by us which delivered sports and business news and information. We
decided to cease the operation of these sites because we determined that the
sites were not generating satisfactory operating results and because we
believed that our present business model represented a superior opportunity.
During the first half of 1998, we devoted most of our resources to developing
our new business plan and technology and establishing our technical and sales
organizations.
In the second quarter of 1998, we began generating revenues from our
advertising campaign management services, and since the fourth quarter of 1998
we have derived substantially all of our revenues from this source. Our
campaign management services include planning the online campaign, coordinating
the online and offline portions of the campaign, purchasing and placing online
media, and tracking, analyzing and reporting the results of the media campaign.
In the second quarter of 1999, we began utilizing our mobile Java objects, or
MOJO, architecture to enhance our service offerings and expand our business. We
plan to broaden our revenue sources by leveraging the capabilities of our MOJO
architecture to offer message management services, which will allow advertisers
to integrate their internal business information into an online advertising
campaign and to tailor their advertising messages or offers in real time. To
date, we have not generated significant revenues from message management
services.
We currently provide advertising campaign management services for a fixed
fee, which varies from client to client. This fee is principally based on the
extent of services provided and the direct cost of media placement. This cost
of purchasing advertising space on an Internet site is typically determined by
the cost per thousand impressions. Revenues from advertising campaign
management services are recognized in the period that advertising impressions
are delivered, or placed on an Internet site, provided that no significant
obligations on our part remain at the end of the period and the collection of
the resulting receivable is probable. Our obligations often include, for
instance, guarantees of a minimum number of impressions. To the extent that
significant obligations remain, we defer recognition of the corresponding
portion of the revenues until these obligations are met.
Cost of revenues consists primarily of the cost of procuring advertising
space on third-party Internet sites and, to a lesser extent, of the
telecommunications and other costs related to maintaining our ad servers at
third-party locations. These costs are recorded in the period that the
advertising impressions are delivered and the related revenues are recorded.
Currently, we purchase advertising space on Internet sites for a particular
media campaign. In the future, we may enter into purchase commitments to obtain
advertising space in bulk without a particular media campaign identified in
order to obtain more favorable pricing.
To date, we have expensed all of our research and development costs in the
period in which we incur these costs. The period from achievement of
technological feasibility to the general availability of our software to
clients has been short, and therefore software development costs qualifying for
capitalization have been insignificant.
24
<PAGE>
In March 1999, we acquired Netranscend Software, Inc., a Java-based
enterprise automation solutions software company, for a note payable of
$430,000, due in four annual installments beginning in March 2000, and
1,979,000 shares of common stock. This acquisition was accounted for under the
purchase method of accounting. We recorded $3.0 million of goodwill and other
identifiable intangible assets in connection with this acquisition, which are
being amortized over a three-year period.
We have a limited operating history upon which you may evaluate our business
and prospects. We incurred net losses of $255,000 in 1996, $1.1 million in
1997, $2.0 million in 1998 and $5.5 million in the first six months of 1999. At
June 30, 1999, our accumulated deficit was $8.6 million. We anticipate that we
will incur additional operating losses for the foreseeable future.
Results of Operations
The following table sets forth our statement of operations data expressed as
a percentage of revenues:
<TABLE>
<CAPTION>
Six Months
Years Ended Ended
December 31, June 30,
-------------- -------------
1997 1998 1998 1999
------ ----- ----- -----
<S> <C> <C> <C> <C>
Revenues.................. 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues.......... 104.6 77.2 79.7 78.7
------ ----- ----- -----
Gross profit............. (4.6) 22.8 20.3 21.3
------ ----- ----- -----
Operating expenses:
Sales and marketing...... 112.9 22.8 25.9 22.5
Research and
development............. 81.5 15.5 14.5 11.1
General and
administrative.......... 60.0 17.8 21.4 14.8
Stock-based
compensation............ 2.6 16.1 9.9 45.0
Amortization of goodwill
and intangibles......... -- -- -- 3.4
------ ----- ----- -----
Total operating
expenses............... 257.0 72.2 71.7 96.8
------ ----- ----- -----
Loss from operations...... (261.6) (49.4) (51.4) (75.5)
Interest income (expense),
net...................... (0.6) (6.9) (15.4) 0.2
------ ----- ----- -----
Net loss.................. (262.2)% (56.3)% (66.8)% (75.3)%
====== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1999 and 1998
Revenues. Revenues increased to $7.3 million for the six months ended June
30, 1999 from $1.5 million for the six months ended June 30, 1998. The period-
to-period increase was primarily due to our commencement of selling advertising
campaign management services to a broad set of advertisers, including
advertising agencies, in April 1998. In the first six months of 1999,
substantially all of our revenues consisted of advertising fees received for
providing advertising campaign management services. In the first six months of
1998, our revenues were primarily derived from the sale of advertising on our
Internet content sites.
In the six months ended June 30, 1999, five of our clients represented
approximately 68% of our revenues, and in the six months ended June 30, 1998,
four of our clients represented approximately 80% of our revenues.
Cost of Revenues. Cost of revenues increased to $5.8 million, or 78.7% of
revenues, for the six months ended June 30, 1999 from $1.2 million, or 79.7% of
revenues, for the six months ended June 30, 1998. The increase in cost of
revenues in the 1999 period was primarily due to the increase in our revenues.
The cost of revenues in the six months ended June 30, 1999 was comprised
primarily of media placement costs, while the cost of revenues in the six
months ended June 30, 1998 consisted primarily of the cost of maintaining our
Internet content sites.
25
<PAGE>
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation expenses, including salaries, commissions and related payroll
expenses, recruiting costs, and marketing expenses, including those expenses
associated with customer service and support. Sales and marketing expenses
increased to $1.6 million, or 22.5% of revenues, for the six months ended June
30, 1999 from $395,000, or 25.9% of revenues, for the six months ended June 30,
1998. The dollar increase in sales and marketing expenses during the 1999
period was primarily due to the significant growth of our sales and marketing
organization in 1999 as we focused on selling advertising campaign management
services. The number of sales and marketing personnel increased from 5 as of
June 30, 1998 to 41 as of June 30, 1999. The decrease in sales and marketing
expenses as a percentage of revenues was primarily due to the significant
growth in revenues. We expect that sales and marketing expenses will continue
to increase in dollars and, in the near term, increase as a percentage of
revenues.
Research and Development. Research and development expenses consist primarily
of compensation and related expenses for our internal development staff and
fees for contractor services. Research and development expenses increased to
$816,000, or 11.1% of revenues, for the six months ended June 30, 1999 from
$220,000, or 14.5% of revenues, for the six months ended June 30, 1998. This
dollar increase in research and development expenses was due primarily to an
increase in the number of development engineers in our research and development
organization. The number of development engineers increased from 2 as of June
30, 1998 to 19 as of June 30, 1999. The decrease in research and development
expenses as a percentage of revenues was primarily due to the significant
growth in revenues. We expect to continue to spend significant amounts on
research and development as we continue to develop and upgrade our technology.
Accordingly, we expect that research and development expenses will continue to
increase in dollars and, in the near term, increase as a percentage of
revenues.
General and Administrative. General and administrative expenses consist
primarily of compensation and related expenses and fees for contractor
services. General and administrative expenses increased to $1.1 million, or
14.8% of revenues, for the six months ended June 30, 1999 from $325,000, or
21.4% of revenues, for the six months ended June 30, 1998. The dollar increase
in general and administrative expenses was due primarily to an increase in
personnel. The number of general and administrative personnel increased from
none as of June 30, 1998 to 17 as of June 30, 1999. The decrease in general and
administrative expenses as a percentage of revenues was primarily due to the
significant growth in revenues. We expect that general and administrative
expenses will continue to increase in dollars in the future, reflecting the
additional costs associated with increasing our infrastructure and headcount as
we grow and the costs of being a public company and, in the near term, increase
as a percentage of revenues.
Stock-based Compensation. Stock-based compensation expense increased to $3.3
million for the six months ended June 30, 1999 from $151,000 for the six months
ended June 30, 1998. For accounting purposes, we recognize stock-based
compensation in connection with the issuance of shares of our common stock and
the granting of options or warrants to purchase our common stock to employees
and consultants with purchase or exercise prices that are less than the deemed
fair market value at the grant date. Stock-based compensation related to the
issuance of shares of common stock has been expensed in the period in which the
common stock was issued. Stock-based compensation related to the issuance of
options and warrants to purchase common stock is being amortized over the
vesting period of the stock options through 2003. Total deferred stock
compensation as of June 30, 1999 was $3.2 million. These deferred amounts and
the related amortization charges will increase if we record further deferred
stock compensation in future periods.
Amortization of Goodwill and Intangible Assets. Amortization expense was
$251,000 for the six months ended June 30, 1999, due to the amortization of
goodwill and intangible assets recorded in connection with our acquisition of
Netranscend Software, Inc. in March 1999. We recorded no goodwill amortization
expense for the first six months of 1998. We expect to recognize $251,000 of
amortization expense for this transaction in each quarter through the first
quarter of 2002.
26
<PAGE>
Interest Income (Expense), Net. Interest income, net was $14,000 in the six
months ended June 30, 1999, representing primarily interest earned on the $9.6
million of cash and cash equivalents we generated in the period from private
placements of convertible preferred stock. The net interest expense of $234,000
in the six months ended June 30, 1998 was primarily due to the beneficial
conversion feature of a note payable to stockholders.
Years Ended December 31, 1998, 1997 and 1996
Revenues. Revenues were $3.6 million in 1998 and $426,000 in 1997. We did not
have any revenues in 1996. The increase in revenues from 1997 to 1998 was
primarily due to the commencement of selling advertising campaign management
services in April 1998. In 1997, we were selling advertising space on our
Internet content sites under our prior business model. In 1998, we began
providing our advertising campaign management services and increased our sales
force, resulting in significant revenue growth in 1998.
Cost of Revenues. Total cost of revenues was $2.8 million, or 77.2% of
revenues, in 1998 and $445,000, or 104.6% of revenues, in 1997. The dollar
increase in cost of revenues was primarily due to the increase in revenues from
1997 to 1998. The decrease in cost of revenues as a percentage of revenues in
1998 as compared to 1997 was primarily due to the commencement of selling
advertising campaign management services.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $820,000, or 22.8% of
revenues, in 1998, $481,000, or 112.9% of revenues, in 1997, and $23,000 in
1996. The dollar increases in sales and marketing expenses from 1996 to 1997,
and from 1997 to 1998 were primarily due to increases in the number of sales
personnel. The decrease in sales and marketing expenses as a percentage of
revenues was primarily due to the rate of increase in revenues in 1998.
Research and Development. Research and development expenses were $556,000, or
15.5% of revenues, in 1998, $347,000, or 81.5% of revenues, in 1997, and
$49,000 in 1996. The dollar increases in research and development expenses from
1996 to 1997, and from 1997 to 1998 were primarily due to the increases in the
number of development engineers we employed. The decrease in research and
development expenses as a percentage of revenues was primarily due to the rate
of increase in revenues in 1998.
General and Administrative. General and administrative expenses were
$636,000, or 17.8% of revenues, in 1998, $256,000, or 60.0% of revenues, in
1997, and $31,000 in 1996. The dollar increases in general and administrative
expenses from 1996 to 1997, and from 1997 to 1998 were primarily due to the
increases in the number of administrative personnel and outside administrative
services costs. The decrease in general and administrative expenses as a
percentage of revenues was primarily due to the rate of increase in revenues in
1998.
Stock-based Compensation. Stock-based compensation expense was $578,000 in
1998, $11,000 in 1997 and $152,000 in 1996.
Interest Income (Expense), Net. Net interest expense was $247,000 in 1998 and
$3,000 in 1997. There was no interest income or expense in 1996.
27
<PAGE>
Quarterly Results of Operations
The following table presents statement of operations data for the six
quarters ending with the quarter ended June 30, 1999. We believe that this
unaudited information has been prepared on the same basis as the audited annual
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the unaudited
financial information for the quarters presented. You should read this in
conjunction with our financial statements, including the accompanying notes,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
June
March 31, June 30, Sept. 30, Dec. 31, March 31, 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $ 586 $ 935 $1,069 $ 997 $ 1,633 $ 5,689
Cost of revenues........ 480 733 756 802 1,340 4,421
----- ----- ------ ----- ------- -------
Gross profit........... 106 203 313 195 294 1,268
----- ----- ------ ----- ------- -------
Operating expenses:
Sales and marketing.... 193 201 87 338 543 1,104
Research and
development........... 125 95 195 140 308 507
General and
administrative........ 117 208 132 180 456 626
Stock-based
compensation.......... -- 151 -- 427 1,953 1,338
Amortization of
goodwill and
intangibles........... -- -- -- -- -- 251
----- ----- ------ ----- ------- -------
Total operating
expenses............. 435 656 414 1,085 3,260 3,826
----- ----- ------ ----- ------- -------
Loss from operations.... (329) (453) (101) (890) (2,966) (2,558)
Interest income
(expense), net......... (1) (1) (230) (15) 1 12
----- ----- ------ ----- ------- -------
Net loss................ $(330) $(454) $ (331) $(905) $(2,965) $(2,546)
===== ===== ====== ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
As a Percentage of
Revenues:
Revenues................ 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues........ 81.9 78.3 70.7 80.4 82.0 77.7
----- ----- ----- ----- ------ -----
Gross profit........... 18.1 21.7 29.3 19.6 18.0 22.3
----- ----- ----- ----- ------ -----
Operating expenses:
Sales and marketing.... 33.0 21.5 8.1 33.9 33.2 19.4
Research and
development........... 21.3 10.2 18.3 14.1 18.9 8.9
General and
administrative........ 19.9 22.3 12.3 18.0 27.9 11.0
Stock-based
compensation.......... -- 16.2 -- 42.8 119.6 23.6
Amortization of
goodwill and
intangibles........... -- -- -- -- -- 4.4
----- ----- ----- ----- ------ -----
Total operating
expenses............. 74.2 70.2 38.7 108.8 199.6 67.3
----- ----- ----- ----- ------ -----
Loss from operations.... (56.0) (48.5) (9.4) (89.3) (181.6) (45.0)
Interest income
(expense), net......... (0.2) (0.1) (21.5) (1.5) 0.1 0.2
----- ----- ----- ----- ------ -----
Net loss................ (56.2)% (48.5)% (30.9)% (90.8)% (181.5)% (44.8)%
===== ===== ===== ===== ====== =====
</TABLE>
Due to the early stage of our company and the commencement of selling
advertising campaign management services in April 1998, period-to-period
comparisons of our historical operating results should not be relied upon as
indicative of future performance. During the second and third quarters of 1998,
our results reflect the transition from our prior business of managing Internet
content sites to our advertising campaign
28
<PAGE>
management services business. The quarter ended September 30, 1998 was the last
quarter in which we generated revenues from our prior business model. Beginning
in the fourth quarter of 1998, our financial performance solely reflected our
current advertising campaign management services.
The increases in sales and marketing expenses, research and development
expenses, and general and administrative expenses from the quarter ended
December 31, 1998 through the quarter ended June 30, 1999 are primarily due to
increased compensation and related expenses as a result of the increased
headcount required to support the growth in advertising campaign management
services revenues.
The stock-based compensation expense for the quarter ended June 30, 1998
represented the non-cash expense related to the issuance of shares of our
common stock for services rendered. The stock-based compensation expense for
the quarters ended December 31, 1998 and March 31, 1999 represented expense for
the issuance of shares in exchange for services, and the amortization of
deferred stock compensation recorded for options granted to employees and
consultants to purchase common stock with exercise prices that were less than
the deemed fair market value at the grant date. The stock-based compensation
expense for the quarter ended June 30, 1999 consisted solely of amortization of
the deferred stock compensation recorded for options granted to employees to
purchase common stock at exercise prices that were less than the deemed fair
market value at the grant date.
Although we have experienced revenue growth in recent periods, we anticipate
that we will incur operating losses for the foreseeable future due to the high
level of planned operating and capital expenditures.
Liquidity and Capital Resources
From our inception in September 1996 through June 1999, we financed our
operations primarily through the private placement of preferred stock, which
has generated an aggregate of $10.5 million. As of June 30, 1999, we had
$7.6 million in cash and cash equivalents. In August 1999, we raised an
additional $14.4 million from the gross proceeds of sale of additional shares
of preferred stock.
Net cash used in operating activities in the six months ended June 30, 1999
and 1998, the years ended December 31, 1998 and 1997 and the period from
September 10, 1996 (inception) through December 31, 1996, was $1.4 million,
$165,000, $240,000, $150,000 and $28,000, respectively. Net cash used in
operating activities in each of these periods was primarily the result of net
losses before non-cash charges and increases in accounts receivable, offset by
increases in accounts payable, accrued liabilities and deferred revenues.
Net cash used in investing activities in the six months ended June 30, 1999
and 1998, the years ended December 31, 1998 and 1997 and the period from
September 10, 1996 (inception) through December 31, 1996, was $840,000,
$38,000, $79,000, $70,000 and $24,000, respectively. Net cash used in investing
activities in all periods presented was due principally to the acquisition of
computer equipment and software.
Net cash provided by financing activities in the six months ended June 30,
1999 and 1998, the years ended December 31, 1998 and 1997 and the period from
September 10, 1996 (inception) through December 31, 1996, was $9.4 million,
$306,000, $551,000, $335,000 and $80,000, respectively. Net cash provided by
financing activities in all periods was primarily due to sales of shares of our
common stock and, in the six months ended June 30, 1999, our preferred stock,
as well as in 1998 and the six months ended June 30, 1998, funds borrowed from
stockholders under notes payable that bore interest at 6% per annum. A portion
of these notes payable were paid off in the six months ended June 30, 1999. We
currently have no other borrowings.
Although we have no material commitments for capital expenditures, we
anticipate an increase in the rate of capital expenditures consistent with our
anticipated growth in operations, infrastructure and personnel. We believe that
the net proceeds from this offering, combined with our cash and cash
equivalents, will be sufficient to meet our anticipated liquidity needs for
working capital and capital expenditures for at least twelve months from the
date of this prospectus. We estimate that, if we limit our growth, without this
offering our current
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resources would be sufficient to fund our operations through the next twelve
months. After the next twelve months, we expect to continue to incur net losses
for the foreseeable future and may need additional funds to expand or to meet
all of our operating needs. Our forecast of the period of time through which
our financial resources will be adequate to support operations is a forward-
looking statement that involves risks and uncertainties, and actual results
could vary materially as a result of the factors described above. If we require
additional capital resources to grow our business internally or to acquire
complementary technologies and businesses, we may seek to sell additional
equity or debt securities or secure a bank line of credit. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders. We cannot assure you that any financing
arrangements will be available in amounts or on terms acceptable to us.
Market Risk Disclosure
The following discusses our exposure to market risk related to changes in
foreign currency exchange rates and interest rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors including
those set forth in the risk factors section of this prospectus.
Foreign Currency Exchange Rate Risk. To date, we have not had any revenues
from international operations. All of our recognized revenues have been
denominated in U.S. dollars from clients in the United States. We expect,
however, that some future revenues may be derived from international markets
and may be denominated in the currency of the applicable market. As a result,
our operating results may become subject to significant fluctuations in the
exchange rates of foreign currencies. Furthermore, to the extent that we engage
in international sales denominated in U.S. dollars, an increase in the value of
the U.S. dollar relative to foreign currencies could make our products less
competitive in international markets. Although we expect to monitor our
exposure to currency fluctuations as we expand into international markets and,
when appropriate, may use financial hedging techniques in the future to
minimize the effect of these fluctuations, exchange rate fluctuations could
harm our financial results in the future.
Interest Rate Risk. As of June 30, 1999, we had cash and cash equivalents of
$7.6 million, which consisted of cash and highly liquid short-term investments.
Our short-term investments will decline in value by an immaterial amount if
market interest rates increase. Declines of interest rates over time will,
however, reduce our interest income from our short-term investments.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee, or ASEC, issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance on when
costs related to software developed or obtained for internal use should be
capitalized or expensed. SOP 98-1 is effective for transactions entered into
for fiscal years beginning after December 15, 1998. The adoption of this
statement did not have a material effect upon our statement of operations.
In April 1998, the ASEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires the cost of start-up activities, including
organization costs, to be expensed as incurred. The adoption of this statement
did not have a material effect upon our statement 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," which requires companies to record derivative
financial instruments on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedging accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. We do not anticipate that this statement will have a material effect upon
our statement of operations.
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In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with
Respect to Certain Transactions." SOP 98-9 amends SOP 97-2 and SOP 98-4 by
extending the deferral of the application of certain provisions of SOP 97-2
amended by SOP 98-4 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. We do not anticipate that the
adoption of these statements will have a material effect upon our statement of
operations.
Year 2000 Compliance
Many currently installed computer systems and software products worldwide are
coded to accept only two-digit entries to identify a year in the date code
field. Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they are not able to distinguish between the year 1900 and
the year 2000. Accordingly, many companies, including ourselves and our
clients, potential clients, vendors and business and marketing alliances, may
need to upgrade their systems to comply with applicable year 2000 requirements.
Because we and our clients depend, to a very substantial degree, upon the
proper functioning of computer systems, a failure of these systems to correctly
recognize dates beyond December 31, 1999 could disrupt operations. Any
disruptions could harm our business. Additionally, our failure to provide Year
2000 compliant solutions to our clients could result in financial loss,
reputational harm and legal liability to us.
Substantially all of our computer equipment and software was purchased in the
past twelve months. As a result, we 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.
We typically use industry-standard third party hardware and software. We have
not, to date, sought assurances from our suppliers that their products are year
2000 compliant, but instead have relied on publicly available information in
some cases as to our computer systems being year 2000 compliant. We also
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.
Because our computer equipment and software is substantially new, 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. We have not, to date, incurred any
costs separate from the expenditures for acquiring new computer equipment and
infrastructure to address year 2000 issues. In addition, we do not anticipate
incurring any costs directly related to addressing year 2000 issues because,
based on the relatively new installation of our computer equipment and systems,
we believe that our computer equipment and systems are year 2000 compliant.
Further, we have not deferred any of our ongoing development efforts to address
year 2000 issues. Unanticipated costs associated with any year 2000 compliance
could materially harm our quarterly and annual results of operations.
We are currently implementing a new accounting and management reporting
system for business reasons unrelated to the year 2000 issue. We have been
assured that our new system is year 2000 compliant by the vendor. If any of our
vendors' representations regarding their products are not accurate, or if we
encounter unknown year 2000 problems relating to the interaction of our
systems, we could incur significant expenses to resolve these issues or damages
resulting from a failure of our systems to perform correctly. For example, if
our accounting system fails to record our transactions properly, we would need
to devote additional staff or hire a third party to correct the problem, could
lose important data and would have difficulty planning without accurate
financial information.
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We depend on the uninterrupted availability of the Internet infrastructure to
conduct our business. We also rely on the continued operations of our clients
and vendors, in particular, Web sites hosting advertisements, for our revenues.
We are heavily dependent upon the success of year 2000 compliance efforts of
our clients and vendors. Interruptions in the Internet infrastructure affecting
us, our clients or our vendors, or failure of the year 2000 compliance efforts
of one or more of our clients or vendors, could harm our ability to generate
revenue and, if severe, our business, results of operations and financial
condition. In the worst case, any failure in the Internet infrastructure could
prevent us from serving advertisements for our clients for a period of time,
resulting in lower revenues and potentially client complaints. We currently do
not have any special contingency plans for a lengthy Internet infrastructure
failure due to year 2000 issues.
In the event we discover year 2000 problems in our products or internal
systems, we will endeavor to resolve these problems by making modifications to
our products or systems or purchasing new systems, on a timely basis. In
addition, the effect of year 2000 issues on our clients generally, or on our
banks, the stock markets and other infrastructure functions, such as our
telephone system, electrical systems and water supplies, is unknown. We cannot
assure you that our systems will be year 2000 compliant. We may incur
unexpected material expenses or liability relating to the year 2000 problem.
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BUSINESS
We provide technology-based services that enable companies to integrate their
internal business data with their online advertising and direct marketing
activities to deliver customized messages and offers to Web site visitors. Our
services encompass the planning, execution, monitoring and analysis of Web-
based campaigns and are based upon proprietary technology, tradenamed "MOJO,"
which stands for "mobile Java objects." Our technology allows companies to
change the content of Internet messages and offers in real time, or virtually
instantaneously, in response to changes in their underlying business variables,
such as inventory levels, product pricing, and customer data.
Industry Background
The Internet as an Advertising Medium for Direct Marketing and Branding
The Internet is rapidly becoming an important advertising medium for direct
marketing and product branding. Forrester Research, Inc. anticipates that U.S.
online advertising spending will grow from $2.8 billion in 1999 to $17.2
billion in 2003, driven by a number of factors, including the growing online
population, the acceleration of e-commerce and the advancement of online
marketing technologies. According to International Data Corporation, the U.S.
online population is projected to grow from 80.8 million in 1999 to 177.0
million by 2003, and U.S. e-commerce spending is projected to increase from
$74.4 billion in 1999 to $707.9 billion by the end of 2003.
To date, the major spenders in online advertising have been Internet,
computer and technology companies and financial institutions. We believe other
advertisers, who have historically used more traditional media, are
increasingly becoming attracted to the Internet because of its global reach,
potential to enable one-to-one marketing and ability to track and measure
campaign results in real time. Advertisers are beginning to recognize the
effectiveness of the Internet to build long-term brand awareness, perform
valuable market testing, and facilitate immediate trial and sales of products
and services. In contrast to traditional, or off-line advertising, the
interactive nature of the Internet gives companies the ability to send
advertising messages to consumers and enables consumers to immediately respond
to the advertising. Furthermore, the Internet enhances client-specific
marketing campaigns to promote customer retention and loyalty.
Despite the emergence of the Internet as a medium for advertising,
expenditures for online advertising represent only a small portion of all media
spending. Forrester Research, Inc. estimates that by 2003, U.S. total media
spending will reach approximately $260.6 billion, of which the online component
of $17.2 billion will represent only 6.6%. We believe online media spending has
the potential to capture a larger portion of total media spending as new
technologies improve the effectiveness of online advertising and attract more
traditional media advertisers to the Internet.
We believe the rapid growth of e-commerce has changed the nature and pace of
business operations and competition. Companies are increasingly realizing the
importance of using the Internet to manage and transact business, and
communicate with consumers, clients, suppliers and partners, far beyond the
simple sale of products and services over the Internet. In addition, we believe
companies are increasingly leveraging the significant financial and technical
resources that they have made in software applications which manage and store
critical business information, such as enterprise resource planning and supply
and distribution management systems.
The Challenges of Online Advertising
An effective online marketing campaign requires a wide range of
implementation, management and technology expertise in campaign development,
advertising execution and results analysis. The real-time delivery, measurement
and analysis of multiple advertising campaigns encompassing thousands of Web
sites is complex and difficult to execute and manage. We believe traditional
advertising agencies and most companies
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typically do not have the expertise in the Internet medium to address these
delivery and management requirements.
The increase in online advertising spending has heightened expectations for
more effective advertising campaigns and improved return on investment. The
standard benchmarks to measure the impact of an advertising campaign are banner
impressions, viewer click-through rates to advertisers' sites from online
messages, and conversion rates, which are the percentage of consumers who
complete a purchase or other transaction. We believe click-through rates have
been declining as advertisers increasingly compete for the attention of online
consumers, and as a result, companies are searching for more effective
advertising messaging techniques in order to increase click-through and
conversion rates.
To date, online advertising has not achieved effective "one-to-one"
marketing, which requires delivery of the right message to the right consumer
in real time. Ideally, advertisers seek to identify potential customers most
likely to purchase their products, send them a message tailored to their
individual preferences, and do so at a time when they are most likely to make a
purchase decision. Most current technologies are focused on identifying the
right consumer based on their demographic, geographic or consumer preference
data. Identifying the right consumer, however, represents only one component of
true one-to-one marketing. The ability to send the right message in real time
remains a significant challenge.
Sending the right message in real time would enable companies to use the
Internet as an effective online marketing and sales channel. The right message
includes appropriate product information for a particular consumer, based on
the existing status of a company's underlying business variables including, for
example, product pricing and availability. In order to achieve this, companies
must access and integrate their existing business information into the online
advertising process, enabling them to incorporate their business information in
targeted messages and turn an advertisement into an effective marketing tool.
For example, a hotel with excess availability in New York City would seek to
advertise discounts to consumers booking flights to New York.
We believe that there is a significant opportunity for a vendor who can
provide a comprehensive, technology-based solution for online advertising
campaigns. We believe that this solution must provide the following key
capabilities:
. the expertise to manage and execute all aspects of online marketing
campaigns;
. the ability to accumulate valuable data on customer behavior;
. the ability to perform detailed return on investment analysis in a timely
fashion;
. the ability to customize messages and offers in real time; and
. the ability to integrate important business data, such as product and
pricing information, into online advertising message content.
Solution
We provide technology-based services that enable companies to deliver
customized messages and offers which reflect their internal business data in
real time. Our MOJO technology allows companies to adjust their online
advertising virtually instantaneously in response to changes in their
underlying business variables, such as inventory levels, product pricing and
customer data. Our services encompass the planning, execution, monitoring and
analysis of online marketing campaigns. We believe the wide range of services
we offer will enable advertisers to deliver more effective online campaigns and
improve their return on advertising investment.
Our solution includes the following benefits:
. Comprehensive Online Advertising Campaigns. Using our technology platform
and expertise in online advertising, we provide a range of advertising
services that optimize online campaigns, including strategic planning,
execution of media buys, ad serving and reporting capabilities. We serve
online advertisements that are created by our clients or their
advertising agencies.
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. Real-time Tracking and Measuring Campaign Results. To optimize any given
campaign, we monitor its effectiveness by tracking multiple statistics
that measure campaign performance, including click-through and conversion
rates, as well as revenues derived from these conversions. This
monitoring enables campaigns to be automatically or manually modified in
real time to maximize the return on advertising investment.
. Data Capture and Analysis. Using our data capture capabilities and those
of third parties, we target consumers by placing advertisements on Web
sites frequented by consumers who match the advertiser's requested
profile based on a variety of characteristics such as geography,
demography, areas of interest and site visitation information.
. Real-time Messaging Capabilities. We have the ability to change the
content of online advertisements in real time. This enables a company to
tailor its marketing messages based on consumer profiles as well as
predefined parameters or business rules, such as product rotations or
pricing. We also enable a company to test advertising graphics, messages
and sites, and adjust them in real time to optimize campaign performance.
. Integration of Internal Business Information. Our MOJO technology enables
us to integrate online advertising campaigns with internal business
information, allowing us to dynamically tailor and deliver advertisements
based on a consumer's profile and on a company's real-time inventory,
pricing or other underlying business variables. We believe that this
integration leads to more effective messaging, increased sales and
improved inventory yield management. In this sense, our technology will
not only be used to report on, but also to improve, return on investment
results.
Strategy
Our objective is to become the leading provider of technology-enabled
marketing solutions. Our strategy includes the following key elements:
. Target Global 1000 and e-Commerce Companies. We can provide significant
benefits to large companies that require online advertising management
and technology expertise for the Internet and have made a significant
investment in software applications which manage and store critical
business information. We also intend to target companies that rely on the
Internet to conduct electronic commerce. We target these constituencies
through our direct sales force, business development teams and
international sales offices.
. Expand Alliances with Advertising Agencies. We intend to expand and
strengthen our alliances with traditional advertising agencies to extend
our direct sales efforts. We will continue to provide agencies with
critical online media technology expertise, which we believe will
accelerate our penetration of medium to large-sized corporate clients. We
have already established alliances with leading agencies such as McCann-
Erickson and Publicis & Hal Riney. We intend to pursue relationships with
other advertising agencies by providing technology-enabled services and
support for online advertising that can be fully integrated with their
off-line initiatives.
. Maintain Technology Differentiation. We believe that our technology is a
key competitive differentiator. Our MOJO technology platform enables us
to efficiently deploy services that give our clients innovative
advertising capabilities while providing the ability to integrate
enterprise information into their online messages in real time. Our Java
objects-based architecture enables our services to scale geographically
across the Internet and a large number of transactions and advertisers.
We intend to extend our technology differentiation by incorporating
additional functionality and services into our platform, such as e-
commerce-enabled messages.
. Enhance Sales Capabilities Through Marketing and Business
Relationships. We plan to broaden our existing marketing and business
relationships with companies such as DoubleClick, SAP Labs and Icon
Medialab, and to build relationships with additional companies for our
campaign and message management capabilities. We are seeking to work with
traditional and interactive advertising agencies,
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online ad serving companies, ad publishing representatives, Web
development and consulting firms, enterprise application companies and
systems integrators. Our objective is to establish alliances with these
companies and accelerate our sales penetration into enterprises that would
benefit from our services. In addition, we expect to develop and manage
affiliate and sponsorship programs which generate shared revenues derived
from prospective e-commerce-based services.
. Deliver Flexible Online Marketing Solutions. We believe that online
advertisers will increasingly demand greater flexibility and
accountability in their advertising programs. Because we can unbundle our
technology-enabled services, our services can be deployed together with
the capabilities offered by other advertising and technology providers,
such as DoubleClick. By working with third-party providers, we can offer
specific services, such as dynamic tailored messaging, that complement
their advertising services. This flexibility creates enhanced revenue
opportunities and accelerates market adoption of our services and
technology by targeting clients interested in unbundled elements of our
services.
. Broaden International Presence. We plan to expand our capabilities and
presence internationally in order to capitalize on the global reach of
the Internet. We also believe there is a significant opportunity to
provide our services to companies based outside of the United States that
require technology-enabled advertising services tailored for their local
markets. We have recently opened a sales office in Hamburg, and by the
middle of 2000, we expect to have established an office in Tokyo and
offices in London, Paris and Stockholm.
Our Services
Our technology-based marketing services encompass campaign planning and
execution, online message management and campaign analysis. Our services can be
delivered individually or as a suite of services and are principally priced
based on cost per thousand impressions, cost per click, or cost per
acquisition, which can include sales and registrations.
Our services can be offered as part of a complementary solution provided in
conjunction with services provided by other advertising and technology vendors.
In particular, our MOJO technology can be deployed with the ad serving
capabilities provided by other companies, such as DoubleClick, and interactive
ad agencies. This allows us to work with clients of these service and
technology providers who do not wish to purchase all of our campaign management
capabilities, but still want to deploy our MOJO technology or any of our other
services.
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- --------------------------------------------------------------------------------
Services Description of Services
- --------------------------------------------------------------------------------
Campaign Planning and Execution
. Develop an online media strategy based on the
client's business objectives and the
appropriate Internet media opportunities
. Plan and purchase media across Internet
advertising networks and independent Web
sites, employing various price structures
. Manage the electronic delivery of online
advertisements
- --------------------------------------------------------------------------------
. Apply targeting goals based on the specific
Message Management capabilities of each Web site or advertising
network considered for the marketing campaign
. Adjust campaigns in real time across all Web
sites based on predetermined schedules or the
occurrence of defined events
. Customize messages in real time based on
customer profiling, defined business rules
determined by internal business information,
market events and campaign performance as
measured by standard metrics or return on
investment analysis
. Use data capture capabilities to refine the
database and re-target consumers
- --------------------------------------------------------------------------------
Campaign Analysis
. Track and monitor campaigns for results as
measured by Web site and advertisement
. Provide real time reports customized by
performance data, including impressions,
click-throughs and conversions for each Web
site and advertisement
. Generate campaign return on investment
statistics summarizing results by categories
such as user-targeting data, inventory
changes, Internet sites and date/time
. Optimize campaigns based on ongoing
performance data
- --------------------------------------------------------------------------------
Campaign Planning and Execution
. Campaign Planning. We develop Internet media strategies based on
advertisers' business goals and advertising objectives, such as brand
awareness, product trial and sales, and previous online performance, if
available. We determine target audiences using demographic, geographic
and consumer preference information, or consumers' areas of interest. Our
online media programs can be developed independently, or in conjunction
with clients' off-line campaigns to deliver a consistent brand message at
each point of contact.
. Media Buying and Placement. We leverage our wholesale buying power in
planning and buying across all advertising networks and independent Web
sites. Each campaign is customized, incorporating sponsorships, keywords,
run of site, specific position and remnant space, where applicable. Media
purchases can be based on several models including cost per thousand
impressions, cost per click, cost per acquisition and revenue-sharing
programs. Our MOJO technology processes insertion orders systematically
across networks and individual Web sites to deliver accurate ad
placement.
. Ad Serving. Our third-party ad serving capabilities allow adjustments to
be managed quickly and efficiently because the only changes required to
the advertisements are effected on our servers rather than on each
individual Web site where the advertisements appear.
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. Re-Targeting. We use data capture tools to refine the target audience and
redeliver advertising to prospects who have visited a client's Web site.
For example, we can track which product pages users visit, how far they
proceed in the shopping process, and if they have made previous online
purchases. This data is then used to optimize audience and message
targeting for the next phase of the campaign.
Message Management
. Dynamic Messaging. We enable advertisers to modify advertising messages
dynamically, that is, at any point in time. Online advertisements contain
"data fields" where messages can change, such as products, prices or
special offers. Message modification can be automated by establishing
predefined events that determine message content, such as product
rotations or price reductions. Advertisers can also make modifications
manually, directly from their desktop computers.
. Targeted Messaging Integrated with Enterprise Data. Our messaging
capabilities enable advertisers to use real-time business information,
such as product inventory, pricing and availability, to deliver a
customized message to each viewer. We assist advertisers with the
development of business rules based on product database or enterprise
system information. During a campaign, our MOJO technology can make
automatic modifications to the advertisements on the basis of these
business rules. We believe that clients with time-sensitive inventory are
particularly well-suited to take advantage of these capabilities. For
example:
. An airline promotes roundtrip fares between San Francisco and New
York. Fourteen days prior to the flight, the airline advertises seats
at $956. The airline could specify that seven days before the flight,
the price on the banner message would systematically change to
$1,499. Based on excess seat availability two days prior to
departure, the fare offered for a limited number of the seats would
be automatically discounted to $799.
. A hotel chain focuses its advertising campaign on reaching an 80%
occupancy rate. When the occupancy rate of a particular hotel reaches
this level, the message is automatically directed to promote another
property within the chain.
. Integration of Data From Third-Party Vendors. In addition to customer
profiling data that we compile, we have access to the extensive profiling
data through our business and marketing alliance with DoubleClick. Our
MOJO technology utilizes this data in creating, in real time, the
appropriate message to be delivered to a profiled consumer based on
enterprise and market data.
. Queued Creative. Advertising based on specific schedules or time-
sensitive information can be pre-programmed across all campaign sites.
For example, a banner for a promotion that starts and ends at an exact
time or day can be queued to start and stop automatically at the
appropriate times .
. Storyboard Messaging. Using our technology, a "storyboard" of advertising
messages can be constructed in a series. The campaign can be designed to
show a set of advertisements in a predefined sequence for a particular
consumer, regardless of which Web site in the campaign is viewed. This
choreographs a series of customized messages based on the consumer's
interests and online activity. For example, a viewer purchasing a
computer online will be presented with advertisements for accessories the
next time he or she accesses a Web site within the campaign.
. Multiple Messaging. MOJO technology enables single advertisements to
provide multiple click-through message options. The choice of message is
determined by the location of the advertisement on which the consumer
clicks. For example, if a consumer received a banner depicting a map of
the United States and clicked on the state of California, the consumer
would receive a different message than if he or she were to click on the
state of Maryland.
Campaign Analysis
. Campaign Tracking. We track performance statistics such as impressions,
click-throughs and conversions, which include sales and other types of
transaction activity such as registrations and requests for information,
across all campaign sites. Activity is monitored by site, creative unit,
such as a banner or side panel, and message content.
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Our technology enables tracking of performance metrics for standard
advertisements and for the more difficult to monitor advertisements
utilizing rich media that may incorporate audio and video components. We
can also track advertising that is served by independent third-party ad
servers.
. Campaign Reporting. We provide a broad range of accurate and timely
reporting capabilities customized to meet individual advertiser's needs.
Clients are able to view secure, real-time campaign reports by
performance statistics, including impressions, click-throughs, conversion
rates and sales, at any time over the Internet in a summary format that
provides results categorized by site and by advertisement.
. Return on Investment Analysis. Return on investment reporting is
customized to each advertiser and integrates sales and conversion data to
dynamically generate campaign statistics in real time. Reports provide
measurements on performance by tracking sales and other conversions
criteria, such as registrations and information requests, as well as by
tracking visitors who did not act immediately, but subsequently returned
to the Web site and purchased.
. Real-Time Campaign Optimization. Our MOJO technology allows predefined
business rules to automatically optimize campaigns. In addition, we can
make real-time changes to campaigns based on ongoing performance data.
Our customized, real-time reports facilitate quick determination of the
effectiveness of sites and advertisements based on performance metrics,
such as lowest cost per sale and highest sales volume.
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Technology
Our proprietary MOJO technology platform utilizes a mobile Java object
architecture that facilitates timely, efficient and accurate campaign execution
and management as well as a secure and efficient means of integrating a
client's proprietary internal business systems with the online advertising
campaign. Our architecture is designed for scalability and high performance, to
manage multiple advertising campaigns across thousands of Web sites. All data
for an advertising campaign are captured in the form of intelligent Java
objects, each of which perform discrete functions. These objects store critical
information relevant to their function, can be controlled remotely, and can
exchange data with each other using the Java language over our publish and
subscribe-based messaging backbone. These objects, programmed using Java
language, are platform- independent and can reside on servers operated by
Mediaplex, the advertiser, a network publisher or any other third-party ad
server.
[Graphic depiction of MOJO technology platform appears here]
Mediaplex's MOJO architecture has three primary technical components:
advertising objects, network services and enterprise integration:
Advertising Objects. Advertising objects contain all information relevant
to a campaign and manage the serving of each advertisement. Targeting rules
residing in an ad-serving object determine, for example, which targeting
profile upon which to focus and which message to send to a particular
consumer.
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Tracking functions for an advertising campaign are also performed by these
objects, which can be stored and executed on any server. The advertising
objects are configurable in real time from remote locations.
Network Services. This component manages the entire campaign and
coordinates communication between other objects and with our clients
through our publish and subscribe messaging capability. This messaging
capability intelligently receives events published or transmitted by
various objects and forwards that information to other objects that have
subscribed to or are authorized to receive such information. This component
contains the business rules for a campaign that determine, for example,
which product information will be advertised and at what price, in response
to changes in inventory levels. Reporting functions are also performed in
this layer, which also manages access to relevant campaign data, through
the publish and subscribe messaging capability. This network services layer
effectuates dynamic messaging by applying predefined business rules to
modify an advertising message within a preset graphic template on the basis
of events encapsulated within other objects within the network. This
component is administered remotely, residing in our two co-location data
centers, and communicates with the advertising objects and enterprise
integration components while executing the campaign.
Enterprise Integration. This component consists of objects that
encapsulate the client's internal business data relevant to the campaign
and generate events that are communicated to the network services layer and
advertising objects. The underlying internal business data is not
transferred and as such the integrity of a client's enterprise data is
protected and preserved under our architecture. In addition to
communicating client events to the campaign, actual campaign results are
communicated back to the client's internal business data. This two-way
communication facilitates optimization of a business' operating systems and
performance based on campaign results, as well as optimization of a
campaign based upon current business data.
We believe our technology architecture provides these distinct competitive
advantages:
Real Time. Campaign optimization occurs in or near real time. Our MOJO
technology is structured to enable our clients to establish business rules
which will automatically optimize results in response to pre-defined events.
Real-time manual adjustments can be made interactively based on reports
received during ongoing campaigns.
Flexibility. Our MOJO platform is designed to be flexible, supporting both
simple operations such as remote banner serving and click-through tracking, as
well as more sophisticated operations, such as return on investment tracking
and automated feedback. Marketing campaigns can be modified in real time
automatically or manually, based on changes in the data encapsulated in various
objects. These changes are communicated between objects through a continuous
communication loop facilitated by the publish and subscribe messaging
capabilities. Our architecture is also designed to be open and compatible with
most major enterprise software applications and systems. Our MOJO technology is
easy to integrate and implement because it uses an industry standard language,
extensible mark-up language, commonly known as XML, for its data encoding and
communication. MOJO also supports major industry standards for programming
languages, operating systems and Internet protocols.
Scability and Reliability. Our MOJO architecture is designed to scale in
anticipation of increased transaction demand and system load. Our architecture
is scalable by simply adding more servers to accommodate system data traffic.
The application logic is designed to remain unchanged as the transaction volume
grows. In addition, our technology uses automatic failure protection combined
with fault tolerance, which allows campaign requests to be served even if one
or more servers are down.
We have invested significant amounts toward research and development to date.
Our expenses in this area totaled approximately $347,000, $556,000 and $816,000
in 1997, 1998 and the six months ended June 30, 1999, respectively.
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Sales and Marketing
We market and sell our services primarily through our field sales force,
which included 53 sales people as of September 30, 1999. Currently, we have
sales offices and support operations in San Francisco, New York City and
Hamburg, and plan to open additional sales offices in Western Europe and Tokyo
by the end of 1999. We intend to broaden our global presence by expanding our
international sales force and by entering into marketing agreements with
international partners.
Sales leads are primarily of two types: direct leads and business alliance
leads. Direct leads are derived through field sales, client referrals, our Web
site, trade shows, and responses to our public relations and marketing efforts.
Business alliance leads are derived from companies that offer complementary
Internet services. These companies include traditional advertising agencies,
Web site design, Internet development and consulting firms, enterprise resource
planning vendors, interactive agencies, system integrators, and creative and
software tool kit companies. Our sales account teams typically include an
account manager, associate account managers, a campaign manager and an account
coordinator.
We use a variety of marketing programs to build awareness of Mediaplex and
its service offerings. These include collateral marketing materials, online and
off-line advertising, press coverage and other public relations efforts, direct
marketing, trade shows, seminars and conferences, relationships with recognized
industry analysts, and the Mediaplex Web site.
Business and Marketing Alliances
An integral part of our strategy is to develop alliances with complementary
companies for sales, marketing and client development in the United States,
Europe and Asia. We currently have non-exclusive relationships with companies
in the following categories:
Internet Advertising. In August 1999, DoubleClick Inc., a leading provider of
online advertising services, and Mediaplex established an alliance to bridge
the gap between non-personally identifiable online target data and an
advertiser's enterprise data. Through this relationship, we are able to
integrate our MOJO technology with DoubleClick's targeting system, known as
DART, thereby enabling creative messages in real time that are specifically
targeted to a consumer profile. Under our agreement with DoubleClick, we will
coordinate our efforts in DART-enabling the MOJO technology and jointly
marketing our services to prospective clients. The relationship also allows us
to use the DART system, where appropriate, and reduce our own serving costs as
we manage an increasing number of advertisements.
Enterprise Resource Planning. In August 1999, we entered into an agreement
with SAP Labs, Inc., a subsidiary of SAP AG, an enterprise resource planning,
or ERP, software company. Under the terms of our agreement, we will create an
interface to SAP's R3 ERP system that will enable SAP's enterprise customers to
implement our MOJO technology in their e-commerce marketing programs.
Internet Development and Consulting. In July 1999, we entered into a
preferred provider agreement with Icon Medialab, a global Internet architect
for companies integrating Internet-based technology with business strategies.
Icon Medialab's services include strategy consulting, system integration,
interface design and usability testing for enhanced customer relations. Under
our agreement with Icon Medialab, we will cross-refer clients and collaborate
on joint marketing and strategic consumer development programs. We also believe
that we will benefit from Icon Medialab's presence and marketing capabilities
in Europe.
Cable Television Providers. In August 1999, Mediaplex and Across Media
Networks entered into an agreement to offer marketers the capability to match a
specific consumer with a specific offer, both on cable television and the
Internet, driven by business rules and relevant marketing data. Across Media
Networks designs and operates private label cable channels to enable cable
operators to outsource the creation of branded, advertiser-supported subscriber
information channels, and serves over three million subscribers in more than
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75 cities nationwide. We will provide MOJO technology to Across Media Networks
exclusively in conjunction with online marketing and advertising programs for
its CityHits Internet business and clients.
International Alliances. In April 1999, Zeron Capital Ltd., a Japanese
merchant bank, investment management and venture capital firm, invested $2.0
million in us, and in June 1999, invested an additional $3 million in us. Zeron
Capital Ltd. has agreed to use its best efforts to help secure our presence in
Japan, establish alliances with major companies in Japan and develop an
international presence in Asia. We believe that the Japanese market represents
significant growth opportunities for us and will allow us to expand in other
Asian markets. We are currently in discussions with Zeron Capital, Ltd. to
establish a joint venture to develop Japanese leads for our MOJO technology and
our campaign management services.
Our Clients
As of September 30, 1999, Mediaplex had over 50 active clients. The following
is a list of all of our clients that purchased more than $50,000 in services
from January 1, 1998 to September 30, 1999:
Direct Clients
<TABLE>
<S> <C>
AnyDay.com LuckySurf.com
Ashford MacMall/Creative Computers
Buy Software Musicmaker.com
Capstone Studio Mama Systems, Inc.
Cassara Enterprises Ltd. MyShopNow.com
DATEK Online My Track.com
DriveSavers OfficeMax.com
Dynamind PC Flowers & Gifts, Inc.
eCost.com PCMall/Creative Computers
eFax.com Providian Financial
Evite.com, Inc. School Specialty
Financial Engines ShopNow.com
Flower Farm Strong Funds
FreeShop Toytime.com
Fresh Flower Source uBid
Global Admin UK Ltd. Virtumundo, Inc.
Investor's Business Daily YouBet.com
Kelltech 1800 DAYTRADE.com
</TABLE>
Advertising Agencies
. McCann-Erickson for Silicon Graphics, Inc. and Siebel Systems
. Publicis & Hal Riney for Sprint PCS and Hewlett-Packard
In 1998, DATEK Online and uBid accounted for approximately 56% and 21% of our
revenues, respectively. In the first half of 1999, DATEK Online, Publicis & Hal
Riney and uBid accounted for approximately 15%, 10% and 10% of our revenues,
respectively.
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Client Case Studies
Tickets.com
Headquartered in Costa Mesa, California, Tickets.com is the leading provider
of fully integrated automated ticketing and information solutions over the
Internet for the performing arts, professional sports, general admission and
live entertainment markets. Tickets.com also manages a live ticket auction
service for person-to-person transactions.
. Challenge: Tickets.com's previous online marketing campaign was not targeted
to a music concert user's genre preference or geographical location, and
further did not take into account real-time ticket inventory levels.
Tickets.com wanted to test a targeted online advertising program which could
leverage its database information by linking a potential customer's profile
(e.g., music preference and geographic location) with appropriate auction
concert-ticket inventory in real time.
.Mediaplex Solution: Mediaplex designed and implemented a controlled
advertising test which, using MOJO technology, delivered real-time, targeted
banner advertisements to the Audiofind.com site based on visitor profiles
and inventory levels of tickets being auctioned by Tickets.com. For example,
a Web site visitor from California accessing the Country Music Web page on
Audiofind.com would be served a banner for an upcoming popular country music
artist concert in Los Angeles. The banner incorporated various information
from the Tickets.com database including the artist's name or name of event,
number of tickets available, date, venue, city, state and price, and allowed
visitors the opportunity to bid on the tickets being auctioned. For the
test, 30 separate banners promoted and auctioned tickets for 30 individual
concerts across various genres. In addition, a default Tickets.com banner
was used as a control (or baseline) measurement on the Audiofind.com home
page and on genre-specific Web pages with no corresponding auction.
.Result: At the end of the initial 10-day test period, the targeted auction
banner click-through rate from Audiofind.com banners had reached 0.54%, a
440% increase over the 0.10% default Tickets.com banner click-through rate.
Tickets.com and Mediaplex are currently planning the next phase of the
market test with a larger media buy across multiple geographic areas.
Hewlett-Packard
Hewlett-Packard is one of the world's largest computer companies, producing
more than 29,000 products for personal use and use in industry, business,
engineering, science, medicine and education.
.Challenge: Hewlett-Packard needed an online marketing program that encompassed
extensive tracking, reporting and analysis for four separate products as it
began to market its full line of business personal computers and servers.
.Mediaplex Solution: Mediaplex developed and managed an online advertising
campaign for Hewlett-Packard's laptop, business personal computers, server
and high-end workstation products. Working closely with Hewlett-Packard and
its advertising agency, Publicis & Hal Riney, Mediaplex developed four
strategic media plans to reach targeted audiences based on each product's
specific user profile. The Web sites that displayed the product information
resided on Mediaplex servers, which enabled Mediaplex to accurately track
both the time spent viewing product information, and the viewer's next step.
Mediaplex provided a comprehensive analysis of customized return on
investment metrics reflecting the results of the campaigns as they
progressed, including numbers of impressions and click-through rates
achieved for each banner.
.Results: Using MOJO technology, Mediaplex leveraged its ongoing return on
investment analysis of the campaign's performance to make modifications in
real time to the content and location of online advertisements. By tracking
movements made on each product page, Mediaplex was able to determine for
Hewlett-Packard, on a product by product basis, whether consumers were
clicking through to gather information, make a purchase or reach a sales
representative or were merely browsing. The viewer behavior data generated
during the campaign are currently being analyzed for future online programs.
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Technical Support
We provide extensive technical strategy and support throughout the
implementation and maintenance phases of the deployment of our services. This
support is comprised of three key components: Network Operations, Technical
Account Coordination and MOJO Implementation.
Network Operations
Our network operations organization is responsible for ensuring that our
network and servers are fault-tolerant. We have organized our network of
servers to provide significant protection against potential breakdown or
outages.
Technical Account Coordination
We believe that our technical account procedures protect the client from data
loss. Each account team, comprised of a customer support manager, software
engineer and director of systems operations, holds frequent meetings to discuss
each ad campaign currently being conducted. These teams review each client's
campaign for which the team is responsible to ensure the client's program is
operating trouble-free.
Our account coordinators also work with each publisher to provide smooth
technical implementation of the campaign, and test each technical aspect of the
campaign before it is launched.
MOJO Implementation
Our engineering organization takes an in-depth and focused approach to the
implementation of our MOJO technology for each client's online campaign. Each
team meets with its clients to fully understand the client's environment, its
enterprise system and exactly how the MOJO technology needs to work within the
client's specific enterprise design. The team also works with the client to
define the campaign needs and then implements an appropriate plan based on the
campaign goals set by the client. Once MOJO is installed, the team performs
ongoing implementation and support of the client's campaign.
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Privacy of Client Data
The effectiveness of our services and technology relies on the effectiveness
of techniques for profiling Internet users, which may raise privacy concerns.
Our clients generally have implemented security features to protect the privacy
and integrity of the data collected from their users. However, this data may be
susceptible to hacker interception, break-ins and disruption. In addition, we
do not aggregate, share or sell any data we receive on profiling efforts.
We face privacy issues related to our ability to access our clients'
enterprise data. In some cases, our clients have expressed concern that,
because we manage advertising campaigns for them as well as for their
competitors, their confidential enterprise data may be exposed to these
competitors. In order to prevent the unintentional exposure of confidential
enterprise data of our clients, we have created safeguards for their data,
including the use of separate secure servers for clients with any potential
product overlap, independent client teams with no overlapping personnel, and
confidentiality agreements on behalf of the advertising agencies with which we
work and on behalf of the client. In addition, we maintain a strict policy that
no client data should be shared, sold or aggregated with any other client's
data.
Intellectual Property
To protect our proprietary rights, we rely generally on patent, copyright,
trademark and trade secret laws, and confidentiality agreements or licenses
with employees, consultants, vendors, clients and corporate parties. Despite
these protections, a third party could, without authorization, disclose, copy
or otherwise obtain and use our technology or develop similar technology
independently.
We currently have one patent pending in the United States relating to our
MOJO architecture. We cannot assure you that our pending, or any future, patent
application will be granted, that any existing or future patent will not be
challenged, invalidated or circumvented, or that the rights granted under or
any patent that may issue will provide competitive advantages to us. Many of
our current and potential competitors dedicate substantially greater resources
to the protection and enforcement of intellectual property rights, especially
patents. If a blocking patent has issued or issues in the future to a
third party, we would need either to obtain a license to, or to design around,
that patent. We may not be able to obtain a license on acceptable terms, if at
all, or design around the patent, which could harm our ability to provide our
services.
We pursue the registration of our trademarks and service marks in the U.S.
and in other countries, although we have not secured registration of all of our
marks. As of September 30, 1999, we had no registered U.S. trademarks or
service marks; however, we have applied for registration of our Mediaplex and
MOJO trademarks which we believe are key to identifying and differentiating our
services from those of our competitors. In addition, the laws of some foreign
countries will not protect our proprietary rights to the same extent as do the
laws of the U.S., and effective patent, copyright, trademark and trade secret
protection may not be available in these jurisdictions.
We may, in the future, license our proprietary rights, in particular our MOJO
technology, to third parties. These licensees may fail to abide by compliance
and quality control guidelines with respect to our proprietary rights or take
actions that would severely harm our ability to use our proprietary rights and
our business.
We attempt to avoid infringing known proprietary rights of third parties in
our product development efforts. We have conducted an independent patent search
for prior art related to our MOJO architecture. This patent search did not
uncover any references that would anticipate our patent claim; however, this
patent search was not exhaustive and may not have uncovered all prior art
applicable to our MOJO architecture. In addition, it is difficult to proceed
with certainty in a rapidly evolving technological environment in which there
exist numerous patent applications pending, many of which are confidential when
filed, with regard to similar technologies. If we were to discover that our
technology violates third-party proprietary rights, we might not be able to
obtain licenses or continue offering our services based on our technology
without substantial reengineering. Any efforts to undertake this reengineering
might not be successful, and any necessary licenses might not be available on
commercially reasonable terms, if at all.
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Litigation for claims of infringement might not be avoided or settled without
incurring substantial expenses and damage awards. In addition, any of these
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources and could result in injunctions preventing
us from delivering our services based on our technology or licensing our
technology to third parties or clients. These claims could harm our business.
In the future, we may license technology that will be integrated with our
internally developed software and used in our services. We cannot assure you
that third-party technology licenses will become or will continue to be
available to us on commercially reasonable terms. The loss of any of these
technologies could harm our business. In addition, by licensing technology from
third parties, we may become susceptible to claims for infringement with
respect to this third-party technology. Even if we receive broad
indemnification from our licensors, third-party indemnitors are not always well
capitalized and may not be able to indemnify us in the event of infringement,
resulting in substantial exposure to us. Any infringement claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources in addition to potential product redevelopment costs and
delays, all of which could harm our business.
Competition
The Internet media services market, which includes planning media campaigns,
buying advertising space, ad serving and tracking and reporting results of
advertising, is extremely competitive and likely to become more intense due to
the lack of significant barriers to entry. We believe that, in addition,
competition will continue to increase as a result of industry mergers,
partnerships and consolidation. As we expand internationally, we expect to face
competition from local companies in those markets, as well as our domestic
competitors with international operations. Many of our existing competitors, as
well as a number of potential new competitors, have longer operating histories,
greater name recognition, larger client bases and significantly greater
financial, technical and marketing resources than we have. The following
categories represent current and potential competition:
. online media planning and buying services, such as Avenue A;
. ad serving companies, such as AdForce, DoubleClick and Engage
Technologies, Inc.;
. publisher networks that provide services directly to clients, such as
Flycast Communications and 24/7 Media, Inc.;
. organizations that manage affiliate programs, such as LinkShare; and
. advertising agencies with in-house online media management capabilities,
such as Lowe Interactive.
We believe that our ability to compete depends upon many factors both within
and outside of our control, including:
. effectiveness, ease of use, performance and features of our technology;
. client perceptions of the effectiveness of our services and technology;
. the price of our services;
. our ability to service our clients effectively over a broad geographic
basis; and
. the timing and acceptance of new services and enhancements to existing
services developed by us or our competitors.
Employees
As of September 30, 1999, we had 109 full-time employees. Of these employees,
36 were engaged in research and development, 53 were engaged in sales and
marketing and 20 were engaged in finance and administration. None of our
employees is represented by a labor union or a collective bargaining agreement.
We have not experienced any work stoppages and consider our relations with our
employees to be good.
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Facilities
We currently lease approximately 22,100 square feet of office space for our
headquarters in two buildings, located in San Francisco, California. We believe
we will need additional space in the near future and are currently in
negotiations to lease approximately 11,100 square feet of office space near one
of our office facilities in San Francisco. We cannot assure you that we will
find adequate space at a reasonable price. We also lease approximately 13,200
square feet of a facility in San Jose, California that houses our research and
development organization and approximately 7,700 square feet in New York City
for a sales office. In addition, we use two third-party, fully-redundant co-
location facilities that house our Web servers in San Francisco and San Jose,
California and we are currently seeking to obtain additional co-location
facilities in other areas in the United States. We cannot assure you that we
will be able to locate and lease additional acceptable co-location space at a
reasonable price.
Legal Proceedings
From time to time, we may become involved in litigation relating to claims
arising from the ordinary course of our business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a material adverse effect on us.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to our
directors and executive officers as of September 30, 1999:
<TABLE>
<CAPTION>
Name Age Position
--------------------------- --- --------------------------------------------
<C> <C> <S>
Gregory R. Raifman......... 40 Chairman of the Board of Directors and Chief
Executive Officer
Jon L. Edwards............. 39 President and Director
Walter Haefeker............ 38 Chief Operating Officer
Ruiqing "Barclay" Jiang.... 37 Chief Technology Officer
Executive Vice President, Sales and
Timothy M. Favia........... 37 Development
Senior Vice President, Chief Financial
Sandra L. Abbott........... 52 Officer and Secretary
Robert M. Henely........... 47 Senior Vice President, Technical Operations
M. Joy Fauvre.............. 48 Senior Vice President, Marketing
Alan M. Raifman............ 45 Vice President, Business and Legal Affairs
James DeSorrento .......... 56 Director
Lawrence D. Lenihan, Jr. .. 34 Director
Peter S. Sealey ........... 59 Director
A. Brooke Seawell ......... 51 Director
</TABLE>
Gregory R. Raifman has served as our Chairman of the Board of Directors and
Chief Executive Officer since September 1998, and Chief Executive Officer and
sole director of MediaPlex, Inc., our former wholly-owned subsidiary since
April 1998. Since August 1993, Mr. Raifman has also served as a general partner
of Raifman & Edwards LLP, a law firm. Since September 1994, Mr. Raifman has
also served as a managing member of PointBreak Ventures, LLC, a venture capital
firm. Mr. Raifman received an A.B. in economics and history from the University
of Michigan and a J.D. from Georgetown University Law Center.
Jon L. Edwards has served as our President and a member of our board of
directors since April 1998. Since August 1993, Mr. Edwards has also served as a
general partner of Raifman & Edwards LLP. Since September 1994, Mr. Edwards has
also served as a managing member of PointBreak Ventures, LLC. Mr. Edwards
received an A.B. in engineering science from Dartmouth College and a J.D. from
Georgetown University Law Center.
Walter Haefeker has served as our Chief Operating Officer since September
1998. Since September 1994, Mr. Haefeker has served as a managing member for
PointBreak Ventures, LLC. From March 1994 to April 1995, Mr. Haefeker served as
chairman of the board of directors for CADIS Software, Ltd., a software
company. Mr. Haefeker received an Abitur in chemistry and physics from Theodor-
Heass Gymnasium, Pinneberg, Germany.
Ruiqing "Barclay" Jiang has served as our Chief Technology Officer since
March 1999. Prior to joining Mediaplex, Mr. Jiang served as president of
Netranscend Software, Inc., an enterprise software company, from November 1996
until it was acquired by Mediaplex in March 1999. From October 1993 to
September 1997, Mr. Jiang served as an engineering manager for FutureLabs,
Inc., a software company. Mr. Jiang received a B.S. in computer science from
Xi'an Jiaotong University, China and an M.S. in applied statistics from
Louisiana State University.
Timothy M. Favia has served as our Executive Vice President, Sales and
Development since January 1999. Prior to joining Mediaplex, Mr. Favia was a co-
founder of Oxygen Electronics, LLC, a distributor of electronic components,
where he served as managing partner from June 1997 to December 1998. From
January 1996 to May 1997, Mr. Favia served as vice president, western region,
of Open Port Technology, an Internet messaging
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services company. From July 1988 to January 1996, he served as director of
international sales for Thomson Software Products, a software company. Mr.
Favia received a B.A. in political science from Fairfield University.
Sandra L. Abbott has served as a Senior Vice President and our Chief
Financial Officer and Secretary since August 1999. Prior to joining Mediaplex,
Ms. Abbott served as chief financial officer for 8x8, Inc., a manufacturer of
digital telecommunication products, from June 1995 to August 1999. From April
1991 to June 1995, Ms. Abbott served as controller for 8x8, Inc. Ms. Abbott
received a B.A. in political science from the University of California,
Riverside and an M.B.A. from Santa Clara University.
Robert M. Henely has served as our Senior Vice President, Technical
Operations since March 1999. Prior to joining Mediaplex, Mr. Henely served as
director of engineering for Boole & Babbage, Inc., a software company, from
December 1997 to March 1999. From November 1981 to December 1997, Mr. Henely
served as a research and development manager at Hewlett-Packard Company.
Mr. Henely received a B.S. in economics from California State University, Chico
and an M.S. in econometrics from the University of California, San Diego.
M. Joy Fauvre has served as our Senior Vice President, Marketing since July
1999. Prior to joining Mediaplex, Ms. Fauvre served as a marketing director for
Heller Financial, a commercial lender, from October 1994 to July 1999. From
June 1994 to October 1994, Ms. Fauvre served as acting advertising manager for
Qantas Airways, a commercial airline, and from August 1991 to January 1994, she
served as an account supervisor for D'Arcy Masius Benton & Bowles, an
advertising agency. Ms. Fauvre received a B.A. in theatre from the University
of California, Santa Barbara and an M.A. in theatre from Ball State University.
Alan M. Raifman has served as our Vice President, Business and Legal Affairs
since October 1998. Prior to joining Mediaplex, Mr. Raifman served as an
associate for Albert A. Rettig & Associates, a business services company, from
June 1997 through January 1999. From July 1989 to June 1997, Mr. Raifman served
as President and a director of Little Cargo, Inc., a juvenile product
development company that he co-founded. Mr. Raifman is currently on the board
of directors of Little Cargo, Inc. Mr. Raifman received a B.A. in history and a
J.D. from Washington University.
James DeSorrento has served as a member of our board of directors since
August 1999. Since June 1982, Mr. DeSorrento has served as chief executive
officer and chairman of the board of Triax Telecommunications Company, LLC and
its predecessor, Triax Communications Corporation, a cable television operating
company. Mr. DeSorrento received a B.A. in English from St. Michael's College.
Lawrence D. Lenihan, Jr. has served as a member of our board of directors
since August 1999. Since January 1999, Mr. Lenihan has served as fund manager
for Pequot Capital Management, Inc., a venture capital firm. From October 1996
to December 1998, Mr. Lenihan served as fund manager for Dawson-Sanberg Capital
Management, a venture capital firm. From August 1993 to October 1996, Mr.
Lenihan served as a principal for Broadview Associates, an investment bank. Mr.
Lenihan also serves as a member of the boards of directors of Digital
Generation Systems, Inc., a provider of distribution services for ad agencies
and broadcasters, STM Wireless, Inc., a satellite and wireless-based
communications company, and Triken Technologies, Inc., a semiconductor-
processing equipment company, as well as several private companies. Mr. Lenihan
received a B.S.E.E. in electrical engineering from Duke University and an
M.B.A. from the Wharton School of Business at the University of Pennsylvania.
Peter S. Sealey has served as a member of our board of directors since August
1999. Since September 1994, Dr. Sealey has served as an adjunct professor of
marketing at the Haas School of Business at the University of California,
Berkeley where he also has served as a co-director of the Center for Marketing
and Technology. Prior to that, Dr. Sealey was employed by the Coca Cola Company
for 24 years, where he held a series of senior management positions, including
senior vice president, global marketing. Dr. Sealey serves as a member of the
boards of directors of US Web/CKS, an Internet professional services firm,
Autoweb.com Inc., a consumer automotive Internet site, bamboo.com, a producer
of virtual tours for the real estate industry on the
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Internet, and Cybergold, Inc., an Internet-based direct marketing and
advertising company, as well as several private companies. Dr. Sealey received
a B.S.B.A. in business from the University of Florida, an M.I.A. in industrial
administration from Yale University, and an M.A. in management and Ph.D. in
management and information technology from the Peter F. Drucker Graduate
Management Center at The Claremont Graduate University.
A. Brooke Seawell has served as a member of our board of directors since
August 1999. From January 1997 to August 1998, Mr. Seawell served as the
executive vice president of NetDynamics Inc., an enterprise network
applications server software company. From March 1991 to January 1997, Mr.
Seawell served as the senior vice president of finance and operations of
Synopsys Inc., an electronic design automation company. Mr. Seawell serves as a
member of the boards of directors of NVIDIA Corporation, a three-dimensional
graphics processor, Informatica Corporation, a data integration software
company, and Accrue Software, Inc., an internet data collection and analysis
software company, as well as several private companies. Mr. Seawell received a
B.A. in economics and an M.B.A. in finance from Stanford University.
Board of Directors
Our board of directors is currently comprised of six directors. Our restated
certificate of incorporation, to be filed upon the closing of this offering,
states that the 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. Messrs. Lenihan and Sealey have been
designated as Class I directors; Messrs. Edwards and DeSorrento have been
designated as Class II directors; and Messrs. Raifman and Seawell have been
designated as Class III directors. At each annual meeting of the stockholders
after the initial classification, the successors to the directors whose terms
have expired will be elected to serve from the time of 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. In addition, our bylaws, to be adopted upon the
closing of this offering, provide that the authorized number of directors may
be changed by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of 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 Mediaplex. See "Description of Capital Stock."
Each officer is elected by, and serves at the discretion of, the board of
directors or until his or her successor has been duly elected and qualified.
Each of our executive officers and directors, other than non-employee
directors, devotes his or her full time to our affairs. Our non-employee
directors devote the amount of time necessary to discharge their duties to us.
Gregory R. Raifman, our Chairman of the Board of Directors and Chief Executive
Officer is the brother of Alan M. Raifman, our Vice President, Business and
Legal Affairs. There are otherwise no family relationships among any of our
directors, officers or key employees.
Board Committees
The board of directors has established an audit committee to meet with and
consider suggestions from members of management and our internal accounting
personnel, as well as our independent accountants, concerning our financial
operations. The audit committee also has the responsibility to review our
audited financial statements and consider and recommend the employment of, and
approve the fee arrangements with, independent accountants for both audit
functions and for advisory and other consulting services. The audit committee
is currently comprised of Messrs. DeSorrento and Seawell.
The board of directors has also established a compensation committee to
review and approve the compensation and benefits for our key executive
officers, administer our equity incentive plans and make
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<PAGE>
recommendations to the board of directors regarding such matters. The
compensation committee is currently comprised of Messrs. Lenihan and Sealey.
Compensation Committee Interlocks and Insider Participation
Prior to establishing the compensation committee, the board of directors as a
whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of
directors or compensation committee.
Director Compensation
Directors do not currently receive any cash compensation from us for their
service as members of the board of directors; however, directors are reimbursed
for all reasonable expenses incurred by them in attending board and committee
meetings. Employee and non-employee directors are also eligible to receive
options under our 1999 Stock Plan and employee directors are eligible to
participate in our 1999 Employee Stock Purchase Plan. In August 1999, Messrs.
DeSorrento and Seawell and Dr. Sealey were each granted an option to acquire
50,000 shares of common stock at an exercise price of $3.25 per share upon
their appointment to our board of directors. The options vest over a four year
period but may be exercised at any time. See "--Equity Incentive Plans."
Executive Compensation
The following table sets forth the total compensation received for services
rendered to us during 1998 by our Chief Executive Officer and two of our other
executive officers. Except as set forth below, no other employee received
salary and bonus in 1998 in excess of $100,000. These three officers are
referred to as the named executive officers in this prospectus. In 1998,
Messrs. Gregory Raifman and Jon Edwards, general partners of Raifman & Edwards,
LLP, provided legal and management services to us, for which Raifman & Edwards,
LLP was paid approximately $197,000. See "Related Party Transactions." Except
as disclosed below and in "Related Party Transactions," we gave no bonuses,
stock-based compensation or other compensation to our named executive officers
in 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Position Salary ($)
- ------------------------------------------------------------ -------------------
<S> <C>
Gregory R. Raifman, Chief Executive Officer (1)............. $180,000
Jon L. Edwards, President (2)............................... 180,000
Walter Haefeker, Chief Operating Officer (3)................ 150,000
</TABLE>
- --------
(1) The salary amount represents the amount Mr. Raifman would have earned if he
had been employed by us for the entire year. Mr. Raifman's actual salary
earned was $35,000.
(2) The salary amount represents the amount Mr. Edwards would have earned if he
had been employed by us for the entire year. Mr. Edward's actual salary
earned was $35,000.
(3) The salary amount represents the amount Mr. Haefeker would have earned if
he had been employed by us for the entire year. Mr. Haefeker's actual
salary earned in 1998 was $41,100.
The 1999 annual base salary rates for Messrs. Raifman, Edwards and Haefeker
are $250,000, $250,000 and $225,000, respectively. In addition, we hired the
following executive officers in 1999 at the following annual salaries: Ruiqing
"Barclay" Jiang, $180,000; Timothy M. Favia, $175,000; Sandra L. Abbott,
$170,000; Robert Henely, $150,000; M. Joy Fauvre, $140,000; and Alan M.
Raifman, $90,000.
52
<PAGE>
Option Grants and Exercises in Last Fiscal Year and Fiscal Year End Option
Values
No named executive officers were granted or held any options to purchase our
common stock at any time in 1998. In February 1999, however, Gregory R.
Raifman, Jon L. Edwards and Walter Haefeker were granted options under our 1999
Stock Plan to purchase 1,750,000, 1,500,000 and 1,250,000 shares of common
stock, respectively, at a purchase price of $0.50 per share, of which 388,889
shares, 333,333 shares and 138,889 shares, respectively, had vested as of
December 31, 1998. None of these options has been exercised to date.
Employment Agreements
In connection with our hiring and retention of each of Gregory R. Raifman,
Jon L. Edwards and Walter Haefeker, we entered into employment agreements, each
dated February 19, 1999, in which we agreed to pay each of them a specified
base salary and grant each of them options to purchase our common stock, and
each executive officer agreed to enter into a three-year employment term with
us. Upon the expiration of the three-year term, employment with us becomes
terminable at will. All options vest at the rate of 1/6th of the shares on the
six-month anniversary of the vesting commencement date, and 1/36th of the
shares per month thereafter as long as the optionee is employed by us. The
following table sets forth the stock options granted to each executive officer
under his employment agreement with us:
<TABLE>
<CAPTION>
Exercise Price
Name Options Granted Per Share
- ------------------------------------------------- --------------- --------------
<S> <C> <C>
Gregory R. Raifman............................... 1,750,000 $0.50
Jon L. Edwards................................... 1,500,000 0.50
Walter Haefeker.................................. 1,250,000 0.50
</TABLE>
Under the terms of each employment agreement, if we terminate employment with
the executive officer without cause, we are required to pay him severance
payments of 1/13th of his base salary for each complete month previously
worked; however, the aggregate severance payments are not to exceed his annual
base salary. Additionally, each executive officer has agreed to not compete
with us or not solicit others from us for a period of one year following his
termination with us.
Equity Incentive Plans
1997 Stock Plan. Our 1997 Stock Plan provides for the granting to employees
of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and for the granting to employees and
consultants of nonstatutory stock options and stock purchase rights. As of
September 30, 1999, options to purchase 243,000 shares of common stock were
outstanding under our 1997 Stock Plan. Our board of directors has determined
that no further options will be granted under the 1997 Stock Plan after this
offering. The 1997 Stock Plan provides that, if we merge with or into another
corporation or sell substantially all of our assets, each outstanding option
must be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the Mediaplex
options, the Mediaplex options will terminate as of the closing of the merger
or sale of assets.
Amended and Restated 1999 Stock Plan. Our 1999 Stock Plan was initially
adopted by our board of directors and shareholders in February 1999. It was
amended and restated by our board of directors in August 1999, and by our
stockholders in September 1999. The Amended and Restated 1999 Stock Plan will
become effective upon the closing of this offering.
The Amended and Restated 1999 Stock Plan provides for the grant of incentive
stock options to employees, including officers and employee directors, and for
the grant of nonstatutory stock options and stock purchase rights to employees,
directors and consultants.
53
<PAGE>
We have reserved 12,000,000 shares of our common stock for issuance pursuant
to the Amended and Restated 1999 Stock Plan. In addition, commencing January 1,
2000, the number of shares reserved for issuance under the Amended and Restated
1999 Stock Plan will be increased by an amount equal to the least of (a)
1,000,000 shares, (b) 4% of the outstanding shares or (c) an amount determined
by our board of directors.
Unless terminated sooner, the Amended and Restated 1999 Stock Plan will
automatically terminate ten years from the effective date of this offering.
The administrator of our stock plan has the power to determine:
. the terms of the options or stock purchase rights granted, including the
exercise prices of the options or stock purchase rights;
. the number of shares subject to each option or stock purchase right;
. the exercisability of each option or stock purchase right; and
. the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the administrator has the authority to amend, suspend or
terminate the stock plan, so long as this action does not affect any shares of
common stock previously issued and sold or any option previously granted under
the Amended and Restated 1999 Stock Plan. The maximum number of shares covered
by an option that each optionee may be granted during a fiscal year is 500,000
shares. In addition, in connection with an optionee's initial employment with
us, the optionee may be granted an option covering an additional
500,000 shares.
Options and stock purchase rights granted under our Amended and Restated 1999
Stock Plan are generally not transferable by the optionee, and each option and
stock purchase right is exercisable during the lifetime of the optionee only by
the optionee. Options granted under the Amended and Restated 1999 Stock Plan
must generally be exercised within three months after the end of the optionee's
status as an employee, director or consultant of Mediaplex, or within 12 months
after the optionee's termination by death or disability, but in no event later
than the expiration of the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement must grant us a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with us for any reason,
including death or disability. The purchase price for shares repurchased
pursuant to the restricted stock purchase agreement will be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of
the purchaser to us. The repurchase option will lapse at a rate determined by
the administrator.
The exercise price of all incentive stock options granted under the Amended
and Restated 1999 Stock Plan must be at least equal to the fair market value on
the date of grant of the common stock underlying the option. The exercise price
of nonstatutory stock options and stock purchase rights granted under the
Amended and Restated 1999 Stock Plan is determined by the administrator, but
with respect to nonstatutory stock options intended to qualify as "performance-
based compensation" within the meaning of Section 162(m) of the Code, the
exercise price must be at least equal to the fair market value on the date of
grant of the common stock underlying the option. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal to 110% of the fair market value on
the grant date and the term of the incentive stock option must not exceed five
years. The term of all other options granted under the Amended and Restated
1999 Stock Plan may not exceed ten years.
The Amended and Restated 1999 Stock Plan provides that, in the event of a
merger of Mediaplex with or into another corporation, or a sale of
substantially all of our assets, each option and stock purchase right must be
assumed, or an equivalent option or stock purchase right substituted, by the
successor corporation. If the
54
<PAGE>
outstanding options and stock purchase rights are not assumed or substituted
for by the successor corporation, the optionees will fully vest in and have the
right to exercise their options or stock purchase rights. If an option or stock
purchase right becomes fully vested and exercisable in the event of a merger or
sale of assets, the administrator must notify the optionee that the option or
stock purchase right will be fully exercisable for a period of 15 days from the
date of notice and that the option or stock purchase right will terminate upon
the expiration of the 15-day period.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan was
adopted by our board of directors in August 1999, and by our stockholders in
September 1999. The 1999 Employee Stock Purchase Plan will become effective
upon the closing of this offering. This plan is designed to allow our eligible
employees and the eligible employees of any participating subsidiaries to
purchase shares of common stock, at semi-annual intervals, with their
accumulated payroll deductions.
We have reserved 400,000 shares of our common stock for issuance pursuant to
the 1999 Employee Stock Purchase Plan. In addition, commencing January 1, 2000,
the number of shares reserved for issuance under the 1999 Employee Stock
Purchase Plan will be increased by an amount equal to the least of: (a) 400,000
shares, (b) 2% of the outstanding shares on such date or (c) an amount
determined by our board of directors. As of the date of this prospectus, no
shares had been issued under the 1999 Employee Stock Purchase Plan.
Our 1999 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Code, contains consecutive, overlapping, 24-month offering
periods. Each offering period includes four six-month purchase periods. The
offering periods generally start on the first trading day on or after May 1 and
November 1 of each year, except for the first offering period, which commences
on the first trading day on or after the effective date of this offering and
ends on the last trading day on or before October 31, 2001.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, employees may not be granted an
option to purchase stock under the 1999 Employee Stock Purchase Plan if they
either:
. immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock; or
. hold rights to purchase stock under our 1999 Employee Stock Purchase Plan
that accrue at a rate which exceeds $25,000 worth of stock for each
calendar year.
The 1999 Employee Stock Purchase Plan permits each participant to purchase
our common stock through payroll deductions of up to 10% of his or her
"compensation." Compensation is defined as the participant's base straight-time
gross earnings, overtime, shift premium and bonuses, but excludes other
compensation. The maximum number of shares a participant may purchase during a
single purchase period is 1,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 1999 Employee Stock Purchase Plan is generally 85% of the
lower of the fair market value of the common stock either:
. at the beginning of the offering period; or
. at the end of the purchase period.
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. The new
offering period will use the lower fair market value as of the first date of
the new offering period to determine the purchase price for future purchase
periods. Participants may end their participation at any time during an
offering period, and they will be paid their payroll deductions to date.
Participation ends automatically upon termination of employment with us.
55
<PAGE>
Rights granted under the 1999 Employee Stock Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 1999 Employee Stock Purchase
Plan. The 1999 Employee Stock Purchase Plan provides that, in the event of a
merger of Mediaplex with or into another corporation or a sale of substantially
all of our assets, each outstanding option may be assumed or substituted for by
the successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding options, the offering period then in progress
will be shortened and a new exercise date will be set.
Our board of directors has the authority to amend or terminate the 1999
Employee Stock Purchase Plan, except that no such action may adversely affect
any outstanding rights to purchase stock under the 1999 Employee Stock Purchase
Plan, provided that the board of directors may terminate an offering period on
any exercise date if the board of directors determines that the termination of
the 1999 Employee Stock Purchase Plan is in our best interests and the best
interests of our stockholders. The board of directors may in its sole
discretion amend the 1999 Employee Stock Purchase Plan to the extent necessary
and desirable to avoid unfavorable financial accounting consequences by
altering the purchase price for any offering period, shortening any offering
period or allocating remaining shares among the participants. Unless sooner
terminated by our board of directors, the 1999 Employee Stock Purchase Plan
will terminate automatically ten years from the effective date of this
offering.
401(k) Plan
In February 1997, we adopted a 401(k) plan to provide eligible employees with
a tax preferential savings and investment program. Employees become eligible to
participate in the 401(k) plan on the first day they perform an hour of service
for us, at which point we classify them as participants. They may elect to
reduce their current compensation by up to the lesser of 15% of eligible
compensation or the statutorily prescribed annual limit, currently $10,000, and
have this reduction contributed to the 401(k) plan. The 401(k) plan permits,
but does not require, us to make additional matching contributions to the
401(k) plan on behalf of eligible participants. All contributions made by and
on behalf of participants are subject to a maximum contribution limitation
currently equal to the lesser of 25% of their compensation or $30,000 per year.
At the direction of each participant, the trustee of the 401(k) plan invests
the assets of the 401(k) plan in selected investment options. Contributions by
participants or by us to the 401(k) plan, and income earned on plan
contributions, are generally not taxable to the participants until withdrawn,
and contributions by us, if any, are generally deductible by us when made. To
date, we have made no contributions to the 401(k) plan on behalf of
participants.
Limitations on Directors' Liability and Indemnification
Our amended and restated certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for any of the following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our amended and restated certificate of incorporation provides that we may
indemnify our directors, officers and employees to the fullest extent permitted
by law. We believe that indemnification under our bylaws
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<PAGE>
covers at least negligence and gross negligence on the part of indemnified
parties. Our bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether our bylaws would permit
indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for expenses, judgments, fines and settlement amounts
incurred by them in any action or proceeding arising out of their services as
directors or executive officers or at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
At present, there is no material litigation or proceeding pending involving
any of our directors or officers in which indemnification is required or
permitted, and we are not aware of any threatened material litigation or
proceeding that might result in a claim for indemnification.
57
<PAGE>
RELATED PARTY TRANSACTIONS
Since our inception in September 1996, we have never been party to, and we
have no plan to be a party to, any transaction or series of similar
transactions in which the amount involved exceeded or will exceed $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.
Transactions with Founders
Michael Schwartz, Raifman & Edwards LLP, PointBreak Ventures, LLC and Eugene
Jarvis were involved in our initial funding. Michael Schwartz and Eugene Jarvis
served as our initial officers and directors. Neither Mr. Schwartz nor Mr.
Jarvis is currently affiliated with us. Gregory R. Raifman and Jon L. Edwards,
two of our current executive officers, are general partners of Raifman &
Edwards LLP and are managing members of, and hold substantial interests in,
PointBreak Ventures, LLC. Walter Haefeker, also a current executive officer,
holds a substantial interest in PointBreak Ventures, LLC. Following our
inception in September and October 1996, we issued 2,460,000 shares to Michael
Schwartz for a nominal amount, 350,000 shares to Raifman & Edwards LLP in
consideration primarily for legal services rendered, and 250,000 shares to
PointBreak Ventures, LLC, in consideration primarily for business and financial
consulting services rendered. All shares initially issued to Raifman & Edwards
LLP have been transferred to R&E Holdings, LLC, a limited liability company in
which Messrs. Gregory R. Raifman and Jon L. Edwards are managing members. In
October 1996, we also issued 800,000 shares to Eugene Jarvis for $40,000 and,
in January 1997, we issued an additional 800,000 shares to Kuni Research, of
which Mr. Jarvis is a stockholder, for $40,000.
In March 1999, Raifmain & Edwards LLP acquired 947,009 shares of our common
stock by converting a promissory note from us in the amount of $71,000 that had
been issued for unpaid legal fees, and 4,643,228 shares of our common stock by
converting a promissory note in the amount of $232,000 acquired by Raifmain &
Edwards LLP from Michael Schwartz.
Certain Business Relationships
Raifman & Edwards LLP provided legal and management services to us in the
period from inception to December 31, 1996, and the years ended December 31,
1997 and 1998 of approximately $22,000, $67,000 and $197,000, respectively. No
legal services were provided by Raifman & Edwards LLP to us in the six months
ended June 30, 1999.
In September 1999, we entered into an oral agreement with R&E Holdings, LLC
to sublease a portion of the space we currently occupy at our headquarters in
San Francisco, California. The sublease terms and payments made by us to R&E
Holdings, LLC are substantially similar to the lease terms and payments paid by
R&E Holdings, LLC to the landlord. To date, we have paid R&E Holdings, LLC a
total of approximately $74,000 for these lease payments.
Transactions with Management and Others
In connection with his employment by us in January 1999, we issued a warrant
to purchase 500,000 shares of our common stock at an exercise price of $0.50
per share to Timothy M. Favia, one of our current executive officers. The
warrant may be exercised prior to January 10, 2002 by Mr. Favia.
In connection with our acquisition of Netranscend Software, Inc. in March
1999, we issued to Ruiqing "Barclay" Jiang, one of our current executive
officers and formerly the sole shareholder of Netranscend Software, Inc., a
promissory note in the principal amount of $430,000, payable in four annual
installments and an aggregate of 1,979,000 shares of common stock valued at
$2.6 million. Of the shares issued, 300,000 are
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<PAGE>
currently being held in escrow to cover breaches of representations and
warranties made by Mr. Jiang and Netranscend Software, Inc. in the agreement
and plan of reorganization executed in connection with the acquisition.
In February 1999, we sold an aggregate of 1,206,000 shares of Series A
preferred stock to investors at a purchase price of $1.25 per share. In June
1999, we sold an aggregate of 4,500,000 shares of Series B preferred stock to
investors at a purchase price of $2.00 per share. In August 1999, we sold an
aggregate of 4,000,000 shares of Series C preferred stock to investors at a
purchase price of $3.59 per share. The shares of Series A, Series B and Series
C preferred stock will automatically convert into an aggregate of 9,706,000
shares of common stock upon the closing of this offering. The holders of
converted shares of Series C preferred stock are entitled to demand and piggy-
back registration rights. See "Description of Capital Stock--Registration
Rights."
The investors in the preferred stock included the following entities that
hold 5% or more of our stock or that are affiliated with our directors or
executive officers, or both:
<TABLE>
<CAPTION>
Shares of Shares of Shares of
Series A Series B Series C
Investor Preferred Stock Preferred Stock Preferred Stock
- ------------------------------ --------------- --------------- ---------------
<S> <C> <C> <C>
5% Stockholder Entities
Affiliated with a Mediaplex
Director or Executive
Officer:
Entity affiliated with James
DeSorrento (1)(2)........... 160,000 140,000 --
Entity affiliated with A.
Brooke Seawell (1)(3)....... -- 75,000 --
Entity affiliated with
Gregory R. Raifman and
Jon L. Edwards (1)(4)....... -- -- 19,360
Entities affiliated with
Lawrence D. Lenihan,
Jr.(1)(5)................... -- -- 1,671,309
Other 5% Stockholders
Zeron Capital Ltd. (6)....... -- 2,625,000 --
The Goldman Sachs Group, Inc.
(7)......................... -- -- 1,392,758
</TABLE>
- --------
(1) James DeSorrento, A. Brooke Seawell, Gregory R. Raifman, Jon L. Edwards and
Lawrence D. Lenihan, Jr. are each members of our board of directors.
(2) All shares are held of record by DeSorrento Revocable Trust under an
agreement dated 12/17/80.
(3) All shares are held of record by Seawell Revocable Trust, A. Brooke Seawell
& Patricia C. Seawell, trustees.
(4) All shares are held of record by R&E Holdings, LLC. Messrs. Gregory R.
Raifman and Jon L. Edwards are the managing members and beneficial owners
of R&E Holdings, LLC. Each of Mr. Raifman and Mr. Edwards disclaims
beneficial ownership of these shares, except to the extent of his
respective pecuniary interest therein.
(5) Represents 1,483,484 shares of Series C preferred stock held of record by
Pequot Private Equity Fund, L.P. and 187,825 shares of Series C preferred
stock held of record by Pequot Offshore Private Equity Fund, Inc. Mr.
Lenihan is the fund manager for Pequot Capital Management, Inc. He
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein.
(6) Includes 1,500,000 shares held of record by Odyssey Venture Partners and
1,000,000 shares held of record by Argossy Limited. Argossy Limited and
Odyssey Venture Partners are funds affiliated with Zeron Capital Ltd. Zeron
Capital Ltd. also holds a warrant to purchase 125,000 shares of Series B
preferred stock.
(7) Includes 139,276 shares of Series C preferred stock purchased by Stone
Street Fund 1999 L.P., an affiliate of The Goldman Sachs Group, Inc.
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<PAGE>
In connection with the sale of our Series B preferred stock in June 1999, we
issued a warrant to purchase 125,000 shares of Series B preferred stock, at an
exercise price of $2.00 per share, to Zeron Capital, Ltd., a 5% stockholder.
After this offering, the warrant will be exercisable for a like number of
shares of our common stock. The warrant may be exercised at any time prior to
its expiration in June 2002.
In connection with the sale of our Series B preferred stock in June 1999 to
Zeron Capital, Ltd., we issued a warrant to purchase 150,000 shares of Series B
preferred stock, at an exercise price of $2.00 per share, and a warrant to
purchase 100,000 shares of common stock, at a purchase price of $0.50 per
share, to Retail Ventures International, Inc., a financial advisor to us. After
this offering, the warrant to purchase Series B preferred stock will be
exercisable for a like number of shares of our common stock. The warrants may
be exercised at any time prior to their expiration in June 2002.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock before and after the offering by:
. each person or entity who beneficially owns more than 5% of our common
stock;
. each of our named executive officers;
. each of our directors; and
. all executive officers and directors as a group.
Except as otherwise noted, the address of each 5% stockholder listed in the
table is c/o Mediaplex, Inc., 131 Steuart Street, Fourth Floor, San Francisco,
California 94105. The table includes all shares of common stock issuable within
60 days of September 30, 1999, upon the exercise of options and warrants
beneficially owned by the indicated stockholders on that date based on options
and warrants outstanding as of September 30, 1999. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares. To
our knowledge, except under applicable community property laws or as otherwise
indicated, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable
percentage of ownership for each stockholder is based on shares of common stock
outstanding as of September 30, 1999, together with applicable options and
warrants for that stockholder. Shares of common stock issuable upon exercise of
options and warrants beneficially owned are deemed outstanding for the purpose
of computing the percentage ownership of the person holding those options and
warrants, but are not deemed outstanding for computing the percentage ownership
of any other person.
<TABLE>
<CAPTION>
Percent of
Number of Shares Outstanding
Shares of ----------------------
Common Stock Before After
Name Beneficially Owned Offering Offering
- --------------------------------- ------------------ --------- ---------
<S> <C> <C> <C>
R & E Holdings, LLC (1).......... 10,276,905 41.6% 33.5%
Zeron Capital Ltd. (2)........... 2,625,000 10.6 8.5
44 Church Street
Hamilton HM12
Bermuda
Pequot Capital Management, Inc.
(3)............................. 1,671,309 6.8 5.4
500 Nyala Farm Road
Westport, CT 06880
The Goldman Sachs Group, Inc.
(4)............................. 1,392,758 5.6 4.5
85 Broad Street
New York, NY 10002
Gregory R. Raifman (5)........... 12,046,265 45.5 37.1
Jon L. Edwards (6)............... 11,796,265 45.0 36.6
Ruiqing "Barclay" Jiang (7)...... 2,013,831 8.1 8.3
Walter Haefeker (8).............. 1,125,000 4.4 3.5
Lawrence D. Lenihan, Jr. (9)..... 1,671,309 6.8 5.4
James DeSorrento (10)............ 350,000 1.4 1.1
A. Brooke Seawell (11)........... 125,000 * *
Peter S. Sealey (12)............. 50,000 * *
All executive officers and
directors as a group (13
persons) (13)................... 18,914,738 64.8 53.7
</TABLE>
- --------
*Less than 1%
(1) Messrs. Raifman and Edwards are the managing members and the beneficial
owners of R&E Holdings, LLC.
(2) Includes 1,500,000 shares held of record by Odyssey Venture Partners and
1,000,000 shares held of record by Argossy Limited. Odyssey Venture
Partners and Argossy Limited are venture funds affiliated with Zeron
Capital Ltd. Also includes a warrant held by Zeron Capital Ltd. to
purchase 125,000 shares.
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<PAGE>
(3) Represents 1,483,484 shares held of record by Pequot Private Equity Fund,
L.P. and 187,825 shares held of record by Pequot Offshore Private Equity
Fund, Inc. Pequot Private Equity Fund, L.P. and Pequot Offshore Private
Equity Fund, Inc. are managed by Pequot Capital Management, Inc.
(4) Includes 139,276 shares held of record by Stone Street Fund 1999, L.P., an
affiliate of The Goldman Sachs Group, Inc.
(5) Represents 10,296,265 shares held of record by R&E Holdings, LLC, 250,000
shares held of record by PointBreak Ventures, LLC and 1,750,000 shares
issuable upon the exercise of options exercisable within 60 days of
September 30, 1999. Mr. Raifman is one of the beneficial owners of R&E
Holdings, LLC and PointBreak Ventures, LLC. Mr. Raifman disclaims
beneficial interest of the shares held by R&E Holdings, LLC and PointBreak
Ventures, LLC, except to the extent of his pecuniary interest in those
entities.
(6) Represents 10,296,265 shares held of record by R&E Holdings, LLC, 250,000
shares held of record by PointBreak Ventures, LLC and 1,500,000 shares of
common stock issuable upon the exercise of options exercisable within 60
days of September 30, 1999. Mr. Edwards is one of the beneficial owners of
R&E Holdings, LLC and PointBreak Ventures, LLC. Mr. Edwards disclaims
beneficial interest of the shares held by R&E Holdings, LLC and PointBreak
Ventures, LLC, except to the extent of his pecuniary interest in those
entities.
(7) Includes 34,831 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1999.
(8) Represents 1,125,000 shares issuable upon the exercise of options
exercisable within 60 days of September 30, 1999.
(9) Represents 1,671,309 shares beneficially owned by Pequot Capital
Management, Inc. See note (3). Mr. Lenihan is the fund manager of Pequot
Capital Management, Inc. Mr. Lenihan disclaims beneficial ownership of
these shares, except to the extent of his pecuniary interest in that
entity.
(10) Represents 300,000 shares held of record by DeSorrento Revocable Trust, of
which Mr. DeSorrento is the beneficial owner, and 50,000 shares held by
Mr. DeSorrento.
(11) Represents 75,000 shares held of record by Seawell Revocable Trust, A.
Brooke Seawell & Patricia C. Seawell, trustees, and 50,000 shares held by
Mr. Seawell. Mr. Seawell is one of the beneficial owners of the Seawell
Revocable Trust.
(12) Represents 50,000 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1999.
(13) See notes (5) through (12). Includes an aggregate of 5,036,301 shares
issuable upon exercise of options held by our executive officers and
directors exercisable within 60 days of September 30, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our restated certificate of incorporation, which will become effective upon
the closing of this offering, authorizes the issuance of up to 150,000,000
shares of common stock, par value $0.0001 per share, and 10,000,000 shares of
undesignated preferred stock, par value $0.0001 per share, the rights and
preferences of which may be established from time to time by our board of
directors. As of September 30, 1999, we had outstanding 15,011,365 shares of
common stock and 9,706,000 shares of redeemable convertible preferred stock,
which will automatically convert into 9,706,000 shares of common stock upon the
completion of this offering. As of September 30, 1999, we had 122 stockholders.
Common Stock
Each holder of common stock will be entitled to one vote for each share on
all matters to be voted upon by the stockholders, and there will be no
cumulative voting rights. Subject to preferences to which holders of preferred
stock issued after the sale of the common stock in this offering may be
entitled, holders of common stock will be entitled to receive ratably any
dividends that may be declared from time to time by the board of directors out
of funds legally available for that purpose. Please see "Dividend Policy." In
the event of our liquidation, dissolution or winding up, holders of our common
stock will be entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights and there
are no redemption or sinking fund provisions applicable to the common stock.
All outstanding shares of common stock are, and the shares of common stock
offered by us in this offering, when issued and paid for, will be, fully paid
and nonassessable. The rights, preferences and privileges of the holders of
common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock that we may designate in
the future.
Preferred Stock
Upon the closing of this offering, the board of directors will be authorized,
subject to any limitations prescribed by law, without stockholder approval,
from time to time to issue up to an aggregate of 10,000,000 shares of preferred
stock, $0.0001 par value per share, in one or more series, each series to have
rights and preferences, including voting rights, dividend rights, conversion
rights, redemption privileges and liquidation preferences, as may be determined
by the board of directors. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding voting stock. We have
no present plans to issue any shares of preferred stock.
Warrants
At September 30, 1999, there were outstanding warrants to purchase up to
275,000 shares of Series B preferred stock at an exercise price of $2.00 per
share and warrants to purchase up to 600,000 shares of common stock at an
exercise price of $0.50 per share. Upon completion of this offering, the
warrants to purchase shares of Series B preferred stock will become exercisable
to purchase 275,000 shares of common stock.
Registration Rights
The holders of 4,000,000 shares of Series C preferred stock, referred to as
"registrable securities," are entitled to certain rights with respect to
registration of such shares under the Securities Act. These rights are provided
under the terms of an investor rights agreement between us and the holders of
registrable securities.
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Beginning 180 days following the date of this prospectus, holders of least 25%
of the then outstanding registrable securities may require on up to two
occasions that we register for public resale at least 25% of their registrable
securities or a lesser amount, provided that the aggregate proceeds of that
offering would exceed $5.5 million. We need not register these shares if the
requested registration would occur within six months following the effective
date of any other registration statement we have filed. Also, we may defer the
registration of these shares for up to 120 days if, in the good faith judgment
of our board of directors, it would be seriously detrimental to us and our
stockholders for such registration statement to be filed. Also, holders of
registrable securities may require once per 12-month period that we register
their shares for public resale on Form S-3 or similar short-form registration,
provided we are eligible to use that form, if the value of the securities to be
registered is at least $1.0 million; however, we may defer this registration
for 120 days in view of market conditions. Furthermore, in the event we elect
to register any of our shares of common stock for purposes of effecting any
public offering, the holders of registrable securities are entitled to include
their shares of common stock in the registration, but we may reduce the number
of shares proposed to be registered in view of market conditions. All expenses
in connection with any registration, other than underwriting discounts and
commissions, will be borne by us. All registration rights will terminate five
years following the consummation of this offering, or, with respect to each
holder of registrable securities, at the time the holder is entitled to sell
all of its shares in any three-month period under Rule 144 of the Securities
Act.
Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and
Delaware Law
Certain provisions of Delaware law and our amended and restated certificate
of incorporation and bylaws could make the following more difficult:
. the acquisition of us by means of a tender offer;
. the acquisition of us by means of a proxy contest or otherwise; or
. the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to
negotiate first with our board. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of these
proposals could result in an improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
one class being elected each year by our stockholders. For more information on
the classified board, see the section entitled "Management--Board of
Directors." This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of us because it generally makes it more difficult for
stockholders to replace a majority of the directors.
Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board, the chief executive officer and the president may call
special meetings of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years
following the date the person became an interested stockholder, unless the
business combination or the transaction in which the person
64
<PAGE>
became an interested stockholder is approved in a prescribed manner. Generally,
a business combination includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an interested stockholder is a person who, together with affiliates
and associates, owns, or within three years prior to the determination of
interested stockholder status did own, 15% or more of a corporation's voting
stock. The existence of this provision may have an anti-takeover effect with
respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Elimination of Cumulative Voting. Our certificate of incorporation and bylaws
do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or management of
us.
Amendment of Charter Provisions. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Chase Mellon
Shareholder Services.
Nasdaq National Market Listing
We have applied for the listing of our shares on the Nasdaq National Market
under the symbol "MPLX."
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and
our ability to raise equity capital in the future on terms favorable to us.
After this offering, 30,717,365 shares of our common stock will be
outstanding, assuming that the underwriters do not exercise the over-allotment
option, and based on shares outstanding as of September 30, 1999. Of these
shares, all of the 6,000,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless these shares are purchased by "affiliates" as that term is defined in
Rule 144 under the Securities Act. The remaining shares of common stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 under the Securities Act, which rules are
summarized below.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the 24,717,365 restricted shares will
be available for sale in the public market as follows:
Eligibility of Restricted Shares for Sale in the Public Market
<TABLE>
<S> <C>
At the effective date............................................. 55,000
90 days after the effective date.................................. 75,814
180 days after the effective date................................. 15,826,551
More than 180 days after the effective date....................... 8,760,000
</TABLE>
Resale of 14,671,574 of the restricted shares that will become available for
sale in the public market will be limited by volume and other resale
restrictions under Rule 144 because the holders are our affiliates.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell, within any three-month
period, a number of shares that is not more than the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 307,000 shares immediately after this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us.
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the three months before a sale, and who has beneficially owned the
restricted shares for at least two years, is entitled to sell the 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 as currently in effect, any
of our employees, consultants or advisors who purchase shares from us under a
stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
complying with some of the restrictions, including the holding period,
contained in Rule 144.
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<PAGE>
Lock-Up Arrangements
All of our executive officers and directors, holders of a total of 24,416,551
shares of common stock (including preferred stock convertible into common
stock), warrants to purchase a total of 875,000 shares of common stock and
options to purchase 6,698,000 shares of common stock have agreed not to sell or
otherwise dispose of any unrestricted shares of common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Lehman Brothers Inc. In addition, all options granted under our Amended and
Restated 1999 Stock Plan are subject to similar lock-up arrangements pursuant
to an agreement between the optionee and us.
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UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below, for whom Lehman Brothers Inc., SG Cowen Securities Corporation,
U.S. Bancorp Piper Jaffray Inc. and Fidelity Capital Markets, a division of
National Financial Services Corporation, are acting as representatives, has
agreed to purchase from us the number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Lehman Brothers Inc..........................................
SG Cowen Securities Corporation..............................
U.S. Bancorp Piper Jaffray Inc. .............................
Fidelity Capital Markets, a division of National Financial
Services Corporation........................................
---------
Total........................................................ 6,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement. It also provides that, if any of the
shares of common stock are purchased by the underwriters under the underwriting
agreement, all of the shares of common stock that the underwriters have agreed
to purchase under the underwriting agreement must be purchased. The conditions
contained in the underwriting agreement include the requirement that:
. the representations and warranties made by us to the underwriters are
true;
. there is no material change in the financial markets; and
. we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus. The representatives have also
advised us that the underwriters propose to offer the shares of common stock to
dealers, which may include the underwriters, at this public offering price less
a selling concession not in excess of $ per share. The underwriters may
allow, and the dealers may reallow, a concession not in excess of $ per
share to brokers and dealers. After the offering, the underwriters may change
the offering price and other selling terms.
We have granted to the underwriters an option to purchase up to 900,000
additional shares of common stock, exercisable solely to cover over-allotments,
if any, at the public offering price less the underwriting discount shown on
the cover page of this prospectus. The underwriters may exercise this option at
any time until 30 days after the date of the underwriting agreement. If this
option is exercised, each underwriter will be committed, so long as the
conditions of the underwriting agreement are satisfied, to purchase a number of
additional shares of common stock proportionate to the underwriter's initial
commitment as indicated in the table above and we will be obligated, under the
over-allotment option, to sell the shares of common stock to the underwriters.
We have agreed, that, without the prior consent of Lehman Brothers Inc., we
will not, directly or indirectly, offer, sell or otherwise dispose of any
shares of common stock or any securities that may be converted into or
exchanged for any shares of common stock for a period of 180 days from the date
of this prospectus. All of our executive officers and directors, stockholders
holding 24,416,551 shares of our capital stock, including our preferred stock,
and holders of options and warrants to purchase 7,573,000 shares, have agreed
under lock-up agreements that, without the prior written consent of Lehman
Brothers Inc., they will not, directly or indirectly, offer, sell or otherwise
dispose of any shares of common stock or any securities that may be converted
into or exchanged for any shares of common stock for the period ending 180 days
after the date of this prospectus. See "Shares Eligible for Future Sale."
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<PAGE>
The underwriting discount is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting discount is expected to be approximately 7% of the
public offering price. We have agreed to pay the underwriters the following
total amount, assuming either no exercise or full exercise by the underwriters
of their over-allotment option:
<TABLE>
<CAPTION>
Total Fees
-------------------------------------
Fee Without Exercise With Full Exercise
Per of Over- Allotment of Over-Allotment
Share Option Option
------ ------------------ ------------------
<S> <C> <C> <C>
Underwriting discount paid by
Mediaplex....................... $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding the underwriting discount, will be approximately
$1,050,000.
Before this offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, the following primary factors:
. our historical performance and capital structure;
. estimates of our business potential and earning prospects;
. an overall assessment of our management; and
. the above factors in relation to market valuations of companies in
related businesses.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "MPLX."
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic distribution of information through the Internet,
Intranet and other proprietary electronic technology.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering. This means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and selling
group members. This means that, if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members that sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases.
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<PAGE>
The imposition of a penalty bid might have an effect on the price of a security
to the extent that it were to discourage resales of the security by purchasers
in an offering.
Neither we nor any of the underwriters makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters makes any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.
The representatives have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the shares of common stock offered
by them.
At our request, the underwriters have reserved up to 300,000 shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates at the
initial public offering price set forth on the cover page of this prospectus.
These persons must commit to purchase no later than the close of business on
the day following the date of this prospectus. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Fenwick & West LLP, Palo Alto, California will pass upon
legal matters for the underwriters. As of the date of this prospectus, WS
Investments, an investment partnership composed of certain current and former
members of and persons associated with Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and certain individual attorneys of this firm,
beneficially own a total of 43,116 shares of our common stock.
EXPERTS
The financial statements of Mediaplex, Inc. as of and for the six months
ended June 30, 1999, as of December 31, 1998 and 1997, for each of the two
years in the period ended December 31, 1998, and for the period from September
10, 1996 (inception) to December 31, 1996 included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of Netranscend Software, Inc. (a development stage
company) as of December 31, 1998 and 1997, for each of two years in the period
ended December 31, 1998, and for the period from November 27, 1996 (inception)
to December 31, 1998 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission under the
Securities Act a registration statement on Form S-1, including the exhibits
filed with the registration statement, with respect to the shares to be sold in
this offering. This prospectus does not contain all the information contained
in the registration statement. For further information with respect to us and
the shares to be sold in this offering, we refer you to the registration
statement. Statements contained in this prospectus as to the contents of any
contract, agreement or other document to which we make reference are not
necessarily complete. In each instance, we refer you to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by the more complete
description of the matter involved.
You may read and copy all or any portion of the registration statement or any
reports, statements or other information we file at the Commission's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee by writing to the Commission.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our Commission filings, including the
registration statement, will also be available to you on the Commission's
Internet site, http://www.sec.gov.
We intend to send to our stockholders annual reports containing audited
consolidated financial statements and quarterly reports containing unaudited
financial statements for the first three quarters of each fiscal year.
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<PAGE>
Mediaplex, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
MEDIAPLEX, INC.
Report of Independent Accountants......................................... F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Changes in Stockholders' Equity (Deficit)................... F-5
Statements of Cash Flows.................................................. F-6
Supplemental Disclosure of Cash Flows..................................... F-7
Notes to Financial Statements............................................. F-8
PRO FORMA FINANCIAL INFORMATION
Overview.................................................................. F-22
Pro Forma Statement of Operations......................................... F-23
Notes to Pro Forma Financial Information.................................. F-24
NETRANSCEND SOFTWARE, INC.
Report of Independent Accountants......................................... F-25
Balance Sheets............................................................ F-26
Statements of Operations.................................................. F-27
Statements of Shareholders' Equity (Deficit).............................. F-28
Statements of Cash Flows.................................................. F-29
Notes to Financial Statements............................................. F-30
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Mediaplex, Inc.
The recapitalization described in Note 1 to the financial statements has not
been consummated at September 2, 1999. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of Mediaplex, Inc. (the "Company") at
December 31, 1997 and 1998, and June 30, 1999, and the results of its
operations and its cash flows for the period from September 10, 1996
(inception) to December 31, 1996, the years ended December 31, 1997 and 1998,
and the six months ended June 30, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
/s/ PricewaterhouseCoopers LLP
San Francisco, California
July 30, 1999
except for Note 10,
which is as of
September 1, 1999
F-2
<PAGE>
Mediaplex, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------------ June 30,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents............. $ 141,994 $ 374,567 $ 7,602,205
Accounts receivable, net of allowance
of $20,211, $37,367 and $183,367 as
of December 31, 1997 and 1998 and
June 30, 1999, respectively.......... 3,967 936,497 3,888,361
Other current assets.................. -- -- 62,933
----------- ----------- -----------
Total current assets................. 145,961 1,311,064 11,553,499
Property and equipment, net........... 110,546 105,921 1,030,699
Goodwill and intangible assets, net of
accumulated amortization of $250,811
as of June 30, 1999.................. -- -- 2,758,924
Other assets.......................... 5,000 27,030 86,573
----------- ----------- -----------
Total assets......................... $ 261,507 $ 1,444,015 $15,429,695
=========== =========== ===========
Liabilities and Stockholders' Equity
(Deficit)
Current Liabilities:
Accounts payable...................... $ 379,122 $ 1,528,600 $ 1,941,756
Payables to stockholders.............. 48,873 139,701 127,281
Advance from stockholder.............. -- 262,750 --
Accrued liabilities................... 150,067 422,177 2,930,697
Deferred revenues..................... 142,400 479,764 1,364,096
Notes payable to stockholders, current
portion.............................. -- 339,569 160,000
Capital lease obligations, current
portion.............................. 11,463 -- --
Other liabilities..................... -- 1,039 19,854
----------- ----------- -----------
Total current liabilities............ 731,925 3,173,600 6,543,684
Notes payable to stockholders........... 64,569 232,161 262,765
Capital lease obligations............... 23,072 -- --
----------- ----------- -----------
Total liabilities.................... 819,566 3,405,761 6,806,449
----------- ----------- -----------
Commitments (Note 6)
Stockholders' Equity (Deficit):
Convertible preferred stock; issuable
in series; $0.0001 value; authorized
8,206,000 shares; 5,706,000 shares
issued and outstanding; liquidation
preference of $10,507,500 as of June
30, 1999............................. -- -- 571
Common stock, $0.0001 par value;
authorized 10,000,000, 40,000,000,
and 40,000,000 shares, respectively;
11,318,566, 6,983,628 and 14,838,865
shares issued and outstanding as of
December 31, 1997 and 1998 and June
30, 1999, respectively............... 1,132 698 1,484
Additional paid-in capital............ 813,355 1,482,685 20,238,846
Warrants.............................. -- -- 757,354
Deferred stock compensation........... -- (53,371) (3,232,130)
Receivable from sale of Series B
preferred stock...................... -- -- (240,000)
Accumulated deficit................... (1,372,546) (3,391,758) (8,902,879)
----------- ----------- -----------
Total stockholders' equity
(deficit)........................... (558,059) (1,961,746) 8,623,246
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit).................... $ 261,507 $ 1,444,015 $15,429,695
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Mediaplex, Inc.
Statements of Operations
<TABLE>
<CAPTION>
September 10,
1996 Years Ended Six Months Ended
(inception) to December 31, June 30,
December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
-------------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 425,877 $ 3,588,094 $ 1,521,895 $ 7,322,572
Cost of revenues........ -- 445,372 2,770,567 1,212,773 5,761,199
--------- ----------- ----------- ----------- -----------
Gross profit (loss)... -- (19,495) 817,527 309,122 1,561,373
--------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing... 22,704 480,756 819,641 394,626 1,647,288
Research and
development.......... 48,834 347,130 555,736 220,003 815,659
General and
administrative....... 30,948 256,413 636,651 325,073 1,081,697
Stock-based
compensation......... 152,694 11,000 577,525 151,427 3,290,683
Amortization of
goodwill and
intangibles.......... -- -- -- -- 250,811
--------- ----------- ----------- ----------- -----------
Total operating
expenses........... 255,180 1,095,299 2,589,553 1,091,129 7,086,138
--------- ----------- ----------- ----------- -----------
Loss from
operations......... (255,180) (1,114,794) (1,772,026) (782,007) (5,524,765)
Interest income
(expense), net......... -- (2,572) (247,186) (233,934) 13,644
--------- ----------- ----------- ----------- -----------
Net loss.............. $(255,180) $(1,117,366) $(2,019,212) $(1,015,941) $(5,511,121)
========= =========== =========== =========== ===========
Net loss per share--
basic and diluted...... $ (0.07) $ (0.13) $ (0.25) $ (0.11) $ (0.46)
========= =========== =========== =========== ===========
Weighted average shares
used to compute net
loss per share--basic
and diluted............ 3,795,714 8,457,464 8,186,127 9,408,557 12,070,449
========= =========== =========== =========== ===========
Pro forma net loss per
share--basic and
diluted (unaudited).... $ (0.25) $ (0.41)
=========== ===========
Weighted average shares
used to compute pro
forma net loss per
share--basic and
diluted (unaudited).... 8,186,127 13,501,001
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Mediaplex, Inc.
Statements of Changes in Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
---------------- ------------------
Receivable
from sale of
Additional Deferred Series B
Paid-in Stock Preferred Accumulated
Shares Amount Shares Amount Capital Warrants Compensation Stock Deficit Total
--------- ------ ---------- ------ ----------- -------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 10,
1996
(inception)..... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock for
cash and for
services........ 3,060,000 306 152,419 152,725
Issuance of
common stock.... 1,600,000 160 79,840 80,000
Net loss........ (255,180) (255,180)
--------- ---- ---------- ------ ----------- -------- ----------- --------- ----------- -----------
Balance,
December 31,
1996............ -- -- 4,660,000 466 232,259 -- -- -- (255,180) (22,455)
Issuance of
common stock.... 1,795,338 180 338,421 338,601
Conversion of
payable to
stockholder for
common stock.... 4,643,228 464 231,697 232,161
Issuance of
common stock for
services........ 220,000 22 10,978 11,000
Net loss........ (1,117,366) (1,117,366)
--------- ---- ---------- ------ ----------- -------- ----------- --------- ----------- -----------
Balance,
December 31,
1997............ -- -- 11,318,566 1,132 813,355 -- -- -- (1,372,546) (558,059)
Repurchase of
common stock for
convertible note
payable......... (4,643,228) (464) (231,697) (232,161)
Beneficial
conversion
feature of note
payable to
stockholder..... 232,161 232,161
Issuance of
common stock.... 76,000 7 37,993 38,000
Issuance of
common stock for
services........ 232,290 23 151,404 151,427
Stock-based
compensation.... 286,079 286,079
Deferred stock
compensation.... 193,390 (193,390) --
Amortization of
deferred stock
compensation.... 140,019 140,019
Net loss........ (2,019,212) (2,019,212)
--------- ---- ---------- ------ ----------- -------- ----------- --------- ----------- -----------
Balance,
December 31,
1998............ -- -- 6,983,628 698 1,482,685 -- (53,371) -- (3,391,758) (1,961,746)
Issuance of
common stock for
services........ 23,333 3 27,935 27,938
Issuance of
common stock
upon acquisition
of Netranscend.. 1,979,000 198 2,569,068 2,569,266
Issuance of
common stock
upon exercise of
options......... 62,667 6 9,029 9,035
Issuance of
Series A
preferred stock,
net of issuance
costs of
$46,701......... 1,206,000 121 1,460,678 1,460,799
Conversion of
note payable to
stockholder for
common stock.... 947,009 95 70,931 71,026
Issuance of
Series B
preferred stock,
net of issuance
costs of
$741,632........ 4,500,000 450 8,257,918 432,354 (240,000) 8,450,722
Conversion of
note payable for
common stock.... 4,643,228 464 231,697 232,161
Issuance of
common stock
upon exercise of
options in
connection with
waiver of
payable to
stockholder..... 200,000 20 12,400 12,420
Issuance of war-
rant for servic-
es.............. 325,000 325,000
Deferred stock
compensation.... 6,116,505 (6,116,505) --
Amortization of
deferred stock
compensation.... 2,937,746 2,937,746
Net loss........ (5,511,121) (5,511,121)
--------- ---- ---------- ------ ----------- -------- ----------- --------- ----------- -----------
Balance, June
30, 1999........ 5,706,000 $571 14,838,865 $1,484 $20,238,846 $757,354 $(3,232,130) $(240,000) $(8,902,879) $ 8,623,246
========= ==== ========== ====== =========== ======== =========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Mediaplex, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
September 10,
1996
(inception) Years Ended Six Months Ended
to December 31, June 30,
December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
------------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net loss............... $(255,180) $(1,117,366) $(2,019,212) $(1,015,941) $(5,511,121)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and amor-
tization.............. 1,726 20,023 54,810 25,181 376,082
Write-off of property
and equipment......... -- -- 18,853 -- --
Allowance for doubtful
accounts.............. -- 20,211 17,156 5,147 146,000
Stock-based compensa-
tion expense.......... 152,694 11,000 577,525 151,427 3,290,683
Interest expense re-
lated to beneficial
conversion feature of
note payable to
stockholder........... -- -- 232,161 232,161 --
Changes in assets and
liabilities:
Accounts receivable... -- (24,178) (949,686) (627,475) (3,097,826)
Other assets.......... (1,650) (3,350) (22,030) (28,662) (122,476)
Accounts payable...... 800 378,322 1,149,477 729,760 203,566
Payables to stock-
holders.............. 35,982 309,621 90,828 62,248 --
Accrued liabilities... 37,203 112,864 272,110 236,946 2,447,236
Deferred revenues..... -- 142,400 337,364 61,093 884,332
Other liabilities..... -- -- 1,039 3,038 18,815
--------- ----------- ----------- ----------- -----------
Net cash used in op-
erating activities.. (28,425) (150,453) (239,605) (165,077) (1,364,709)
--------- ----------- ----------- ----------- -----------
Cash flows from invest-
ing activities:
Purchase of property
and equipment......... (24,488) (69,892) (78,819) (37,535) (840,459)
--------- ----------- ----------- ----------- -----------
Net cash used in in-
vesting activities.. (24,488) (69,892) (78,819) (37,535) (840,459)
--------- ----------- ----------- ----------- -----------
Cash flows from financ-
ing activities:
Net proceeds from issu-
ance of common stock.. 80,031 338,601 38,000 38,000 --
Net proceeds from issu-
ance of Series A pre-
ferred stock.......... -- -- -- -- 1,198,049
Net proceeds from issu-
ance of Series B pre-
ferred stock.......... -- -- -- -- 8,450,722
Proceeds from exercise
of stock options...... -- -- -- -- 9,035
Payments of capital
lease obligations..... -- (3,380) (24,753) (6,834) --
Proceeds from notes
payables--stockhold-
ers................... -- -- 275,000 275,000 --
Payment of notes pay-
able--stockholders.... -- -- -- -- (225,000)
Advance from stockhold-
er.................... -- -- 262,750 -- --
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing activi-
ties................ 80,031 335,221 550,997 306,166 9,432,806
--------- ----------- ----------- ----------- -----------
Net change in cash
and cash equiva-
lents............... 27,118 114,876 232,573 103,554 7,227,638
Cash and cash equiva-
lents at beginning of
period................. -- 27,118 141,994 141,994 374,567
--------- ----------- ----------- ----------- -----------
Cash and cash equiva-
lents at end of peri-
od..................... $ 27,118 $ 141,994 $ 374,567 $ 245,548 $ 7,602,205
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Mediaplex, Inc.
Supplemental Disclosure of Cash Flows
<TABLE>
<CAPTION>
September 10,
1996 Years Ended Six Months Ended
(inception) to December 31, June 30,
December 31, ----------------- ----------------------
1996 1997 1998 1998 1999
-------------- -------- -------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid for interest.. $ -- $ 2,572 $ 1,804 $ 541 $ 13,621
====== ======== ======== ======== ==========
Noncash financing and
investing activities:
Issuance of common
stock for
acquisition........... $ -- $ -- $ -- $ -- $2,552,910
====== ======== ======== ======== ==========
Issuance of note
payable for
acquisition........... $ -- $ -- $ -- $ -- $ 430,000
====== ======== ======== ======== ==========
Conversion of payables
to stockholders to
common stock.......... $ -- $232,161 $ -- $ -- $ --
====== ======== ======== ======== ==========
Conversion of
stockholders' notes
payable to common
stock................. $ -- $ $ -- $ -- $ 303,187
====== ======== ======== ======== ==========
Repurchase of common
stock in exchange for
a note payable........ $ -- $ -- $232,161 $232,161 $ --
====== ======== ======== ======== ==========
Issuance of note
payable to stockholder
for settlement of
outstanding payable to
stockholder........... $ -- $ 64,569 $ -- $ -- $ --
====== ======== ======== ======== ==========
Issuance of warrant to
purchase common and
preferred stock in
connection with
completing Series B
preferred stock
financing............. $ -- $ -- $ -- $ -- $ 432,354
====== ======== ======== ======== ==========
Conversion of advance
from stockholder to
Series A preferred
stock................. $ -- $ -- $ -- $ -- $ 262,750
====== ======== ======== ======== ==========
Issuance of Series B
preferred stock in
exchange for a
receivable............ $ -- $ -- $ -- $ -- $ 240,000
====== ======== ======== ======== ==========
Exercise of common
stock options in
connection with waiver
of payable to
stockholder........... $ -- $ -- $ -- $ -- $ 12,420
====== ======== ======== ======== ==========
Purchase of equipment
under capital leases.. $ -- $ 37,915 $ 3,036 $ 3,036 $ --
====== ======== ======== ======== ==========
Deferred stock
compensation from
issuance of options... $ -- $ -- $193,390 $ -- $6,116,505
====== ======== ======== ======== ==========
Issuance of warrant for
services.............. $ -- $ -- $ -- $ -- $ 325,000
====== ======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements
1. Business Activities and Summary of Significant Accounting Policies
Nature of Business
Mediaplex, Inc. provides e-commerce and eBusiness solutions for online
marketing companies, advertisers and their advertising agencies. The Company's
service offerings include planning and execution of online media and marketing
campaigns, proprietary third-party ad serving to advertisers, and tracking and
reporting of an advertiser's return on investment ("ROI"), including evaluation
of online transactions.
Reincorporation
In August 1999, the Company approved reincorporating in Delaware and changing
its name to Mediaplex, Inc. In connection with the reincorporation, the Company
authorized (i) an increase in the number of authorized shares of common stock
to 150,000,000 and (ii) 10,000,000 shares of undesignated preferred stock. All
share data and stock option plan information has been restated to reflect the
reincorporation. The reincorporation is expected to be completed in 1999.
Netranscend Software, Inc. Acquisition
On March 25, 1999, the Company acquired Netranscend Software, Inc., a Java-
based enterprise automation solutions software company, for a note payable of
$430,000, due in four annual installments (Note 5) beginning on the first
anniversary of the acquisition, and 1,979,000 shares of the Company's common
stock with an estimated fair value of $1.29 per share. The Company incurred
transaction costs of $68,231.
The acquisition was accounted for using the purchase method of accounting.
The aggregate purchase price of $2,993,906, together with $15,826 of net
liabilities assumed, has been allocated based on the fair value of the assets
acquired. Goodwill and intangible assets, consisting of proprietary technology,
totaling $3,009,732 are being amortized over three years.
The following pro forma results of operations reflect the combined results of
the Company and Netranscend Software, Inc. for the fiscal years ended December
31, 1997 and 1998 and have been prepared as though the entities had been
combined as of January 1, 1997 and 1998 respectively. The pro forma results do
not reflect any nonrecurring charges that resulted directly from the
transaction.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
Revenues......................................... $ 425,877 $ 3,558,094
Net loss......................................... $(2,124,951) $(3,032,444)
Net loss per share--basic and diluted............ $ (0.20) $ (0.30)
Shares used to compute net loss per share--basic
and diluted..................................... 10,436,464 10,165,127
</TABLE>
Unaudited Interim Financial Information
The accompanying interim statements of operations and cash flows for the six
months ended June 30, 1998 are unaudited. The unaudited interim financial
statements have been prepared on the same basis as the annual financial
statements and, in the opinion of management, reflect all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
Company's results of operations and cash flows for the six months ended June
30, 1998. The financial data and other information related to this period that
are disclosed in these notes to consolidated financial statements are
unaudited. Results for the six months ended June 30, 1999 are not necessarily
indicative of results that may be expected for the full year.
F-8
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash equivalents and accounts receivable.
The Company has cash equivalents and short-term investment policies that
require placement of these funds in financial institutions evaluated as highly
credit-worthy. The Company's credit risk is mitigated by the Company's ongoing
credit evaluation of its customers' financial condition. The Company does not
require collateral or other security to support accounts receivable and
maintains an allowance for doubtful accounts. At December 31, 1997, one
customer accounted for 67% of the outstanding accounts receivable. Four
customers accounted for 76% of the outstanding accounts receivable at December
31, 1998. At June 30, 1999, three customers represented 48% of outstanding
accounts receivable. One, two, four and five customers accounted for 91%, 77%,
80% and 68% of revenues for the years ended December 31, 1997 and 1998, and the
six months ended June 30, 1998 and 1999, respectively.
Risks and Uncertainties
The Company is subject to all of the risks inherent in an early stage company
in the Internet advertising industry. These risks include, but are not limited
to, a limited operating history, limited management resources, dependence upon
consumer acceptance of the Internet, Internet-related security risks and the
changing nature of the electronic commerce industry. The Company's operating
results may be materially affected by the foregoing factors.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
borrowings and accounts payable, and are carried at cost, which approximates
their fair value due to their short-term maturities.
Cash and Cash Equivalents
All highly liquid instruments purchased with an original maturity of three
months or less are considered to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Maintenance and repairs are charged to operations as incurred.
Depreciation and amortization are based on the straight-line method over the
estimated useful lives of the related assets, which range from three to five
years. When assets are retired or otherwise disposed of, the cost and
accumulated depreciation and amortization are removed from the accounts, and
any resulting gain or loss is reflected in operations in the period realized.
Goodwill and Intangible Assets
Goodwill and intangible assets consist of the excess of the purchase price
paid over the value of identified intangible and tangible net assets resulting
from the acquisition of Netranscend Software, Inc. Due to the rapid
F-9
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
technological changes occurring in the Internet industry, the goodwill and
intangible assets are amortized using the straight-line method over three
years, the period of expected benefit. Valuation of goodwill and intangible
assets is based on forecasted discounted cash flows and is reassessed
periodically. Cash flow forecasts are based on trends of historical performance
and management's estimate of future performance, giving consideration to
existing and anticipated competitive and economic conditions.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Revenue Recognition
Revenues are generated primarily from fixed fees for advertising campaign
management services. Advertising revenues are recognized ratably as impressions
are delivered over the period in which the advertisement is displayed, provided
that no significant Company obligations remain at the end of a period and
collection of the resulting receivable is probable. Company obligations
typically includes guarantees of minimum number of "impressions," or times that
an advertisement appears in pages viewed by users of the Company's online
properties. To the extent minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenues until the remaining
guaranteed impression levels are achieved.
Amounts payable to third-party Web sites for providing advertising space are
recorded as cost of revenues in the period the advertising impressions are
delivered.
Deferred Revenues
Deferred revenues consist of advertising fees received or billed in advance
of delivery of the advertisement.
Research and Development
Research and development costs are charged to expense as incurred.
Advertising Expenses
The Company expenses the cost of advertising and promoting its services as
incurred. These costs are included in sales and marketing on the statements of
operations. The Company has not incurred any advertising expenses to date.
Stock-based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.
F-10
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
No. 96-18, "Accounting for Equity Instruments that are Issued to Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
The Company amortizes stock-based compensation recorded in connection with
certain stock option grants over the vesting periods of the related options.
Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes," deferred
income taxes are recognized for the differences between the tax bases of assets
and liabilities and their financial reporting amounts based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. A valuation allowance is recognized for
deferred tax assets when it is more likely than not, based on available
evidence, that some portion or all of the deferred tax asset will not be
realized. Income tax expense or benefit is the tax payable or refundable,
respectively, for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Net Loss Per Share
Net loss per share is presented in accordance with the provisions of SFAS No.
128, "Earnings per Share," and Staff Accounting Bulletin No. 98. Basic net loss
per share is computed based on the weighted average number of shares of common
stock outstanding, while diluted net loss per share reflects the potential
dilution that would occur if preferred stock had been converted and stock
options and warrants had been exercised. Common equivalent shares from
preferred stock, stock options and warrants have been excluded from the
computation of diluted net loss per share as their effect would be
antidilutive.
Pro Forma Net Loss Per Share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the six
months ended June 30, 1999 is computed based on the weighted average number of
common shares outstanding, including the exercise of all outstanding warrants
at June 30, 1999, and the assumed conversion of the Company's Series A and
B preferred stock into shares of the Company's common stock that will be
effective upon the closing of the Company's initial public offering, as if such
conversion had occurred on January 1, 1998 or at the date of original issuance,
if later. The resulting pro forma adjustment includes an increase in the
weighted average number of shares used to compute basic and diluted net loss
per share of 0 and 1,430,552 for the year ended December 31, 1998 and the six
months ended June 30, 1999, respectively. The calculation of pro forma diluted
net loss per share excludes common stock subject to repurchase rights and
incremental common shares issuable upon the exercise of stock options.
Comprehensive Income
The Company complies with the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. To date, the Company has not had any significant
transactions that are required to be reported in comprehensive income.
F-11
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
Segment Information
The Company complies with the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company operates in a
single business segment providing advertising campaign management services in
the United States.
2. Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting
when certain conditions are met. SFAS No. 133 is effective for the Company in
fiscal 2000. Although the Company has not fully assessed the implications of
SFAS No. 133, the Company does not believe the adoption of this statement will
have a material effect on the Company's financial position, results of
operations or cash flows.
In March 1998, the Accounting Standards Executive Committee ("ASEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
when costs related to software developed or obtained for internal use should
the capitalized or expensed. The SOP is effective for transactions entered into
for fiscal years beginning after December 15, 1998. The adoption of this
statement did not have a material effect on the Company's financial position,
results of operations or cash flows.
In April 1998, the ASEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires the cost of start-up activities, including
organization costs, to be expensed as incurred. The adoption of this statement
did not have a material effect on the Company's financial position, results of
operations or cash flows.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of
certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. The Company does not anticipate adoption of this statement to have a
material effect on the Company's financial position, results of operations or
cash flows.
3. Balance Sheet Data
Property and equipment as of December 31, 1997, 1998 and June 30, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------ June 30,
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Property and equipment, net:
Computer equipment and software.............. $ 90,056 $161,336 $1,123,678
Furniture.................................... 4,321 5,369 93,076
Leased equipment............................. 37,915 -- --
Less: Accumulated depreciation and
amortization................................ (21,746) (60,784) (186,055)
-------- -------- ----------
$110,546 $105,921 $1,030,699
======== ======== ==========
</TABLE>
Depreciation and amortization expense was $20,023, $54,810, $25,181 and
$376,082 for the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999, respectively.
F-12
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
Accrued liabilities as of December 31, 1997 and 1998 and June 30, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Accrued liabilities:
Accrued cost of revenues........................ $ 94,440 $293,590 $2,628,865
Accrued payroll-related costs................... 12,383 24,090 133,303
Other accrued liabilities....................... 43,244 104,497 168,529
-------- -------- ----------
$150,067 $422,177 $2,930,697
======== ======== ==========
</TABLE>
4. Income Taxes
The Company has incurred losses from inception through June 30, 1999.
Management believes that, based on its history of losses and other factors, the
weight of available evidence indicates it is more likely than not that the
Company will not be able to realize its deferred tax assets. Thus, a full
valuation reserve has been recorded at December 31, 1997 and 1998 and June 30,
1999. The Company's net deferred tax asset is comprised as follows:
<TABLE>
<CAPTION>
December 31,
-------------------- June 30,
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Net operating loss carryforwards.............. $445,000 $ 896,000 $1,311,000
Deferred liabilities.......................... 61,000 205,000 379,000
Deferred stock compensation................... -- -- 197,000
Other......................................... (24,000) (44,000) 50,000
-------- ---------- ----------
482,000 1,057,000 1,937,000
Less valuation allowance...................... (482,000) (1,057,000) (1,937,000)
-------- ---------- ----------
Net deferred tax asset....................... $ -- $ -- $ --
======== ========== ==========
</TABLE>
As of June 30, 1999, the Company has net operating loss carryforwards of
approximately $3,052,000 and $3,092,000 for federal and state income tax
purposes, respectively. The carryforwards will begin to expire in 2017 and 2012
for federal and state income tax purposes, respectively. For federal and state
income tax purposes, a portion of the Company's net operating loss may be
subject to certain limitations on annual utilization due to changes in
ownership, as defined by federal and state tax laws. The amount of such
limitations, if any, has not yet been determined.
The components of income tax provision are as follows:
<TABLE>
<CAPTION>
December 31,
------------------ June 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Deferred..........................................
Federal.......................................... $346,000 $445,000 $685,000
State............................................ 95,000 130,000 195,000
-------- -------- --------
Total deferred.................................. 441,000 575,000 880,000
Change in valuation allowance..................... (441,000) (575,000) (880,000)
-------- -------- --------
Total............................................. $ -- $ -- $ --
======== ======== ========
</TABLE>
F-13
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
The principal items accounting for the difference between income taxes computed
at the U.S. statutory rate and the provision for income taxes are as follows:
<TABLE>
<CAPTION>
September 10,
1998 December
(Inception) 31,
to December ------------- June 30,
31, 1996 1997 1998 1998
------------- ----- ----- --------
<S> <C> <C> <C> <C>
U.S. statutory rate.................... 34.0 % 34.0 % 34.0 % 34.0 %
Permanent difference................... (20.4) (0.3) (9.8) (20.4)
Adjustment to increase valuation
allowance............................. (13.6) (33.7) (24.2) (13.6)
----- ----- ----- -----
-- % -- % -- % -- %
===== ===== ===== =====
</TABLE>
5. Notes Payable to Stockholders
The Company's notes payable to stockholders consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------- June 30,
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Convertible note payable to stockholder, 6% per
annum, due July 1999............................... $64,569 $ 64,569 $ --
Convertible note payable to stockholder, 6% per
annum, due April 2000.............................. -- 232,161 --
Convertible notes payable to stockholder, 6% per
annum, due August 1999............................. -- 150,000 --
Notes payable to stockholder, 6% per annum, due
August 1999........................................ -- 125,000 50,000
Note payable to stockholder......................... -- -- 372,765
------- -------- --------
Total notes payable to stockholders................. 64,569 571,730 422,765
Less current portion................................ -- 339,569 160,000
------- -------- --------
64,569 232,161 262,765
======= ======== ========
</TABLE>
A law firm affiliated with a stockholder performed legal services for the
Company during 1996 and 1997. In July 1997, the Company issued a convertible
note payable to the law firm for $64,569 for these services. This note bore
interest at a rate of 6% per annum, and had a due date of July 1999. In March
1999, the Company converted the outstanding amount and accrued interest of
$6,458 into 947,009 shares of common stock at $0.075 per share. The law firm
subsequently transferred the shares to the stockholder.
During 1996 and 1997, a founder of the Company purchased certained assets and
incurred expenses on behalf of the Company (Note 8). In June 1997, $232,161 of
the outstanding amount was converted into 4,643,228 shares of common stock at
$0.05 per share. In April 1998, the Company repurchased the 4,643,228 shares
from the founder at the original conversion price of $0.05 per share with a
convertible promissory note payable. The note bore interest at the rate of 6%
per annum, was due in April 2000, and was convertible into common stock at
$0.05 per share. The Company recorded the difference between the conversion
price of the note and the fair value of the common stock, or the beneficial
conversion feature, on the date the note was issued as additional interest
expense. In March 1999, this outstanding promissory note payable was converted
into 4,643,228 shares of common stock at $0.05 per share.
In May 1998, the Company entered into two senior subordinated secured
convertible promissory notes and two senior subordinated secured promissory
notes with a stockholder. Under these agreements, the stockholder advanced to
the Company a total of $275,000 bearing interest at the rate of 6% per annum.
The unpaid principal and accrued interest were payable on August 1, 1999, but
could be prepaid without penalty. In the
F-14
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
event of any default, as defined in the agreement, the holder could convert the
outstanding amount and accrued interest into preferred stock at the price that
was applicable to preferred stock issued in the most recent round of financing.
At December 31, 1998, the outstanding notes payable balance was $275,000. In
May 1999, the Company paid $225,000 along with the accrued interest to the
stockholder. At June 30, 1999, $50,000 remained outstanding.
In connection with the Netranscend Software, Inc. acquisition in March 1999,
the Company agreed to pay $430,000 as a part of the purchase consideration.
This note is payable over four years, with the first payment of $110,000 due on
the first anniversary, $110,000 due on the second anniversary, $100,000 due on
the third anniversary and $110,000 due on the fourth anniversary. The note
payable has been recorded at $372,765, net of a discount. The discount will be
amortized as interest expense over the four-year term of the note.
The Company incurred interest expense of $17,015, $3,403 and $12,976 during
1998 and the six months ended June 30, 1998 and 1999, respectively, in
connection with the notes payable to stockholders.
6. Commitments and Contingencies
Lease Agreements
The Company leases office space under noncancelable operating lease
agreements that expire in 2002. The terms of the leases provide for rental
payments on a graduated scale. The Company recognizes rent expense on a
straight-line basis over the lease period, and has accrued for rent expense
incurred but not paid.
Future minimum lease payments under noncancelable operating leases as of June
30, 1999 are as follows:
<TABLE>
<CAPTION>
Six Months
Ended December 31,
------------------
<S> <C>
1999........................................................ $ 212,883
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
2000........................................................ 327,966
2001........................................................ 338,583
2002........................................................ 332,176
2002........................................................ 148,295
----------
$1,359,903
==========
</TABLE>
Rent expense was $5,366, $41,555, $92,550, $12,105 and $125,704 for the
period ended December 31, 1996, the years ended December 31, 1997 and 1998 and
the six months ended June 30, 1998 and 1999, respectively.
Severance Payments
The Company has entered into employment agreements under which the employees
would be entitled to receive severance payments totalling $825,000 if their
employment were terminated under certain conditions.
Legal Proceedings
From time to time, the Company is subject to legal proceedings and claims in
the ordinary course of business. The Company is not currently aware of any
legal proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on its business, financial condition or
operating results.
F-15
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
7. Stockholders' Equity (Deficit)
Convertible Preferred Stock
The Company is authorized to issue 8,206,000 shares of preferred stock, of
which 1,206,000 shares are designated as Series A preferred stock and 7,000,000
shares are designated as Series B preferred stock.
Preferred stock at June 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
Shares Cash Proceeds
---------------------- Net of
Issued and Liquidation Issuance
Series Authorized Outstanding Amount Costs
- ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
A.............................. 1,206,000 1,206,000 $ 1,507,500 $1,460,799
B.............................. 7,000,000 4,500,000 9,000,000 8,258,368
--------- --------- ----------- ----------
Total.......................... 8,206,000 5,706,000 $10,507,500 $9,719,167
========= ========= =========== ==========
</TABLE>
The holders of convertible preferred stock have various rights and
preferences as follows:
Voting Rights
Each holder of Series A and Series B preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which the
shares of preferred stock held by the holder can be converted. As of June 30,
1999, all preferred stock converts on a one-for-one basis into common stock.
Preferred stockholders can vote on all matters on which common stockholders are
entitled to vote.
Dividends
Holders of Series A and Series B preferred stock are entitled to
noncumulative dividends at the rate of $0.10 per share and $0.16 per share per
annum, respectively, before any dividend is paid on common stock. No dividends
on preferred stock or common stock have been declared by the Board of Directors
from inception through June 30, 1999.
Liquidation
In the event of (i) any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, or (ii) merger or consolidation of
the Company with or into another corporation, the holders of Series A and
Series B preferred stock are first entitled to receive, in preference to the
holders of common stock, an amount of $1.25 and $2.00, respectively, per share
plus all accrued but unpaid dividends. If assets and funds are insufficient for
such distribution, the available funds will be distributed ratably among the
holders of Series A and Series B preferred stock in proportion to the
preferential amount each holder would have otherwise been entitled to receive.
After such distribution, any remaining funds will be distributed ratably among
the holders of common stock.
Conversion Rights
Each share of Series A and Series B preferred stock is convertible into
common shares, at the option of the holder, according to a conversion ratio,
subject to adjustment for dilution. Each share of preferred stock will
automatically be converted into common stock, at the then applicable conversion
rate, (i) in the event of the closing of an underwritten public offering of the
Company's securities in which the aggregate gross proceeds to the Company
exceeds $10,000,000 and an offering price per share exceeds $5.00, or (ii) when
the Company obtains the consent of a majority of the outstanding shares of
preferred stock.
F-16
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
At June 30, 1999, the Company had reserved 1,206,000 shares and 7,000,000
shares of common stock for conversion of its Series A and Series B convertible
preferred stock.
Common Stock
The Company is authorized to issue 40,000,000 shares of common stock. In July
1999, the Company amended its certificate of incorporation to increase the
number of authorized shares of common stock to 75,000,000 shares.
The Company recognizes stock-based compensation upon the issuance of common
stock for less than the deemed fair market value and upon the issuance of
common stock in exchange for services. Accordingly, the Company recorded stock-
based compensation of $152,694, $11,000, $151,427, $151,427 and $27,938 for the
period from September 10, 1996 (inception) to December 31, 1996, the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and
1999, respectively.
Warrants
In January 1999, the Company issued a warrant to an employee to purchase
500,000 shares of common stock at $0.50 per share. The warrant becomes
exercisable only upon completion of certain milestones which were primarily
related to achievement of certain levels of earned revenues. The first
milestone entitles the employee to exercise the warrant to purchase 250,000
shares. Achievement of the subsequent milestones entitle the employee to
exercise the warrant to purchase 150,000 shares, 50,000 shares and 50,000
shares, respectively.
As of June 30, 1999, the first milestone was completed and the warrant to
purchase 250,000 shares became exercisable. Accordingly, the Company recorded
compensation expense in the amount of $325,000 based on the difference between
the exercise price and the fair value of the Company's common stock on the date
the milestone was met.
In June 1999, in connection with services provided related to the issuance of
Series B preferred stock, the Company granted warrants to two non-employees,
exercisable for 275,000 shares of Series B convertible preferred stock and
100,000 shares of common stock at exercise prices of $2.00 per share and $0.50
per share, respectively. The warrants are exercisable by the holder at any time
until June 2002. The holder of the warrant is not entitled to any voting
rights. The fair value of the warrants calculated using Black-Scholes model was
$432,354 and has been included in the offering costs of the Series B
convertible preferred stock.
1997 Stock Plan
The Company's 1997 Stock Plan provides for the granting to employees of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code and for the granting to employees and consultants of nonstatutory
stock options and stock purchase rights.
In November 1998, the Company granted options to purchase 505,667 shares of
common stock with exercise prices ranging from $0.05 to $0.30 to both former
and current employees for services previously rendered under the 1997 Stock
Plan. The options granted to former employees were immediately exercisable
until February 1999. For those options granted to current employees, the
Company recorded $193,390 in deferred stock compensation for the difference
between the exercise price and the assumed fair value of the common stock. For
the year ended December 31, 1998, the Company recorded stock compensation
expense of $140,019.
The Company recorded the fair value for the options granted to former
employees as stock-based compensation expense of $286,079 in 1998. The fair
value of the options granted to the former employees was determined using a
Black-Scholes option-pricing model.
F-17
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
1999 Stock Plan
In February 1999, the Company adopted the 1999 Stock Plan (the "1999 Plan").
Options granted under the 1999 Plan may be either incentive stock options
("ISOs") or nonstatutory stock options ("NSOs"). ISOs may be granted only to
Company employees. NSOs may be granted to Company employees, directors and
consultants. The Company has reserved 9,000,000 shares of common stock for
issuance under the 1999 Plan. The 1997 Plan was amended in August 1999, raising
the number of shares reserved for issuance to 12,000,000.
In the case of ISOs granted to an employee who, at the time of the option was
granted, owns stock representing more than 10% of the voting power of all
classes of stock, the term of the option cannot exceed five years. The exercise
price of an ISO or NSO may not be less than 100% or 85%, respectively, of the
estimated fair value of the underlying stock on the date of grant and the
exercise price of an ISO or NSO granted to a 10% shareholder may not be less
than 100% of the estimated fair value of the underlying stock on the date of
grant. Options generally become exercisable in equal increments over a four-
year vesting period and expire at the end of ten years from the date of grant,
or sooner if terminated by the Board of Directors.
The following table summarizes option activity through June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding
Shares ---------------------------------------------------
Available Number of Exercise Aggregate Weighted Average
for Grants Shares Price Price Exercise Price
---------- --------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Share authorized under
the 1997 Plan 505,667
Granted................. (505,667) 505,667 $0.05-$0.30 $ 91,935 $0.18
Cancelled............... -- -- -- -- --
Exercised............... -- (262,667) $0.05-$0.30 (19,035) $0.07
---------- --------- ----------
Balance, December 31,
1998................... -- 243,000 $0.30 72,900 $0.30
Shares authorized under
the 1999 Plan.......... 9,000,000
Granted................. (8,393,398) 8,393,398 $0.50-$1.80 4,775,841 $0.57
Cancelled............... 10,700 (10,700) $0.50-$1.80 (18,350) $1.71
Exercised............... -- -- -- -- --
---------- --------- ----------
Balance, June 30, 1999.. 617,302 8,625,698 $0.50-$1.80 $4,830,391 $0.56
========== ========= ==========
</TABLE>
The following table summarizes information for stock options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
----------------------------------------------------- -----------
Weighted
Average
Remaining
Contractual
Exercise Number Life Number
Price Outstanding (Years) Exercisable
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.30 243,000 8.0 123,854
0.50 7,992,360 9.7 4,580,581
1.80 390,338 9.9 --
--------- ---------
8,625,698 4,704,435
========= =========
</TABLE>
In connection with the stock option grants made during the six months ended
June 30, 1999, the Company recorded deferred stock compensation of $6,116,505,
which will be amortized over the vesting periods of the related stock options
through 2003. For the six months ended June 30, 1999, the Company recorded
stock compensation expense of $2,937,746 in connection with stock option
grants.
Under SFAS No. 123, the Company is required to calculate the pro forma fair
market value of options granted and report the impact that would result from
recording the compensation expense. The fair value of
F-18
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
option grants has been estimated on the date of grant using the Black-Scholes
option-pricing model using a weighted average risk-free interest rate of 4.82%
and a weighted average expected life of 3.2 years. No price volatility was
assumed because the Company's equity securities were not traded publicly. No
dividend yield was assumed as the Company has not paid dividends and has no
plans to do so.
The weighted average expected life was calculated based on the vesting period
and the expected life at the date of grant. The risk-free interest rate was
calculated based on rates prevailing during the grant periods and expected
lives of options at the date of grants.
The weighted average fair values of options granted to employees for the year
ended December 31, 1998 and the six months ended June 30, 1999 were $1.06 and
$0.80, respectively.
Had compensation expenses for option grants to employees been determined
under SFAS No. 123 the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
September 10,
1996
(inception) Six Months Ended
to Years Ended December 31, June 30,
December 31, ------------------------- ------------------------
1996 1997 1998 1998 1999
------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss--as reported... $(255,180) $(1,117,366) $ (2,019,212) $(1,015,941) $(5,511,121)
Net loss--pro forma..... $(255,180) $(1,117,366) $ (2,019,212) $(1,015,941) $(5,756,121)
Net loss per share--
basic and diluted as
reported............... $ (0.07) $ (0.13) $ (0.25) $ (0.11) $ (0.46)
Net loss per share--
basic and diluted
pro forma.............. $ (0.07) $ (0.13) $ (0.25) $ (0.11) $ (0.48)
</TABLE>
The pro forma net loss disclosures made above are not necessarily
representative of the effects on pro forma net income (loss) for future years
as options typically vest over several years and additional option grants are
expected to be made in future years.
8. Related Party Transactions
Related party balances consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------- June 30,
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Payables to stockholders............................. $19,203 $ 71,781 $ 71,781
Payables to founders................................. 29,670 67,920 55,500
------- -------- --------
Total payables to stockholders................... $48,873 $139,701 $127,281
======= ======== ========
</TABLE>
The Company incurred expenses of $21,547, $66,546 and $196,611 for the period
from September 10 (inception) to December 31, 1996 and the years ended December
31, 1997 and 1998, respectively, in connection with legal and consulting
services performed by a law firm affiliated with a stockholder.
During 1996 and 1997, founders of the Company purchased certain assets and
incurred expenses on behalf of the Company for a total of $274,661. In June
1997, $232,161 of the outstanding amount was converted into common stock (see
Note 5). During 1997 and 1998, $12,830 and $11,750 was paid back to the
founders, respectively. In 1998, a founder advanced the Company $50,000.
In January 1999, the Company converted $12,420 of the payables to founders
into 200,000 shares of common stock in connection with the founder's exercise
of stock options.
F-19
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
In May 1998, the Company entered into a sublease agreement, on a month-to-
month basis, for office space with a stockholder, who was the original tenant
of the office space. The Company paid $41,000, $9,000 and $42,000 during the
year ended December 31, 1998 and the six months ended June 30, 1998 and 1999,
respectively, to the stockholder.
In June 1999, the Company entered into an agreement with a former employee
and stockholder, under which the stockholder will receive commissions on the
net proceeds (defined as gross revenue minus associated costs) generated from
certain customers. The agreement expires in July 2000.
9. Employee Benefit Plan
The Company maintains a retirement and deferred savings plan for its
employees (the "401(k) Plan") that is intended to qualify as a tax-qualified
plan under the Internal Revenue Code. The 401(k) Plan provides that each
participant may contribute up to 15% of his or her pre-tax gross compensation
(up to a statutory limit). All amounts contributed by participants and earnings
on these contributions are fully vested at all times. To date, the Company has
not made discretionary contributions under the 401(k) Plan.
10. Subsequent Events
Issuance of Series C convertible preferred stock
In August 1999, the Company issued 4,000,000 shares of Series C convertible
preferred stock for net proceeds of $14,237,113. Included in this issuance a
stockholder also converted an outstanding note payable for $50,000 (Note 5) and
related accrued interest of $3,250 into 14,833 shares of Series C convertible
preferred stock, and this same stockholder also converted $16,252 of interest
accrued on a separate note payable into 4,527 shares of Series C convertible
preferred stock. The difference between the offering price and the deemed fair
value on the date of the transaction resulted in a beneficial conversion
feature of $14,360,000. The beneficial conversion feature will be reflected as
a preferred dividend in the statement of operations in the third quarter of
1999.
Employee Stock Purchase Plan
In August 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan") effective on the date of the Company's
initial public offering. The Company has reserved 400,000 shares for issuance
thereunder. Employees generally will be eligible to participate in the Purchase
Plan if they are customarily employed by the Company for more than 20 hours per
week and more than five months in a calendar year and are not 5% or greater
stockholders. Under the Purchase Plan, eligible employees may select a rate of
payroll deduction up to 10% of their compensation subject to certain maximum
purchase limitations. The Purchase Plan will be implemented in a series of
overlapping twenty-four month offering periods and beginning on the effective
date of the Company's initial public offering and subsequent offering periods
will begin on the first trading day on or after May 1 and November 1 of each
year. Purchases will occur on each April 30 and October 31 (the "purchase
dates") during each participation period. Under the Purchase Plan, eligible
employees will be granted an option to purchase shares of common stock at a
purchase price equal to 85% of the fair market value per share of common stock
on either the start date of the offering period or the end date of the offering
period, whichever is less. If the fair market value of the common stock at the
end of the purchase period is lower than the fair market value on the start
date of that offering period, then all participants in that offering period
will be automatically withdrawn from such offering period and re-enrolled in
the offering period immediately following. The Company amended the 1999 Stock
Plan in August 1999, increasing the number of shares reserved for issuance to
12,000,000.
F-20
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
Warrants (unaudited)
In connection with the warrant issued to an employee (Note 7), the remaining
milestones were met in August and September 1999 and the remaining 250,000
shares became exercisable. The Company recorded compensation expense in the
amount of $1,715,000 based on the difference between the exercise price and the
fair value of the Company's common stock on the dates each of the milestones
were met.
Stock Option Grants (unaudited)
In the three months ended September 30, 1999 the Company granted options to
purchase 973,500 shares of common stock at exercise prices ranging from $3.25
to $6.50 per share to employees and directors. The Company expects to record
deferred stock compensation of approximately $3.5 million in conjunction with
these grants, which is being amortized over the four-year vesting period of the
related options.
11. Pro Forma Stockholders' Equity (unaudited)
Pro forma stockholders' equity is computed to include the automatic
conversion of the pro forma outstanding shares of Series A and Series B
preferred stock into 1,206,000 and 4,500,000 shares, respectively, of common
stock.
At June 30, 1999, the pro forma effects of these transactions are as follows:
<TABLE>
<CAPTION>
Pro Forma
Stockholders' Equity
June 30, 1999 At June 30, 1999
------------- --------------------
<S> <C> <C>
Preferred stock............................ $ 571 $ --
Common stock............................... 1,484 2,055
Additional paid-in capital................. 20,238,846 20,238,846
Warrants................................... 757,354 757,354
Deferred stock compensation................ (3,232,130) (3,232,130)
Receivable from sale of Series B preferred
stock..................................... (240,000) (240,000)
Accumulated deficit........................ (8,902,879) (8,902,879)
----------- -----------
Total stockholders' equity............... $ 8,623,246 $ 8,623,246
=========== ===========
</TABLE>
F-21
<PAGE>
Mediaplex, Inc.
Pro Forma Financial Information
Overview
On March 25, 1999, the Company acquired Netranscend Software, Inc.
("Netranscend"), a Java-based enterprise automation solution software company.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their fair values on
the acquisition date.
The aggregate purchase price of $2,993,906 consisted of a note payable of
$430,000, due in four annual installments beginning on the first anniversary of
the acquisition, 1,979,000 shares of the Company's common stock with an
estimated fair value of $2,552,910, acquisition-related expenses of $68,231 for
miscellaneous transaction fees and $15,826 of net liabilities assumed. Of the
total purchase price, $3,009,732 was allocated to goodwill and intangible
assets, consisting of proprietary technology. The acquired goodwill and
intangible assets will be amortized over their estimated useful lives of three
years.
The following unaudited pro forma consolidated statement of operations gives
effect to this acquisition as if it had occurred on January 1, 1998, by
consolidating the results of operations of Netranscend Software, Inc. for the
year ended December 31, 1998 with the results of operations of the Company for
the year ended December 31, 1998.
The unaudited pro forma consolidated statement of operations is not
necessarily indicative of the operating results that would have been achieved
had the transactions been effected as of January 1, 1998 and should not be
construed as being representative of future operating results.
The historical financial statements of the Company and Netranscend are
included elsewhere in this Prospectus and the unaudited pro forma consolidated
financial information presented herein should be read in conjunction with those
financial statements and related notes.
F-22
<PAGE>
Mediaplex, Inc.
Pro Forma Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------
Mediaplex Netranscend Adjustments Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................. $ 3,588,094 $ -- $ -- $ 3,588,094
Cost of revenues.......... 2,770,567 -- -- 2,770,567
----------- ------- ----------- -----------
Gross profit.......... 817,527 -- -- 817,527
----------- ------- ----------- -----------
Operating expenses:
Sales and marketing..... 819,641 -- -- 819,641
Research and
development............ 555,736 1,717 -- 557,453
General and
administrative......... 636,651 8,271 -- 644,922
Stock-based
compensation........... 577,525 -- -- 577,525
Amortization of goodwill
and intangibles........ -- -- 1,003,244(A) 1,003,244
----------- ------- ----------- -----------
Total operating
expenses............. 2,589,553 9,988 1,003,244 3,602,785
----------- ------- ----------- -----------
Loss from operations.. (1,772,026) (9,988) (1,003,244) (2,785,238)
Interest expense, net..... (247,186) -- -- (247,186)
----------- ------- ----------- -----------
Net loss.............. $(2,019,212) $(9,988) $(1,003,244) $(3,032,444)
----------- ------- ----------- -----------
Net loss per share--basic
and diluted(B)........... $ (0.30)
-----------
Weighted average shares
outstanding(B)........... 10,165,127
-----------
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
F-23
<PAGE>
Mediaplex, Inc.
Notes to Pro Forma Financial Information
(unaudited)
The following adjustments were applied to the Company's historical financial
statements and those of Netranscend Software, Inc. to arrive at the pro forma
consolidated financial information.
(A) To record amortization of goodwill and purchased proprietary
technology totaling $1,003,244 over the estimated period of benefit
of three years.
(B) Pro forma basic and diluted net loss per share for the year ended
December 31, 1998 was computed using the weighted average number of
common shares outstanding. Differences between historical weighted
average shares outstanding and pro forma weighted average shares
outstanding used to compute net loss per share result from the
inclusion of shares issued in conjunction with the acquisition as if
those shares were outstanding from January 1, 1998.
F-24
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Netranscend Software, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Netranscend Software, Inc.
(a development stage company) (the "Company") at December 31, 1997 and 1998 and
the results of its operations and its cash flows for the years ended December
31, 1997 and 1998, and the period from November 27, 1996 (inception) through
December 31, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
July 23, 1999
F-25
<PAGE>
Netranscend Software, Inc.
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................. $ -- $ 530
Prepaid expenses.......................................... 114 78
------- --------
Total current assets.................................... 114 608
Property and equipment, net................................. 3,149 1,746
------- --------
Total assets............................................ $ 3,263 $ 2,354
======= ========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Payable due to shareholder................................ $ 6,126 $ 16,356
Accrued liabilities....................................... 1,171 --
------- --------
Total current liabilities............................... 7,297 16,356
------- --------
Shareholders' equity (deficit):
Common stock: No par value; 10,000,000 shares authorized;
3,000,000 shares issued and outstanding at December 31,
1997 and 1998............................................ 3,030 3,030
Deferred stock compensation............................... (30) (10)
Deficit accumulated during the development stage.......... (7,034) (17,022)
------- --------
Total shareholders' equity (deficit).................... (4,034) (14,002)
------- --------
Total liabilities and shareholders' equity (deficit).... $ 3,263 $ 2,354
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
Netranscend Software, Inc.
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
Period from
November 27,
1996
Year Ended (inception)
December 31, through
---------------- December 31,
1997 1998 1998
------- ------- ------------
<S> <C> <C> <C>
Operating expenses:
Research and development....................... $ 1,405 $ 1,717 $ 3,219
Selling, general and administrative............ 2,936 8,271 13,803
------- ------- --------
Total operating expenses..................... 4,341 9,988 17,022
------- ------- --------
Net loss..................................... $(4,341) $(9,988) $(17,022)
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
Netranscend Software, Inc.
(a development stage company)
Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Common Stock Deferred during the Shareholders'
---------------- Stock Development Equity
Shares Amount Compensation Stage (Deficit)
--------- ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 3,000,000 $3,000 $ -- $ (2,693) $ 307
Deferred stock
compensation........... -- 30 (30) -- --
Net loss ............... -- -- -- (4,341) (4,341)
--------- ------ ---- -------- --------
Balance at December 31,
1997................... 3,000,000 3,030 (30) (7,034) (4,034)
Amortization of deferred
stock compensation..... -- -- 20 -- 20
Net loss................ -- -- -- (9,988) (9,988)
--------- ------ ---- -------- --------
Balance at December 31,
1998................... 3,000,000 $3,030 $(10) $(17,022) $(14,002)
========= ====== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
Netranscend Software, Inc.
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
November 27,
1996
Year Ended (inception)
December 31, through
---------------- December 31,
1997 1998 1998
------- ------- ------------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(4,341) $(9,988) $(17,022)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 1,404 1,618 3,119
Stock compensation expense.................... -- 20 20
Changes in current assets and liabilities:
Prepaid expenses............................ (114) 36 (78)
Accrued liabilities......................... 1,171 (1,171) --
------- ------- --------
Net cash used in operating activities..... (1,880) (9,485) (13,961)
------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............. (1,174) (215) (4,865)
------- ------- --------
Net cash used in investing activities..... (1,174) (215) (4,865)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock......... -- -- 3,000
Proceeds from payables due to shareholder...... 3,054 10,230 16,356
------- ------- --------
Net cash provided by financing
activities............................... 3,054 10,230 19,356
------- ------- --------
Net increase in cash and cash equivalents....... -- 530 530
Cash and cash equivalents at beginning of
period......................................... -- -- --
------- ------- --------
Cash and cash equivalents at end of period...... $ -- $ 530 $ 530
======= ======= ========
Supplemental disclosure of cash flow
information:
Deferred stock compensation from issuance of
common stock.................................. $ 30 $ -- $ 30
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
Netranscend Software, Inc.
(a development stage company)
Notes to Financial Statements
1. Nature of Business
Netranscend Software, Inc. (the "Company") was incorporated on November 27,
1996 as a California corporation. The Company provides Java-based enterprise
automation solutions on the Internet and for intranets.
2. Summary of Significant Accounting Policies
Basis of presentation
The Company has had limited operations to date, and its activities have
consisted primarily of developing products and recruiting personnel.
Accordingly, the Company is considered to be in the development stage at
December 31, 1998, as defined in Statement of Financial Accounting Standards
("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises."
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are stated at cost and depreciated on the straight-
line basis over the estimated useful lives of the asset, which is generally
three years. Upon sale or disposal, the Company removes the asset and
accumulated depreciation from its records and recognizes the related gain or
loss in results of operations.
Research and development costs
The costs of establishing the technological feasibility of the Company's
software products or product enhancements are expensed as research and
development costs when incurred. The costs incurred subsequent to the
establishment of technological feasibility and prior to a product's general
release will be capitalized. All costs have been expensed to date.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, on the date of grant between the
fair value of the Company's stock and the amount an employee must pay to
acquire the stock.
F-30
<PAGE>
Netranscend Software, Inc.
(a development stage company)
Notes to Financial Statements--(Continued)
The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
Comprehensive Income
The Company complies with the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. The Company has not had any significant transactions
that are required to be reported in comprehensive income.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents. The Company
deposits its cash and cash equivalents with a single major financial
institution, which deposits may exceed federal deposit insurance limits.
3. Related Party Transactions
During the period from November 27, 1996 (inception) to December 31, 1998,
the sole shareholder purchased certain assets and incurred expenses on behalf
of the Company. The Company recorded such amounts due to the shareholder as an
interest-free loan. The amounts due to the shareholder at December 31, 1997 and
1998 were $6,126 and $16,356, respectively.
4. Property and Equipment
Property and equipment as of December 31, 1997 and 1998 is summarized as
follows:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Property and equipment, net:
Computer equipment and software............................ $4,651 $4,866
Less: Accumulated depreciation and amortization............ (1,502) (3,120)
------ ------
$3,149 $1,746
====== ======
</TABLE>
F-31
<PAGE>
Netranscend Software, Inc.
(a development stage company)
Notes to Financial Statements--(Continued)
5. Income Taxes
During the period from November 27, 1996 (inception) through December 31,
1998, no income tax provision or benefit was recognized due to net operating
losses incurred during the periods for which a full valuation allowance was
recorded.
The difference between the income tax benefit at the federal statutory rate
of 34% and the Company's effective tax rate is due to the recording of the
valuation allowance.
6. Shareholders' Equity
Common stock
The Company is authorized to issue 10,000,000 shares of common stock. In
November 1996, the Company issued 3,000,000 shares of common stock to the sole
shareholder in exchange for a capital contribution made by the shareholder. At
December 31, 1998, a total of 3,000,000 shares of common stock was issued and
outstanding.
Stock option plan
The Company did not have a formal stock option plan. However, during 1997,
the Company issued nonstatutory stock options to three non-employees. The
Company did not reserve any specific number of shares of common stock for
issuance of the stock options. The options generally become exercisable in
equal increments over a eighteen-month vesting period and expire at the end of
five years from the date of grant or sooner if terminated by the Board of
Directors.
In connection with the stock options grants, the Company recorded a deferred
stock compensation of $30, which will be amortized over the vesting period
through February 1999.
The following table summarizes option activity through December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Number of Exercise Aggregate
Shares Price Price
--------- -------- ---------
<S> <C> <C> <C>
Shares:
Granted....................................... 59,000 $0.002 $118
Cancelled..................................... -- -- --
Exercised..................................... -- -- --
------ ------ ----
Balance, December 31, 1997...................... 59,000 $0.002 118
Granted....................................... -- -- --
Cancelled..................................... -- -- --
Exercised..................................... -- -- --
------ ------ ----
Balance, December 31, 1998...................... 59,000 $0.002 $118
====== ====== ====
</TABLE>
As of December 31, 1997 and 1998, options to purchase 5,000 and 56,000 shares
of common stock were exercisable.
F-32
<PAGE>
Netranscend Software, Inc.
(a development stage company)
Notes to Financial Statements--(Continued)
The following table summarizes information for stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------------------------------
Weighted
Average
Remaining
Contractual
Exercise Number Life Number
Price Outstanding (Years) Exercisable
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 0.002 59,000 3.7 56,000
====== ======
</TABLE>
The pro forma disclosures for net loss and net loss per share have not been
presented as the results would be the same as the net loss and net loss per
share as reported.
7. Subsequent Events
On March 25, 1999, the Company was acquired by Mediaplex, Inc. ("Mediaplex")
in exchange for a note issued to the Company's sole shareholder payable in four
annual installments, and for 1,979,000 shares of Mediaplex's common stock. The
note will be paid in installments of $110,000 due on March 25, 2000, 2001 and
2003 and $100,000 on March 25, 2002. Mediaplex delivered 1,679,000 shares of
common stock immediately after the closing date and deposited the remaining
300,000 shares of common stock into an escrow fund. The escrow fund period
expires two years after the closing date, subject to fulfilling pending
unsatisfied claims, if any. At the end of the escrow period or resolution of
the unsatisfied claims, the remaining 300,000 shares of common stock will be
delivered to the sole shareholder.
All vested and unvested options of the Company were cancelled at the closing
date of this acquisition.
F-33
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS CONTAINS CLIENT'S NAMES AND LOGOS]
Caption in the middle of six pictures of people: Delivering the most relevant
message to the right target in real time. [PICTURES OF 3 PERSONS ABOVE THE
CAPTION AND 3 PERSONS BELOW THE CAPTION]
Bottom of page caption: Just a few of our clients:
[LOGOS FOR 13 CLIENTS]
<PAGE>
6,000,000 Shares
[LOGO OF MEDIAPLEX]
Common Stock
-------------
PROSPECTUS
, 1999
-------------
Lehman Brothers
SG Cowen
U.S. Bancorp Piper Jaffray
Fidelity Capital Markets
a division of National Financial Services Corporation
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discount payable by Mediaplex in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 19,460
NASD filing fee.................................................. 7,500
Nasdaq National Market listing fee............................... 95,000
Printing and engraving costs..................................... 250,000
Legal fees and expenses.......................................... 350,000
Accounting fees and expenses..................................... 275,000
Blue Sky fees and expenses....................................... 5,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous expenses........................................... 38,040
----------
Total.......................................................... $1,050,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Registrant's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article VI of the Registrant's Amended and Restated Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of
the Registrant if such persons act in good faith and in a manner reasonably
believed to be in and not opposed to the best interests of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in the
Registrant's Amended and Restated Bylaws, and intends to enter into
indemnification agreements with any new directors and executive officers in the
future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the Registrant and its executive officers and directors
for certain liabilities, including liabilities arising under the Securities
Act, in connection with matters specifically provided in writing by the
Underwriters for inclusion in the Registration Statement.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Registrant has issued unregistered
securities to a limited number of entities and persons as described below:
(a) From September 1, 1996 to September 30, 1999, the Registrant issued
and sold common stock to various entities and persons at per share purchase
prices, as follows:
(1) In September and October 1996, the Registrant issued and sold to
Michael Schwartz an aggregate of 2,460,000 shares at a purchase
price of $0.0001 per share, in connection with the Registrant's
founding;
II-1
<PAGE>
(2) In September 1996, the Registrant issued and sold 350,000 shares
and 250,000 shares, to Raifman & Edwards LLP and PointBreak
Ventures, LLC, respectively, at a purchase price of $0.0001 per
share, in payment for past services rendered to the Registrant;
(3) In October 1996 and January 1997, the Registrant issued and sold
1,600,000 shares to Eugene Jarvis, at a purchase price of $0.05
per share;
(4) In December 1996, the Registrant issued and sold an aggregate of
800,000 shares to Kuni Research, at a purchase price of $0.05 per
share;
(5) During 1997, the Registrant issued and sold 220,000 shares and
995,338 shares to non-employee investors at a purchase price of
$0.05 per share and $0.30 per share, respectively;
(6) In June 1997, the Registrant issued a convertible promissory note
to Michael Schwartz in payment for past services rendered, which
was converted into 4,643,228 shares at a conversion rate of $0.05
per share in June 1997. In April 1998, the Registrant repurchased
these shares, and issued in exchange a convertible promissory note
to Michael Schwartz. In July 1998, Michael Schwartz transferred
these shares to Raifman & Edwards, LLP. In March 1999, Raifman &
Edwards converted the principal and interest of this note into
4,643,228 shares at a conversion rate of $0.05 per share;
(7) In July 1997, the Registrant issued a convertible promissory note
to Raifman & Edwards, LLP, in payment for past services rendered,
which in March 1999 was converted into 947,009 shares at a
conversion rate of $0.075 per share;
(8) In February 1998, the Registrant issued and sold to non-employee
investors 76,000 shares at a purchase price of $0.50 per share;
(9) In June 1998, the Registrant issued and sold to a former employee,
Joshua Grant, 232,290 shares at a purchase price of $0.65 per
share;
(10) In January and March 1999, the Registrant issued and sold to an
employee, Jay Goodman, 13,333 shares and to a non employee, Seth
Harmon, 10,000 shares, in payment for past services rendered at
prices of $1.13 and $1.29 per share, respectively; and
(11) In January 1999, the Registrant, in exchange for services rendered
issued and sold to Gary Kremen, an employee 200,000 shares for a
purchase price of $0.62 per share under our 1997 Stock Plan.
(b) From October 31, 1996 to September 30, 1999, the Registrant issued to
certain of its employees, officers, directors and consultants options to
purchase an aggregate of 9,390,998 shares of common stock of the
Registrant, at exercise prices ranging from $0.05 per share to $6.50 per
share, pursuant to the Registrant's 1997 Stock Plan and 1999 Stock Plan,
and Amended and Restated 1999 Stock Plan.
(c) From October 31, 1996 to September 30, 1999, the Registrant issued an
aggregate of 375,167 shares of common stock to employees, directors and
consultants of the Registrant upon the exercise of options at exercise
prices ranging from $0.05 to $3.25 per share.
(d) On January 11, 1999, the Registrant issued to Timothy Favia, an
employee, a warrant to purchase an aggregate of 500,000 shares of common
stock at an exercise price of $0.50 per share.
(e) On January 26, 1999, the Registrant issued and sold an aggregate of
1,206,000 shares of Series A preferred stock to 37 investors at a purchase
price of $1.25 per share or an aggregate purchase price of $1,507,500.
(f) On March 25, 1999, the Registrant issued and sold an aggregate of
1,979,000 shares of common stock valued at $1.31 per share to Ruiqing Jiang
in connection with the Registrant's acquisition of Netranscend Software,
Inc., of which Mr. Jiang was the sole shareholder.
II-2
<PAGE>
(g) On June 15, 1999, the Registrant issued and sold an aggregate of
4,500,000 shares of Series B preferred stock to 36 investors at a purchase
price of $2.00 per share, or an aggregate purchase price of $9,000,000.
(h) On June 15, 1999, the Registrant issued to Retail Ventures
International, Inc. and Zeron Capital, Inc. warrants to purchase 150,000
shares and 125,000 shares of Series B preferred stock at an exercise price
of $2.00 per share.
(i) On June 15, 1999, the Registrant issued to Retail Ventures
International, Inc. a warrant to purchase an aggregate of 100,000 shares of
common stock at an exercise price of $0.50 per share.
(j) On August 6, 1999, the Registrant issued and sold an aggregate of
4,000,000 shares of Series C preferred stock to 14 investors at a purchase
price of $3.59 per share, or an aggregate purchase price of $14,360,000.
The issuances described in paragraphs (a) (1) through (10) and (d) through
(j) above were deemed to be exempt from registration under the Securities Act
in reliance on Section 4(2) of the Securities Act as transactions by an issuer
not involving a public offering. The sales of securities described in
paragraphs a(11), (b) and (c) above were deemed to be exempt from the
registration requirements of the Securities Act in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients of securities in
each such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. The issuance of
warrants to purchase stock described in paragraphs (h) and (i) above did not
require registration under the Securities Act, or an exemption therefrom,
insofar as such grants did not involve a "sale" of securities as such term is
used in Section 2(3) of the Securities Act. All recipients either received
adequate information about the Registrant or had access, through employment or
other relationships, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1** Agreement and Plan of Reorganization between Registrant, Netranscend
Software, Inc. and Ruiqing "Barclay" Jiang, dated March 8, 1999.
3.1** Form of the Amended and Restated Certificate of Incorporation of the
Registrant to be in effect after the closing of the offering made
under this Registration Statement.
3.2** Form of the Amended and Restated Bylaws of the Registrant to be in
effect after the closing of the offering made under this Registration
Statement.
4.1** Warrant to purchase 500,000 shares of Common Stock of the Registrant,
dated January 11, 1999, held by Timothy Favia.
4.2** Warrant to purchase 100,000 shares of Common Stock of the Registrant,
dated June 15, 1999, held by Retail Ventures International, Inc.
4.3** Warrant to purchase 150,000 shares of Series B Preferred Stock of the
Registrant, dated June 15, 1999, held by Retail Ventures
International, Inc.
4.4** Warrant to purchase 125,000 shares of Series B Preferred Stock of the
Registrant, dated June 15, 1999, held by Zeron Capital, Inc.
4.5 Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1** Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2** Amended and Restated 1999 Stock Plan and form of agreements
thereunder.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10.3** 1999 Employee Stock Purchase Plan and form of agreements thereunder.
10.4** 1997 Stock Plan and form of agreements thereunder.
10.5** Basic Lease Agreement, First Amendment and Basic Lease Information
thereto, between R&E Holdings, LLC and Persis Corporation and
BidCom, Inc., dated September 24, 1999, February 1, 1997 and July
31, 1998, respectively.
10.6** Sublease, dated July 9, 1999, with Telocity, Inc.
10.7** Employment Agreement with Gregory R. Raifman, dated February 19,
1999.
10.8** Employment Agreement with Jon L. Edwards, dated February 19, 1999.
10.9** Employment Agreement with Walter Haefeker, dated February 19, 1999.
10.10** Employment Agreement with Ruiqing "Barclay" Jiang, dated March 24,
1999.
10.11** Employment Agreement with Sandra L. Abbott, dated August 6, 1999.
10.12+** Technology Integration and Services Agreement between the Registrant
and DoubleClick, Inc., dated July 22, 1999.
10.13** Investors' Rights Agreement, dated July 30, 1999.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.3 Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney (see page II-5).
27.1** Financial Data Schedule.
</TABLE>
- --------
**Previously filed.
+Confidential treatment requested.
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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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 a
director, officer or controlling person in connection with the securities being
registered hereunder, 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.
II-4
<PAGE>
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Francisco, State of California, on the 8th day of October, 1999.
MEDIAPLEX, INC.
/s/ Sandra L. Abbott
By:__________________________________
Sandra L. Abbott
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
* Chairman and Chief October 8, 1999
____________________________________ Executive Officer
Gregory R. Raifman (Principal Executive
Officer)
/s/ Sandra L. Abbott Senior Vice President, October 8, 1999
____________________________________ Chief Financial Officer
Sandra L. Abbott and Secretary
(Principal Accounting
Officer)
* President and Director October 8, 1999
____________________________________
Jon L. Edwards
* Director October 8, 1999
____________________________________
Lawrence D. Lenihan, Jr.
* Director October 8, 1999
____________________________________
Peter S. Sealey
* Director October 8, 1999
____________________________________
James DeSorrento
* Director October 8, 1999
____________________________________
A. Brooke Seawell
/s/ Sandra L. Abbott
*By: _______________________________
Sandra L. Abbott
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1** Agreement and Plan of Reorganization between Registrant, Netranscend
Software, Inc. and Ruiqing "Barclay" Jiang, dated March 8, 1999.
3.1** Form of the Amended and Restated Certificate of Incorporation of the
Registrant to be in effect after the closing of the offering made
under this Registration Statement.
3.2** Form of the Amended and Restated Bylaws of the Registrant to be in
effect after the closing of the offering made under this
Registration Statement.
4.1** Warrant to purchase 500,000 shares of Common Stock of the Registrant,
dated January 11, 1999, held by Timothy Favia.
4.2** Warrant to purchase 100,000 shares of Common Stock of the Registrant,
dated June 15, 1999, held by Retail Ventures International, Inc.
4.3** Warrant to purchase 150,000 shares of Series B Preferred Stock of the
Registrant, dated June 15, 1999, held by Retail Ventures
International, Inc.
4.4** Warrant to purchase 125,000 shares of Series B Preferred Stock of the
Registrant, dated June 15, 1999, held by Zeron Capital, Inc.
4.5 Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2** Amended and Restated 1999 Stock Plan and form of agreements
thereunder.
10.3** 1999 Employee Stock Purchase Plan and form of agreements thereunder.
10.4** 1997 Stock Plan and form of agreements thereunder.
10.5** Basic Lease Agreement, First Amendment and Basic Lease Information
thereto, between R&E Holdings, LLC and Persis Corporation and
BidCom, Inc., dated September 24, 1999, February 1, 1997 and July
31, 1998, respectively.
10.6** Sublease, dated July 9, 1999, with Telocity, Inc.
10.7** Employment Agreement with Gregory R. Raifman, dated February 19,
1999.
10.8** Employment Agreement with Jon L. Edwards, dated February 19, 1999.
10.9** Employment Agreement with Walter Haefeker, dated February 19, 1999.
10.10** Employment Agreement with Ruiqing "Barclay" Jiang, dated March 24,
1999.
10.11** Employment Agreement with Sandra L. Abbott, dated August 6, 1999.
10.12+** Technology Integration and Services Agreement between the Registrant
and DoubleClick, Inc., dated July 22, 1999.
10.13** Shareholders' Rights Agreement, dated July 30, 1999.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.3 Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney (see page II-5).
27.1** Financial Data Schedule.
</TABLE>
- --------
** Previously filed.
+ Confidential treatment requested.
<PAGE>
Exhibit 1.1
6,000,000 Shares
MEDIAPLEX, INC.
Common Stock, $0.0001 par value
UNDERWRITING AGREEMENT
----------------------
Draft of October 8, 1999
Lehman Brothers Inc.
SG Cowen Securities Corporation
U.S. Bancorp Piper Jaffray Inc.
Fidelity Capital Markets, a division
of National Financial Services Corporation
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Mediaplex, Inc., a Delaware corporation (the "Company"), proposes to
sell 6,000,000 shares (the "Firm Stock") of the Company's Common Stock, par
value $0.0001 per share (the "Common Stock"). In addition, the Company proposes
to grant to the Underwriters named in Schedule 1 hereto (the "Underwriters") an
option to purchase up to an additional 900,000 shares of the Common Stock on the
terms and for the purposes set forth in Section 2 (the "Option Stock"). The
Firm Stock and the Option Stock, if purchased, are hereinafter collectively
called the "Stock." This is to confirm the agreement concerning the purchase of
the Stock from the Company by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1, and amendments
thereto, with respect to the Stock has (i) been prepared by the
Company in conformity with the requirements of the United States
Securities Act of 1933 (the "Securities Act") and the rules and
regulations (the "Rules and Regulations") of the United States
Securities and Exchange Commission (the "Commission") thereunder, (ii)
been filed with the Commission under the Securities Act and (iii)
become effective under the Securities Act; and a second registration
statement on Form S-1 with respect to the Stock (i) may also be
prepared by the Company in conformity with the requirements of the
Securities Act and the Rules and Regulations and (ii) if to be so
<PAGE>
prepared, will be filed with the Commission under the Securities Act
pursuant to Rule 462(b) of the Rules and Regulations on the date
hereof. Copies of the first such registration statement and the
amendments to such registration statement, together with the form of
any such second registration statement have been delivered by the
Company to you as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time" means (i)
with respect to the first such first registration statement, the date
and the time as of which such first registration statement, or the
most recent post-effective amendment thereto, if any, was declared
effective by the Commission and (ii) with respect to any second
registration statement, the date and the time as of which such second
registration statement is filed with the Commission, and "Effective
Times" is the collective reference to both Effective Times; "Effective
Date" means (i) with respect to the first such registration statement,
the date of the Effective Time of such first registration statement,
and (ii) with respect to any second registration statement, the date
of the Effective Time of such second registration statement, and
"Effective Dates" is the collective reference to both Effective Dates;
"Preliminary Prospectus" means each prospectus included in any such
registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules and Regulations; "Primary
Registration Statement" means the first registration statement
referred to in this Section 1(a), as amended at its Effective Time;
"Rule 462(b) Registration Statement" means the second registration
statement, if any, referred to in this Section 1(a), as filed with the
Commission, and "Registration Statements" means both the Primary
Registration Statement and any Rule 462(b) Registration Statement,
including in each case all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 5(a) hereof and
deemed to be a part of the Registration Statements as of the Effective
Time of the Primary Registration Statement pursuant to paragraph (b)
of Rule 430A of the Rules and Regulations; and "Prospectus" means such
final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. The
Commission has not issued any order preventing or suspending the use
of any Preliminary Prospectus.
(b) The Primary Registration Statement conforms, and the Rule
462(b) Registration Statement, if any, and the Prospectus and any
further amendments or supplements to the Registration Statements or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable effective date (as to the
Registration Statements and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that
no representation or warranty is made as to information contained in
or omitted from
2
<PAGE>
the Registration Statements or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically
for inclusion therein.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its
business requires such qualification, except where failure to be so
qualified would not have a material adverse effect on the financial
position, stockholders' equity, results of operations, business or
prospects of the Company, and has all power and authority necessary to
own or hold its properties and to conduct the business in which it is
engaged; and the Company has no subsidiaries.
(d) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus.
(e) The unissued shares of the Stock to be issued and sold by
the Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and non-
assessable; and the Stock will conform to the description thereof
contained in the Prospectus.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company is a party or by which the Company
is bound or to which any of the property or assets of the Company is
subject, nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any statute or
any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its properties or
assets; and except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
applicable state securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and
3
<PAGE>
performance of this Agreement by the Company and the consummation of
the transactions contemplated hereby.
(h) There are no contracts, agreements or understandings between
the Company and any person granting such person the right (other than
rights which have been waived or satisfied) to require the Company to
file a registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities
registered pursuant to the Registration Statements or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act.
(i) Except as described in the Registration Statement, the
Company has not sold or issued any shares of Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee benefit
plans, qualified stock option plans or other employee compensation
plans or pursuant to outstanding options, rights or warrants
outstanding prior to the commencement of such six-month period.
(j) The Company has not sustained, since the date of the latest
audited financial statements included in the Prospectus, any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since such
date, there has not been any change in the capital stock or long-term
debt of the Company or any material adverse change, or any development
that would reasonably be likely to involve a prospective material
adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company, otherwise than as set forth or contemplated in the
Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statements or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby,
at the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The selected and
summary financial and statistical data and information included in the
Registration Statements present fairly the information shown therein
and have been compiled on a basis substantially consistent with the
financial statements presented therein. The pro forma financial
statements and other pro forma financial information included in the
Registration Statements and the Prospectus (i) present fairly, in all
material respects, the information shown therein, (ii) have been
prepared in accordance with the Rules and Regulations with respect to
pro forma financial statements and (iii) have been
4
<PAGE>
properly compiled on the basis described therein, and the assumptions
used in the preparation of the pro forma financial statements and
other pro forma financial information and included in the Registration
Statements and the Prospectus are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(l) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and Netranscend Software, Inc.,
whose reports appear in the Prospectus and who have delivered the
initial letter referred to in Section 7(f) hereof, are, to the
Company's knowledge independent public accountants as required by the
Securities Act and the Rules and Regulations, and were independent
accountants as required by the Securities Act and the Rules and
Regulations during the periods covered by the financial statements on
which they reported contained in the Prospectus.
(m) The Company owns no real property. The Company has good
title to all personal property owned by it, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not materially interfere with the use
made and currently proposed to be made of such property by the
Company; and all real property and buildings held under lease by the
Company are held by it under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with the
use made and currently proposed to be made of such property and
buildings by the Company.
(n) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is reasonably adequate for the
conduct of its business and the value of its properties and as is
customary for companies engaged in similar businesses in similar
industries.
(o) The Company owns or possesses adequate rights to use all
material patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of its business and
has no reason to believe that the conduct of its businesses will
conflict with, and has not received any notice of any claim of
conflict with, any such rights of others.
(p) There are no legal or governmental proceedings pending to
which the Company is a party or of which any property or assets of the
Company is the subject which, if determined adversely to the Company
would reasonably be expected to have a material adverse effect on the
financial position, stockholders' equity, results of operations,
business or prospects of the Company; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
5
<PAGE>
(q) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statements by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statements.
(r) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.
(s) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent which would
reasonably be expected to have a material adverse effect on the
financial position, stockholders' equity, results of operations,
business or prospects of the Company.
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(u) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date hereof
and has paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company which has had (nor does the
Company have any knowledge of any tax deficiency which, if determined
adversely to the Company, would reasonably be expected to have) a
material adverse effect on the financial position, stockholders'
equity, results of operations, business or prospects of the Company.
(v) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred
in the ordinary course of business, (iii) entered into any transaction
not in the ordinary course of business or (iv) declared or paid any
dividend on its capital stock.
6
<PAGE>
(w) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing
assets at reasonable intervals.
(x) The Company (i) is not in violation of its charter or by-
laws, (ii) is not in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term,
covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is not in violation in any
material respect of any law, ordinance, governmental rule, regulation
or court decree to which it or its property or assets may be subject
or has failed to obtain any material license, permit, certificate,
franchise or other governmental authorization or permit necessary to
the ownership of its property or to the conduct of its business.
(y) Neither the Company, nor any director or officer, or, to the
Company's knowledge, any agent, employee or other person associated
with or acting on behalf of the Company, has used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(z) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous substances
by the Company (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company in violation of any
applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit,
except for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the aggregate
with all such violations and remedial actions, a material adverse
effect on the financial position, stockholders' equity, results of
operations, business or prospects of the Company.
(aa) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
7
<PAGE>
(ab) The Company has reviewed, and is continuing to review, its
operations and products to evaluate the extent to which the business
or operations of the Company will be affected by the Year 2000 Problem
(that is, any significant risk that computer hardware or software
applications used by the Company will not, in the case of dates or
time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to
January 1, 2000); as a result of such review, (i) the Company has no
reason to believe, and does not believe, that (A) there are any issues
related to the Company's preparedness to address the Year 2000 Problem
that are of a character required to be described or referred to in the
Registration Statements or Prospectus that have not been accurately
described in the Registration Statements or Prospectus and (B) the
Year 2000 Problem will have a material adverse effect on the financial
position, stockholders' equity, results of operations, business or
prospects of the Company, or result in any material loss or
interference with the business or operations of the Company; and (ii)
to the Company's knowledge, the suppliers, vendors, customers or other
material third parties used or served by the Company are addressing or
will address the Year 2000 Problem in a timely manner, except to the
extent that a failure to address the Year 2000 Problem by any
supplier, vendor, customer or material third party would not have a
material adverse effect on the financial position, stockholders'
equity, results of operations, business or prospects of the Company.
2. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 6,000,000 shares of
the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to 900,000 shares of Option Stock. Such option is granted for the
purpose of covering over-allotments in the sale of Firm Stock and is exercisable
as provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts.
The price of both the Firm Stock and any Option Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on any Delivery Date (as hereinafter defined), as the case may be,
except upon payment for all the Stock to be purchased on such Delivery Date as
provided herein.
8
<PAGE>
3. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of the Firm
Stock, the several Underwriters propose to offer the Firm Stock for sale upon
the terms and conditions set forth in the Prospectus.
It is understood that 300,000 shares of the Firm Stock will initially
be reserved by the several Underwriters for offer and sale upon the terms and
conditions set forth in the Prospectus and in accordance with the rules and
regulations of the National Association of Securities Dealers, Inc. to employees
and persons having business relationships with the Company who have heretofore
delivered to the Representatives offers to purchase shares of Firm Stock in form
satisfactory to the Representatives, and that any allocation of such Firm Stock
among such persons will be made in accordance with timely directions received by
the Representatives from the Company; provided, that under no circumstances will
the Representatives or any Underwriter be liable to the Company or to any such
person for any action taken or omitted in good faith in connection with such
offering to employees and persons having business relationships with the
Company. It is further understood that any shares of such Firm Stock which are
not purchased by such persons will be offered by the Underwriters to the public
upon the terms and conditions set forth in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Wilson Sonsini Goodrich &
Rosati, P.C., 650 Page Mill Road, Palo Alto, California, 94304, at 10:00 A.M.,
New York City time, on the [fourth] full business day following the date of this
Agreement or at such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and time are sometimes
referred to as the "First Delivery Date." On the First Delivery Date, the
Company shall deliver or cause to be delivered certificates representing the
Firm Stock to the Representatives for the account of each Underwriter against
payment to or upon the order of the Company of the purchase price by wire
transfer in immediately available funds to a bank account designated by the
Company. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Firm Stock shall be registered
in such names and in such denominations as the Representatives shall request in
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the certificates for
the Firm Stock, the Company shall make the certificates representing the Firm
Stock available for inspection by the Representatives in New York, New York, not
later than 2:00 P.M., New York City time, on the business day prior to the First
Delivery Date.
The option granted in Section 2 will expire 30 days after the date of
this Agreement and may be exercised in whole or in part from time to time by
written notice being given to the Company by the Representatives. Such notice
shall set forth the aggregate number of shares of Option Stock as to which the
option is being exercised, the names in which the shares of Option Stock are to
be registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery
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Date nor earlier than the second business day after the date on which the
option shall have been exercised nor later than the fifth business day after the
date on which the option shall have been exercised. The date and time the shares
of Option Stock are delivered are sometimes referred to as a "Second Delivery
Date" and the First Delivery Date and any Second Delivery Date are sometimes
each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on such
Second Delivery Date. On such Second Delivery Date, the Company shall deliver
or cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer in immediately
available funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Underwriter hereunder. Upon delivery, the Option Stock shall
be registered in such names and in such denominations as the Representatives
shall request in the aforesaid written notice. For the purpose of expediting
the checking and packaging of the certificates for the Option Stock, the Company
shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to such Second Delivery
Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Rule 462(b) Registration Statement, if
necessary, in a form approved by the Representatives and to file such
Rule 462(b) Registration Statement with the Commission on the date
hereof; to prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than Commission's close of business
on the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be required
by Rule 430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statements or to the
Prospectus except as permitted herein; to advise the Representatives,
promptly after it receives notice thereof, of the time when any
amendment to the Registration Statements has been filed or becomes
effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with
copies thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statements or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or
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suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statements as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statements as
originally filed with the Commission and each amendment thereto (in
each case excluding exhibits other than this Agreement and the
computation of per share earnings) and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented Prospectus;
and, if the delivery of a prospectus is required at any time after the
Effective Time of the Primary Registration Statement in connection
with the offering or sale of the Stock or any other securities
relating thereto and if at such time any events shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary to amend or supplement the Prospectus in order
to comply with the Securities Act, to notify the Representatives and,
upon their request, to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended
or supplemented Prospectus which will correct such statement or
omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statements or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statements or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to the
filing;
(f) As soon as practicable after the Effective Date of the
Primary Registration Statement (but in no event later than 18 months
after the Effective Date), to make generally available to the
Company's security holders and to deliver to the Representatives an
earnings statement of the Company (which need not be audited)
complying with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule 158);
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(g) For a period of five years following the Effective Date of
the Primary Registration Statement, to furnish to the Representatives
copies of all materials furnished by the Company to its shareholders
and all public reports and all reports and financial statements
furnished by the Company to the principal national securities exchange
upon which the Common Stock may be listed pursuant to requirements of
or agreements with such exchange or to the Commission pursuant to the
Exchange Act or any rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions
(domestic and foreign) as the Representatives may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Stock; provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any
person at any time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock (other
than the Stock and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date hereof or pursuant to currently outstanding
options, warrants or rights), or sell or grant options, rights or
warrants with respect to any shares of Common Stock or securities
convertible into or exchangeable for Common Stock (other than the
grant of options pursuant to option plans existing on the date
hereof), or (2) enter into any swap or other derivatives transaction
that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Common Stock, whether
any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in cash or
otherwise, in each case without the prior written consent of Lehman
Brothers Inc.; and to cause each officer and director of the Company
to furnish to the Representatives, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for
the Underwriters, pursuant to which each such person shall agree not
to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any
person at any time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock or (2)
enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of
ownership of such shares of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise, in each case
for a period
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of 180 days from the date of the Prospectus, without the prior written
consent of Lehman Brothers Inc., provided, however, that this Section
5(i) shall not apply to shares of Common Stock or securities
convertible into or exchangeable for Common Stock issued by the
Company pursuant to one or more mergers, acquisitions or similar
transactions as long as the aggregate number of shares issued in such
transactions does not exceed ten percent (10%) of the total shares
outstanding immediately following the closing of the sale of the
6,000,000 shares hereunder; and as long as all recipients of such
shares shall have signed a lock-up agreement substantially similar to
the agreement being entered into by the officers and directors of the
Company pursuant to this Section 5(i).
(j) Prior to the Effective Date of the Primary Registration
Statement, to apply for the inclusion of the Stock on the National
Market System and to use its best efforts to complete that listing,
subject only to official notice of issuance and evidence of
satisfactory distribution, prior to the First Delivery Date;
(k) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that the
Company shall not become an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statements and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statements as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement; (d) the costs of producing and distributing this Agreement and
any other related documents in connection with the offering, purchase, sale and
delivery of the Stock; (e) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
sale of the Stock; (f) any applicable listing or other fees including, without
limitation, the fees for quotation of the Common Stock on the Nasdaq National
Market; (g) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); and (h) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; provided that, except as provided in this Section 6 and in Section 11
the Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Stock which they may sell
and the expenses of advertising any offering of the Stock made by the
Underwriters. In the event that the Underwriters exercise the option granted to
them in Section 2 more than one time, the Underwriters agree to pay the costs
and expenses (other than any underwriting fees and discounts) incident to any
exercises of such option after the first such exercise.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the
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representations and warranties of the Company contained herein, to the
performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Rule 462(b) Registration Statement, if any, and the
Prospectus shall have been timely filed with the Commission in
accordance with Section 5(a); no stop order suspending the
effectiveness of either of the Registration Statements or any part
thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and any
request of the Commission for inclusion of additional information in
either of the Registration Statements or the Prospectus or otherwise
shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that either of the
Registration Statements or the Prospectus or any amendment or
supplement thereto contains an untrue statement of a fact which, in
the opinion of Fenwick & West LLP, counsel for the Underwriters, is
material or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein or is
necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Stock,
the Registration Statements and the Prospectus, and all other legal
matters relating to this Agreement and the transactions contemplated
hereby shall be reasonably satisfactory in all material respects to
counsel for the Underwriters, and the Company shall have furnished to
such counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
(d) Wilson Sonsini Goodrich & Rosati, P.C. shall have furnished
to the Representatives its written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form
and substance reasonably satisfactory to the Representatives, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business
and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the
conduct of its business requires such qualification, except where
failure to be so qualified would not have a material adverse
effect on the financial position, stockholders' equity, results
of operations or, business of the Company, and has all power and
authority necessary to own or hold its properties and conduct the
business in which it is engaged; and the Company has no
subsidiaries;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company
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(including the shares of Stock being delivered on such Delivery
Date) have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus;
(iii) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the voting
or transfer of, any shares of the Stock pursuant to the Company's
charter or by-laws or any agreement or other instrument known to
such counsel;
(iv) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company is a party or of which
any property or assets of the Company is the subject which, if
determined adversely to the Company would reasonably be expected
to have a material adverse effect on the financial position,
stockholders' equity, results of operations or, business of the
Company; and, to such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others;
(v) The Primary Registration Statement was declared
effective under the Securities Act as of the date and time
specified in such opinion, the Rule 462(b) Registration
Statement, if any, was filed with the Commission on the date
specified therein, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein and, to such counsel's knowledge after oral discussions
with the appropriate officials of the Commission, no stop order
suspending the effectiveness of either of the Registration
Statements has been issued and, to such counsel's knowledge, no
proceeding for that purpose is pending or threatened by the
Commission;
(vi) The Registration Statements and the Prospectus and
any further amendments or supplements thereto made by the Company
prior to such Delivery Date (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Securities Act and the Rules and
Regulations;
(vii) To such counsel's knowledge, there are no contracts
or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statements by
the Securities Act or by the Rules and Regulations which have not
been described or filed as exhibits to the Registration
Statements or incorporated therein by reference as permitted by
the Rules and Regulations;
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(viii) This Agreement has been duly authorized, executed
and delivered by the Company;
(ix) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance
by the Company with all of the provisions of this Agreement and
the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument filed as an exhibit to one of the
Registration Statements, or related to a material customer,
supplier or web-hosting facility disclosed in the Prospectus, nor
will such actions result in any violation of the provisions of
the charter or by-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company
or any of its properties or assets; and, except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated
hereby; an d
(x) To such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right (other than rights which have been
waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statements or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States
of America, the laws of the State of California and the General
Corporation Law of the State of Delaware and that such counsel is not
admitted in the State of Delaware. Such counsel shall also have
furnished to the Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such
counsel has acted as outside counsel to the Company on a regular basis
since ___________ (although the Company is also represented by other
outside counsel with respect to patent and certain other matters), has
acted as counsel to the Company in connection with previous financing
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transactions since ___________ and has acted as counsel to the Company
in connection with the preparation of the Registration Statements, and
(y) based on the foregoing, no facts have come to the attention of
such counsel which lead it to believe that the Registration
Statements, as of their respective Effective Dates (other than the
financial statements and financial and statistical data derived
therefrom included in the Registration Statements), contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing opinion and statement may be
qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statements or the
Prospectus except for the statements made in the Prospectus under the
captions "Description of Capital Stock" and "Shares Eligible for
Future Sale," insofar as such statements relate to the Stock and
concern legal matters.
(e) The Representatives shall have received from Fenwick & West
LLP, counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the
Stock, the Registration Statements, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(f) At the time of execution of this Agreement, the
Representatives shall have received from PricewaterhouseCoopers LLP a
letter, in form and substance satisfactory to the Representatives,
addressed to the Underwriters and dated the date hereof (i) confirming
that they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, (ii) stating, as of the date hereof
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is
given in the Prospectus, as of a date not more than five days prior to
the date hereof), the conclusions and findings of such firm with
respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
(g) With respect to the letter of PricewaterhouseCoopers LLP
referred to in the preceding paragraph and delivered to the
Representatives concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the
Representatives a letter (the "bring-down letter") of such
accountants, addressed to the Underwriters and dated such Delivery
Date (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are
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in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or,
with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than five days prior to the
date of the bring-down letter), the conclusions and findings of such
firm with respect to the financial information and other matters
covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(h) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery
Date; the Company has complied with all its agreements contained
herein; and the conditions set forth in Sections 7(a) and 7(i)
have been fulfilled; and
(ii) They have carefully examined the Registration
Statements and the Prospectus and, in their opinion (A) as of
their respective Effective Dates, the Registration Statements and
Prospectus did not include any untrue statement of a material
fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date of the Primary
Registration Statement no event has occurred which should have
been set forth in a supplement or amendment to either of the
Registration Statements or the Prospectus.
(i) (i) The Company shall not have sustained since the date of
the latest audited financial statements included in the Prospectus any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii) since such
date there shall not have been any change in the capital stock or
long-term debt of the Company or any change, or any development that
would reasonably be likely to involve a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity, results of operations, business or prospects of
the Company, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause
(i) or (ii), is, in the judgment of the Representatives, so material
and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Stock being delivered on
such Delivery Date on the terms and in the manner contemplated in the
Prospectus.
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(j) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall
have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the
Stock being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(k) The Nasdaq National Market shall have approved the Stock for
inclusion, subject only to official notice of issuance and evidence of
satisfactory distribution.
(l) You shall have been furnished with such additional documents
and certificates as you or counsel for the Underwriters may reasonably
request related to this Agreement and the transactions contemplated
hereby.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter,
its officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Stock), to which that Underwriter, officer,
employee or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, either of the
Registration Statements or the Prospectus or in any amendment or supplement
thereto, (ii) the omission or alleged omission to state in any Preliminary
Prospectus, either of the Registration Statements or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (iii) any act or failure to act or any alleged act or failure
to act by any
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Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
either of the Registration Statements or the Prospectus, or in any such
amendment or supplement, in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein which information consists solely of the information specified in
Section 8(e); and provided, further with respect to any preliminary prospectus,
the forgoing indemnity agreement shall not inure to the benefit of any
Underwriter from whom the person asserting any loss, claim, damage, liability or
action purchased Stock, or any person controlling such Underwriter, if copies of
the Prospectus were timely delivered to the Underwriter pursuant to Section 5(c)
and a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the Stock to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or action. The foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to any Underwriter or to any officer,
employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of its directors,
and each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statements or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statements or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives by or on
behalf of that Underwriter specifically for inclusion
20
<PAGE>
therein, and shall reimburse the Company and any such director, officer or
controlling person for any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Underwriter may
otherwise have to the Company or any such director, officer, employee or
controlling person.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ one counsel in addition to
local counsel to represent jointly the Representatives and those other
Underwriters and their respective officers, employees and controlling persons
who may be subject to liability arising out of any claim in respect of which
indemnity may be sought by the Underwriters against the Company under this
Section 8 if, in the reasonable judgment of the Representatives, it is advisable
for the Representatives and those Underwriters, officers, employees and
controlling persons to be jointly represented by separate counsel, and in that
event the fees and expenses of such separate counsel shall be paid by the
Company. No indemnifying party shall (i) without the prior written consent of
the indemnified parties (which consent shall not be unreasonably withheld or
delayed), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any settlement
of any such action effected without its written consent (which consent shall not
be unreasonably withheld or delayed), but if settled with the consent of the
indemnifying party or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment as provided for herein.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) in
21
<PAGE>
respect of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the Underwriters on the other with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Stock purchased
under this Agreement (before deducting expenses) received by the Company, on the
one hand, and the total underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the offering
of the shares of the Stock under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Underwriters, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section 8(d) shall be deemed to include, for purposes
of this Section 8(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Stock underwritten by it and distributed to the public
was offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason of any untrue
or alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 8(d) are several in proportion to their
respective underwriting obligations and not joint.
(e) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the Stock by the
Underwriters set forth on the cover page of, the legend concerning over-
allotments on the inside front cover page of and the concession and reallowance
figures appearing under the caption "Underwriting" in, the Prospectus are
correct and constitute the only information concerning such Underwriters
furnished in writing to
22
<PAGE>
the Company by or on behalf of the Underwriters specifically for inclusion in
the Registration Statements and the Prospectus.
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining non-
defaulting Underwriter shall not be obligated to purchase more than 110% of the
number of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 2. If the foregoing maximums are exceeded, the
remaining non-defaulting Underwriters, or those other underwriters satisfactory
to the Representatives who so agree, shall have the right, but shall not be
obligated, to purchase, in such proportion as may be agreed upon among them, all
the Stock to be purchased on such Delivery Date. If the remaining Underwriters
or other underwriters satisfactory to the Representatives do not elect to
purchase the shares which the defaulting Underwriter or Underwriters agreed but
failed to purchase on such Delivery Date, this Agreement (or, with respect to
the Second Delivery Date, the obligation of the Underwriters to purchase, and of
the Company to sell, the Option Stock) shall terminate without liability on the
part of any non-defaulting Underwriter or the Company, except that the Company
will continue to be liable for the payment of expenses to the extent set forth
in Sections 6 and 11. As used in this Agreement, the term "Underwriter"
includes, for all purposes of this Agreement unless the context requires
otherwise, any party not listed in Schedule 1 hereto who, pursuant to this
Section 9, purchases Firm Stock which a defaulting Underwriter agreed but failed
to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Stock of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statements, the Prospectus or
in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder may
be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 7(i) or 7(j), shall have occurred
or if the Underwriters shall decline to purchase the Stock for any reason
permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Company
shall fail to tender the Stock for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other
23
<PAGE>
condition of the Underwriters' obligations hereunder required to be fulfilled by
the Company is not fulfilled (unless such non-fulfillment is due to any action
or inaction by an Underwriter), the Company will reimburse the Underwriters for
all reasonable out-of-pocket expenses (including fees and disbursements of
counsel) incurred by the Underwriters in connection with this Agreement and the
proposed purchase of the Stock, and upon demand the Company shall pay the full
amount thereof to the Representatives. If this Agreement is terminated pursuant
to Section 9 by reason of the default of one or more Underwriters, the Company
shall not be obligated to reimburse any defaulting Underwriter on account of
those expenses.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 8(c), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th
Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in
the Primary Registration Statement, Attention: Greg Raifman (Fax:
415-808-1901);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, and
their respective successors. This Agreement and the terms and provisions hereof
are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statements and any person controlling the Company within the
meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 13, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
24
<PAGE>
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means each Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking institutions
in New York are generally authorized or obligated by law or executive order to
close and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules
and Regulations.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York applicable to agreements made and to be
performed in the State of New York without regard to the conflict of law
provisions.
17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
25
<PAGE>
If the foregoing correctly sets forth the agreement between the
Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
Mediaplex, Inc.
By ________________________________________
Gregory R. Raifman,
Chief Executive Officer
Accepted:
Lehman Brothers Inc.
SG Cowen Securities Corporation
U.S. Bancorp Piper Jaffray Inc.
Fidelity Capital Markets, a division
of National Financial Services Corporation
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By Lehman Brothers Inc.
By ________________________________
Authorized Representative
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
<PAGE>
SCHEDULE 1
Number of
Underwriters Shares
------------ ----------
Lehman Brothers Inc...................................
SG Cowen Securities Corporation.......................
U.S. Bancorp Piper Jaffray Inc........................
Fidelity Capital Markets, a division of National
Financial Services Corporation.....................
________
Total
========
27
<PAGE>
EXHIBIT 4.5
[LOGO] --------------- --------------- [LOGO]
NUMBER SHARES
MP
--------------- ---------------
COMMON STOCK COMMON STOCK
[LOGO OF MEDIAPLEX] CUSIP 584468 10 5
THIS CERTIFICATE IS TRANSFERABLE
IN RIDGEFIELD PARK, NJ
OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT SEE REVERSE FOR CERTAIN
DEFINITIONS AND A STATEMENT
AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS
OF SHARES
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.0001 PAR VALUE PER
SHARE, OF
MEDIAPLEX, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Sandra L. Abbott -------------- /S/ Gregory R. Raifman
- ---------------------- MEDIAPLEX, INC. -----------------------
CHIEF FINANCIAL OFFICER CORPORATE SEAL CHAIRMAN
AUG. 16, 1999
DELAWARE
--------------
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
- ----------------------------
AUTHORIZED SIGNATURE
<PAGE>
MEDIAPLEX, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder thereof upon request and without charge
at the principal office of the Corporation.
<TABLE>
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT--_________________Custodian________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_______________________________________
in common UNIF TRF MIN ACT--__________Custodian (until age____________)
(Cust)
____________________under Uniform Transfers
(Minor)
to Minors Act______________________________
(State)
</TABLE>
FOR VALUE RECEIVED,__________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------
INSERT BOX
- -----------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________________
X _______________________________________
X _______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signatures(s) Guaranteed
By_____________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[Wilson Sonsini Goodrich & Rosati Letterhead]
October 8, 1999
Mediaplex, Inc.
131 Steuart Street, Fourth Floor
San Francisco, California 94105-1230
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with the
Securities and Exchange Commission ("SEC") on September 2, 1999 (Registration
No. 333-86459, as amended by Amendment Nos. 1 and 2 thereto filed with the SEC
on September 16, 1999 and October 8, 1999, respectively (the "Registration
Statement"), in connection with the Securities Act of 1933, as amended, of up
to 6,000,000 shares of your Common Stock, par value $0.0001 and an over-
allotment option granted to the underwriters of the offering to purchase up to
900,000 shares from you (collectively, the "Shares"). We understand that the
Shares are to be sold to the underwriters of the offering for resale to the
public as described in the Registration Statement. As your legal counsel, we
have examined the proceedings taken, and are familiar with the proceedings
proposed to be taken, by you in connection with the sale and issuance of the
Shares.
It is our opinion that the Shares, when issued and sold in the manner
described in the Registration Statement and in accordance with the resolutions
adopted by the Board of Directors of the Company, will be legally and 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 the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof
and any amendments thereto.
Very truly yours,
/s/ Wilson Sonsini Goodrich &
Rosati
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 30, 1999, except for Note 10, which is as of September 1,
1999, relating to the financial statements of Mediaplex, Inc., which appear in
such Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
October 8, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 23, 1999, relating to the financial statements of Netranscend
Software, Inc., which appear in such Registration Statement. We also consent to
the reference to us under the headings "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
October 8, 1999
