<PAGE>
As filed with the Securities and Exchange Commission on November 19, 1999
Registration No. 333-86459
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 5
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
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
177 Steuart Street, Second Floor
San Francisco, California 94105
(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.
177 Steuart Street, Second Floor
San Francisco, California 94105
(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. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered(1) Per Share(2) Offering Price Fee
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0001
par value............. 6,900,000 $12.00 $82,800,000.00 $23,018(3)
</TABLE>
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(1) Includes 900,000 shares which the underwriters have the option to purchase
in over-allotment, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(3) Includes $19,460 previously paid.
---------------
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant files a
further amendment which specifically states that this Registration Statement
will thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement becomes effective
on such date as the Commission, acting pursuant to such Section 8(a), may
determine.
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<PAGE>
PROSPECTUS
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. Of
these shares, we have reserved up to 700,000 shares for sale at the initial
public offering price to our officers, directors, employees and their family
members and to their business associates, of which up to 300,000 shares are
reserved for sale to Young & Rubicam, Inc. and up to 100,000 shares are
reserved for sale to the Interpublic Group of Companies, Inc.
We propose to list the shares on the Nasdaq National Market under the symbol
"MPLX."
Investing in the shares involves risks. "Risk Factors" begin on page 7.
<TABLE>
<CAPTION>
Per
Share Total
------ -----------
<S> <C> <C>
Public Offering Price........................................ $12.00 $72,000,000
Underwriting Discount........................................ $ 0.84 $ 5,040,000
Proceeds to Mediaplex........................................ $11.16 $66,960,000
</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 November 24, 1999.
- --------------------------------------------------------------------------------
Lehman Brothers
SG Cowen
U.S. Bancorp Piper Jaffray
Fidelity Capital Markets
a division of National Financial
Services Corporation
Facilitating Electronic
Distribution
November 19, 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 business 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.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial Data.................................................. 23
Selected Pro Forma Financial Data........................................ 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 35
Management................................................................. 51
Related Party Transactions................................................. 60
Principal Stockholders..................................................... 63
Description of Capital Stock............................................... 65
Shares Eligible for Future Sale............................................ 68
Underwriting............................................................... 70
Legal Matters.............................................................. 74
Experts.................................................................... 74
Where You Can Find Additional Information.................................. 74
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.
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), eBusiness Messaging(TM) and Queued Creative(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 December 14, 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 effected in November 1999. 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 planning, executing, monitoring and analyzing 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 discrete pieces of software written in Java code that perform
specialized functions and communicate with each other. The objects are mobile
because they can reside on our servers or our clients' servers, and can be
moved with ease. 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 geographic area 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 the company
would like to communicate. We believe the real-time customization of messages
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 spending related to
e-commerce, or commerce conducted over the Internet, 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 entails delivery of the right message
to the right consumer at the right time. The ability to send a customized
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 results measurement and
reporting for advertisements that have been designed and created by our
clients or their advertising agencies.
. 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.
. Message Re-targeting. We use Internet browser-based tracking tools to
capture and analyze data on consumer behavior and site visitation
patterns. We use this data to refine future messages to consumers whom we
have previously identified.
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.
Concentration of Customers
Our top ten clients, based on revenues from January 1, 1999 to September 30,
1999, were Ashford.com, DATEK Online, FreeShop.com, MyShopNow.com, OfficeMax,
ShopNow.com, Strong Funds and uBid and the advertising agencies McCann-
Erickson/A&L and Publicis & Hal Riney, who use our services on behalf of their
clients. We depend on a limited number of clients for our revenues. In 1998,
DATEK Online and uBid accounted for approximately 56% and 21% of our revenues,
respectively, and in the first nine months of 1999, DATEK Online, ShopNow.com
and Publicis & Hal Riney accounted for approximately 17%, 11% and 10% of our
revenues, respectively.
Our Financial Results and Competitive Environment
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 the components of our MOJO technology that enable integration of the
advertisement with a company's internal business information, which we refer to
as business integration components. Although our revenues have increased from
$3.6 million for all of 1998 to $13.9 million for the first nine months of
1999, we have lost approximately $30.4 million since inception. We have not
been profitable in any quarter and expect to continue to incur losses for the
foreseeable future. We currently operate in a highly competitive market with no
significant barriers to entry.
Control by Our Executive Officers and Directors
After the consummation of this offering, our executive officers and directors
will, directly or indirectly, control approximately 19,156,518 million shares
of our common stock, representing approximately 54.4% 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.
Additional Information about Mediaplex
Our principal executive offices are located at 177 Steuart Street, Second
Floor, San Francisco, California 94105 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 conduct our current business. We merged
MediaPlex, Inc. with Internet Extra Corporation and reincorporated the merged
entity under the name "Mediaplex, Inc." in Delaware in November 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 $65.9
million, or $76.0 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."
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:
. 12,130,500 shares issuable under our stock option plans, consisting of:
. 9,287,198 shares underlying options outstanding at a weighted average
exercise price of $0.82 per share, of which 5,024,303 were exercisable;
and
. 2,843,302 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.
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 nine months ended September 30, 1998
and 1999 are unaudited.
<TABLE>
<CAPTION>
September 10, Years Ended Nine Months
1996 (inception) December 31, Ended September 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 $ 2,951 $ 13,941
Gross profit (loss)..... -- (19) 817 622 2,992
Loss from operations.... (255) (1,115) (1,772) (833) (12,827)
Net loss................ (255) (1,117) (2,019) (1,117) (12,640)
Net loss per share--
basic and diluted...... $(0.07) $ (0.13) $ (0.25) $ (0.13) $ (2.05)
Weighted average shares
used to compute net
loss per share--basic
and diluted............ 3,795,714 8,457,464 8,186,127 8,591,365 13,074,428
Pro forma net loss per
share--basic and
diluted (unaudited).... $ (0.25) $ (1.56)
Weighted average shares
used to compute pro
forma net loss per
share--basic and
diluted (unaudited).... 8,186,127 17,280,523
</TABLE>
The following table is a summary of our balance sheet as of September 30,
1999. The as adjusted column reflects the conversion of all outstanding shares
of preferred stock into common stock upon the closing of this offering and our
receipt of the estimated net proceeds from the sale of the 6,000,000 shares of
common stock offered in this offering after deducting the underwriting discount
and estimated offering expenses payable by us. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------
Actual As Adjusted
------------ -------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $ 16,520 $ 82,793
Working capital...................................... 14,743 81,079
Goodwill............................................. 2,508 2,508
Total assets......................................... 27,492 93,339
Long-term debt....................................... 263 263
Total stockholders' equity........................... 19,762 85,672
</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 only began selling our advertising campaign
management services in April 1998. In addition, we have only recently begun
deploying our MOJO technology in client advertising campaigns. In the quarter
ended June 30, 1999, we employed portions of our MOJO technology in one
campaign, and in the quarter ended September 30, 1999, in that campaign and
eight additional campaigns. Consequently, we have less than one year of
relevant operating history upon which you may evaluate our operations and
financial prospects. 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.
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 September 30, 1999 was approximately $30.4 million. For the year
ended December 31, 1998 and the nine months ended September 30, 1999, we
incurred losses of $2.0 million and $12.6 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. Furthermore, if we are unable to generate a long-term profit, we
will eventually have to cease operations.
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. For example, in the
past two calendar years, our revenues increased substantially in the quarters
ended June 30 from the revenues generated in the immediately preceding
quarters. In addition, revenues declined in the quarter ended December 31,
1998. 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
Online and uBid accounted for approximately 56% and 21% of our revenues,
respectively. In the first nine months of 1999, DATEK Online, ShopNow.com and
Publicis & Hal Riney accounted for approximately 17%, 11% and 10% of our
revenues, respectively. In addition, four customers accounted for 76% of our
outstanding accounts receivable at December 31, 1998 and three customers
accounted for 50% of our outstanding accounts receivable at September 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. Further, our advertising agency customers
may develop online message management capabilities in-house, thus eliminating
their need for our services.
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;
. business software;
. Web site development and consulting; and
. information technology consultants.
We depend, and expect to continue to depend, on our business and marketing
alliances, which are companies with which we have written or oral agreements to
work together to provide services to our clients, to refer business from their
clients and customers to us. If companies with which we have business and
8
<PAGE>
marketing alliances do 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.
We are substantially dependent upon our MOJO technology for our future
revenues, and if our MOJO technology does not generate revenues, our business
may fail.
We believe that our future revenues are substantially dependent on the
acceptance by clients of the use of our MOJO technology, which we believe is
the cornerstone of our business. If our MOJO technology does not perform as
anticipated or otherwise does not attract clients to use our services, our
operations will suffer. We began using our MOJO technology to provide
advertising and direct marketing services in April 1999, and have only used
portions of it in nine campaigns as of September 30, 1999. We have only
recently introduced message management services using our MOJO technology and
these services remain largely untested. In addition, we have incurred and will
continue to incur significant expense developing our MOJO technology. If our
revenues generated from the use of our MOJO technology do not cover these
development costs, our financial condition would suffer.
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. Although we have internally tested our MOJO
technology extensively, we have only used portions of it in nine campaigns as
of September 30, 1999. 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.
9
<PAGE>
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 2000.
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. We have employment agreements with only some of our
key senior management, namely, Gregory R. Raifman, Jon L. Edwards, Barclay
Jiang and Walter Haefeker. All of our other employees are at-will. Because of
the substantial competition for qualified personnel in Northern California, we
could suffer substantial attrition and could lose key members of our
management. 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. In
addition, 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.
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.
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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 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 30, 1999, representing approximately one-third of our
capacity at that date. 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 business
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;
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. 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.
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
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business alliances and their willingness to dedicate sufficient resources to
our relationships. In the future, any international operations we commence will
be subject to other risks, including:
. difficulties and costs of staffing and managing foreign operations;
. seasonal reductions in business activity;
. 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 ability
to expand our operations internationally.
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.
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We generally enter into confidentiality or license agreements with our
employees, consultants, vendor clients and corporate partners, and generally
control access to and distribution of our technologies, 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 depend on the uninterrupted availability of the Internet infrastructure to
conduct our business. We rely on the continued operations of the computer
systems of our vendors, in particular, those vendors whose Web sites host our
clients' advertisements, and the computer systems of our clients. A failure of
these systems to correctly recognize dates beyond December 31, 1999 could
disrupt operations and harm our business. We typically use industry-standard
third-party hardware and software. We have not, to date, sought assurances from
our vendors or customers that their products or systems are year 2000
compliant, but instead have relied on publicly available information in some
cases as to their products or 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.
The successful implementation of our media messaging services for our clients
requires our technology to interact with our clients' internal business
computer systems. If our clients' computer systems fail because the systems are
not year 2000 compliant, we will be unable to fully deliver the services that
our clients may have requested, and our revenues would decrease. In addition,
the failure of a client to receive the performance reports of the
advertisements served due to a failure of its computer systems would hamper the
effectiveness of our services for that client.
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 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 relies on the effectiveness
of techniques for profiling Internet users, which may raise privacy concerns.
Our clients generally have implemented security features to
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protect the privacy and integrity of the data collected from their users.
However, this information 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 information regarding them is being collected by third-party data
profiling companies. There currently exists software that can limit the
effectiveness of data profiling technology in capturing information for a
particular visitor 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.
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 that third-party profiling companies, on which we rely for data,
often use. Widespread adoption of these kinds of restrictions in 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 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 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.
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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;
. publisher networks that provide services directly to clients, such as
Flycast Communications and 24/7 Media;
. organizations that manage affiliate programs, such as LinkShare; and
. advertising agencies that have or elect to develop 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;
. 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. In particular, advertising agencies
without in-house online media management capabilities, including those with
which we currently work, may develop these capabilities in the future. We
believe that, in addition, competition will continue to increase as a result of
industry mergers, partnerships and consolidations. For example, AdForce and
Flycast have recently been acquired by CMGI, AdKnowledge has recently been
acquired by Engage Technologies, a subsidiary of CMGI, and NetGravity has
recently been acquired by DoubleClick. As we expand internationally, we expect
to face competition from internationally-based competitors such as Mindshare
Digital and Publicis Technology, as well as our domestic competitors with
international operations, such as BBDO Interactive, Leo Burnett and the
Interpublic Group. 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
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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 revenue projections 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 business data. Many companies are wary of third parties having
access to their business information, because access by third parties increases
the risk that confidential business data may become known, even if
unintentionally, to outsiders who 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 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 clients 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
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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.
Risks That May Cause Your Investment in Our Stock to Decline
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, 19,156,518
million shares of common stock, which in the aggregate will represent
approximately 54.4% 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.
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 $9.31 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.
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In addition, 4,950,429 of the 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, after deducting the underwriting discount and
estimated offering expenses payable by us will be approximately $65.9 million.
If the underwriters' over-allotment option is exercised in full, our net
proceeds will be approximately $76.0 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.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999. Our
capitalization is presented:
. on an actual basis;
. on a pro forma basis to give effect to 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, after deducting the underwriting discount and
estimated offering expenses payable by us.
<TABLE>
<CAPTION>
September 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,
9,981,000 shares authorized, 9,706,000 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; 75,000,000
shares authorized, 15,011,365 shares issued
and outstanding, actual; 150,000,000 shares
authorized, 24,717,365 shares issued and
outstanding, pro forma; 150,000,000 shares
authorized 30,717,365 shares issued and
outstanding, pro forma as adjusted............ 2 3 3
Additional paid-in capital..................... 38,915 38,915 104,825
Beneficial conversion feature.................. 14,360 14,360 14,360
Warrants....................................... 2,472 2,472 2,472
Deferred stock compensation.................... (5,596) (5,596) (5,596)
Accumulated deficit............................ (30,392) (30,392) (30,392)
-------- -------- --------
Total stockholders' equity..................... 19,762 19,762 85,672
-------- -------- --------
Total capitalization......................... $ 20,025 $ 20,025 $ 85,935
======== ======== ========
</TABLE>
In addition to the 30,717,365 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 September 30, 1999, we
expect to have additional shares of common stock available for issuance under
the following plans and arrangements:
. 12,130,500 shares issuable under our stock option plans, consisting of:
. 9,287,198 shares underlying options outstanding at a weighted average
exercise price of $0.82 per share, of which 5,024,303 were exercisable;
and
. 2,843,302 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.
21
<PAGE>
DILUTION
As of September 30, 1999, our net tangible book value, on a pro forma basis
to give effect to the conversion of our preferred stock into common stock at
the closing of this offering, was $16.8 million, or $0.68 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 September 30, 1999, our net
tangible book value, on a pro forma basis to give effect to the sale of the
6,000,000 shares offered in this offering, after deducting the underwriting
discount and estimated offering expenses payable by us, would have been
approximately $2.69 per share. This represents an immediate increase of $2.01
per share to existing stockholders and an immediate dilution of $9.31 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $12.00
Pro forma net tangible book value per share as of September 30,
1999............................................................ $0.68
Increase per share attributable to new investors................. 2.01
-----
Pro forma net tangible book value per share after the offering.... 2.69
------
Dilution per share to new investors............................... $ 9.31
======
</TABLE>
The following table summarizes, as of September 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:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ----------------------- Price
Number Percentage Amount Percentage Per Share
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 24,717,365 80.5% $ 29,507,010 29.1% $ 1.19
New investors........... 6,000,000 19.5 72,000,000 70.9 12.00
---------- ----- ------------ -----
Total.................. 30,717,365 100.0% $101,507,010 100.0%
========== ===== ============ =====
</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:
. 12,130,500 shares issuable under our stock option plans, consisting of:
. 9,287,198 shares underlying options outstanding at a weighted average
exercise price of $0.82 per share, of which 5,024,303 were exercisable;
and
. 2,843,302 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.
22
<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
the statement of operations data for the period from September 10, 1996
(inception) to December 31, 1996 and the years ended December 31, 1997 and 1998
have been derived from our audited financial statements and related notes
included elsewhere in this prospectus. The balance sheet data as of September
30, 1999 and the statement of operations data for the nine months ended
September 30, 1998 and 1999 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 Nine Months Ended
to December December 31, September 30,
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 $ 2,591 $ 13,941
Cost of revenues........ -- 445 2,771 1,969 10,949
---------- ---------- ---------- --------- ----------
Gross profit (loss).... -- (19) 817 622 2,992
---------- ---------- ---------- --------- ----------
Operating expenses:
Sales and marketing.... 23 481 820 482 3,523
Research and
development........... 49 347 556 415 2,203
General and
administrative........ 31 256 635 457 2,886
Stock-based
compensation.......... 152 11 578 151 6,705
Amortization of
goodwill and
intangibles........... -- -- -- -- 502
---------- ---------- ---------- --------- ----------
Total operating
expenses............. 255 1,095 2,589 1,505 15,819
---------- ---------- ---------- --------- ----------
Loss from operations.... (255) (1,114) (1,772) (883) (12,827)
Interest income
(expense), net......... -- (3) (247) (234) 187
---------- ---------- ---------- --------- ----------
Net loss................ (255) (1,117) (2,019) (1,117) (12,640)
Beneficial conversion
feature of Series C
convertible preferred
stock.................. -- -- -- -- 14,360
---------- ---------- ---------- --------- ----------
Net loss attributable to
common stockholders.... $ (255) $ (1,117) $ (2,019) $ (1,117) $ (27,000)
========== ========== ========== ========= ==========
Net loss per share--
basic and diluted...... $ (0.07) $ (0.13) $ (0.25) $ (0.13) $ (2.05)
========== ========== ========== ========= ==========
Weighted average shares
outstanding............ 3,795,714 8,457,464 8,186,127 8,591,365 13,074,428
========== ========== ========== ========= ==========
Pro forma net loss per
share--basic and
diluted................ $ (0.25) $ (1.56)
========== ==========
Weighted average shares
used to compute
pro forma net loss per
share--basic and
diluted................ 8,186,127 17,280,523
========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------- September
1996 1997 1998 30, 1999
---- ----- ------- ---------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 27 $ 142 $ 375 $16,520
Working capital................................. (46) (586) (1,863) 14,743
Total assets.................................... 52 262 1,444 27,492
Long-term debt ................................. -- 65 232 263
Stockholders' equity (deficit):................. (22) (558) (1,962) 19,762
</TABLE>
23
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
On March 25, 1999, we acquired Netranscend Software, Inc., a Java-based
business 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 statements 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>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
(in thousands, except
share and per share data)
<S> <C> <C>
Pro Forma Statement of Operations Data:
Revenues........................................... $ 3,588 $ 13,941
Cost of revenues................................... 2,771 10,949
---------- ----------
Gross profit...................................... 817 2,992
---------- ----------
Operating expenses:
Sales and marketing............................... 819 3,523
Research and development.......................... 557 2,203
General and administrative........................ 645 2,886
Stock-based compensation.......................... 578 6,705
Amortization of goodwill and intangibles.......... 1,003 752
---------- ----------
Total operating expenses......................... 3,602 16,069
---------- ----------
Loss from operations............................... (2,785) (13,077)
Interest income (expense), net..................... (247) 187
---------- ----------
Net loss........................................... (3,032) 12,890
Beneficial conversion feature of Series C
convertible preferred stock....................... -- 14,360
---------- ----------
Net loss attributable to common stockholders....... $(3,032) $(27,250)
========== ==========
Pro forma net loss per share--basic and diluted
(1)............................................... $ (0.30) $ (1.99)
========== ==========
Weighted average shares used to compute pro forma
net loss per share--basic and diluted (1)......... 10,165,127 13,661,604
========== ==========
</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.
24
<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 that generated
revenues primarily from the sale of advertising space on two Web sites formerly
operated by us that 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.
In addition, we may generate revenues from clients obtained through or
referred to us by an ad agency. If an ad agency is used, we will usually bill
the ad agency for work done on behalf of the agency's clients, and the ad
agency will then be responsible for obtaining full payment from the client.
Sometimes, although less frequently, we will directly bill that ad agency's
client. To date, we have paid no referral fees to any ad agencies, nor have any
ad agencies paid referral fees to us, for referring clients. However, we may
pay and receive referral fees in the future.
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.
25
<PAGE>
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.
In March 1999, we acquired Netranscend Software, Inc., a Java-based business
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 $12.6 million in the first nine months of 1999.
At September 30, 1999, our accumulated deficit was $30.4 million. We anticipate
that we will incur additional operating losses for the foreseeable future.
Since inception, we have incurred significant start-up expenses, including
development of our Web site and depreciation of computers and other office
equipment, which contributed to our initial losses. Our expenses through
September 30, 1999 were incurred primarily due to significant growth in
personnel costs in our sales and marketing, research and development, and
general and administrative functions which were not offset by a growth in
revenues. Our headcount increased from 7 as of September 30, 1998 to 109 as of
September 30, 1999. We believe this growth in personnel expenses has been
disproportionate to revenue growth because many of these employees were hired
to develop the corporate infrastructure. We expect that in the future, the
growth in our expenses will be more proportional to the growth in our business
and our revenues. We believe that while our operating expenses will increase in
absolute dollars, as we grow our business they will decrease as a percentage of
revenues.
Results of Operations
The following table sets forth our statement of operations data expressed as
a percentage of revenues:
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended September
December 31, 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 76.0 78.5
------ ----- ----- ------
Gross profit (loss)........................ (4.6) 22.8 24.0 21.5
------ ----- ----- ------
Operating expenses:
Sales and marketing........................ 112.9 22.8 18.6 25.3
Research and development................... 81.5 15.5 16.0 15.8
General and administrative................. 60.0 17.8 17.6 20.7
Stock-based compensation................... 2.6 16.1 5.9 48.1
Amortization of goodwill and intangibles... -- -- -- 3.6
------ ----- ----- ------
Total operating expenses.................. 257.0 72.2 58.1 113.5
------ ----- ----- ------
Loss from operations........................ (261.6) (49.4) (34.1) (92.0)
Interest income (expense), net.............. (0.6) (6.9) (9.0) 1.3
------ ----- ----- ------
Net loss.................................... (262.2) (56.3) (43.1) (90.7)
Beneficial conversion feature of Series C
convertible preferred stock................ -- -- -- 103.0
------ ----- ----- ------
Net loss attributable to common
stockholders............................... (262.2)% (56.3)% (43.1)% (193.7)%
====== ===== ===== ======
</TABLE>
26
<PAGE>
Nine Months Ended September 30, 1999 and 1998
Revenues. Revenues increased to $13.9 million for the nine months ended
September 30, 1999 from $2.6 million for the nine months ended September 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 nine months of
1999, substantially all of our revenues consisted of advertising fees received
for providing advertising campaign management services. In the first nine
months of 1998, our revenues were primarily derived from the sale of
advertising on our Internet content sites.
In the nine months ended September 30, 1999, three of our clients represented
approximately 38% of our revenues, and in the nine months ended September 30,
1998, four of our clients represented approximately 80% of our revenues.
Cost of Revenues. Cost of revenues increased to $10.9 million, or 78.5% of
revenues, for the nine months ended September 30, 1999 from $2.0 million, or
76.0% of revenues, for the nine months ended September 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 nine months ended September 30, 1999
comprised primarily media placement costs, while the cost of revenues in the
nine months ended September 30, 1998 consisted primarily of the cost of
maintaining our Internet content sites.
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 $3.5 million, or 25.3% of revenues, for the nine months ended
September 30, 1999 from $482,000, or 18.6% of revenues, for the nine months
ended September 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 6 as of September 30, 1998 to 53 as of September 30, 1999. 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
$2.2 million, or 15.8% of revenues, for the nine months ended September 30,
1999 from $415,000, or 16.0% of revenues, for the nine months ended September
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 1 as of September 30, 1998 to 36 as of September 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 $2.9 million, or
20.7% of revenues, for the nine months ended September 30, 1999 from $457,000,
or 17.6% of revenues, for the nine months ended September 30, 1998. The dollar
increase in general and administrative expenses was due primarily to the hiring
of general and administrative personnel. We had no general and administrative
personnel as of September 30, 1998 and 20 persons as of September 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,
27
<PAGE>
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 $6.7
million, or 48.1% of revenues, for the nine months ended September 30, 1999
from $151,000, or 5.9% of revenues, for the nine months ended September 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 September 30, 1999 was $5.6 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
$502,000, or 3.6% of revenues, for the nine months ended September 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 nine months of 1998. We
expect to recognize $251,000 of amortization expense for this transaction in
each quarter through the first quarter of 2002.
Interest Income (Expense), Net. Interest income, net was $187,000 for the
nine months ended September 30, 1999, representing primarily interest earned on
the $24.1 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 nine months ended September 30, 1998 was primarily due to the
beneficial conversion feature of a note payable to stockholders.
Net Loss. Net loss was $12.6 million for the nine months ended September 30,
1999, and $1.1 million for the nine months ended September 30, 1998. The
increase in net loss of $11.5 million from the 1998 period to the 1999 period
was primarily due to the increase in operating expenses of $14.3 million from
the 1998 period to the 1999 period. In particular, stock-based compensation
increased $6.6 million from the 1998 period to the 1999 period.
Beneficial Conversion Feature of the Series C Convertible Preferred Stock. In
August 1999, Mediaplex issued 4,000,000 shares of Series C convertible
preferred stock at a purchase price of $3.59 per share. These shares are
convertible into shares of common stock on a one-for-one basis. Because the
conversion price is less than the low end of the price range for the
anticipated initial public offering, the Series C preferred stock is deemed to
have an embedded beneficial conversion feature. This feature allows the holders
to acquire common stock at a purchase price below its deemed fair value. The
amount of the discount assigned to the beneficial conversion feature is limited
to the amount of the proceeds. Consequently, the issuance and sale of the
Series C preferred stock resulted in a beneficial conversion feature of
$14,360,000, which has been reflected as a preferred dividend in our statement
of operations in the third quarter of 1999.
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
28
<PAGE>
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.
Net Loss. Net loss was $2.0 million in 1998 and $1.1 million in 1997. The
increase in net loss of $900,000 from 1997 to 1998 is primarily due to the
increase in cost of revenues of $2.3 million and the increase in operating
expenses of $1.5 million from 1997 to 1998, which increases were partially
offset by an increase in revenues of $3.2 million from 1997 to 1998.
29
<PAGE>
Quarterly Results of Operations
The following table presents statement of operations data for the four
quarters of 1998 and first three quarters of 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, Sept.
1998 1998 1998 1998 1999 1999 30, 1999
--------- -------- --------- -------- --------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $ 586 $ 935 $1,069 $ 997 $ 1,634 $ 5,689 $ 6,618
Cost of revenues........ 480 733 756 802 1,340 4,421 5,187
----- ----- ------ ------ ------- ------- --------
Gross profit........... 106 203 313 195 294 1,268 1,431
----- ----- ------ ------ ------- ------- --------
Operating expenses:
Sales and marketing.... 193 201 87 338 543 1,104 1,876
Research and
development........... 125 95 195 140 308 507 1,388
General and
administrative........ 117 207 132 180 456 626 1,804
Stock-based
compensation.......... -- 151 -- 427 1,953 1,338 3,414
Amortization of
goodwill and
intangibles........... -- -- -- -- -- 251 251
----- ----- ------ ------ ------- ------- --------
Total operating
expenses............. 435 655 414 1,085 3,260 3,826 8,733
----- ----- ------ ------ ------- ------- --------
Loss from operations.... (329) (452) (101) (890) (2,966) (2,558) (7,302)
Interest income
(expense), net......... (1) (1) (230) (15) 1 12 173
----- ----- ------ ------ ------- ------- --------
Net loss................ (330) (453) (331) (905) (2,965) (2,546) (7,129)
Beneficial conversion
feature of Series C
preferred stock........ -- -- -- -- -- -- 14,360
----- ----- ------ ------ ------- ------- --------
Net loss attributable to
common stockholders.... $(330) $(453) $ (331) $ (905) $(2,965) $(2,546) $(21,489)
===== ===== ====== ====== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of
Revenues:
Revenues................ 100.0 % 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 78.4
----- ----- ----- ----- ------ ----- ------
Gross profit........... 18.1 21.7 29.3 19.6 18.0 22.3 21.6
----- ----- ----- ----- ------ ----- ------
Operating expenses:
Sales and marketing.... 33.0 21.5 8.1 33.9 33.2 19.4 28.3
Research and
development........... 21.3 10.2 18.3 14.1 18.9 8.9 21.0
General and
administrative........ 19.9 22.2 12.3 18.0 27.9 11.0 27.2
Stock-based
compensation.......... -- 16.2 -- 42.8 119.6 23.6 51.6
Amortization of
goodwill and
intangibles........... -- -- -- -- -- 4.4 3.8
----- ----- ----- ----- ------ ----- ------
Total operating
expenses............. 74.2 70.1 38.7 108.8 199.6 67.3 131.9
----- ----- ----- ----- ------ ----- ------
Loss from operations.... (56.0) (48.4) (9.4) (89.3) (181.6) (45.0) (110.3)
Interest income
(expense), net......... (0.2) (0.1) (21.5) (1.5) 0.1 0.2 2.6
----- ----- ----- ----- ------ ----- ------
Net loss................ (56.2) (48.5) (30.9) (90.8) (181.5) (44.8) (107.7)
Beneficial conversion
feature of Series C
preferred stock........ -- -- -- -- -- -- 217.0
----- ----- ----- ----- ------ ----- ------
Net loss attributable to
common stockholders.... (56.2)% (48.5)% (30.9)% (90.8)% (181.5)% (44.8)% (324.7)%
===== ===== ===== ===== ====== ===== ======
</TABLE>
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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 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 quarters ended June 30 and September 30 1999 consisted solely
of amortization of the deferred stock compensation recorded for options and
warrants 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 September 1999, we financed our
operations primarily through the private placement of preferred stock, which
has generated net proceeds of $24.1 million. As of September 30, 1999, we had
$16.5 million in cash and cash equivalents.
Net cash used in (provided for) operating activities in the nine months ended
September 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 $6.1
million, $(166,000), $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 accrued liabilities and deferred revenues.
Net cash used in investing activities in the nine months ended September 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 $2.0 million,
$44,000, $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 nine months ended September
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 $24.2
million, $290,000, $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 nine months ended September 30, 1999,
our preferred stock, as well as in 1998 and the nine months ended September 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
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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 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 September 30, 1999, we had cash and cash
equivalents of $16.5 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
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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.
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 or customers that their
products or systems are year 2000 compliant, but instead have relied on
publicly available information in some cases as to their products or 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
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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.
We depend on the uninterrupted availability of the Internet infrastructure to
conduct our business. We rely on the continued operations of the computer
systems of our vendors, in particular, those vendors whose Web sites host our
clients' advertisements, and the computer systems of our clients. The
successful implementation of our media messaging services for our clients
requires our technology to interact with our clients' internal business
computer systems. If our clients' computer systems fail because their systems
are not year 2000 compliant, we will be unable to fully deliver the services
that our clients may have requested, and our revenues would decrease. In
addition, the failure of a client to receive the performance reports of the
advertisements served due to a failure of its computer systems would hamper the
effectiveness of our services for that client. 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 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 information, such as inventory and price levels, into their
online advertising activities to deliver customized messages and offers to Web
site visitors. Our services encompass planning, executing, monitoring and
analyzing 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. For example, an airline can continually update its advertising messages
across all Web sites in a particular campaign to reflect changes in seat
availability and prices.
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, or commerce conducted over the
Internet, 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 their significant financial and technical
investments in software applications that manage and store critical business
information, such as business 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 of
advertising dollars spent. 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 entails 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 a customized 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 advertising investment analyses
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 online advertising messages and offers that 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 planning, executing, monitoring and
analyzing online marketing campaigns. Our clients either develop the
advertisements themselves, or contract with an advertising agency to perform
the creative development of the ad campaign. 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 have been designed and created by our clients
or their advertising agencies.
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. Real-time Tracking and Measuring Campaign Results. For 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. Based on the
results of this monitoring, campaigns can be automatically or manually
modified in real time to maximize the return on advertising investment.
. Message Re-targeting. We use Internet browser-based tracking tools to
capture and analyze data on consumer behavior and site visitation
patterns. We use this data to refine future messages to consumers whom we
have previously identified.
. 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 based on the effectiveness of
these graphics, messages and sites.
. Integration of Internal Business Information. Our MOJO technology enables
us to integrate online advertising campaigns with a client's internal
business information, allowing us to dynamically tailor and deliver
advertisements based on a consumer's profile and on a client's inventory,
pricing or other underlying business variables at a particular point in
time. We believe that this integration leads to more effective messaging,
increased sales and improved inventory management by our client. In this
sense, we believe that 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
internal 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 agencies such as McCann-
Erickson/A&L and Publicis & Hal Riney, and are working with other ad
agencies, such as Critical Mass in efforts to offer our services to and
generate business from their clients. 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 their
internal business 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 the ability to execute transactions within the advertising
message itself.
. 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, business application companies and
systems integrators. Our objective is to establish alliances with these
companies and accelerate our sales penetration into clients 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 offices in London, Paris,
Stockholm and Tokyo.
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.
The creative portion of our clients' advertisements are created by our
clients' advertising agencies, or internally by our clients' marketing staffs.
For example, we have worked with the ad agencies Publicis & Hal Riney and
McCann-Erickson/A&L to develop and implement advertising services for companies
such as Hewlett-Packard. If the ad agencies with which we currently work were
to develop technology that provides their clients with the same services that
our technology currently provides, our ability to generate revenues from the ad
agencies' clients could be harmed.
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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 by serving the ads ourselves
or contracting with established third-party
ad-serving companies
- --------------------------------------------------------------------------------
Message Management . Apply targeting goals based on the specific
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, changes in internal
business information, market events and
campaign performance as measured by standard
metrics or return on investment analysis
. Use Web browser-based tracking tools to 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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. Message Re-targeting. We use Internet browser-based tracking tools to
capture and analyze data on consumer behavior and site visitation
patterns. We use this data to refine future messages to consumers whom we
have previously identified. 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.
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 Business Data. Our messaging
capabilities enable advertisers to use real-time business information,
such as product availability and pricing, to deliver a customized message
to each viewer. We assist advertisers with the development of business
rules based on product database or business 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 to business travelers. 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, a
customized message to be delivered to a consumer based on the consumer's
profile, as well as the client's internal business data 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 can 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.
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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. Our technology
enables tracking of performance metrics for standard advertisements and
for the more difficult to monitor advertisements that 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
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
Description of Our MOJO Technology Platform.
Our proprietary MOJO technology platform utilizes a mobile Java object
architecture, each object being a discrete piece of software written in Java
code. These objects store critical information relevant to the execution of a
campaign, and can be controlled remotely, or through a computer not physically
located at the same place as the servers containing the advertisements. In
addition, these objects can exchange data with each other using the Java
language over our publish and subscribe-based messaging communication network.
"Publish and subscribe" is a communication method that allows the exchange of
information anonymously, which means that an advertiser's proprietary
information is not revealed or stored in the process. These objects are mobile
and platform-independent, meaning they can reside and be controlled on servers
operated by Mediaplex, the advertiser or any other third-party ad server using
different operating systems. We believe our MOJO technology 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.
[Graphic depiction of MOJO technology platform appears here]
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Mediaplex's MOJO architecture has three primary technical components:
advertising objects, network services and business 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, the targeting
profile upon which to focus and which message to send to a particular
consumer. Tracking functions for an advertising campaign are also performed
by these objects, which can be stored and executed on any server. The
advertising objects may be modified or transferred in real time using
computers physically located in the same facility and in facilities
different from the servers on which the advertising objects are stored.
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 receives events published or transmitted by various objects and
forwards that information to other objects that 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 provides access to
relevant campaign data, through the publish and subscribe messaging
capability. This network services layer applies predefined business rules
to modify an advertising message on the basis of events summarized and
stored within other objects within the network. This component is
administered remotely, residing in our two co-location data centers, and
communicates with the other technical components, namely, advertising
objects and business integration, while executing the campaign.
Business Integration. This component consists of objects that store 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 information is not transferred
and, thus, the integrity of a client's business information 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 for analysis by the client and for updating the client's
internal business data.
Competitive Advantages of Our Technology.
We believe our technology provides these distinct competitive advantages:
Real Time. Campaign customization and optimization occurs in or near real
time. Our MOJO technology is structured to enable our clients to establish
business rules which will automatically customize an advertising message in
response to predefined events the moment, or shortly after, the event occurs.
Real-time adjustments can also be made manually 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 and
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 stored 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 business 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 the ability of our systems to
process the transactions. Our technology is scalable by simply adding more
servers to accommodate system data traffic. The application logic of our
technology is
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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.
Server Capacity Limitations.
Based on our available servers and technology as of September 30, 1999, our
ad serving capacity was approximately 120 million impressions per day. At that
date, the highest number of impressions served on any particular day was
approximately 36 million. If we determine that our capacity will become
significantly constrained in the near future, we intend to increase the number
of servers and related technology to meet the additional capacity. In addition,
because of the significant fluctuations in the number of impressions served
from day to day, it is difficult to estimate the impact of a limitation on our
capacity. To date, capacity limitations have not been a problem for our ad
serving activities.
Resources Expended on Research and Development Activities.
We have invested significant amounts toward research and development to date.
Our expenses in this area totaled approximately $347,000, $556,000 and $2.2
million in 1997, 1998 and the nine months ended September 30, 1999,
respectively.
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 mid-2000. 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 leads from business
alliances. 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, business resource planning vendors, interactive ad 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 and relationships
with complementary service providers to enhance our sales, marketing and client
development efforts in the United States, Europe and Asia. The alliances and
relationships that we have established to date are, except as described below,
non-exclusive and contain terms of six months to five years, some with renewal
options. We have established alliances within industries that we believe are
most appropriate for the propagation of our technology and services, as
follows:
Internet Advertising. In August 1999, DoubleClick Inc., a 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
business 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
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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. We are required to pay DoubleClick a fee for advertisements
served by DoubleClick under this agreement; however, no fees have been paid to
DoubleClick as of September 30, 1999. DoubleClick is a competitor of ours and
may terminate the agreement in certain limited instances, including our
material breach of the agreement, or failure to pay DoubleClick under the
agreement or our bankruptcy or insolvency. If DoubleClick were to terminate the
agreement, it could become a more significant competitor of ours. Therefore,
the fees paid to DoubleClick or revenues generated as a result to this
agreement may never be significant.
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. Enterprise resource planning refers to a business
management system that integrates various aspects of a business, such as
planning, manufacturing, sales and marketing. Enterprise resource planning
software enables the exchange of information within and among businesses and
their suppliers, customers and partners. Under the terms of our agreement with
SAP Labs, Inc., 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.
Operating Resource Management. In September 1999, Mediaplex and Ariba, Inc.
entered into a non-binding memorandum of understanding to integrate our real-
time online media buying technology into the Ariba Network. Ariba provides an
Internet-based system that enables companies to automate their online
procurement of goods and services. The Mediaplex and Ariba integrated service
is expected to enhance the efficiency of managing online advertising campaigns
for the Ariba Network customers by providing an automated system for the
transmittal and acknowledgement of advertisement insertion and change orders
using adXML, our version of XML. In addition, we are co-sponsoring a Web site
and are working together to make adXML an open standard, accessible to all
advertisers and advertising agencies.
System Integration. In September 1999, Mediaplex entered into an agreement
with OTP Software, Inc., a systems integrator specializing in Oracle and IBM
software. OTP Software will provide interfaces for MOJO technology into Oracle
and IBM applications.
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
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 our company, and in June 1999, invested an additional $3 million.
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.
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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, 1999 to September 30, 1999:
Direct Clients
<TABLE>
<S> <C>
AnyDay.com LuckySurf.com
Ashford.com MacMall/Creative Computers
Buy Software musicmaker.com
Capstone Studio Mama Systems, Inc.
Cassara Enterprises Ltd. MyShopNow.com
DATEK Online myTrack.com
DriveSavers OfficeMax.com
Dynamind PC Flowers & Gifts, Inc.
eCOST.com PCMall/Creative Computers
eFax.com Providian Financial
eVite.com School Specialty
Financial Engines, Inc. ShopNow.com
Flower Farm Strong Funds
FreeShop.com ToyTime.com
Fresh Flower Source uBid
Global Admin UK Ltd. Virtumundo, Inc.
Investor's Business Daily Youbet.com
Kelltech 1800DAYTRADE.com
</TABLE>
Advertising Agencies
. McCann-Erickson/A&L 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 nine months of 1999, DATEK Online,
ShopNow.com and Publicis & Hal Riney accounted for approximately 17%, 11% and
10% of our revenues, respectively.
Client Case Studies
Tickets.com
Headquartered in Costa Mesa, California, Tickets.com provides 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 Web site visitor's music concert genre preference or geographical
location, nor did it take into account real-time ticket inventory levels.
Tickets.com wanted to test a targeted online advertising program that 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 that, using MOJO technology, delivered real-time, targeted
banner advertisements to the Audiofind.com site based on visitor profiles
and Tickets.com auction inventory levels. For example, a Web site visitor
from California
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accessing the Country Music Web page on Audiofind.com would be served a
banner for an upcoming country music 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 enabled visitors to click through to the auction
page. For the test, 30 separate banners promoted 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 nine-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.
Publicis & Hal Riney for Hewlett-Packard
Mediaplex worked with Publicis & Hal Riney to develop an online marketing
program for Hewlett-Packard, 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 required an online marketing program that
entailed extensive tracking, reporting and analysis for four separate
products as it began to market its full line of business PCs and servers
over the Internet.
. Mediaplex Solution: Mediaplex developed and managed an online advertising
campaign for Hewlett-Packard's laptop, business PC, server and high-end work
station products. Working closely with Hewlett-Packard and Publicis &
Hal Riney, Mediaplex developed four strategic media plans to reach targeted
audiences based on each product's specific user profile. The Web pages that
housed 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 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 modified advertisements and
placements, in real time, based on a continuous analysis of the campaign's
performance. 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, reach a sales representative or were merely browsing. The viewer
behavior information collected during the campaign is currently being
analyzed for future online programs.
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.
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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
computer systems and exactly how the MOJO technology needs to work with the
client's specific computer systems. 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.
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 information
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' internal
business information 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 business information may be exposed to these
competitors. In order to prevent the unintentional exposure of confidential
business information 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.
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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.
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. In particular, advertising agencies
without in-house online media management capabilities, including those with
which we currently work, may develop these capabilities in the future. We
believe that, in addition, competition will continue to increase as a result of
industry mergers, partnerships and consolidation. For example, AdForce and
Flycast have recently been acquired by CMGI, AdKnowledge has recently been
acquired by Engage Technologies, a subsidiary of CMGI, and NetGravity has
recently been acquired by DoubleClick. As we expand internationally, we expect
to face competition from internationally based competitors, such as Mindshare
Digital and Publicis Technology, as well as our domestic competitors with
international operations, such as BBDO Interactive, Leo Burnett and the
Interpublic Group. 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;
. publisher networks that provide services directly to clients, such as
Flycast Communications and 24/7 Media;
. organizations that manage affiliate programs, such as LinkShare; and
. advertising agencies that have or elect to develop in-house online media
management capabilities, such as Lowe Interactive.
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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.
Facilities
We currently lease approximately 44,900 square feet of office space for our
headquarters in three buildings, located in San Francisco, California. 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
Timothy M. Favia........... 37 Executive Vice President, Sales and
Development
Sandra L. Abbott........... 52 Senior Vice President, Chief Financial
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., a business 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., a business 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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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.
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<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 no 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.
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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
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<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.
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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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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.
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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, Eugene Jarvis, Raifman & Edwards LLP and PointBreak
Ventures, LLC were involved in our initial funding. Messrs. Schwartz and Jarvis
served as our initial officers and directors. Neither Mr. Schwartz nor Mr.
Jarvis is currently affiliated with Mediaplex.
Michael Schwartz and Eugene Jarvis
Following our inception, in September 1996 and October 1996, we issued
2,460,000 shares of our common stock to Michael Schwartz at a purchase price of
$0.0001 per share for a total purchase price of $246 and 800,000 shares of our
common stock to Eugene Jarvis at a purchase price of $0.05 per share for a
total purchase price of $40,000. In December 1996, we issued 800,000 shares of
our common stock to Kuni Research, of which Mr. Jarvis is a stockholder, at a
purchase price of $0.05 per share for a total purchase price of $40,000, and in
January 1997, we issued an additional 800,000 shares of our common stock to
Eugene Jarvis, at a purchase price of $0.05 per share for a total purchase
price of $40,000.
In June 1997, we issued a convertible promissory note to Michael Schwartz in
consideration for past services rendered. In June 1997, $232,161 of the
outstanding amount of the convertible promissory note was converted into
4,643,228 shares of our common stock at a conversion rate of $0.05 per share.
In April 1998, we repurchased these shares at the original conversion price of
$0.05 per share with a convertible promissory note.
Raifman & Edwards LLP
Gregory R. Raifman and Jon L. Edwards, two of our current executive officers,
are general partners of Raifman & Edwards LLP. In September 1996, we issued
350,000 shares of our common stock to Raifman & Edwards LLP at a purchase price
of $0.0001 per share for a total purchase price of $35. In July 1997, we issued
a convertible promissory note to Raifman & Edwards LLP, in consideration for
past services rendered, for $64,569. This convertible promissory note bore
interest at a rate of 6% per annum, and had a due date of July 1999. In March
1999, Mediaplex converted the outstanding amount and accrued interest of $6,458
into 947,009 shares of our common stock at a conversion rate of $0.075 per
share for a total purchase price of $71,027. In July 1998, Michael Schwartz
transferred a convertible promissory note, issued by us, to Raifman & Edwards
LLP, which in March 1999 was converted into 4,643,228 shares of our common
stock at a conversion rate of $0.05 per share for a total purchase price of
$23,216.
All shares initially issued to, or subsequently purchased by, Raifman &
Edwards LLP have been transferred to R&E Holdings, LLC, a limited liability
company in which Gregory R. Raifman and Jon L. Edwards are managing members.
PointBreak Ventures, LLC
Gregory R. Raifman and Jon L. Edwards are managing members of, and hold
substantial interest in, PointBreak Ventures, LLC. Walter Haefeker, a current
executive officer, also holds a substantial interest in PointBreak Ventures,
LLC. In October 1996, we issued 250,000 shares of our common stock to
PointBreak Ventures, LLC at a purchase price of $0.0001 per share for a total
purchase price of $25.
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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 nine months
ended September 30, 1999.
In May 1998, we entered into an oral agreement with Raifman & Edwards LLP to
sublease a portion of the office space we currently occupy at our headquarters
in San Francisco, California. The sublease terms and payments made by us to
Raifman & Edwards LLP are substantially similar to the lease terms and payments
made by Raifman & Edwards LLP to the landlord. Since May 1998, we have paid
Raifman & Edwards LLP a total of approximately $112,000 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 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 or
$1,507,500 in the aggregate. 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 or $9,000,000 in the aggregate. 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 or $14,360,000 in the aggregate. 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 Aggregate
Series A Series B Series C Purchase
Investor Preferred Stock Preferred Stock Preferred Stock Price
- ------------------------ --------------- --------------- --------------- ----------
<S> <C> <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 -- $ 480,000
Entity affiliated with
A. Brooke Seawell
(1)(3)................ -- 75,000 -- 150,000
Entity affiliated with
Gregory R. Raifman and
Jon L. Edwards
(1)(4)................ -- -- 19,360 69,502
Entities affiliated
with Lawrence D.
Lenihan, Jr.(1)(5).... -- -- 1,671,309 5,999,999
Other 5% Stockholders
Zeron Capital Ltd.
(6)................... -- 2,625,000 -- 5,250,000
The Goldman Sachs
Group, Inc. (7)....... -- -- 1,392,758 5,000,001
</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.
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<PAGE>
(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.
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).......... 10,296,265 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)........... 12,296,265 46.5 37.9
Jon L. Edwards (6)............... 12,046,265 45.9 37.4
Ruiqing "Barclay" Jiang (7)...... 2,002,833 8.1 6.5
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)................... 19,156,518 65.6 54.4
</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 23,833 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 4,098,833 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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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, par value $0.0001 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 the 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
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<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 ChaseMellon
Shareholder Services.
Nasdaq National Market Listing
Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "MPLX."
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<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.
68
<PAGE>
Lock-Up Arrangements
Holders of a total of 24,416,551 shares of common stock (including preferred
stock convertible into common stock and including all stock held by executive
officers and directors), warrants to purchase a total of 875,000 shares of
common stock and options to purchase a total of 8,205,701 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.
69
<PAGE>
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.......................................... 2,575,000
SG Cowen Securities Corporation.............................. 1,287,500
U.S. Bancorp Piper Jaffray Inc. ............................. 1,287,500
Fidelity Capital Markets, a division of National Financial
Services Corporation........................................ 100,000
Allen & Company Incorporated................................. 100,000
Banc of America Securities LLC............................... 100,000
BancBoston Robertson Stephens, Inc........................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation.......... 100,000
Hambrecht & Quist LLC........................................ 100,000
Merrill Lynch, Pierce, Fenner, & Smith Incorporated.......... 100,000
First Analysis Securities Corporation........................ 50,000
Pacific Crest Securities Inc................................. 50,000
Volpe Brown Whelan & Company, LLC ........................... 50,000
---------
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 $0.50 per share. The underwriters may
allow, and the dealers may reallow, a concession not in excess of $0.10 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.
70
<PAGE>
We have agreed, that, without the prior consent of Lehman Brothers Inc., we
will not, with limited exceptions, 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. Stockholders holding 24,416,551 shares
of our capital stock, including our preferred stock and all stock held by
executive officers and directors, and holders of options and warrants to
purchase 9,080,701 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."
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........................ $0.84 $5,040,000 $5,796,000
</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 was negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives considered, 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.
Our common stock has been approved for listing 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.
Fidelity utilizes proprietary Internet, intranet and pager communications
technology to inform its investors of the commencement of an offering and the
availability of the preliminary prospectus. It places deal-specific information
on the Rule 134-compliant "New Issue Equity Calendar" Web page contained within
the Fidelity.com Web site. This information is presented in template format and
directs interested and eligible Fidelity customers either to contact a
dedicated Fidelity representative or to go (via hyperlink) to the Fidelity
Electronic Notification Services to download an electronic version of the
preliminary prospectus.
After delivery of the preliminary prospectus (electronically or otherwise),
eligible Fidelity investors are able to submit conditional "offers-to-buy"
using only dedicated telephone representatives. Customers cannot place
conditional offers online. All eligible Fidelity customers who have placed
conditional offers-to-buy must confirm their original conditional offers-to-buy
with a dedicated Fidelity representative on the expected pricing date.
Fidelity facilitates electronic delivery of preliminary prospectuses by using
a Web-based delivery platform. The preliminary prospectuses are made available
for online viewing and downloading in the widely-used
71
<PAGE>
electronic Adobe's Portable Document Format. This Web platform is made
available to all Fidelity brokerage customers, who may sign-on to this Web site
by using the same "sign-on" password that allows them to access account,
portfolio and other types of client-specific information. In order to access
the prospectus, the customer is presented with disclosure information
consistent with appropriate disclosure of risk and with relevant regulatory
requirements such as consent to electronic delivery. The prospectus
download/viewing screen is made available upon customer consent to this
disclosure information. Upon download and viewing of the prospectus, a
permanent record of this event is made in Fidelity's internal systems, in
similar fashion to the audit trails that are maintained for traditional
telephone and mail-based events.
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. 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
72
<PAGE>
associates at the initial public offering price set forth on the cover page of
this prospectus, which shares shall not be subject to the lockup agreements
described above. 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.
At our request, the underwriters have reserved up to 300,000 shares of common
stock to be issued by us and offered hereby for sale, at the initial public
offering price, to Young & Rubicam, Inc., and up to 100,000 shares, to The
Interpublic Group of Companies, Inc. Young & Rubicam, Inc. is a global
marketing and communications organization with integrated services in
advertising, direct marketing and sales promotion, perception management and
public relations, branding identity consultation and design services and
healthcare communications. The Interpublic Group of Companies, Inc. is a widely
diversified parent organization to a number of leading advertising agencies and
marketing communications companies, and also holds significant equity stakes in
several related businesses. The number of shares of Mediaplex common stock
available for sale to the general public will be reduced to the extent that
Young & Rubicam and The Interpublic Group of Companies, Inc. purchase all or a
portion of these reserved shares. We cannot assure you that any of these
reserved shares will be purchased by Young & Rubicam, Inc. or The Interpublic
Group of Companies, Inc. Any reserved shares which are not purchased will be
offered by the underwriters to the general public on the same basis as the
shares of common stock offered here.
73
<PAGE>
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 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.
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.
74
<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
</TABLE>
<TABLE>
<S> <C>
PRO FORMA FINANCIAL INFORMATION
Overview.................................................................. F-22
Pro Forma Statement of Operations--Year Ended December 31, 1998........... F-23
Pro Forma Statement of Operations--Nine Months Ended September 30, 1999... F-24
Notes to Pro Forma Financial Information.................................. F-25
NETRANSCEND SOFTWARE, INC.
Report of Independent Accountants......................................... F-26
Balance Sheets............................................................ F-27
Statements of Operations.................................................. F-28
Statements of Shareholders' Equity (Deficit).............................. F-29
Statements of Cash Flows.................................................. F-30
Notes to Financial Statements............................................. F-31
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Mediaplex, Inc.
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 the results of its operations and its cash
flows for the period from September 10, 1996 (inception) to December 31, 1996
and the years ended December 31, 1997 and 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these 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,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents........... $ 141,994 $ 374,567 $ 16,519,632
Accounts receivable, net of
allowance of $20,211, $37,367 and
$1,245,161 as of December 31, 1997
and 1998 and September 30, 1999,
respectively....................... 3,967 936,497 5,415,672
Other current assets................ -- -- 274,367
----------- ----------- ------------
Total current assets............... 145,961 1,311,064 22,209,671
Property and equipment, net......... 110,546 105,921 1,844,330
Goodwill and intangible assets, net
of accumulated amortization of
$502,378 as of September 30, 1999.. -- -- 2,508,113
Other assets........................ 5,000 27,030 929,485
----------- ----------- ------------
Total assets....................... $ 261,507 $ 1,444,015 $ 27,491,599
=========== =========== ============
Liabilities and Stockholders' Equity
(Deficit)
Current Liabilities:
Accounts payable.................... $ 379,122 $ 1,528,600 $ 608,653
Payables to stockholders............ 48,873 139,701 77,281
Advance from stockholder............ -- 262,750 --
Accrued liabilities................. 150,067 422,177 5,112,688
Deferred revenues................... 142,400 479,764 1,558,251
Notes payable to stockholders,
current portion.................... -- 339,569 110,000
Capital lease obligations, current
portion............................ 11,463 -- --
Other liabilities................... -- 1,039 --
----------- ----------- ------------
Total current liabilities.......... 731,925 3,173,600 7,466,873
Notes payable to stockholders......... 64,569 232,161 262,765
Capital lease obligations............. 23,072 -- --
----------- ----------- ------------
Total liabilities.................. 819,566 3,405,761 7,729,638
----------- ----------- ------------
Commitments (Note 6)
Stockholders' Equity (Deficit):
Convertible preferred stock;
issuable in series; $0.0001 par
value; authorized 9,981,000 shares;
9,706,000 shares issued and
outstanding; liquidation preference
of $24,867,500 as of September 30,
1999............................... -- -- 971
Common stock, $0.0001 par value;
authorized 10,000,000, 40,000,000,
and 75,000,000 shares,
respectively; 11,318,566, 6,983,628
and 15,011,365 shares issued and
outstanding as of December 31, 1997
and 1998 and September 30, 1999,
respectively....................... 1,132 698 1,500
Additional paid-in capital.......... 813,355 1,482,685 38,915,139
Warrants............................ -- -- 2,472,354
Beneficial conversion feature....... -- -- 14,360,000
Deferred stock compensation......... -- (53,371) (5,596,461)
Accumulated deficit................. (1,372,546) (3,391,758) (30,391,542)
----------- ----------- ------------
Total stockholders' equity
(deficit)......................... (558,059) (1,961,746) 19,761,961
----------- ----------- ------------
Total liabilities and stockholders'
equity (deficit).................. $ 261,507 $ 1,444,015 $ 27,491,599
=========== =========== ============
</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 Nine Months Ended
(inception) to December 31, September 30,
December 31, ------------------------ -------------------------
1996 1997 1998 1998 1999
-------------- ----------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 425,877 $ 3,588,094 $2,590,895 $13,940,808
Cost of revenues........ -- 445,372 2,770,567 1,968,773 10,948,571
--------- ----------- ----------- ----------- ------------
Gross profit (loss)... -- (19,495) 817,527 622,122 2,992,237
--------- ----------- ----------- ----------- ------------
Operating expenses:
Sales and marketing... 22,704 480,756 819,641 481,626 3,523,109
Research and
development.......... 48,834 347,130 555,736 415,003 2,203,039
General and
administrative....... 30,948 256,413 636,651 457,073 2,885,701
Stock-based
compensation......... 152,694 11,000 577,525 151,427 6,705,252
Amortization of
goodwill and
intangibles.......... -- -- -- -- 502,378
--------- ----------- ----------- ----------- ------------
Total operating
expenses........... 255,180 1,095,299 2,589,553 1,505,129 15,819,479
--------- ----------- ----------- ----------- ------------
Loss from
operations......... (255,180) (1,114,794) (1,772,026) (883,007) (12,827,242)
Interest income
(expense), net......... -- (2,572) (247,186) (233,934) 187,458
--------- ----------- ----------- ----------- ------------
Net loss.............. (255,180) (1,117,366) (2,019,212) (1,116,941) (12,639,784)
Beneficial conversion
feature of Series C
convertible preferred
stock -- -- -- -- 14,360,000
--------- ----------- ----------- ----------- ------------
Net loss attributable to
common stockholders.... $(255,180) $(1,117,366) $(2,019,212) $(1,116,941) $(26,999,784)
========= =========== =========== =========== ============
Net loss per share--
basic and diluted...... $ (0.07) $ (0.13) $ (0.25) $ (0.13) $ (2.05)
========= =========== =========== =========== ============
Weighted average shares
used to compute net
loss per share--basic
and diluted............ 3,795,714 8,457,464 8,186,127 8,591,365 13,074,428
========= =========== =========== =========== ============
Pro forma net loss per
share--basic and
diluted (unaudited).... $ (0.25) $ (1.56)
=========== ============
Weighted average shares
used to compute pro
forma net loss per
share--basic and
diluted (unaudited).... 8,186,127 17,280,523
=========== ============
</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 Additional Beneficial Deferred
---------------- ------------------ Paid-in Conversion Stock Accumulated
Shares Amount Shares Amount Capital Feature Warrants Compensation Deficit
--------- ------ ---------- ------ ----------- ----------- ---------- ------------ ------------
<S> <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
Issuance of
common stock.... 1,600,000 160 79,840
Net loss........ (255,180)
--------- ---- ---------- ------ ----------- ----------- ---------- ----------- ------------
Balance,
December 31,
1996............ -- -- 4,660,000 466 232,259 -- -- -- (255,180)
Issuance of
common stock.... 1,795,338 180 338,421
Conversion of
payable to
stockholder for
common stock.... 4,643,228 464 231,697
Issuance of
common stock for
services........ 220,000 22 10,978
Net loss........ (1,117,366)
--------- ---- ---------- ------ ----------- ----------- ---------- ----------- ------------
Balance,
December 31,
1997............ -- -- 11,318,566 1,132 813,355 -- -- -- (1,372,546)
Repurchase of
common stock for
convertible note
payable......... (4,643,228) (464) (231,697)
Beneficial
conversion
feature of note
payable to
stockholder..... 232,161
Issuance of
common stock.... 76,000 7 37,993
Issuance of
common stock for
services........ 232,290 23 151,404
Stock-based
compensation.... 286,079
Deferred stock
compensation.... 193,390 (193,390)
Amortization of
deferred stock
compensation.... 140,019
Net loss........ (2,019,212)
--------- ---- ---------- ------ ----------- ----------- ---------- ----------- ------------
Balance,
December 31,
1998............ -- -- 6,983,628 698 1,482,685 -- -- (53,371) (3,391,758)
Issuance of
common stock for
services
(unaudited)..... 83,333 8 411,930
Issuance of
common stock
upon acquisition
of Netranscend.. 1,979,000 198 2,569,068
Issuance of
common stock
upon exercise of
options......... 175,167 17 340,268
Issuance of
Series A
preferred stock,
net of issuance
costs of
$46,701......... 1,206,000 121 1,460,678
Conversion of
note payable to
stockholder for
common stock.... 947,009 95 70,931
Issuance of
Series B
preferred stock,
net of issuance
costs of
$741,632........ 4,500,000 450 8,257,918 432,354
Conversion of
note payable for
common stock.... 4,643,228 464 231,697
Issuance of
Series C
preferred stock,
net of issuance
costs of
$238,441........ 4,000,000 400 14,121,159
Dividend
relative to
beneficial
conversion
feature related
to issuance of
Series C
preferred
stock........... 14,360,000 (14,360,000)
Issuance of
common stock
upon exercise of
options in
connection with
waiver of
payable to
stockholder
(unaudited)..... 200,000 20 12,400
Issuance of
warrant for
services
(unaudited)..... 2,040,000
Deferred stock
compensation
(unaudited)..... 9,956,405 (9,956,405)
Amortization of
deferred stock
compensation
(unaudited)..... 4,413,315
Net loss
(unaudited)..... (12,639,784)
--------- ---- ---------- ------ ----------- ----------- ---------- ----------- ------------
Balance,
September 30,
1999............ 9,706,000 $971 15,011,365 $1,500 $38,915,139 $14,360,000 $2,472,354 $(5,596,461) $(30,391,542)
========= ==== ========== ====== =========== =========== ========== =========== ============
<CAPTION>
Total
------------
<S> <C>
Balance,
September 10,
1996
(inception)..... $ --
Issuance of
common stock for
cash and for
services........ 152,725
Issuance of
common stock.... 80,000
Net loss........ (255,180)
------------
Balance,
December 31,
1996............ (22,455)
Issuance of
common stock.... 338,601
Conversion of
payable to
stockholder for
common stock.... 232,161
Issuance of
common stock for
services........ 11,000
Net loss........ (1,117,366)
------------
Balance,
December 31,
1997............ (558,059)
Repurchase of
common stock for
convertible note
payable......... (232,161)
Beneficial
conversion
feature of note
payable to
stockholder..... 232,161
Issuance of
common stock.... 38,000
Issuance of
common stock for
services........ 151,427
Stock-based
compensation.... 286,079
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 140,019
Net loss........ (2,019,212)
------------
Balance,
December 31,
1998............ (1,961,746)
Issuance of
common stock for
services
(unaudited)..... 411,938
Issuance of
common stock
upon acquisition
of Netranscend.. 2,569,266
Issuance of
common stock
upon exercise of
options......... 340,285
Issuance of
Series A
preferred stock,
net of issuance
costs of
$46,701......... 1,460,799
Conversion of
note payable to
stockholder for
common stock.... 71,026
Issuance of
Series B
preferred stock,
net of issuance
costs of
$741,632........ 8,690,722
Conversion of
note payable for
common stock.... 232,161
Issuance of
Series C
preferred stock,
net of issuance
costs of
$238,441........ 14,121,559
Dividend
relative to
beneficial
conversion
feature related
to issuance of
Series C
preferred
stock........... --
Issuance of
common stock
upon exercise of
options in
connection with
waiver of
payable to
stockholder
(unaudited)..... 12,420
Issuance of
warrant for
services
(unaudited)..... 2,040,000
Deferred stock
compensation
(unaudited)..... --
Amortization of
deferred stock
compensation
(unaudited)..... 4,413,315
Net loss
(unaudited)..... (12,639,784)
------------
Balance,
September 30,
1999............ $19,761,961
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Mediaplex, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
September 10, 1996 December 31, September 30,
(inception) to ------------------------ --------------------------
December 31, 1996 1997 1998 1998 1999
------------------ ----------- ----------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net loss............... $(255,180) $(1,117,366) $(2,019,212) $ (1,116,941) $(12,639,784)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and amor-
tization.............. 1,726 20,023 54,810 49,836 766,469
Write-off of property
and equipment......... -- -- 18,853 -- --
Allowance for doubtful
accounts.............. -- 20,211 17,156 20,211 1,207,794
Stock-based compensa-
tion expense.......... 152,694 11,000 577,525 338,671 6,705,251
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) (373,265) (5,686,969)
Other assets.......... (1,650) (3,350) (22,030) 4,569 (1,176,828)
Accounts payable...... 800 378,322 1,149,477 584,850 (919,947)
Payables to stock-
holders.............. 35,982 309,621 90,828 (45,522) (50,000)
Accrued liabilities... 37,203 112,864 272,110 401,110 4,648,761
Deferred revenues..... -- 142,400 337,364 57,101 1,078,487
Other liabilities..... -- -- 1,039 13,650 (1,039)
--------- ----------- ----------- ------------ ------------
Net cash provided
(used) in operating
activities.......... (28,425) (150,453) (239,605) 166,431 (6,067,799)
--------- ----------- ----------- ------------ ------------
Cash flows from invest-
ing activities:
Purchase of property
and equipment......... (24,488) (69,892) (78,819) (43,560) (2,003,256)
--------- ----------- ----------- ------------ ------------
Net cash used in in-
vesting activities.. (24,488) (69,892) (78,819) (43,560) (2,003,256)
--------- ----------- ----------- ------------ ------------
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.......... -- -- -- -- 1,198,170
Net proceeds from issu-
ance of Series B pre-
ferred stock.......... -- -- -- -- 8,690,722
Net proceeds from issu-
ance of Series C pre-
ferred stock.......... -- -- -- -- 14,212,059
Proceeds from exercise
of stock options...... -- -- -- -- 340,163
Payments of capital
lease obligations..... -- (3,380) (24,753) (23,265) --
Proceeds from notes
payables--stockhold-
ers................... -- -- 275,000 275,000 (225,000)
Payment of notes pay-
able--stockholders.... -- -- -- -- --
Advance from stockhold-
er.................... -- -- 262,750 -- --
--------- ----------- ----------- ------------ ------------
Net cash provided by
financing activi-
ties................ 80,031 335,221 550,997 289,735 24,216,114
--------- ----------- ----------- ------------ ------------
Net change in cash
and cash equiva-
lents............... 27,118 114,876 232,573 412,606 16,145,065
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 $ 554,600 $ 16,519,632
========= =========== =========== ============ ============
</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 Nine Months Ended
(inception) to December 31, September 30,
December 31, ----------------- -----------------------
1996 1997 1998 1998 1999
-------------- -------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid for interest.. $ -- $ 2,572 $ 1,804 $ 1,773 $ 12,976
====== ======== ======== ======== ===========
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
====== ======== ======== ======== ===========
Conversion of note pay-
able and accrued in-
terest to Series C
preferred stock....... $ -- $ -- $ -- $ -- $ 69,502
====== ======== ======== ======== ===========
Beneficial conversion
feature of Series C
convertible preferred
stock................. $ -- $ -- $ -- $ -- $14,360,000
====== ======== ======== ======== ===========
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 $ -- $ 9,956,405
====== ======== ======== ======== ===========
Issuance of warrant for
services.............. $ -- $ -- $ -- $ -- $ 2,040,000
====== ======== ======== ======== ===========
</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 technology-based advertising and marketing services
for companies and advertising agencies that seek to optimize their internet
marketing campaigns. 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 business 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 balance sheet at September 30, 1999, the accompanying
interim statements of operations and cash flows for the nine months ended
September 30, 1998 and 1999 and the accompanying statement of changes in
stockholders' equity for the nine months ended September 30, 1999 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 nine months ended September 30, 1998 and 1999. 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 nine months ended September 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 September 30, 1999, three customers represented 50% of outstanding
accounts receivable. One, two, four and three customers accounted for 91%, 77%,
80% and 38% of revenues for the years ended December 31, 1997 and 1998, and the
nine months ended September 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
nine months ended September 30, 1999 is computed based on the weighted average
number of common shares outstanding, including the exercise of all outstanding
warrants at September 30, 1999, and the assumed conversion of the Company's
Series A, B and C 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 4,206,095 for the year ended December 31,
1998 and the nine months ended September 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 September 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1997 1998 1999
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Property and equipment, net:
Computer equipment and software............ $ 90,056 $161,336 $1,941,606
Furniture.................................. 4,321 5,369 207,077
Leased equipment........................... 37,915 -- --
Patents.................................... -- -- 21,278
Less: Accumulated depreciation and
amortization.............................. (21,746) (60,784) (325,631)
-------- -------- ----------
$110,546 $105,921 $1,844,330
======== ======== ==========
</TABLE>
Depreciation and amortization expense was $20,023, $54,810, $49,836 and
$264,091 for the years ended December 31, 1997 and 1998 and the nine months
ended September 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 September 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Accrued liabilities:
Accrued cost of revenues...................... $ 94,440 $293,590 $3,793,511
Accrued payroll-related costs................. 12,383 24,090 305,132
Other accrued liabilities..................... 43,244 104,497 1,014,045
-------- -------- ----------
$150,067 $422,177 $5,112,688
======== ======== ==========
</TABLE>
4. Income Taxes
The Company has incurred losses from inception through December 31, 1998.
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. The
Company's net deferred tax asset is comprised as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Net operating loss carryforwards........................ $ 445,000 $ 896,000
Deferred liabilities.................................... 61,000 205,000
Deferred stock compensation............................. -- --
Other................................................... (24,000) (44,000)
--------- -----------
482,000 1,057,000
Less valuation allowance................................ (482,000) (1,057,000)
--------- -----------
Net deferred tax asset................................. $ -- $ --
========= ===========
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $2,083,000 and $2,123,000 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,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred..................................................
Federal.................................................. $ 346,000 $ 445,000
State.................................................... 95,000 130,000
--------- ---------
Total deferred.......................................... 441,000 575,000
Change in valuation allowance............................. (441,000) (575,000)
--------- ---------
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 -------------
31, 1996 1997 1998
------------- ----- -----
<S> <C> <C> <C>
U.S. statutory rate............................... 34.0 % 34.0 % 34.0 %
Permanent difference.............................. (20.4) (0.3) (9.8)
Adjustment to increase valuation allowance........ (13.6) (33.7) (24.2)
----- ----- -----
-- % -- % -- %
===== ===== =====
</TABLE>
5. Notes Payable to Stockholders
The Company's notes payable to stockholders consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------- September 30,
1997 1998 1999
------- -------- -------------
(unaudited)
<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 --
Note payable to stockholder.................... -- -- 372,765
------- -------- --------
Total notes payable to stockholders............ 64,569 571,730 372,765
Less current portion........................... -- 339,569 110,000
------- -------- --------
$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 certain 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. In August 1999, the holder of the $50,000 note payable converted
the note and the related accrued interest into 19,360 shares of Series C
convertible preferred stock. At September 30, 1999, nothing 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, $10,102 and $12,976 during
1998 and the nine months ended September 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
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended December 31,
------------------
<S> <C>
1999........................................................ $ 51,775
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
2000........................................................ 327,966
2001........................................................ 338,583
2002........................................................ 332,176
2003........................................................ 148,295
----------
$1,198,795
==========
</TABLE>
Rent expense was $5,366, $41,555, $92,550, $62,954 and $286,812 for the
period ended December 31, 1996, the years ended December 31, 1997 and 1998 and
the nine months ended September 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 9,981,000 shares of preferred stock, of
which 1,206,000 shares are designated as Series A preferred stock, 4,775,000
shares are designated as Series B preferred stock and 4,000,000 shares are
designated as Series C preferred stock.
In August 1999, the Company issued 4,000,000 shares of Series C convertible
preferred stock at a purchase price of $3.59 per share. Such shares are
convertible into shares of common stock on a one-for-one basis. The deemed fair
value of the common stock was based on the low end of the price range for the
anticipated public offering. Consequently, the transaction resulted in a
beneficial conversion feature of $14,360,000. The beneficial conversion feature
has been reflected as a preferred dividend in the statement of operations in
the third quarter of 1999.
Preferred stock at September 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.............................. 4,775,000 4,500,000 9,000,000 8,258,368
C.............................. 4,000,000 4,000,000 14,360,000 14,121,559
--------- --------- ----------- -----------
Total.......................... 9,981,000 9,706,000 $24,867,500 $23,840,726
========= ========= =========== ===========
</TABLE>
The holders of convertible preferred stock have various rights and
preferences as follows:
Voting Rights
Each holder of Series A, Series B and Series C 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
September 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, Series B and Series C preferred stock are entitled to
noncumulative dividends at the rate of $0.10 per share, $0.16 per share and
$0.29 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 September 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, Series B
and Series C preferred stock are first entitled to receive, in preference to
the holders of common stock, an amount of $1.25, $2.00 and $3.59, 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, Series B and Series C 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.
F-16
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
Conversion Rights
Each share of Series A, Series B and Series C 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.
At September 30, 1999, the Company had reserved 1,206,000 shares, 4,775,000
shares and 4,000,000 shares of common stock for conversion of its Series A,
Series B and Series C convertible preferred stock, respectively.
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 $251,938 for
the period from September 10, 1996 (inception) to December 31, 1996, the years
ended December 31, 1997 and 1998 and the nine months ended September 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 that were primarily
related to achievement of certain levels of earned revenues.
As of September 30, 1999, all milestones were completed and the warrant to
purchase 500,000 shares became exercisable. Accordingly, the Company recorded
compensation expense in the amount of $2,040,000 based on the difference
between the exercise price and the fair value of the Company's common stock on
the date the milestones were 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
F-17
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
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 using a weighted average risk-free rate of
4.65%, weighted average expected life of three months and price volatility of
103%. No dividend yield was assumed as the Company has not paid dividends and
has no plans to do so.
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 1999 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 September 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.......... 12,000,000 --
Granted................. (9,173,398) 9,173,398 $0.50-$6.50 7,630,873 $0.83
Cancelled............... 16,700 (16,700) $0.50 (8,350) $0.50
Exercised............... -- (112,500) $0.50-$3.25 (337,500) $3.00
---------- --------- ----------
Balance, September 30,
1999................... 2,843,302 9,287,198 $0.50-$3.25 $7,285,023 $0.78
========== ========= ==========
</TABLE>
F-18
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
The following table summarizes information for stock options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------------------------------------------------
Weighted Average
Remaining
Exercise Number Contractual Life Number
Price Outstanding (Years) Exercisable
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.30.......................... 243,000 7.8 130,166
$0.50.......................... 7,969,660 9.2 4,842,872
$1.80.......................... 241,038 9.5 1,265
$3.25.......................... 760,700 9.7 50,000
$6.50.......................... 72,800 9.9 --
--------- ---------
9,287,198 5,024,303
========= =========
</TABLE>
In connection with the stock option grants made during the nine months ended
September 30, 1999, the Company recorded deferred stock compensation of
$9,956,405, which will be amortized over the vesting periods of the related
stock options through 2003. For the nine months ended September 30, 1999, the
Company recorded stock compensation expense of $4,413,315 in connection with
stock option grants.
The Company recorded the fair value for the options granted to non-employees
as stock-based compensation expense of $984,019 for nine months ended September
30, 1999. The fair value of the options granted to the non-employees were
determined using Black-Scholes option-pricing model using a weighted average
risk-free rate of 4.87%, a weighted average expected life of 2.2 years and
price volatility of 75%. No dividend yield was assumed as the Company has not
paid dividends and has no plans to do so.
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 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 was $1.06.
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 Years Ended December
(inception) 31,
to December ------------------------
31, 1996 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Net loss--as reported................. $(255,180) $(1,117,366) $(2,019,212)
Net loss--pro forma................... $(255,180) $(1,117,366) $(2,019,212)
Net loss per share--basic and diluted
as reported.......................... $ (0.07) $ (0.13) $ (0.25)
Net loss per share--basic and diluted
pro forma............................ $ (0.07) $ (0.13) $ (0.25)
</TABLE>
F-19
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
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,
---------------- September 30,
1997 1998 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Payables to stockholders......................... $19,203 $ 71,781 $71,781
Payables to founders............................. 29,670 67,920 5,500
------- -------- -------
Total payables to stockholders............... $48,873 $139,701 $77,281
======= ======== =======
</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.
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, $28,000 and $70,800 during the
year ended December 31, 1998 and the nine months ended September 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. 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
F-20
<PAGE>
Mediaplex, Inc.
Notes to Financial Statements--(Continued)
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 beginning on the effective date
of the Company's initial public offering. 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.
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, Series B, and
Series C preferred stock into 1,206,000, 4,500,000 and 4,000,000 shares,
respectively, of common stock.
At September 30, 1999, the pro forma effects of these transactions are as
follows:
<TABLE>
<CAPTION>
Pro Forma
Stockholders' Equity
September 30, 1999 At September 30, 1999
------------------ ---------------------
<S> <C> <C>
Preferred stock........................ $ 971 $ --
Common stock........................... 1,500 2,471
Additional paid-in capital............. 38,915,139 38,915,139
Beneficial conversion feature.......... 14,360,000 14,360,000
Warrants............................... 2,472,354 2,472,354
Deferred stock compensation............ (5,596,461) (5,596,461)
Accumulated deficit.................... (30,391,542) (30,391,542)
------------ ------------
Total stockholders' equity........... $ 19,761,961 $ 19,761,961
============ ============
</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 business 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 and the period from January 1, 1999 to March 25,
1999, with the results of operations of the Company for the year ended
December 31, 1998 and the nine months ended September 30, 1999, respectively.
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) (2,785,258)
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.
Pro Forma Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
-----------------------------------------------------
Mediaplex Netranscend Adjustments Pro Forma
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................ $ 13,940,808 $ -- $ -- $ 13,940,808
Cost of revenues........ 10,948,571 -- -- 10,948,571
------------ ----- --------- ------------
Gross profit........ 2,992,237 -- -- 2,992,237
------------ ----- --------- ------------
Operating expenses:
Sales and marketing... 3,523,109 -- -- 3,523,109
Research and
development.......... 2,203,039 408 -- 2,203,447
General and
administrative....... 2,885,701 156 -- 2,885,857
Stock-based
compensation......... 6,705,252 -- -- 6,705,252
Amortization of
goodwill and
intangibles.......... 502,378 -- 250,055 (A) 752,433
------------ ----- --------- ------------
Total operating
expenses........... 15,819,479 564 250,055 16,070,098
------------ ----- --------- ------------
Loss from
operations......... (12,827,242) (564) (250,055) (13,077,861)
Interest income, net.... 187,458 -- -- 187,458
------------ ----- --------- ------------
Net loss............ (12,639,784) (564) (250,055) (12,890,403)
Beneficial conversion
feature of Series C
convertible preferred
stock.................. 14,360,000 -- -- 14,360,000
------------ ----- --------- ------------
Net loss attributable to
common shareholders.... $(26,999,784) $(564) $(250,055) $(27,250,403)
============ ===== ========= ============
Net loss per share--
basic and diluted(B)... $ (1.99)
============
Weighted average shares
outstanding(B)......... 13,661,604
============
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
F-24
<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 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 and the nine months ended September 30, 1999, were
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-25
<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 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 23, 1999
F-26
<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-27
<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-28
<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-29
<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-30
<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 business
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-31
<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-32
<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-33
<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-34
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS CONTAINS CLIENT'S NAMES AND LOGOS]
[PICTURES OF 6 PERSONS]
Caption below the pictures of people: Delivering a customized message to the
right target in real time.
Caption: Some of our Clients
[LOGOS FOR 11 CLIENTS]
Caption: Some of our Business and Marketing Alliances
[LOGOS FOR 5 ALLIANCES]
Note: The clients listed above represent those of our top 15 clients based on
gross revenues for the nine-month period ending September 30,1999 who are both
current clients and have approved the inclusion of their logos in this
prospectus. DATEK Online, ShopNow.com and Publicis & Hal Riney accounted for
approximately 17%, 11% and 10% of our revenues during the nine-month period
ending September 30, 1999.
The business and marketing alliances listed above represent all of the
companies for which we have written or oral agreements as of September 30, 1999
to work together to provide services to our clients, and from which we have
obtained permission to use their logos.
<PAGE>
6,000,000 Shares
[LOGO OF MEDIAPLEX]
Common Stock
-------------
PROSPECTUS
November 19, 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............................................. $ 23,018
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........................................... 34,482
----------
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 Glenn Argenbright, 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 9,416,398 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 371,667 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, and Letter Amendment,
dated November 17, 1999.
10.13** Developer Package Agreement, dated July 26, 1999, between the
Registrant and SAP Labs, Inc.
10.14** Memorandum of Understanding, dated September 22, 1999, between the
Registrant and Ariba Technologies, Inc.
10.15** Letter Agreement, dated September 23, 1999, between the Registrant and
OTP Software, Inc.
10.16** Letter Agreement, dated May 20, 1999, between the Registrant and Icon
Medialab Inc.
10.17** Letter Agreement, dated August 5, 1999, between the Registrant and
Across Media Networks, L.L.C.
10.18** Shareholders' Rights Agreement, dated July 30, 1999.
10.19 First Amendment to Lease, dated October 18, 1999, and Lease Agreement,
dated September 8, 1999, by and between the Registrant and 188
Embarcadero Associates, L.P.
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.
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
II-4
<PAGE>
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 5 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 19th day of November, 1999.
MEDIAPLEX, INC.
/s/ Gregory R. Raifman
By:__________________________________
Gregory R. Raifman
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 5 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>
/s/ Gregory R. Raifman Chairman and Chief November 19, 1999
____________________________________ Executive Officer
Gregory R. Raifman (Principal Executive
Officer)
* Senior Vice President, November 19, 1999
____________________________________ Chief Financial Officer
Sandra L. Abbott and Secretary
(Principal Accounting
Officer)
* President and Director November 19, 1999
____________________________________
Jon L. Edwards
* Director November 19, 1999
____________________________________
Lawrence D. Lenihan, Jr.
* Director November 19, 1999
____________________________________
Peter S. Sealey
* Director November 19, 1999
____________________________________
James DeSorrento
* Director November 19, 1999
____________________________________
A. Brooke Seawell
/s/ Gregory R. Raifman
*By: _______________________________
Gregory R. Raifman
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, and Letter Amendment,
dated November 17, 1999.
10.13** Developer Package Agreement, dated July 26, 1999, between the
Registrant and SAP Labs, Inc.
10.14** Memorandum of Understanding, dated September 22, 1999, between the
Registrant and Ariba Technologies, Inc.
10.15** Letter Agreement, dated September 23, 1999, between the Registrant and
OTP Software, Inc.
10.16** Letter Agreement, dated May 20, 1999, between the Registrant and Icon
Medialab Inc.
10.17** Letter Agreement, dated August 5, 1999, between the Registrant and
Across Media Networks, L.L.C.
10.18** Shareholders' Rights Agreement, dated July 30, 1999.
10.19 First Amendment to Lease, dated October 18, 1999, and Lease Agreement,
dated September 8, 1999, by and between the Registrant and 188
Embarcadero Associates, L.P.
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.
27.1** Financial Data Schedule.
</TABLE>
- --------
** Previously filed.
+ Confidential treatment requested.
<PAGE>
Exhibit 5.1
November 19, 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, 2, 3, 4 and 5 thereto filed
with the SEC on September 16, 1999, October 8, 1999, October 29, 1999, November
12, 1999 and November 19, 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 are duly authorized and, 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,
Wilson Sonsini Goodrich & Rosati
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 10.12
[LOGO OF DOUBLECLICK GOES HERE]
November 17, 1999
Mr. Gregory Raifman
Chief Executive Officer
Mediaplex, Inc.
131 Steuart Street, 4th Floor
San Francisco, CA 94105
Dear Greg:
The purpose of this letter is to amend certain terms of the Technology
Integration and Services Agreement, effective as of July 22, 1999 (the
"Agreement"), between us.
First, Mediaplex hereby confirms that for each calender month of the
Agreement after February 2000 DoubleClick's DART technology will deliver at
least 300 million ad impressions per month on behalf of Mediaplex.
Second, the parties hereby confirm that during the term of the Agreement
and for a one-year period following its expiration or termination, each party
agrees not to solicit for employment or hire (in each case, whether directly or
indirectly) any employee of the other.
All other terms and conditions of the Agreement remain in full force and
effect.
If you agree that this letter accurately amends the Agreement, please sign
in the space provided below.
Very truly yours,
/s/ Kevin Ryan
-----------------------------
Kevin Ryan
President and COO
CONFIRMED
MEDIAPLEX, INC.
By: /s/ Timothy Favia
-----------------------------
Name: Timothy Favia
Title: Executive Vice President Sales/Corporate Development
Date: November 17, 1999
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
TECHNOLOGY INTEGRATION AND
SERVICES AGREEMENT
THIS TECHNOLOGY INTEGRATION AND SERVICES AGREEMENT (this
"Agreement"), effective as of this 22nd day of July, 1999 (the "Effective
Date"), by and between DoubleClick, Inc., a Delaware corporation
("DoubleClick") and MediaPlex, Inc., a California corporation ("MediaPlex").
WHEREAS, MediaPlex provides full service e-business marketing and
technology solutions for third party advertiser and advertising agency clients
(including, without limitation, planning, buying, management and serving of ads)
and has recently developed its MOJO technology for the creation of dynamic
functionality for online messages and banner ads, including banner ads based on
data derived from client enterprise databases, for more accurate analysis of ROI
and for better fine-targeting of banner ads;
WHEREAS, DoubleClick, through its DART service, is the leading
provider of third party ad serving services;
WHEREAS, the DART service is comprised of the following equipment and
technology components: (i) the ad server component, which includes the
technology that identifies the advertisement that is sent to a Visitor (as
defined below); and (ii) the media server component, which stores the
advertisements available for delivery and delivers advertisements to Visitors;
WHEREAS, MediaPlex would like to continue to offer full service
advertising services and its MOJO technology to its advertiser and advertising
agency clients but desires in certain instances to outsource some or all of the
third party ad serving and reporting components of such services;
WHEREAS, DoubleClick and MediaPlex desire to enter into an agreement,
pursuant to which DoubleClick would make available to MediaPlex, on a private
label basis, DoubleClick's DART ad serving and reporting services for
MediaPlex's advertiser and advertising agency clients;
WHEREAS, MediaPlex would like to transition ad serving services to
DoubleClick (i) by having DoubleClick provide the media server component of its
DART service as soon as the necessary implementation and customization work can
be completed and (ii) having DoubleClick develop in parallel a customized
private label version of its DART service which works in conjunction with the
MOJO technology, which MediaPlex will utilize as soon as the necessary
development work has been completed;
WHEREAS, DoubleClick and MediaPlex desire that in certain limited
instances DoubleClick shall have access and use of the MOJO technology only to
enable DoubleClick to provide its ad serving and reporting services in
conjunction with MediaPlex's provision of MOJO technology based services to its
clients; and
<PAGE>
WHEREAS, in furtherance of the objectives set forth above, the parties
hereto desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
DoubleClick and MediaPlex, intending to be legally bound, hereby agree as
follows:
SECTION 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the meanings specified below:
(a) "Advertiser" shall mean any Person that desires to target and
measure Advertisements on Target Sites.
(b) "Advertising Agency" shall mean any Person that desires to
target and measure Advertisements for Advertisers on Target Sites.
(c) "Advertising" or "Advertisement" shall mean material that (i)
promotes a brand or products or services and (ii) is provided to DoubleClick for
delivery to Visitors.
(d) "Affiliate" shall mean, with respect to any Person, any other
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such Person.
(e) "Agreement" shall mean this Agreement and the schedules,
exhibits and addenda attached hereto as the same may be amended, supplemented or
modified in accordance with the terms hereof.
(f) "Confidential Information" shall have the meaning set forth in
Section 11 to this Agreement.
(g) "Development Services" shall mean the customization, development
and implementation services set forth in Section 4 of this Agreement. The
Development Services will be provided in multiple Phases as described in Section
4.
(h) "DoubleClick" shall have the meaning set forth in the recitals
to this Agreement.
(i) "DoubleClick Competitor" shall mean any Person that is primarily
engaged in the business of providing Web-based advertising services or sales.
(j) "DoubleClick Indemnitee" shall have the meaning set forth in
Section 10.1 to this Agreement.
2
<PAGE>
(k) "Effective Date" shall have the meaning set forth in the
preamble to this Agreement.
(l) "Impression" shall mean each occurrence of Advertising on a page
of a Target Site resulting from a Visitor accessing or visiting such page.
(m) "Indemnitee" shall have the meaning set forth in Section 10.3 to
this Agreement.
(n) "Indemnitor" shall have the meaning set forth in Section 10.3 to
this Agreement.
(o) "MediaPlex" shall have the meaning set forth in the preamble to
this Agreement.
(p) "MediaPlex Client" shall mean an Advertiser or Advertising
Agency with whom MediaPlex has entered into a MediaPlex Client Agreement for the
purchase and delivery of Advertising to Target Sites.
(q) "MediaPlex Client Agreement" shall mean an agreement between
MediaPlex and an Advertiser or Advertising Agency that covers the provision of
advertising services from MediaPlex and its third party service providers to the
Advertiser or Advertising Agency and which includes the provisions and terms
required by this Agreement.
(r) "MediaPlex Indemnitee" shall have the meaning set forth in
Section 10.2 to this Agreement.
(s) "MediaPlex Served Ads" shall have the meaning set forth in
Section 2.4(a) to this Agreement.
(t) "Media Serving Services" shall mean hosting and providing
MediaPlex access to DoubleClick media servers which (i) store Advertisements
available for delivery and (ii) deliver Advertisements to Visitors to Target
Sites in accordance with the instructions and data provided by MediaPlex (using
MediaPlex's ad serving technologies).
(u) "MOJO Technology" shall mean MediaPlex's proprietary technology
which includes, without limitation, dynamic functionality for banner ads, and
which may be based on data derived from MediaPlex client enterprise databases.
(v) "Person" shall mean any individual, firm, corporation,
partnership, trust, association, joint venture, company or other entity, or any
government authority.
(w) "Private Label DART Service" shall mean the DART service
provided by DoubleClick to MediaPlex for resale to Advertisers and Advertising
Agencies for targeted and measured delivery of Advertising from DoubleClick's
servers to Target Sites (including both Media Serving Services and the ad server
component that identifies the Advertisement that is sent to a Visitor) and that
has been configured and customized as required in Section 4 below
3
<PAGE>
(except to the extent such configuration or customization is waived by MediaPlex
or the parties do not agree upon specifications, schedule and fees).
(x) "Services" shall mean, collectively, the Media Serving Services,
Private Label DART Service, the Development Services, training, technical
support and any other services provided by DoubleClick.
(y) "System" shall mean DoubleClick's proprietary DART software
technology, including DoubleClick's proprietary ad management system software
technology running on DoubleClick's servers.
(z) "Target Site" shall mean any Web site on the Internet specified
by a MediaPlex Client on which Advertisements are to be served on behalf of that
MediaPlex Client pursuant to an ad insertion order or other agreement between
MediaPlex or the MediaPlex Client and the proprietor of that Web site that
allows for serving of the Advertisements from third party ad serving services.
(aa) "Term" shall have the meaning set forth in Section 7.1 to this
Agreement.
(bb) "Visitors" shall mean visitors to a Web site.
SECTION 2
DOUBLECLICK AD SERVING SERVICES
2.1 Media Serving Services. Subject to completion of Phase I Development
----------------------
Services and the terms and conditions of this Agreement, until the commencement
of the full Private Label DART Service, DoubleClick shall provide the Media
Serving Services to MediaPlex for the delivery of Advertisements from
DoubleClick's servers to Visitors of the Target Sites. The Advertisements
delivered by the Media Serving Services shall be based on instructions and data
from MediaPlex and MediaPlex Clients as provided to DoubleClick via the MOJO
Technology.
2.2 Private Label DART Service.
--------------------------
(a) Subject to completion of Phase II Development Services (or, at
MediaPlex's option, a portion thereof pending completion) and the terms and
conditions of this Agreement, during the Term DoubleClick shall provide the
Private Label DART Service to MediaPlex for the targeted and measured delivery
of Advertisements from DoubleClick's servers to Visitors of the Target Sites.
The Advertisements shall be delivered by the Private Label DART Service to
Visitors based on criteria selected by MediaPlex and MediaPlex Clients and based
on instructions and data that have been input into the System by MediaPlex and
the MediaPlex Clients and/or provided to DoubleClick by the MOJO Technology.
(b) The standard DART for Advertisers service is available
immediately after the Effective Date. If MediaPlex elects to utilize the
standard DART for Advertisers service, such service shall be provided subject to
all the terms and conditions set forth in this Agreement that are applicable to
the Private Label DART Service.
4
<PAGE>
2.3 Ad Management System.
--------------------
(a) MediaPlex and DoubleClick understand that MediaPlex and MediaPlex
Clients shall be required to use the System in order to receive the Private
Label DART Service. Accordingly, DoubleClick grants to MediaPlex the non-
exclusive and nontransferable right to access and use the System, which
MediaPlex can access and use only on DoubleClick's Web servers by means of a
unique password chosen by MediaPlex, and only for the purposes of: (i) uploading
and storing Advertising for delivery by the Private Label DART Service, (ii)
selecting trafficking criteria for the delivery of Advertising to Target Sites
and Visitors, (iii) receiving reports of Impressions and other data related to
the delivery of Advertising by the Private Label DART Service and (iv) creating
and maintaining a data record for each MediaPlex Client and (v) such other
functionality that DoubleClick may incorporate into the DART service or Private
Label DART Service from time to time.
(b) The non-exclusive right in Section 2.3(a) above shall be personal
to MediaPlex and non-transferable, except that MediaPlex shall be permitted to
allow MediaPlex Clients to access and use the System in accordance with
DoubleClick's stated policies, but only to the extent necessary for such parties
to receive reports of Impressions and other data related to the delivery and
measurement of that MediaPlex Client's own Advertising, or if the MediaPlex
Client is an Advertising Agency, then for that Advertising Agency's client's
Advertising. MediaPlex shall be responsible and liable for any breaches of the
terms of this Agreement by any MediaPlex Client.
2.4 Preferred Provider.
------------------
(a) During the Term, MediaPlex agrees that DoubleClick shall be the
preferred third party provider of ad serving and reporting to MediaPlex and
MediaPlex Clients, as set forth herein. Accordingly, after the completion of
the Phase I Development Services, MediaPlex shall, at its sole option, use the
System for ad serving (and associated reporting) in those cases when MediaPlex
is using, or would have used, its own ad servers ("MediaPlex Served Ads");
provided, however, that MediaPlex shall not be obligated to use DoubleClick's
- -------- -------
services.
(b) Nothing in this Section 2.4 shall be deemed to prevent MediaPlex
from marketing, selling, distributing or deploying its MOJO Technology to a
DoubleClick Competitor, a client of a DoubleClick Competitor or an existing
DoubleClick customer. In the event that MediaPlex shall enter into such an
agreement with a DoubleClick Competitor or a client of a DoubleClick Competitor,
then MediaPlex shall be entitled to deploy its MOJO Technology on the ad
management or serving system or technology of such DoubleClick Competitor or
client of DoubleClick Competitor without being required to use DoubleClick's
System in that instance. In the event that MediaPlex shall enter into such an
agreement with an existing DoubleClick customer then MediaPlex shall deploy its
MOJO Technology on the DoubleClick System.
(c) Nothing in Section 2.4(a) shall prohibit or restrict MediaPlex
from:
(i) placing its ad objects directly on vendor or MediaPlex
client sites;
5
<PAGE>
(ii) using third parties (including without limitation
DoubleClick Competitors) to serve ads (A) at the request
of MediaPlex Clients (including without limitation
Advertisers or Advertising Agencies), or (B) in connection
with MediaPlex Clients (including, without limitation,
Advertisers or Advertising Agencies) referred to MediaPlex
by the third party; or
(iii) integrating MOJO Technology into any third party
(including without limitation DoubleClick Competitors or
clients of DoubleClick competitors) ad serving capability
or other product or service.
2.5 Coordination of Marketing Efforts. In the event that the parties
---------------------------------
become aware that they are both pursuing the same potential new client, then the
parties shall cooperate to provide a coordinated solution to such client.
2.6 Support.
-------
(a) For the first 60 days from the Effective Date the Agreement,
DoubleClick will provide assistance (as DoubleClick customarily provides to its
DART (or Advertiser customers) with inputting ad creatives into its media
servers and in delivering HTML ad tags to the Target Sites MediaPlex designates.
The group providing such support shall be available by telephone Monday through
Friday from 9:00 AM-6:00 PM EST.
(b) DoubleClick shall also provide MediaPlex with Telephone Support
throughout the Term which shall consist of: (1) Monday through Friday (excluding
federal legal holidays) making a DoubleClick Customer Support Analyst available
by telephone for support twenty-four (24) hours a day; and (2) Saturdays,
Sundays and federal legal holidays: (i) call-back within one (1) hour by a
Customer Support Analyst available twenty-four (24) hours a day via pager access
for assistance other than System down support, and (ii) a live Operations
Technician available by telephone for operational emergency support twenty-four
(24) hours a day. DoubleClick shall supply MediaPlex with any names, phone
numbers, email addresses and pager numbers required in connection with the
foregoing. Telephone Support will be provided to MediaPlex free of charge.
2.7 Private Label DART Service Level Up-Time. DoubleClick shall use
----------------------------------------
commercially reasonable efforts to ensure that the Private Label DART Service
delivers Advertising at [*], calculated on a calendar monthly basis; it being
understood that Private Label DART Service Advertising delivery "down" time
(calculated as the difference between 100% and the actual percentage delivery of
ads) shall exclude time (i) required for routine system maintenance not to
exceed thirty (30) minutes in any calendar month that is performed by
DoubleClick so long as MediaPlex is notified at least one (1) day in advance,
and MediaPlex approves the scheduling which must be during low volume time
periods and (ii) resulting from technical malfunctions in either the MOJO
Technology (including its interaction with the Private Label DART Service)
Target Sites' systems, or any other circumstances beyond DoubleClick's
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
6
<PAGE>
reasonable control (including without limitation, Internet delays, network
congestion and ISP malfunctions). In the event that unscheduled down time
materially exceeds that which is experienced by other DoubleClick DART
customers in any month, then Mediaplex will receive a reduction in fees,
credited to next month's invoice calculated by [*]. The Average Impressions
shall be determined by dividing the total ads served in the previous month by
the total number of hours in that month.
2.8 Internal Ad Delivery Time. DoubleClick shall use reasonable
--------------------------
commercial efforts to ensure that its servers shall respond to a request for an
Advertisement to be delivered within the period of time equal to the sum of [*].
However, MediaPlex acknowledges that Ad delivery time from DoubleClick's servers
to a Visitor is a function of the Internet and MediaPlex systems and is not
within DoubleClick's control.
2.9 Ad Management System Availability. DoubleClick shall use commercially
---------------------------------
reasonable efforts to ensure that the Ad Management System (provided as part of
the Private Label DART Service) is available for MediaPlex use [*] calculated on
a calendar monthly basis; it being understood that Ad Management System "down"
time shall exclude time (i) required for routine system maintenance not to
exceed twenty-four (24) hours in any calendar month that is performed by
DoubleClick so long as MediaPlex is notified at least one (1) business day in
advance (it being understood that (x) the Ad Management System is "down" for
routine scheduled maintenance for up to four (4) hours each Saturday morning
between the hours of 10 AM to 2 PM Eastern standard time and (y) advance notice
shall not be required for such routine scheduled maintenance) and (ii) resulting
from technical malfunctions in Target Site's systems, or any other circumstances
reasonably beyond DoubleClick's control (including without limitation, Internet
delays, network congestion and ISP malfunctions).
2.10 Training. DoubleClick will provide up to 4 free training sessions per
---------
year to MediaPlex in relation to the Private Label DART Service. In addition,
DoubleClick will provide a single free training session to each MediaPlex Client
that requests such training. Further training sessions are available to
MediaPlex and MediaPlex Clients at DoubleClick's then standard charges for such
training. Training will be provided at DoubleClick's premises in New York or on
site at MediaPlex or the MediaPlex Client. In the event of MediaPlex or a
MediaPlex client requiring training on site at MediaPlex or the MediaPlex
Client, DoubleClick's reasonable travel expenses shall be paid by the recipient
of any such training services provided at such sites.
SECTION 3
MEDIAPLEX'S OBLIGATIONS
3.1 Migration of Existing MediaPlex Clients. At such time following the
---------------------------------------
completion of Phase I Development Services that MediaPlex desires, MediaPlex
shall commence the process
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
7
<PAGE>
by which MediaPlex shall transition some or all of its existing MediaPlex
Clients to the Media Serving Services and, when available, the Private Label
DART Service.
3.2 Integration Assistance. Upon execution of this Agreement, MediaPlex
----------------------
shall assist DoubleClick in the process of interfacing and/or integrating into
the Media Serving Services and the Private Label DART Service (i) the MOJO
Technology, (ii) MediaPlex's existing data and (iii) any other software or data
necessary for the operation of the Media Serving Services or Private Label DART
Service on behalf of MediaPlex Clients or completion of the Development
Services. MediaPlex shall also be responsible for making any amendments, if any,
as required to their MediaPlex Client Agreements and agreements with Target
Sites. MediaPlex hereby grants to DoubleClick, during the Term, a nonexclusive,
nontransferable, worldwide, royalty free license, with no right to sublicense,
to incorporate necessary components of the MOJO Technology, in executable form
only, into the System solely to integrate and implement such component into the
System, solely (A) to provide to MediaPlex access to the System using MOJO
Technology and (B) to provide the Private Label Dart Service and support for
such service to MediaPlex and MediaPlex clients as contemplated by this
Agreement (the purposes in the preceding clauses (A) and (B) are the `Permitted
Purposes'). DoubleClick's incorporation into the System of MOJO Technology and
use of MOJO Technology shall be limited to the Permitted Purposes only. No
license is granted to, and DoubleClick shall not, use any components of the MOJO
Technology for any other purpose or Person. All rights not expressly granted to
DoubleClick are retained by MediaPlex.
3.3 Marketing, Sales and Other Responsibilities. MediaPlex shall be
-------------------------------------------
solely responsible for soliciting all MediaPlex Clients, Target Sites,
trafficking of Advertising (which shall include the input of Advertising into
the System) and handling all inquiries of any type or nature. Outsourcing of
trafficking of Advertising is available from DoubleClick as specified in Section
4.4 below and if trafficking of Advertising is entirely outsourced to
DoubleClick, it shall no longer be a responsibility of MediaPlex.
3.4 Content; Privacy. MediaPlex shall obtain all necessary rights,
----------------
licenses, consents, waivers and permissions to allow DoubleClick to store and
deliver Advertising and otherwise operate the Private Label DART Service on
MediaPlex's behalf and on behalf of MediaPlex Clients, and to use any data
provided to or collected by the System as contemplated by this Agreement.
MediaPlex further represents that it will conform to DoubleClick's statement on
privacy at all times during the Term. MediaPlex further agrees that all
Advertisements provided by MediaPlex for delivery on the Private Label DART
Service, and MediaPlex's other promotional and marketing activities in
connection with the use of the Private Label DART Service, shall not be
deceptive, misleading, obscene, defamatory, illegal or unethical.
3.5 Support and Training.
--------------------
(a) MediaPlex shall provide to DoubleClick support and training
relating to its MOJO Technology and such other training beneficial to the
integration of the MOJO Technology into the Private Label DART Service.
8
<PAGE>
(b) MediaPlex shall provide DoubleClick with sufficient technical
support for the integration and maintenance of interfaces and communications
with the MOJO Technology as it relates to the Media Serving Services and the
Private Label DART Service. These resources shall be available by telephone for
at the same times and levels as is required from DoubleClick for the
availability of its Telephone Support for the Private Label DART Service.
MediaPlex shall supply DoubleClick with any names, phone numbers, email
addresses and pager numbers required in connection with the foregoing. The
foregoing Telephone Support will be provided to DoubleClick free of any charge.
3.6 Impression Level Estimates. MediaPlex agrees to provide DoubleClick
--------------------------
with estimates of anticipated Impression levels for its Advertisements to be
delivered by the Media Serving Services and Private Label DART Service, and to
update such estimates when there are material changes in such estimates.
SECTION 4
DOUBLECLICK DEVELOPMENT SERVICES
4.1 Phase I - Implementation of Media Serving Services. DoubleClick shall
--------------------------------------------------
provide the following services which shall be completed within the time periods
specified below (collectively, "Phase I Development Services"):
(a) Make available sufficient media servers to provide the Media
Serving Services within twenty (20) business days of the Effective Date.
MediaPlex will use its ad serving technology to redirect to the relevant image
files on these DoubleClick media servers as ad requests are processed by
MediaPlex.
(b) Develop a custom process whereby MediaPlex can populate the
DoubleClick media servers with Advertising creatives and verify successful
transfer of such files, subject to the parties mutually agreeing on the
specifications, schedules and fees for the development of such process. It is
contemplated by the parties that such population process would likely take place
approximately once per hour when it is in operation. DoubleClick shall not be
required to complete this aspect of Phase I until such specifications, schedule
and fees have been mutually agreed. Both parties will cooperate and exhibit
good faith effort in establishing a more efficient transfer process.
(c) MediaPlex shall provide to DoubleClick detailed and accurate
reporting of all Advertisements served using just the Media Serving Services and
not the full Private Label DART Service. The parties shall cooperate to
implement such reporting.
(d) Make available the Ad Server macro within (45) business days of
the effective date. The Ad Server macro will append to the re-direct URL the
appropriate data from the DART IP database for the use of further message
targeting by MOJO
4.2 Phase II - DART for Advertisers customization. DoubleClick shall
---------------------------------------------
modify its standard DART for Advertisers service to create the Private Label
DART Service with the
9
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following customizations, which shall be completed within the time periods
specified below (collectively, "Phase II Development Services"):
(a) Customer Ad management and reporting user interfaces shall be
developed to provide MediaPlex branding (and/or, at MediaPlex's option, branding
of MediaPlex Advertising Agency clients) and eliminate references to DoubleClick
by name or logo. References to DoubleClick shall also be eliminated from the
reporting URLs by allowing MediaPlex DNS records to refer to DoubleClick
reporting servers. Completion of this capability is estimated to be by October
1, 1999.
(b) A custom login screen with MediaPlex branding (and/or, at
MediaPlex's option, branding of MediaPlex Advertising Agency clients) would also
be available upon written request and within thirty (30) business days of such
request.
(c) The DART software shall be configured so that it can be used for
ad-matching that redirects either to DoubleClick media servers, or to MediaPlex
java objects which in turn determine which redirect is appropriate. Estimated
to be completed during October 1999.
(d) ASCII files incorporating data from MediaPlex's online
advertising served by DoubleClick, including logs of all Impressions and click
events, shall be developed within five (5) business days of the Effective Date.
(e) Reporting functionality shall be configured within five (5)
business days of the Effective Date so that MediaPlex files will be available
and updated, on average, every 24 hours, and stored at DoubleClick for a period
of 10 days before deletion. Delivery of the data from DoubleClick to MediaPlex
will be via FTP over the Internet. Such FTP transfer will be a complete
transfer of the previous days data transmitted during off peak hours and
DoubleClick shall store the previous 10 days data from MediaPlex and MediaPlex
Clients.
(f) A custom trafficking API shall be developed consisting of CSV
files to assist MediaPlex in avoiding trafficking Advertising campaigns
duplicatively (i.e., once in their own systems and once in the DoubleClick
System) within fifteen (15) business days of the Effective Date. In the event
that MediaPlex requests in writing that the API instead consist of XML files,
the development of such API shall be subject to the parties mutually agreeing
upon the specifications, schedule and fees for such development work and
DoubleClick shall not be required to complete this aspect of Phase II until such
specifications, schedule and fees have been mutually agreed.
(g) Data integration shall be carried out subject to the parties
mutually agreeing upon the specifications, schedule and fees for such
integration to be determined after further discussion on requirements.
DoubleClick shall not be required to complete this aspect of Phase II until such
specifications, schedule and fees have been mutually agreed.
(h) A facility for the importing of historical data from client
campaigns being transferred to the DART system will be developed with the
cooperation of MediaPlex.
10
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DoubleClick shall not be required to complete this aspect of Phase II until
specifications, schedule and fees of this effort have been mutually agreed.
4.3 Phase III - Integration of MediaPlex Mobile Adserver. The parties
----------------------------------------------------
agree to enter into good faith discussions in relation to the development of
hosting solutions for the MediaPlex mobile adserver java objects, including
servlets, classes, and parsers, subject to reaching mutual agreement as to the
specifications, schedule and fees for such Development Services.
4.4 Outsourced Trafficking Services. At MediaPlex's option, MediaPlex may
-------------------------------
request that DoubleClick provide trafficking services in relation to the
MediaPlex Client Advertising (which shall include input of banner ads into the
System).
4.5 Completion and Acceptance of Development Services. When DoubleClick
-------------------------------------------------
believes it has appropriately completed a deliverable within a Phase,
DoubleClick will deliver it to MediaPlex. MediaPlex will accept or reject the
deliverable within fourteen (14) days after delivery; and failure to give notice
of acceptance or rejection within that period or first commercial use
(regardless of notice of rejection) will constitute acceptance. MediaPlex may
reject the deliverable only if the deliverable fails in a material respect to
meet the mutually agreed specifications for that deliverable. A rejection
notice will be effective only if it provides a detailed description of any such
failures in a manner sufficient to allow DoubleClick to reproduce them. If a
deliverable is accepted, DoubleClick will be conclusively presumed to have met
its obligations with respect thereto. If MediaPlex properly rejects a
deliverable, DoubleClick will use diligent efforts to promptly correct the
failures properly specified in the rejection notice. When it believes that it
has made the necessary corrections, DoubleClick will again deliver the
deliverable to MediaPlex and the acceptance/rejection/correction provisions
above shall be reapplied until the deliverable is accepted. MediaPlex may not
reject a resubmitted Deliverable for a failure that was present and reasonably
discoverable in a previously submitted version of the deliverable. If MediaPlex
identifies a failure with a deliverable and DoubleClick shows that the failure
was caused by something other than the deliverable, MediaPlex will pay
DoubleClick for any related work to that time at the DoubleClick's standard time
and materials rates. Any deadlines for completing a Phase or a deliverable
shall be extended day for day by the period of any delay caused by MediaPlex.
Completion of Phase II of the Development Services shall be subject to
completion of Phase I of the Development Services.
SECTION 5
FEES
5.1 Payments. During the Term of this Agreement, MediaPlex shall pay to
--------
DoubleClick (i) a fee for all Advertising delivered by DoubleClick on behalf of
MediaPlex or MediaPlex Clients, (ii) the agreed upon fees for the Development
Services, (iii) fees for time and expenses for any further customization of the
Private Label DART Service that the parties may agree, (iv) fees for training
over and above the free training services, and (v) outsource trafficking fees,
if trafficking services are requested by MediaPlex.
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CONFIDENTIAL TREATMENT REQUESTED
5.2 Advertising Fee. MediaPlex shall pay a fee for all Advertising that
---------------
is delivered by DoubleClick during the Term on behalf of MediaPlex Clients. For
all Advertising delivered by servers located in the U.S., the fee shall be as
follows:
(a) Banner and Badge delivery fee of [*] CPM for the first one
billion Impressions per month.
(b) Banner and Badge re-direct fee of [*] CPM.
(c) Banner and Badge delivery fee of [*] CPM for Impressions in
excess of one billion per month.
(d) Hard Code and Text Link tracking fee of [*] CPM clicks.
(e) 1x1 Pixel serving fee is [*] CPM (provided that there shall be [*]
charge for 1x1 Pixel serving provided as part of another DoubleClick product,
such as Boomerang).
(f) [*]. Within thirty (30) days after the end of each calendar
---
quarter of the Term, DoubleClick shall make a determination and deliver to
MediaPlex such information as to whether, based on [*] served for MediaPlex by
DoubleClick during such quarter MediaPlex is one of DoubleClick's [*] during the
same calendar quarter [*]. Within this thirty (30) day period, DoubleClick shall
send to MediaPlex a detailed written notice of this determination, including the
volume of advertising by MediaPlex in that quarter.
Should the [*] be met for any calendar quarter, MediaPlex shall be
entitled to [*] (as defined below) for the succeeding calendar quarter. [*]
shall mean [*] provided, however, that (i) MediaPlex is only entitled to such
[*] to the extent this Agreement contains, or is amended to contain,
substantially similar terms and conditions with respect to term, termination,
indemnification, and representations and warranties as DoubleClick's agreement
with such top DART Service Client, and (ii) in the event that during any
quarter in which MediaPlex is entitled to [*], DoubleClick ceases to extend
any element of the [*] to such top DART Service Client for any reason, then
that element of [*] shall equal the most recent [*] in effect for MediaPlex
(the "Last MediaPlex [*]") before such DART Service Client lost its [*] and
the Last MediaPlex [*] shall continue for those quarters in which MediaPlex is
entitled to [*]. If, however, the [*] Trigger is not met in any calendar
quarter, MediaPlex shall pay the fees set forth in Section 5.2(a)-(e) of this
Agreement for the succeeding calendar quarter. During each quarter, the
pricing in effect during the prior quarter shall continue
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
12
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
to apply until it is determined, as set forth hereinabove, whether MediaPlex is
entitled to [*] for that quarter and MediaPlex then elects whether or not to
receive such [*] or receive the pricing set forth in Section 5.2(a)-(e). In
connection with the [*], DoubleClick hereby represents to MediaPlex that as of
the date of this Agreement, this Agreement contains substantially similar terms
and conditions with respect to term, termination, indemnification, and
representation and warranties as DoubleClick agreement with its top DART Service
Client as of the date of this Agreement.
If for any quarter after the first twelve (12) months of this
Agreement, MediaPlex does not meet the [*], [*] is no longer in effect because
the DART Service Client lost its [*] status with DoubleClick, DoubleClick no
longer offers [*] to a DART Service Client, or MediaPlex has elected (per its
right under the preceding paragraph) to receive the pricing set forth in Section
5.2(a)-(e) rather than the [*], then MediaPlex, regardless of whether it has
made such an election, shall be entitled to terminate this Agreement without
further obligation or penalty on written notice to DoubleClick at any time on or
prior to sixty (60) days after DoubleClick's notice to MediaPlex of such failure
to meet the [*].
5.3 Development Services Fees.
-------------------------
(a) MediaPlex shall pay the Development Services fees for Phase I,
which shall be:
1. Fees for the Development Services described in Section 4.1(a)
are at no charge.
2. Fees for the Fees for the Development Services described in
Section 4.1(b) are to be mutually agreed.
(b) MediaPlex shall pay the Development Services fees for Phase II,
which shall be:
1. One time fee of [*] due upon the Effective Date, for the
Development Services described in Sections 4.2 (a) through (e)
above. This fee, and all other Development Service fees for all
Phases, are fully creditable against future Advertising fees
due under Section 5.1 above if MediaPlex serves [*] Impressions
through the Private Label DART Service within [*] months
following the full availability of the Private Label DART
Service.
2. Further fees to be mutually agreed for the Development Services
described in Sections 4.2 (f) and (g) above.
(c) MediaPlex shall pay the Development Service fees for Phase III
which are to be mutually agreed.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
13
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
5.4 Data Fees: (a) One daily FTP transfer during off peak hours will be
---------
at no charge. For other FTP transfers (unless the failure to transfer during
off-peak hours was the fault of DoubleClick) a charge shall be mutually agreed.
(b) MediaPlex shall pay a fee of [*] per month for storage of the ten days
worth of data, pursuant to the terms of Section 4.2(e) above.
5.5 Further Customization of Private Label DART Service Fees. Any
--------------------------------------------------------
customization or modification of the Private Label DART Service that is over and
above the Development Services set forth in Article 4 shall be charged on a time
and materials basis at DoubleClick's customary rates.
5.6 Trafficking Outsourcing Fees. In the event that MediaPlex elects for
----------------------------
DoubleClick to provide trafficking services, the monthly charge shall be [*]
per month.
5.7 Payment Terms. Unless otherwise specified, the fees due hereunder
-------------
from MediaPlex shall be payable within [*] days following receipt of an
invoice from DoubleClick. The fees shall be denominated in U.S. dollars and
paid by wire transfer to an account to be designated by DoubleClick, or by
other means expressly agreed to in writing by DoubleClick. MediaPlex shall
also be responsible for and shall pay any applicable sales, use or other taxes
or duties, tariffs or the like applicable to provision of the Private Label
DART Service (except for taxes on DoubleClick's income). Late payments will be
subject to late fees at the rate of one and one half percent (1.5%) per month,
or, if lower, the maximum rate allowed by law. In addition, MediaPlex agrees
to pay any attorneys' fees and/or collection costs incurred by DoubleClick in
collecting any past due amounts from MediaPlex.
SECTION 6
PROPRIETARY RIGHTS AND RESTRICTIONS
6.1 Private Label DART Service. DoubleClick is the exclusive supplier of
--------------------------
the Private Label DART Service and the exclusive owner of all right, title and
interest in and to the System, all software and other aspects and technologies
related to the System and Private Label DART Service, including any developments
or enhancements made pursuant to this Agreement or otherwise (provided that
developments or enhancements that constitute MOJO Technology or enhancements
thereto shall be owned by MediaPlex) and any materials provided to MediaPlex by
DoubleClick through the System or otherwise. MediaPlex may not use the System
except pursuant to the limited rights expressly granted in this Agreement, and
DoubleClick reserves all rights not expressly granted in this Agreement.
MediaPlex shall use the System only in accordance with reference manuals to be
supplied by DoubleClick and only in accordance with DoubleClick's standard
security procedures, as posted on the DoubleClick Web site or otherwise notified
to MediaPlex.
6.2 MOJO Technology. MediaPlex is the exclusive supplier of the MOJO
---------------
Technology and the exclusive owner of all right, title and interest in and to
all software and other aspects and technologies related to the MOJO Technology,
including any developments or enhancements made pursuant to this Agreement or
otherwise and any materials provided to DoubleClick by MediaPlex through the
MOJO Technology or otherwise. DoubleClick may not
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
14
<PAGE>
use the MOJO Technology except pursuant to the limited rights expressly granted
in this Agreement, and MediaPlex reserves all rights not expressly granted in
this Agreement.
6.3 Data. MediaPlex shall have the sole and exclusive right to use all
----
data derived from MediaPlex's use of the Private Label DART Service, for any
purpose related to MediaPlex's business and the MediaPlex Clients' respective
business; provided that DoubleClick may use and disclose the Visitors' data
(other than personally-identifiable information) derived from MediaPlex's and
MediaPlex Clients' use of the Private Label DART Service (i) for DoubleClick's
reporting purposes, consisting of compilation of aggregated statistics about the
DART service (e.g., the aggregate number of Advertisements delivered) that may
be provided to customers, potential customer and the general public; (ii) if
required by court order, law or governmental agency; and (iii) to the extent
necessary to integrate operation and management of the Private Label DART
Service provided to MediaPlex within the operation and management of the DART
service by DoubleClick for all its customers.
SECTION 7
TERM AND TERMINATION
7.1 Term. Unless terminated earlier in accordance with the termination
----
rights set forth in this Agreement, the term of this Agreement shall be for an
initial period of five (5) years from the Effective Date ("Initial Term"),
renewable at MediaPlex's option for an additional (five (5) year term ("Renewal
Term") by giving DoubleClick notice of its intent to renew at least twelve (12)
months prior to the expiration of the then current term (the Initial Term and
any Renewal Term, together, the "Term").
7.2 Termination by MediaPlex. MediaPlex shall have the right to terminate
------------------------
this Agreement under the following circumstances:
(a) A material breach of a material provision of this Agreement by
DoubleClick that is not cured within thirty (30) days following delivery of a
written notice thereof to DoubleClick; or
(b) DoubleClick is adjudged insolvent or bankrupt; or a proceeding is
instituted by DoubleClick seeking relief, reorganization or arrangement under
any laws relating to insolvency; or a proceeding is instituted against
DoubleClick seeking relief, reorganization or arrangement under any laws
relating to insolvency that is not dismissed within sixty (60) days; or
DoubleClick makes a general assignment for the benefit of its creditors; or upon
the appointment of a receiver, liquidator, or trustee of any of DoubleClick's
property or assets, or upon liquidation, dissolution or winding up of
DoubleClick's businesses.
(c) In the event of a termination by MediaPlex, DoubleClick shall, at
MediaPlex's request, cooperate to transition MediaPlex's ad serving as set forth
in Section 7.3(e) below.
(d) As otherwise provided in Section 5.2 hereof.
15
<PAGE>
7.3 Termination by DoubleClick. Subject to Section 7.3(e), DoubleClick
--------------------------
shall have the right to terminate this Agreement only in the following
circumstances:
(a) MediaPlex has used, or has permitted a third party to use, the
Private Label DART Service or System, in a manner prohibited by this Agreement;
(b) A material breach of a material provision of this Agreement by
MediaPlex that is not cured within thirty (30) days following delivery of a
written notice thereof by MediaPlex;
(c) MediaPlex has failed to pay, within thirty (30) days following
receipt of a reminder notice from DoubleClick, an invoice that is more than
sixty (60) days past due; or
(d) MediaPlex is adjudged insolvent or bankrupt; or a proceeding is
instituted by MediaPlex seeking relief, reorganization or arrangement under any
laws relating to insolvency; or a proceeding is instituted against MediaPlex
seeking relief, reorganization or arrangement under any laws relating to
insolvency that is not dismissed within sixty (60) days; or MediaPlex makes a
general assignment for the benefit of its creditors; or upon the appointment of
a receiver, liquidator, or trustee of any of MediaPlex's property or assets, or
upon liquidation, dissolution or winding up of DoubleClick's businesses.
(e) Any termination by DoubleClick shall be effective only six (6)
months after the written notice period required in the applicable subsection
===
above, and during such notice period the parties shall cooperate diligently and
in all reasonable ways to effect an orderly transition of MediaPlex's ad serving
to MediaPlex and/or third parties designated by MediaPlex. This shall include,
without limitation, removal of MediaPlex media from DoubleClick servers, and
transfer to MediaPlex of a copy of all data, regarding all MediaPlex Clients, in
the DART database. If an orderly such transition is not fully accomplished
within such notice period, DoubleClick will continue to provide to MediaPlex the
Private Label Dart Service, and associated services, until the complete
transition is effect for the fee applicable immediately prior to the
termination. All activities contemplated by this Section 7.3(e) shall be billed
by DoubleClick at its then current rates plus any out-of-pocket costs or
expenses.
7.4 Effect of Expiration or Termination. In the event that this Agreement
-----------------------------------
expires or is terminated, except as set forth in Section 7.3(e), MediaPlex and
MediaPlex Clients shall immediately cease using the Private Label DART Service
and the System, and DoubleClick shall immediately cease serving Advertising
through the Private Label DART Service as set forth in this Agreement, and
DoubleClick shall immediately cease using, and shall return to MediaPlex, any
MOJO Technology then in its possession. The following provisions of this
Agreement, any rights to payment and any causes of action arising in relation to
this Agreement prior to its expiration or earlier termination, shall survive
such expiration or earlier termination: Sections 6, 8, 9, 10, 11 and 12.
16
<PAGE>
SECTION 8
REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties of MediaPlex. MediaPlex represents and
-------------------------------------------
warrants at all times that MediaPlex (i) owns or has sufficient license rights
to the MOJO Technology and such other technology required to use the MOJO
Technology in relation to the Media Serving Services and the Private Label DART
Service, (ii) will not use the System or the Media Serving Services or Private
Label DART Service in a way or for any purpose where such use causes
infringement or misappropriation any third party's intellectual property rights
or personal rights, (iii) shall not provide to MediaPlex Clients or other third
parties any unauthorized representations or warranties regarding the Media
Serving Services or the Private Label DART Service, (iv) shall disclose
MediaPlex's data collection activities on its Web site in a privacy statement
that substantially includes the substance of the form of the Privacy Statement
attached hereto as Exhibit A, (v) shall use reasonable efforts to ensure that
MediaPlex Clients disclose their data collection activities on their Web sites
in substantially the form of the Privacy Statement attached as Exhibit A, and
(vi) has all necessary rights and permissions to provide the Advertiser's data
and the Advertising to DoubleClick.
8.2 Representations and Warranties of DoubleClick. DoubleClick represents
---------------------------------------------
and warrants that (i) it owns the DART Private Label DART Service and the
System, (ii) the System was developed by DoubleClick without infringement or
misappropriation of any third party's copyrights or trade secrets, (iii) there
are no known disputes regarding the DART technology, and (iv) it is in the
process of assessing the Year 2000 compliance of the DART Service, and that it
will take steps to ensure that the Private Label DART Service is Year 2000
compliant by December 31, 1999.
8.3 Representations and Warranties of Both Parties. Each party represents
----------------------------------------------
and warrants to the other that (i) it has the right and authority to enter into
this Agreement, to grant the rights herein granted and fully to perform its
obligations hereunder; (ii) it shall materially comply with all applicable laws,
statutes, ordinances, rules and regulations with respect to its performance of
this Agreement, (iii) no authorization or approval from any third party is or
will be required in connection with such party's execution, delivery or
performance of this Agreement, (iv) the execution and performance of this
Agreement does not violate or conflict with the terms or conditions of any other
agreement to which it is a party or by which it is bound and (v) this Agreement
has been duly executed and delivered and constitutes a valid and binding
agreement enforceable against such party in accordance with its terms
SECTION 9
DISCLAIMERS AND LIMITATIONS ON LIABILITY
9.1 Warranty Disclaimers.
--------------------
(a) DoubleClick Disclaimer. EXCEPT AS SET FORTH IN THIS AGREEMENT,
----------------------
DOUBLECLICK MAKES NO WARRANTIES OF ANY KIND TO ANY PERSON WITH RESPECT TO THE
SERVICES, THE SYSTEM, ANY ADVERTISING OR ANY DATA SUPPLIED, WHETHER EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED
17
<PAGE>
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
NONINFRINGEMENT.
(b) MediaPlex Disclaimer. EXCEPT AS SET FORTH IN THIS AGREEMENT,
--------------------
MEDIAPLEX MAKES NO WARRANTIES OF ANY KIND TO ANY PERSON WITH RESPECT TO THE MOJO
TECHNOLOGY, ANY ADVERTISING OR ANY DATA SUPPLIED, WHETHER EXPRESS OR IMPLIED,
INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR NONINFRINGEMENT.
9.2 Limitation and Exclusion of Liability. Neither party shall be liable
-------------------------------------
to the other party, any Advertisers Advertising Agency or any other third party
for any loss, cost, damage or expense incurred in connection with the
unavailability or inoperability of the System, the Private Label DART Service or
the Internet, technical malfunction, computer error or loss or corruption of
data, or other injury, damage or disruption of any kind related thereto. Except
for a breach of Section 11, in no event shall either party be liable for any
indirect, incidental, consequential, special or exemplary damages, including,
but not limited to, loss of profits, or loss of business opportunity, even if
such damages are foreseeable and whether or not the other party has been advised
of the possibility thereof. Except in relation to a claim against a party based
on its breach of its representations and warranties in this Agreement as to
infringement and misappropriation of third party copyrights, patents, trademarks
or trade secrets, each party's maximum aggregate liability shall not exceed the
total amount paid by MediaPlex to DoubleClick under this Agreement during the
twelve (12) month period prior to the first date the liability arose. For all
MediaPlex's agreements with Target Sites and in MediaPlex Client Agreements,
MediaPlex shall use commercially reasonable efforts to include a provision that
will state that DoubleClick is a third party beneficiary of any disclaimers and
limitations or exclusions of liability that MediaPlex agrees with the Target
Site proprietor or the MediaPlex Client. The limitations of this section,
however, shall not apply to breaches of Section 11 or infringement of the other
party's intellectual property rights.
SECTION 10
INDEMNITIES
10.1 MediaPlex's Indemnities. MediaPlex agrees to indemnify and hold
-----------------------
DoubleClick and its Affiliates, officers, directors, employees and agents (each
a "DoubleClick Indemnitee") harmless from and against any and all claims,
actions, losses, damages, liability, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements incurred by a
DoubleClick Indemnitee in any action between MediaPlex and the DoubleClick
Indemnitee, or between the DoubleClick Indemnitee and any third party or
otherwise) arising out of or in connection with any claim or action caused by
any breach of any of MediaPlex's representations and warranties set forth in
this Agreement. DoubleClick shall promptly notify MediaPlex of all claims and
proceedings related thereto of which DoubleClick becomes aware.
10.2 DoubleClick's Indemnities. DoubleClick agrees to indemnify and hold
-------------------------
MediaPlex and its Affiliates, officers, directors, employees and agents (each a
"MediaPlex
18
<PAGE>
Indemnitee") harmless from and against any and all claims, actions, losses,
damages, liability, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements incurred by a MediaPlex Indemnitee
in any action between DoubleClick and the MediaPlex Indemnitee, or between the
MediaPlex Indemnitee and any third party or otherwise) arising out of or in
connection with any claim or action caused by any breach of DoubleClick's
representations and warranties set forth in this Agreement. MediaPlex shall
promptly notify DoubleClick of all claims and proceedings related thereto of
which MediaPlex becomes aware.
10.3 Procedure. The Indemnitee ("Indemnitee") that intends to claim
---------
indemnification under this Agreement shall promptly notify the other party (the
``Indemnitor'') of any claim, demand, action or other proceeding for which the
Indemnitee intends to claim such indemnification, and the Indemnitor shall have
the right to participate in, and, to the extent the Indemnitor so desires, to
assume sole control of the defense thereof with counsel selected by the
Indemnitor; provided, however, that the Indemnitee shall have the absolute right
to retain its own counsel, with the fees and expenses to be paid by the
Indemnitee if the Indemnitor assumes control of the defense. The indemnity
obligations under this Agreement shall not apply to amounts paid in settlement
of any loss, claim, damage, liability or action if such settlement is effected
without the consent of the Indemnitor, which consent shall not be unreasonably
withheld or delayed. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to
Indemnitor's ability to defend such action, shall relieve the Indemnitor of any
liability to the Indemnitee under this Section 10. The Indemnitee, its
employees, agents, officers, directors and partners shall cooperate fully with
the Indemnitor and its legal representatives in the investigation of any action,
claim or liability covered by an indemnification from the Indemnitor.
SECTION 11
CONFIDENTIALITY
The terms of this Agreement and information and data that one party (the
"Receiving Party") has received or will receive from the other party (the
"Disclosing Party") about the Private Label DART Service, the System, the MOJO
Technology, and other matters are proprietary and confidential information
("Confidential Information"), including without limitation any information
that is marked as "confidential" or should be reasonably understood to be
confidential or proprietary to the Disclosing Party and any reference manuals
compiled or provided hereunder. The Receiving Party agrees that the Receiving
Party will not disclose the Confidential Information to any third party, nor use
the Confidential Information for any purpose not permitted under this Agreement.
The nondisclosure obligations set forth in this Section shall not apply to
information that the Receiving Party can document is generally available to the
public (other than through breach of this Agreement), or was already lawfully in
the Receiving Party's possession, without being subject to a confidentiality
obligation to the Disclosing Party or a third party, at the time of receipt of
the information from the Disclosing Party, or was obtained by the Receiving
Party from a third party, without confidentiality obligation, and without breach
by the third party of any confidentiality or other obligation owed to the
Disclosing Party or a third party, or was independently developed by the
Receiving Party without use or reference to the Disclosing Party's Confidential
Information. The parties acknowledge
19
<PAGE>
that, due to the disclosure of MOJO Technology to DoubleClick, any development
by DoubleClick of similar technology may benefit from such disclosure.
Accordingly, DoubleClick agrees that, until six (6) months after termination or
expiration of this Agreement, DoubleClick will not in good faith use information
regarding MOJO Technology gained pursuant to this Agreement to develop, or have
developed, any technology that is similar to, or is deployed in a manner that is
competitive with, any MOJO Technology. Nothing in the preceding sentence shall
relieve DoubleClick of its obligations pursuant to this Section 11 during or
after this six (6) month period.
SECTION 12
MISCELLANEOUS
12.1 Publicity. None of the parties hereto shall issue a press release or
---------
public announcement or otherwise make any disclosure concerning this Agreement
or the terms hereof, without prior approval by the other party hereto (which
approval shall not be unreasonably withheld); provided, however, that (i) within
-------- -------
14 days after the Effective Date, the parties shall issue a joint press release
in the form attached hereto as Exhibit C, and (ii) nothing in this Agreement
shall restrict any party from disclosing information (including any Confidential
Information subject to Section 11 (a) that is already publicly available, except
as a result of a breach of this provision by the disclosing party, (b) that is
required to be disclosed by law, provided that if such disclosing party is
required to file a copy of this Agreement with a governmental authority, such
party shall seek confidential treatment to the extent reasonably available, (c)
to its attorneys accountant, consultants and other advisers. Prior to issuing
any press release, public announcement or disclosure, the disclosing party will
deliver a draft of such press release, public announcement or disclosure to the
other party and shall give such party a reasonable opportunity to comment
thereon.
12.2 Notices. All notices, demands and other communications provided for
-------
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
If to DoubleClick, to:
DoubleClick Inc.
41 Madison Avenue
New York, NY 10010
Attention: Chief Executive Officer
Telecopier No.: (212) 889-0029
With a copy to:
DoubleClick Inc.
41 Madison Avenue
New York, NY 10010
Attention: General Counsel
Telecopier No.: (212) 497-4397
20
<PAGE>
If to MediaPlex. to:
MediaPlex, Inc.
131 Steuart Street, Fourth Floor
San Francisco, CA 94105-1230
Attention: Chief Executive Officer
Telecopier No.: (415) 808-1901
With a copy to:
MediaPlex, Inc.
131 Steuart Street, Fourth Floor
San Francisco, CA 94105-1230
Attention: General Counsel
Telecopier No.: (415) 808-1901
or to such other address or attention of such other Person as such party shall
advise the other party in writing. All such notices and communications shall be
deemed to have been duly given when delivered by hand, if personally delivered;
when delivered by courier, if delivered by commercial courier service; five (5)
business days after being deposited in the mail, postage prepared, if mailed;
and when receipt is mechanically acknowledged, if telecopied.
12.3 Dispute Resolution. The parties shall attempt to settle any claim or
------------------
controversy arising out of this Agreement through consultation and negotiation
in good faith and spirit of mutual cooperation. In the event that any dispute
arises between the parties in connection with any subject matter of this
Agreement, the dispute will be referred to a senior-level manager of each party
involved in the day-to-day performance of this Agreement, who shall promptly
meet and endeavor to resolve the dispute in a timely manner. In the event such
individuals are unable to resolve such dispute within ten (10) days from the
commencement of the dispute, the matter shall be referred to the Chief Executive
Officer ("CEO") of each party, who shall promptly meet and endeavor to resolve
the dispute. In the event that the respective CEOs of the parties are unable to
resolve such dispute within ten (10) days, the dispute shall be deemed an
unresolved dispute and either party may commence litigation in a court having
proper jurisdiction to resolve such dispute.
12.4 Independent Contractor Status. Each party shall be and act as an
-----------------------------
independent contractor and not as partner, joint venturer or agent of the other.
12.5 Entire Agreement; Modifications and Waivers. This Agreement
-------------------------------------------
(including the Exhibits hereto) represents the entire understanding between
DoubleClick and MediaPlex and supersedes all prior agreements relating to the
subject matter of this Agreement. No failure or delay on the part of either
party in exercising any right, power or remedy under this Agreement shall
operate as a waiver, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise or the exercise of any
other right, power or remedy. Unless otherwise specified, any amendment,
supplement or modification of or to any provision of this Agreement, any waiver
of any provision of this Agreement and any consent to
21
<PAGE>
any departure by the parties from the terms of this Agreement, shall be
effective only if it is made or given in writing and signed by both parties.
12.6 Assignment. This Agreement and the rights hereunder are not
----------
transferable or assignable without prior written consent of the non-assigning
party, it being understood that the acquisition of all or substantially all of a
party's assets or more than forty percent (40%) of a party's stock shall be
deemed a transfer and assignment for these purposes. Notwithstanding the
foregoing, this Agreement may be assigned by DoubleClick (a) to a person or
entity who acquires substantially all of DoubleClick's assets, stock or business
by sale, merger or otherwise and (b) to an Affiliate of DoubleClick.
Notwithstanding the foregoing, this Agreement may be assigned by MediaPlex to an
Affiliate or successor of MediaPlex.
12.7 Applicable Law. This Agreement shall be governed by the law of New
--------------
York, without reference to its conflict of laws rules or principles, and the
United States. The jurisdiction and venue for all disputes hereunder shall be
New York City.
12.8 Validity. Any provision of this Agreement which is prohibited or
--------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the minimum extent necessary without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provisions in any other jurisdiction.
12.9 Force Majeure. No failure or omission by either party in the
-------------
performance of any obligation under this Agreement shall be deemed a breach of
this Agreement nor create any liability if the same shall arise from any cause
or causes beyond the reasonable control of such party, including but not limited
to the following: acts of God, acts or omissions of any government or any rules,
regulations or orders of any governmental authority or any officer, department,
agency or instrument thereof; fire, storm, flood, earthquake, accident, acts of
the public enemy, war, rebellion, Internet brown out, insurrection, riot,
invasion, strikes, or lockouts
12.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
dates provided below.
DOUBLECLICK INC. MEDIAPLEX, INC.
By: /s/ Kevin O'Connor By: /s/ Gregory R. Raifman
---------------------------------- ----------------------------------
Kevin O'Connor Gregory R. Raifman
Chairman & Chief Executive Officer Chairman & Chief Executive Officer
By: /s/ Martin Wesley By: /s/ Walter Haefeker
---------------------------------- ----------------------------------
Martin Wesley Walter Haefeker
Director of Business Development Chief Operating Officer
Closed-Loop Marketing
23
<PAGE>
EXHIBIT A
Privacy Statement
-----------------
Concept to be included in MediaPlex's Privacy Statement
- -------------------------------------------------------
MediaPlex agrees to include in a privacy statement on its Web site a disclosure
that states that data about users who visit such site may be collected as a
result of the user's use of the Web site and such data may be used by MediaPlex
or MediaPlex's third party service providers for advertising and marketing
purposes on MediaPlex's Web site, as well as other Web sites. MediaPlex also
agrees to provide a link to "opt-out" procedures at DoubleClick's site if such
users do not want DoubleClick to use such data.
Concept to be included in MediaPlex's Advertiser/Agency's Privacy Statement
- ---------------------------------------------------------------------------
Advertiser/Agency agrees to include in a privacy statement on its Web site a
disclosure that states that data about users who visit such site may be
collected as a result of the user's use of the Web site and such data may be
used by Advertiser/Agency or Advertiser/Agency's third party service providers
for advertising and marketing purposes on Advertiser/Agency's Web site, as well
as other Web sites. Advertiser/Agency also agrees to provide a link to "opt-
out" procedures at DoubleClick's site if such users do not want DoubleClick to
use such data.
<PAGE>
Exhibit 10.19
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made as of October 18, 1999,
by and between 188 EMBARCADERO ASSOCIATES, L.P., a California limited
partnership ("Landlord"), and MEDIAPLEX, a Delaware corporation ("Tenant").
Recitals
--------
A. Landlord and Tenant entered into a Lease Agreement dated September 8,
1999 (the "Existing Lease") by which Landlord leased to Tenant and Tenant leased
from Landlord Suite 600 (the "Existing Premises") containing approximately
10,557 square feet of rentable area on the 6th floor of the building known as
Bayside Plaza located at 188 Embarcadero, San Francisco, California (the
"Building").
B. As of the date of this Amendment, the Commencement Date of the Lease
has not been established.
C. Landlord and Tenant desire to amend the Lease to (i) provide for Tenant
to lease Suite 200 (the "Additional Space") containing approximately 11,094
square feet of rentable area on the 2nd floor of the Building; and (ii) make
certain other changes in the Lease, all upon and subject to the terms and
conditions set forth in this Amendment. The approximate configuration and
location of the Additional Space is shown on Exhibit A.
---------
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
agreements of the parties herein, Landlord and Tenant agree as follows:
1. Capitalized Terms. Capitalized terms not otherwise defined in this
-----------------
Amendment shall have the meaning given them in the Existing Lease.
2. Definition of Lease. The Existing Lease, as further amended by this
-------------------
Amendment, is herein called the "Lease."
3. Leasing of Additional Space. Landlord leases to Tenant and Tenant leases
---------------------------
from Landlord the Additional Space for a term commencing (the "Additional
Space Commencement Date") fourteen (14) days after the date Landlord
delivers possession of the Additional Space to Tenant, and unless sooner
terminated, expiring on the Expiration Date (as extended herein); provided,
however, in no event shall the Additional Space Commencement Date be
earlier than December 1, 1999. When the Additional Space Commencement Date
has been established, Landlord and Tenant shall at the request of either
party confirm the Additional Space Commencement Date and Expiration Date in
writing.
4. Expiration Date. The Term of the Lease is hereby extended to expire on the
---------------
last day of the sixtieth (60th) full calendar month following the
Additional Space Commencement Date (the new "Expiration Date").
1
<PAGE>
5. Existing Tenant. Tenant acknowledges and agrees that the Additional Space
---------------
is leased and occupied by an existing tenant (the "Existing Tenant") in
accordance with a lease which expires December 31, 2000. Landlord agrees to
use good faith efforts to regain possession of the Additional Space from
the Existing Tenant and to deliver possession of the Additional Space to
Tenant within thirty (30) days following the date Landlord and Tenant fully
execute this Amendment. If, despite Landlords good faith efforts, Landlord
is unable to deliver possession of the Additional Space to Tenant within
thirty (30) days following the date Landlord and Tenant fully execute this
Amendment, Landlord or Tenant shall each have the right to terminate this
Amendment by providing written notice of termination to the other and this
Amendment shall be of no further force and effect upon the parties hereto.
Such right of termination shall constitute Tenant's sole remedy for
Landlord's failure to deliver possession of the Additional Space. Landlord
shall not be liable for any claims, damages or liabilities if Landlord is
unable to deliver possession of the Additional Space to within thirty (30)
days following the date Landlord and Tenant fully execute this Amendment.
In the event Landlord tenders possession of the Additional Space to Tenant,
and Tenant accepts possession thereof, following thirty (30) days after the
date Landlord and Tenant fully execute this Amendment, Tenant's right to
terminate this Amendment shall become void.
6. Premises following the Additional Space Commencement Date. Commencing on
---------------------------------------------------------
the Additional Space Commencement Date and continuing through the
Expiration Date, except as a provision herein applies only to the
Additional Space, the Additional Space shall be included in the "Premises"
for all purposes under the Lease (and the "Premises" shall consist of both
the Existing Premises and the Additional Space, totaling approximately
21,651 square feet of rentable area).
7. Base Rent for Additional Space. In addition to the Base Rent payable by
------------------------------
Tenant to Landlord for the Existing Premises, commencing on the Additional
Space Commencement Date and continuing until the Expiration Date, Tenant
shall pay the following Base Rent for the Additional Space:
<TABLE>
<CAPTION>
Months following Additional
---------------------------
Space Commencement Date: Base Rent:
------------------------ ---- ----
<S> <C>
Months 01 -- 12: $50.00 per rentable square foot per year
Months 13 -- 24: $51.00 per rentable square foot per year
Months 25 -- 36: $52.00 per rentable square foot per year
Months 37 -- 48: $53.00 per rentable square foot per year
Months 49 -- 60: $54.00 per rentable square foot per year
</TABLE>
8. Base Rent for Existing Premises. In accordance with the terms of this
-------------------------------
Amendment, the Term of the Lease has been extended for a short period of
time. The Existing Lease does not provide for Base Rent for the Existing
Premises during such short extension of the Term. Therefore, Tenant shall
pay Base Rent for the Existing Premises in accordance with the provisions
of the Existing Lease, except that beginning in the 49th full calendar
month following the Commencement Date for the Existing Premises and
continuing
2
<PAGE>
through the Expiration Date (as herein extended), Tenant shall pay Base Rent of
$51.00 per rentable square foot per year for the Existing Premises.
9. Condition of Additional Space. Tenant has inspected and examined the
-----------------------------
Additional Space and has elected to lease the Additional Space on a
strictly "AS IS" and with all faults basis, except that Landlord shall
within thirty (30) days following written notice from Tenant (a) repaint
the Additional Space with a color selected by Tenant from Building standard
paint, and (b) recarpet the Additional Space with a color selected by
Tenant from Building standard carpet. Landlord shall have no obligation to
perform any work to prepare the Additional Space for use or occupancy by
Tenant other than such (a) repainting, and (b) recarpeting contained above;
provided, however, if Tenant does not give Landlord written notice
requesting that Landlord repaint and recarpet the Additional Space, then
Landlord's obligation to repaint and recarpet the Additional Space shall
end one (1) year following the Additional Space Commencement Date. Tenant
shall be solely responsible for making any alterations or improvements to
the Additional Space required or desired by Tenant, subject to and in
accordance with the provisions of Article 6 - Alterations - of the Original
Lease, which Alterations may be made by Tenant at any time after Landlord
delivers possession of the Additional Space to Tenant, so long as the
installation of Tenant's Alterations do not interfere with Landlord's
painting and installation of carpet in the Additional Space.
10. Tenant's Share. From and after the Additional Space Commencement Date,
--------------
Tenant's Share shall be 25.34%.
11. Letter of Credit. Upon execution of this Amendment, Tenant shall deliver to
----------------
Landlord either (a) an amendment to the existing L/C increasing the Face
Amount by $100,000.00, or (b) a new L/C with a Face Amount of $100,000.00
(such amendment or new L/C being herein called the "Additional L/C"),
subject to the provisions of Section 36 of the Existing Lease, as amended
by this Paragraph 11. The Face Amount of the Additional L/C shall be
reduced to (i) $50,000.00 if and when Tenant satisfies the market valuation
provisions of Section 36 (b) of the Lease, and (ii) $25,000.00 if and when
Tenant satisfies the market valuation provisions of Section 36 (c) of the
Original Lease.
12. Parking. Effective upon the Additional Space Commencement Date, the number
-------
of parking spaces provided by Landlord to Tenant under the provisions of
Section 37 of the Original Lease is hereby increased from two (2) to four
(4) parking spaces. Two (2) of such four (4) parking spaces shall be one
(1) "tandem" parking space. Tenant shall pay Monthly Parking Rental for
each such parking space (whether or not tandem) in accordance with the
provisions of Section 37 of the Original Lease.
13. Brokers Landlord shall pay the fee or commission of CB Richard Ellis (the
-------
"Broker") in accordance with Landlord's separate written agreement with the
Broker, if any. Tenant warrants and represents to Landlord that in the
negotiating or making of this Amendment neither Tenant nor anyone acting on
Tenant's behalf has dealt with any real estate broker or finder who might
be entitled to a fee or commission for this Amendment other than the
Broker. Tenant agrees to indemnify and hold Landlord harmless from any
claim or claims, including costs, expenses and attorney's fees incurred by
Landlord, asserted by
3
<PAGE>
any other broker or finder for a fee or commission, based upon any dealings
with or statements made by Tenant or its representatives.
14. Ratification of Existing Lease. Except as expressly amended by this
------------------------------
Amendment, the Existing Lease remains in full force and effect without
modification. The Existing Lease and this Amendment are fully integrated
and each reference to any provision of the Existing Lease shall be deemed
to refer to such provision of the Existing Lease as it may be amended in
this Amendment. The Existing Lease and this Amendment constitute the entire
agreement between Landlord and Tenant regarding the subject matters
contained herein, and supersedes all prior or contemporaneous agreements,
understandings, proposals and other representations by or between Landlord
and Tenant, whether written or oral, all of which are merged herein. This
Amendment shall become effective as a binding agreement only if and when
Amendment executes this Amendment following execution by Tenant and
delivers a fully executed copy to Tenant.
15. Authority. Each of the persons executing this Amendment on behalf of Tenant
---------
warrants and represents that Tenant is a duly organized and validly
existing entity, that Tenant has full right and authority to enter into
this Amendment and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have entered into and executed this
Amendment as of date of this Amendment.
TENANT: LANDLORD:
MEDIAPLEX, 188 EMBARCADERO ASSOCIATES, L.P.,
a Delaware corporation a California limited partnership
By: /s/ Jon Edwards By: CORNERSTONE HOLDINGS, LLC,
-------------------- a Delaware limited liability company,
Name: Jon Edwards Manager
------------------
Title: President By: /s/ Steve Elliott
----------------- -------------------------
Name: Steve Elliott
-----------------------
By: /s/ Gregory R. Raifman Title: Authorized Signatory
----------------------- ----------------------
Name: Gregory R. Raifman
---------------------
Title: Chairman & CEO
--------------------
4
<PAGE>
EXHIBIT A
---------
ATTACHED TO AND FORMING A PART OF
FIRST AMENDMENT TO LEASE
DATED AS OF OCTOBER 18, 1999
BETWEEN
188 EMBARCADERO ASSOCIATES, L.P., AS LANDLORD,
AND
MEDIAPLEX, AS TENANT ("AMENDMENT")
THE ADDITIONAL SPACE
--------------------
[MAP APPEARS HERE]
INTIALS:
Landlord /SE/
______
Tenant /JE/
______
Exhibit A, Page 1
<PAGE>
LEASE AGREEMENT
between
188 EMBARCADERO ASSOCIATES, L.P.
as "Landlord"
and
MEDIAPLEX
as "Tenant"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- -----
<C> <S> <C>
1. PREMISES........................................................................... 4
2. TERM;POSSESSION.................................................................... 4
3. RENT............................................................................... 4
4. SECURITY DEPOSIT................................................................... 8
5. USE AND COMPLIANCE WITH LAWS....................................................... 9
6. TENANT IMPROVEMENTS & ALTERATIONS.................................................. 11
7. MAINTENANCE AND REPAIRS............................................................ 13
8. TENANT'S TAXES..................................................................... 14
9. UTILITIES AND SERVICES............................................................. 14
10. EXCULPATION AND INDEMNIFICATION.................................................... 16
11. INSURANCE.......................................................................... 17
12. DAMAGE OR DESTRUCTION.............................................................. 19
13. CONDEMNATION....................................................................... 20
14. ASSIGNMENT AND SUBLETTING.......................................................... 22
15. DEFAULT AND REMEDIES............................................................... 25
16. LATE CHARGE AND INTEREST........................................................... 27
17. WAIVER............................................................................. 27
18. ENTRY, INSPECTION AND CLOSURE...................................................... 27
19. SURRENDER AND HOLDING OVER......................................................... 28
20. ENCUMBRANCES....................................................................... 29
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS..................................... 30
22. NOTICES............................................................................ 30
23. ATTORNEYS' FEES.................................................................... 31
24. QUIET POSSESSION................................................................... 31
25. SECURITY MEASURES.................................................................. 31
26. FORCE MAJEURE...................................................................... 32
27. RULES AND REGULATIONS.............................................................. 32
28. LANDLORD'S LIABILITY............................................................... 32
29. CONSENTS AND APPROVALS............................................................. 32
30. WAIVER OF RIGHT TO JURY TRIAL...................................................... 34
31. BROKERS............................................................................ 35
32. RELOCATION OF PREMISES............................................................. 35
33. ENTIRE AGREEMENT................................................................... 35
34. MISCELLANEOUS...................................................................... 35
35. AUTHORITY.......................................................................... 36
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
<S> <C> <C> <C>
Additional Rent................. 7 Representatives....................... 10
Alterations..................... 12 Security Deposit...................... 8
Award........................... 21 Service Failure....................... 15
Base Operating Costs............ 5 Taxes................................. 6
Base Taxes...................... 5 Tenant................................ 4
Broker.......................... 36 Tenant Improvements................... 12
Building........................ 4 Tenant's Share........................ 7
Building Rules.................. 33 Tenant's Taxes........................ 14
Building Systems................ 9 Term.................................. 4
Business Days................... 15 Trade Fixtures........................ 13
Business Hours.................. 15 Transfer.............................. 22
Claims.......................... 17 Transferee............................ 24
Commencement Date............... 4 Visitors.............................. 10
Condemnation.................... 21
Condemnor....................... 21
Construction Rider.............. 12
Controls........................ 14
Date of Condemnation............ 21
Encumbrance..................... 30
Environmental Losses............ 10
Environmental Requirements...... 10
Event of Default................ 26
Expiration Date................. 4
Fees............................ 32
Handled by Tenant............... 10
Handling by Tenant.............. 10
Hazardous Materials............. 10
HVAC............................ 9
Interest Rate................... 28
Landlord........................ 4
Laws............................ 5
Mortgagee....................... 30
Operating Costs................. 5
Parking Facility................ 4
Permitted Hazardous Materials... 10
Permitted Transfer.............. 25
Permitted Transferee............ 25
Premises........................ 4
Project......................... 4
Property........................ 4
Property Manager................ 18
Proposed Transferee............. 23
Rent............................ 8
Rental Tax...................... 14
</TABLE>
-ii-
<PAGE>
BASIC LEASE INFORMATION
Lease Date: For identification purposes only, the date of this Lease is
September 8, 1999
Landlord: 188 EMBARCADERO ASSOCIATES, L.P., a California limited
partnership
Tenant: MEDIAPLEX, a Delaware corporation
Project: Bayside Plaza
Building Address: 188 Embarcadero
San Francisco, California 94105
Rentable Area of
Building: Approximately 85,431 square feet
Premises: Floor: Six
Suite Number: 600
Rentable Area: Approximately 10,557 rentable square feet
Term: 60 full calendar months (plus any partial month at the
beginning of the Term)
Commencement Date: Earlier of(a) November 1, 1999, (b) the date upon which
Tenant, with Landlord's written permission, actually
occupies and conducts business in any portion of the
Premises
Expiration Date: The last day of the 60th full calendar month in the Term
Base Rent: Months 01 -- 12: $47.00 per rentable square foot per year
Months 13 -- 24: $48.00 per rentable square foot per year
Months 25 -- 36: $49.00 per rentable square foot per year
Months 37 -- 48: $50.00 per rentable square foot per year
Months 49 -- 60: $51.00 per rentable square foot per year
Base Year: The calendar year 2000
Tenant's Share: 12.36%
Security Deposit: (a) Cash of $43,107.75, plus
(b) a Letter of Credit in the amount of $100,000.00,
subject to, and in accordance with, the provisions of
Section 36 of this Lease.
-1-
<PAGE>
<TABLE>
<S> <C>
Landlord's Address for Payment of Rent: 188 Embarcadero Associates, L.P.
File 73100
P.O. Box 60000
San Francisco, CA 94160-3100
Business Hours: 8:00 a.m. to 5:30 p.m. Monday through Friday (except Holidays)
Landlord's Address 188 EMBARCADERO ASSOCIATES, L.P.
for Notices: 120 Howard Street, Suite 600
San Francisco, CA 94105
Attention: Property Management
with a copy to:
188 EMBARCADERO ASSOCIATES, L.P.
2929 Campus Drive, Suite 450
San Mateo, California 94403
Attention: General Counsel
Tenant's Address for Notices: 188 Embarcadero, Suite 600
San Francisco, California 94105
Access Card Deposit: $15.00 per card
Broker(s): CB Richard Ellis, Inc.
Guarantor(s): (NONE)
Property Manager: Cornerstone Properties Limited Partnership
dba Wilson Cornerstone Properties Limited Partnership
Additional Provisions: 36. Letter of Credit
37. Parking
38. Extension Option
39. Tenant's Signage
</TABLE>
Exhibits:
- --------
Exhibit A: The Premises
Exhibit B: Construction Rider
Exhibit C: Building Rules
Exhibit D: Additional Provisions
Exhibit E: Approved Letter of Credit Form
-2-
<PAGE>
THIS LEASE is made as of the Lease Date set forth in the Basic Lease
Information, by and between the Landlord identified in the Basic Lease
Information ("Landlord"), and the Tenant identified in the Basic Lease
Information ("Tenant"). Landlord and Tenant hereby agree as follows:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, upon the terms and subject to the conditions of this Lease, the office
space identified in the Basic Lease Information as the Premises (the
"Premises"), in the Building located at the address specified in the Basic Lease
Information (the "Building"). The approximate configuration and location of the
Premises is shown on Exhibit A. Landlord and Tenant agree that the rentable area
---------
of the Premises for all purposes under this Lease shall be the Rentable Area
specified in the Basic Lease Information. The Building, together with the
parking facilities serving the Building (the "Parking Facility"), and the
parcel(s) of land on which the Building and the Parking Facility are situated
(collectively, the "Property"), is part of the Project identified in the Basic
Lease Information (the "Project").
2. TERM; POSSESSION. The term of this Lease (the "Term") shall commence on the
Commencement Date as described below and, unless sooner terminated, shall expire
on the Expiration Date set forth in the Basic Lease Information (the "Expiration
Date"). The "Commencement Date" shall be the earlier of (a) November 1, 1999, or
(b) the date upon which Tenant, with Landlord's written permission, actually
occupies and conducts business in any portion of the Premises.
Tenant understands and agrees that the Premises are currently leased by another
tenant (the "Existing Tenant") in accordance with a lease which expires January
31, 2003. Landlord agrees to use its good faith efforts to negotiate a
termination of lease with the Existing Tenant and deliver possession of the
Premises to Tenant on or before November 1, 1999. If, despite Landlord's good
faith efforts, Landlord is unable to deliver possession of the Premises to
Tenant on or before November 2, 1999, Landlord or Tenant shall each have the
right to terminate this Lease by providing written notice of termination to the
other and this Lease shall be of no further force and effect upon the parties
hereto. Such right of termination shall constitute Tenant's sole remedy for
Landlord's failure to deliver possession of the Premises. Landlord shall not be
liable for any claims, damages or liabilities if Landlord is unable to deliver
possession of the Premises to Tenant by November 2, 1999. In the event Landlord
tenders possession of the Premises to Tenant, and Tenant accepts possession
thereof, after November 2, 1999, Tenant's right to terminate this Lease shall
become void.
3. RENT.
3.1 Base Rent. Tenant agrees to pay to Landlord the Base Rent set forth in
---------
the Basic Lease Information, without prior notice or demand, on the first day of
each and every calendar month during the Term, except that Base Rent for the
first full calendar month in which Base Rent is payable shall be paid upon
Tenant's execution of this Lease and Base Rent for any partial month at the
beginning of the Term shall be paid on the Commencement Date. Base Rent for any
partial
-4-
<PAGE>
month at the beginning or end of the Term shall be prorated based on the actual
number of days in the month.
If the Basic Lease Information provides for any change in Base Rent by
reference to years or months (without specifying particular dates), the change
will take effect on the applicable annual or monthly anniversary of the
Commencement Date (which won't necessarily be the first day of a calendar
month).
3.2 Additional Rent: Increases in Operating Costs and Taxes.
-------------------------------------------------------
(a) Definitions.
-----------
(1) "Base Operating Costs" means Operating Costs for the calendar
year specified as the Base Year in the Basic Lease Information (excluding
therefrom, however, any Operating Costs of a nature that would not ordinarily be
incurred on an annual, recurring basis).
(2) "Base Taxes" means Taxes for the calendar year specified as
the Base Year in the Basic Lease Information.
(3) "Operating Costs" means all costs of managing, operating,
maintaining and repairing the Property, including all costs, expenditures, fees
and charges for: (A) operation, maintenance and repair of the Property
(including maintenance, repair and replacement of glass, the roof covering or
membrane, and landscaping); (B) utilities and services (including
telecommunications facilities and equipment, recycling programs and trash
removal), and associated supplies and materials; (C) compensation (including
employment taxes and fringe benefits) for persons who perform duties in
connection with the operation, management, maintenance and repair of the
Building, such compensation to be appropriately allocated for persons who also
perform duties unrelated to the Building; (D) property (including coverage for
earthquake and flood if carried by Landlord), liability, rental income and other
insurance relating to the Property, and expenditures for deductible amounts paid
under such insurance (not to exceed Fifty Thousand and 00/100 Dollars
[$50,000.00] in payments in any calendar year for deductible amounts under
Landlord's "all risk" or "special form" insurance policy insuring against fire
or other damage to the Building) and with expenditures for deductible amounts
paid in connection with losses caused by earthquake amortized over ten (10)
years; (E) licenses, permits and inspections; (F) complying with the
requirements of any law, statute, ordinance or governmental rule or regulation
or any orders pursuant thereto (collectively "Laws") either (i) not in effect as
of the Commencement Date or (ii) as any Laws in effect as of the Commencement
Date may be amended, changed, added to, interpreted or re-interpreted by
applicable governmental authority or court decision, or administrative ruling
subsequent to the Commencement Date; (G) amortization of capital improvements
required to comply with Laws, or which are intended to reduce Operating Costs or
improve the utility, efficiency or capacity of any Building System, with
interest on the unamortized balance at the rate paid by Landlord on funds
borrowed to finance such capital improvements (or, if Landlord finances such
improvements out of Landlord's funds without borrowing, the rate that Landlord
would have paid to borrow such funds, as reasonably determined by Landlord),
over such useful life as Landlord shall reasonably determine; (H) an office in
the Project for the management of the Property, including expenses of furnishing
and equipping such
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<PAGE>
office and the rental value of any space occupied for such purposes; (I)
property management fees; (J) accounting, legal and other professional services
incurred in connection with the operation of the Property and the calculation of
Operating Costs and Taxes; (K) a reasonable allowance for depreciation on
machinery and equipment used to maintain the Property and on other personal
property owned by Landlord in the Property (including window coverings and
carpeting in common areas); (L) contesting the validity or applicability of any
Laws that may affect the Property; (M) the Building's share of any shared or
common area maintenance fees and expenses (including costs and expenses of
operating, managing, owning and maintaining the Parking Facility and the common
areas of the Project and any fitness center or conference center in the
Project); and (N) any other cost, expenditure, fee or charge, whether or not
hereinbefore described, which in accordance with generally accepted property
management practices would be considered an expense of managing, operating,
maintaining and repairing the Property. Operating Costs for any calendar year
during which average occupancy of the Building is less than one hundred percent
(100%) shall be calculated based upon the Operating Costs that would have been
incurred if the Building had an average occupancy of one hundred percent (100%)
during the entire calendar year.
Operating Costs shall not include (i) capital improvements or capital
expenditures (except as otherwise provided above); (ii) costs of special
services rendered to individual tenants (including Tenant) for which a special
charge is made; (iii) interest and principal payments on loans or indebtedness
secured by the Building; (iv) costs of improvements for Tenant or other tenants
of the Building; (v) costs of services or other benefits of a type which are not
available to Tenant but which are available to other tenants or occupants, and
costs for which Landlord is reimbursed by other tenants of the Building other
than through payment of tenants' shares of increases in Operating Costs and
Taxes; (vi) leasing commissions, attorneys' fees and other expenses incurred in
connection with leasing space in the Building or enforcing such leases; (vii)
depreciation or amortization, other than as specifically enumerated in the
definition of Operating Costs above; (viii) costs incurred by Landlord related
to the testing for, removal, transportation or storage of Hazardous Materials to
the extent not caused by Tenant's use of the Premises or Building; (ix) the
amount paid to subsidiaries or affiliates of Landlord for cost of services,
supplies or materials for the Premises to the extent the costs of such services,
supplies or materials exceed the competitive costs of such services, supplies or
materials if they were not provided by a subsidiary or affiliate of Landlord;
and (x) costs, fines or penalties incurred due to Landlord's violation of any
Law.
(4) "Taxes" means: all real property taxes and general, special or
district assessments or other governmental impositions, of whatever kind, nature
or origin, imposed on or by reason of the ownership or use of the Property;
governmental charges, fees or assessments for transit or traffic mitigation
(including area-wide traffic improvement assessments and transportation system
management fees), housing, police, fire or other governmental service or
purported benefits to the Property; personal property taxes assessed on the
personal property of Landlord used in the operation of the Property; service
payments in lieu of taxes and taxes and assessments of every kind and nature
whatsoever levied or assessed in addition to, in lieu of or in substitution for
existing or additional real or personal property taxes on the Property or the
personal property described above; any increases in the foregoing caused by
changes in assessed valuation, tax rate or other factors or circumstances; and
the reasonable cost of contesting by appropriate proceedings the amount or
validity of any taxes, assessments or charges described above. To the
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extent paid by Tenant or other tenants as "Tenant's Taxes" (as defined in
Section 8 - Tenant's Taxes), "Tenant's Taxes" shall be excluded from Taxes.
(5) "Tenant's Share" means the Rentable Area of the Premises divided
by the total Rentable Area of the Building, as set forth in the Basic Lease
Information. If the Rentable Area of the Building is changed or the Rentable
Area of the Premises is changed by Tenant's leasing of additional space
hereunder or for any other reason, Tenant's Share shall be adjusted accordingly.
(b) Additional Rent.
---------------
(1) Tenant shall pay Landlord as "Additional Rent" for each calendar
year or portion thereof during the Term Tenant's Share of the sum of(x) the
amount (if any) by which Operating Costs for such period exceed Base Operating
Costs, and (y) the amount (if any) by which Taxes for such period exceed Base
Taxes.
(2) Prior to the end of the Base Year and each calendar year
thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating
Costs, Taxes and Tenant's Additional Rent for the following calendar year.
Commencing on the first day of January of each calendar year and continuing on
the first day of every month thereafter in such year, Tenant shall pay to
Landlord one-twelfth (1/12th) of the estimated Additional Rent. If Landlord
thereafter estimates that Operating Costs or Taxes for such year will vary from
Landlord's prior estimate, Landlord may, by notice to Tenant, revise the
estimate for such year (and Additional Rent shall thereafter be payable based on
the revised estimate).
(3) As soon as reasonably practicable after the end of the Base Year
and each calendar year thereafter, Landlord shall furnish Tenant a statement
with respect to such year, showing Operating Costs, Taxes and Additional Rent
for the year, and the total payments made by Tenant with respect thereto. Unless
Tenant raises any objections to Landlord's statement within one hundred fifty
(150) days after receipt of the same, such statement shall conclusively be
deemed correct and Tenant shall have no right thereafter to dispute such
statement or any item therein or the computation of Additional Rent based
thereon. If Tenant does object to such statement, then Landlord shall provide
Tenant with reasonable verification of the figures shown on the statement and
the parties shall negotiate in good faith to resolve any disputes. Any objection
of Tenant to Landlord's statement and resolution of any dispute shall not
postpone the time for payment of any amounts due Tenant or Landlord based on
Landlord's statement, nor shall any failure of Landlord to deliver Landlord's
statement in a timely manner relieve Tenant of Tenant's obligation to pay any
amounts due Landlord based on Landlord's statement.
(4) If Tenant's Additional Rent as finally determined for any calendar
year exceeds the total payments made by Tenant on account thereof, Tenant shall
pay Landlord the deficiency within ten (10) Business Days of Tenant's receipt of
Landlord's statement. If the total payments made by Tenant on account thereof
exceed Tenant's Additional Rent as finally determined for such year, Tenant's
excess payment shall be credited toward the rent next due from Tenant under this
Lease. For any partial calendar year at the beginning or end of the Term,
Additional Rent shall be prorated on the basis of a 365-day year by computing
Tenant's Share of
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<PAGE>
the increases in Operating Costs and Taxes for the entire year and then
prorating such amount for the number of days during such year included in the
Term. Notwithstanding the termination of this Lease, Landlord shall pay to
Tenant or Tenant shall pay to Landlord, as the case may be, within ten (10)
Business Days after Tenant's receipt of Landlord's final statement for the
calendar year in which this Lease terminates, the difference between Tenant's
Additional Rent for that year, as finally determined by Landlord, and the total
amount previously paid by Tenant on account thereof.
If for any reason Base Taxes or Taxes for any year during the Term are reduced,
refunded or otherwise changed, Tenant's Additional Rent shall be adjusted
accordingly. If Taxes are temporarily reduced as a result of space in the
Building being leased to a tenant that is entitled to an exemption from property
taxes or other taxes, then for purposes of determining Additional Rent for each
year in which Taxes are reduced by any such exemption, Taxes for such year shall
be calculated on the basis of the amount the Taxes for the year would have been
in the absence of the exemption. The obligations of Landlord to refund any
overpayment of Additional Rent and of Tenant to pay any Additional Rent not
previously paid shall survive the expiration of the Term. Notwithstanding
anything to the contrary in this Lease, if there is at any time a decrease in
Taxes below the amount of the Taxes for the Base Year, then for purposes of
calculating Additional Rent for the year in which such decrease occurs and all
subsequent periods, Base Taxes shall be reduced to equal the Taxes for the year
in which the decrease occurs.
3.3 Payment of Rent. All amounts payable or reimbursable by Tenant under
---------------
this Lease, including late charges and interest (collectively, "Rent"), shall
constitute rent and shall be payable and recoverable as rent in the manner
provided in this Lease. All sums payable to Landlord on demand under the terms
of this Lease shall be payable within ten (10) Business Days after written
notice from Landlord of the amounts due. All rent shall be paid without offset,
recoupment or deduction in lawful money of the United States of America to
Landlord at Landlord's Address for Payment of Rent as set forth in the Basic
Lease Information, or to such other person or at such other place as Landlord
may from time to time designate.
4. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with
Landlord the amount specified in the Basic Lease Information and the letter of
credit identified in Section 36 below as the Security Deposit (collectively, the
"Security Deposit", which term shall include amounts drawn on the letter of
credit), as security for the performance of Tenant's obligations under this
Lease. Landlord may (but shall have no obligation to) use the Security Deposit
or any portion thereof to cure any breach or default by Tenant under this Lease,
to fulfill any of Tenant's obligations under the Lease, or to compensate
Landlord for any damage it incurs as a result of Tenant's failure to perform any
of Tenant's obligations hereunder. In such event, Tenant shall pay to Landlord
on demand an amount sufficient to replenish the Security Deposit to the full
amount of the cash specified in the Basic Lease Information and the applicable
Face Amount (defined in Section 36 below) of the letter of credit. If at the
expiration or termination of this Lease, Tenant is not in default, has otherwise
fully performed all of Tenant's obligations under this Lease, and there are no
outstanding Claims (defined in Section 10.1 below, and including all existing
and potential Claims) for which Tenant is responsible, Landlord shall return to
Tenant the Security Deposit or the balance thereof then held by Landlord and not
applied as provided above within fifteen (15) Business Days following the
expiration or termination of this Lease. Landlord may commingle the Security
Deposit with Landlord's general and other funds. Landlord shall not be required
to pay
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interest on the Security Deposit to Tenant. Tenant acknowledges that Landlord
has agreed to accept a letter of credit in lieu of an additional cash deposit as
an accommodation to Tenant and Tenant agrees that the letter of credit and all
amounts drawn thereunder shall be treated for all purposes under this Lease as
if a cash deposit had been tendered to Landlord upon the execution of this
Lease.
5. USE AND COMPLIANCE WITH LAWS.
5.1 Use. The Premises shall be used and occupied for general business
---
office purposes and for no other use or purpose. Tenant shall comply with all
present and future Laws relating to Tenant's use or occupancy of the Premises
(and make any repairs, alterations or improvements as required to comply with
all such Laws), and shall observe the "Building Rules" (as defined in Section 27
- - Rules and Regulations), except that repairs or alterations required to comply
with Laws generally applicable to the condition of the Premises for use as
office space, and not required or caused by Tenant's particular use or
activities or by any Alterations made or proposed by Tenant, shall be made by
Landlord (and the cost thereof shall be included in or excluded from Operating
Costs as provided in Section 3.2(a)(3) above). Tenant shall not do, bring, keep
or sell anything in or about the Premises that is prohibited by, or that will
cause a cancellation of or an increase in the existing premium for, any
insurance policy covering the Property or any part thereof. Tenant shall not
permit the Premises to be occupied or used in any manner that will constitute
waste or a nuisance, or disturb the quiet enjoyment of or otherwise annoy other
tenants in the Building. Without limiting the foregoing, the Premises shall not
be used for educational activities, practice of medicine or any of the healing
arts, providing social services, for any governmental use (including embassy or
consulate use), or for personnel agency, customer service office, studios for
radio, television or other media, travel agency or reservation center operations
or uses. Tenant shall not, without the prior consent of Landlord, (i) bring into
the Building or the Premises anything that may cause substantial noise, odor or
vibration, overload the floors in the Premises or the Building or any of the
heating, ventilating and air-conditioning ("HVAC"), mechanical, elevator,
plumbing, electrical, fire protection, life safety, security or other systems in
the Building ("Building Systems"), or jeopardize the structural integrity of the
Building or any part thereof (ii) connect to the utility systems of the Building
any apparatus, machinery or other equipment other than typical office equipment;
or (iii) connect to any electrical circuit in the Premises any equipment or
other load with aggregate electrical power requirements in excess of 80% of the
rated capacity of the circuit.
5.2 Hazardous Materials.
-------------------
(a) Definitions.
-----------
(1) "Hazardous Materials" shall mean any substance: (A) that now
or in the future is regulated or governed by, requires investigation or
remediation under, or is defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto, including the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
(S)9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
-- ---
(S)6901 et seq., or (B) that is toxic, explosive, corrosive, flammable,
------
radioactive, carcinogenic, dangerous or otherwise hazardous,
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<PAGE>
(e) If any governmental authority promulgates or revises any Law or
imposes mandatory or voluntary controls or guidelines on Landlord or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "Controls"), to comply with such
Controls, whether mandatory or voluntary, or make any alterations to the
Property related thereto.
8. TENANT'S TAXES. "Tenant's Taxes" shall mean (a) all taxes, assessments,
license fees and other governmental charges or impositions levied or assessed
against or with respect to Tenant's personal property or Trade Fixtures in the
Premises, whether any such imposition is levied directly against Tenant or
levied against Landlord or the Property, (b) all rental, excise, sales or
transaction privilege taxes arising out of this Lease (excluding, however, state
and federal personal or corporate income taxes measured by the income of
Landlord from all sources) imposed by any taxing authority upon Landlord or upon
Landlord's receipt of any rent payable by Tenant pursuant to the terms of this
Lease ("Rental Tax"), and (c) any increase in Taxes attributable to inclusion of
a value placed on Tenant's personal property, Trade Fixtures or Alterations.
Tenant shall pay any Rental Tax to Landlord in addition to and at the same time
as Base Rent is payable under this Lease, and shall pay all other Tenant's Taxes
before delinquency (and, at Landlord's request, shall furnish Landlord
satisfactory evidence thereof). If Landlord pays Tenant's Taxes or any portion
thereof, Tenant shall reimburse Landlord upon demand for the amount of such
payment, together with interest at the Interest Rate from the date of Landlord's
payment to the date of Tenant's reimbursement.
9. UTILITIES AND SERVICES.
9.1 Description of Services. Landlord shall furnish to the Premises:
-----------------------
reasonable amounts of heat, ventilation and air-conditioning during the Business
Hours specified in the Basic Lease Information ("Business Hours") on weekdays
except public holidays ("Business Days"); reasonable amounts of electricity; and
janitorial services five days a week (except public holidays). Landlord shall
also provide the Building with normal fluorescent tube replacement, window
washing, elevator service, and common area toilet room supplies. Any additional
utilities or services that Landlord may agree to provide (including lamp or tube
replacement for other than Building Standard lighting fixtures) shall be at
Tenant's sole expense.
9.2 Payment for Additional Utilities and Services.
---------------------------------------------
(a) Upon request by Tenant in accordance with the procedures
established by Landlord from time to time for furnishing HVAC service at times
other than Business Hours on Business Days, Landlord shall furnish such service
to Tenant and Tenant shall pay for such services on an hourly basis at the then
prevailing rate established for the Building by Landlord; provided, however, the
rate shall be proportionately reduced to the extent other tenants in the
Building use the HVAC service during the same hours as used by Tenant.
(b) If the temperature otherwise maintained in any portion of the
Premises by the HVAC systems of the Building is affected as a result of (i) any
lights, machines or equipment used by Tenant in the Premises, or (ii) the
occupancy of the Premises by more than one person per 150 square feet of
rentable area, then Landlord shall have the right to install any machinery or
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<PAGE>
equipment reasonably necessary to restore the temperature, including
modifications to the standard air-conditioning equipment. The cost of any such
equipment and modifications, including the cost of installation and any
additional cost of operation and maintenance of the same, shall be paid by
Tenant to Landlord upon demand.
(c) If Tenant's usage of electricity, water or any other utility
service exceeds the use of such utility Landlord determines to be typical,
normal and customary for the Building, Landlord may determine the amount of such
excess use by any reasonable means (including the installation at Landlord's
request but at Tenant's expense of a separate meter or other measuring device)
and charge Tenant for the cost of such excess usage. In addition, Landlord may
impose a reasonable charge for the use of any additional or unusual janitorial
services required by Tenant because of any unusual Tenant Improvements or
Alterations, the carelessness of Tenant or the nature of Tenant's business
(including hours of operation).
9.3 Interruption of Services. In the event of an interruption in, or
------------------------
failure or inability to provide any of the services or utilities described in
Section 9.1 - "Description of Services" (a "Service Failure"), such Service
Failure shall not, regardless of its duration, constitute an eviction of Tenant,
constructive or otherwise, or impose upon Landlord any liability whatsoever,
including, but not limited to, liability for consequential damages or loss of
business by Tenant or, except as provided herein, entitle Tenant to an abatement
of rent or to terminate this Lease.
(a) If any Service Failure not caused by Tenant or its Representatives
prevents Tenant from reasonably using a material portion of the Premises and
Tenant in fact ceases to use such portion of the Premises, Tenant shall be
entitled to an abatement of Base Rent and Additional Rent with respect to the
portion of the Premises that Tenant is prevented from using by reason of such
Service Failure in the following circumstances: (i) if Landlord fails to
commence reasonable efforts to remedy the Service Failure within ten (10)
Business Days following the occurrence of the Service Failure, and such failure
has persisted and continuously prevented Tenant from using a material portion of
the Premises during that period, the abatement of rent shall commence on the
eleventh Business Day following the Service Failure and continue until Tenant is
no longer so prevented from using such portion of the Premises; and (ii) if the
Service Failure in all events is not remedied within thirty (30) days following
the occurrence of the Service Failure and Tenant in fact does not use such
portion of the Premises for an uninterrupted period of thirty (30) days or more
by reason of such Service Failure, the abatement of rent shall commence no later
than the thirty-first day following the occurrence of the Service Failure and
continue until Tenant is no longer so prevented from using such portion of the
Premises.
(b) If a Service Failure is caused by Tenant or its Representatives,
Landlord shall nonetheless remedy the Service Failure, at the expense of Tenant,
pursuant to Landlord's maintenance and repair obligations under Section 7 -
"Maintenance and Repair" or Section 12.1 - "Landlord's Duty to Repair," as the
case may be, but Tenant shall not be entitled to an abatement of rent or to
terminate this Lease as a result of any such Service Failure.
(c) Notwithstanding Tenant's entitlement to rent abatement under the
preceding provisions, Tenant shall continue to pay Tenant's then current rent
until such time as Landlord and Tenant agree on the amount of the rent
abatement. If Landlord and Tenant are unable to agree on
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the amount of such abatement within ten (10) Business Days of the date they
commence negotiations regarding the abatement, then either party may submit the
matter to binding arbitration pursuant to Sections 1280 et seq. of the
-- ---
California
Code of Civil Procedure.
(d) In addition to the foregoing provisions, if there is a Service
Failure not caused by Tenant or its Representatives and such Service Failure
prevents Tenant from conducting its business in the Premises in the manner in
which Tenant intends to conduct such business, and (i) Landlord fails to
commence reasonable efforts to remedy the Service Failure within ninety (90)
days following the occurrence of the Service Failure, or (ii) the Service
Failure in all events is not remedied within one (1) year following its
occurrence and Tenant in fact does not conduct any business in the Premises for
an uninterrupted period of one (1) year or more, Tenant shall have the right to
terminate this Lease by written notice delivered to Landlord within ten (10)
Business Days following the event described in clauses (i) or (ii) above giving
rise to the right to terminate.
(e) Where the cause of a Service Failure is within the control of a
public utility or other public or quasi-public entity outside Landlord's
control, notification to such utility or entity of the Service Failure and
request to remedy the failure shall constitute "reasonable efforts" by Landlord
to remedy the Service Failure.
(f) Tenant hereby waives the provisions of California Civil Code
Section 1932(1) or any other applicable existing or future law, ordinance or
governmental regulation permitting the termination of this Lease due to such
interruption, failure or inability.
10. EXCULPATION AND INDEMNIFICATION.
10.1 Landlord's Indemnification of Tenant. Landlord shall indemnify,
------------------------------------
protect, defend and hold Tenant harmless from and against any claims, actions,
liabilities, damages, costs or expenses, including reasonable attorneys' fees
and costs incurred in defending against the same ("Claims") asserted by any
third party against Tenant for loss, injury or damage, to the extent such loss,
injury or damage is caused by the willful misconduct or negligent acts or
omissions of Landlord or its authorized representatives.
10.2 Tenant's Indemnification of Landlord. Tenant shall indemnify,
------------------------------------
protect, defend and hold Landlord and Landlord's authorized representatives
harmless from and against Claims arising from (a) the acts or omissions of
Tenant or Tenant's Representatives or Visitors in or about the Property, or (b)
any construction or other work undertaken by Tenant on the Premises (including
any design defects), or (c) any breach or default under this Lease by Tenant, or
(d) any loss, injury or damage, howsoever and by whomsoever caused, to any
person or property, occurring in or about the Premises during the Term,
excepting only Claims described in this clause (d) to the extent they are caused
by the willful misconduct or negligent acts or omissions of Landlord or its
authorized representatives.
10.3 Damage to Tenant and Tenant's Property. Landlord shall not be liable
--------------------------------------
to Tenant for any loss, injury or other damage to Tenant or to Tenant's property
in or about the Premises or the Property from any cause (including defects in
the Property or in any equipment in the Property; fire, explosion or other
casualty; bursting, rupture, leakage or overflow of any plumbing or other
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<PAGE>
pipes or lines, sprinklers, tanks, drains, drinking fountains or washstands in,
above, or about the Premises or the Property; or acts of other tenants in the
Property). Tenant hereby waives all claims against Landlord for any such loss,
injury or damage and the cost and expense of defending against claims relating
thereto, including any loss, injury or damage caused by Landlord's negligence
(active or passive) or willful misconduct. Notwithstanding any other provision
of this Lease to the contrary, in no event shall Landlord be liable to Tenant
for any punitive or consequential damages or damages for loss of business by
Tenant.
10.4 Survival. The obligations of the parties under this Section 10 shall
--------
survive the expiration or termination of this Lease.
11. INSURANCE.
11.1 Tenant's Insurance.
------------------
(a) Liability Insurance. Tenant shall maintain in full force
-------------------
throughout the Term, commercial general liability insurance providing coverage
on an occurrence form basis with limits of not less than Two Million Dollars
($2,000,000.00) each occurrence for bodily injury and property damage combined,
Two Million Dollars ($2,000,000.00) annual general aggregate, and Two Million
Dollars ($2,000,000.00) products and completed operations annual aggregate.
Tenant's liability insurance policy or policies shall: (i) include premises and
operations liability coverage, products and completed operations liability
coverage, broad form property damage coverage including completed operations,
blanket contractual liability coverage including, to the maximum extent
possible, coverage for the indemnification obligations of Tenant under this
Lease, and personal and advertising injury coverage; (ii) provide that the
insurance company has the duty to defend all insureds under the policy; (iii)
provide that defense costs are paid in addition to and do not deplete any of the
policy limits; (iv) cover liabilities arising out of or incurred in connection
with Tenant's use or occupancy of the Premises or the Property; (v) extend
coverage to cover liability for the actions of Tenant's Representatives and
Visitors; and (vi) designate separate limits for the Property. Each policy of
liability insurance required by this Section shall: (i) contain a cross
liability endorsement or separation of insureds clause; (ii) provide that any
waiver of subrogation rights or release prior to a loss does not void coverage;
(iii) provide that it is primary to and not contributing with, any policy of
insurance carried by Landlord covering the same loss; (iv) provide that any
failure to comply with the reporting provisions shall not affect coverage
provided to Landlord, its partners, property managers and Mortgagees; and (v)
name Landlord, its partners, the Property Manager identified in the Basic Lease
Information (the "Property Manager"), and such other parties in interest as
Landlord may from time to time reasonably designate to Tenant in writing, as
additional insureds. Such additional insureds shall be provided at least the
same extent of coverage as is provided to Tenant under such policies. All
endorsements effecting such additional insured status shall be at least as broad
as additional insured endorsement form number CG 20 11 01 96 promulgated by the
Insurance Services Office.
(b) Property Insurance. Tenant shall at all times maintain in effect
------------------
with respect to any Alterations and Tenant's Trade Fixtures and personal
property, commercial property insurance providing coverage, on an "all risk" or
"special form" basis, in an amount equal to at least 90% of the full replacement
cost of the covered property. Tenant may carry such insurance under a
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blanket policy, provided that such policy provides coverage equivalent to a
separate policy. During the Term, the proceeds from any such policies of
insurance shall be used for the repair or replacement of the Alterations, Trade
Fixtures and personal property so insured. Landlord shall be provided coverage
under such insurance to the extent of its insurable interest and, if requested
by Landlord, both Landlord and Tenant shall sign all documents reasonably
necessary or proper in connection with the settlement of any claim or loss under
such insurance. Landlord will have no obligation to carry insurance on any
Alterations or on Tenant's Trade Fixtures or personal property.
(c) Requirements For All Policies. Each policy of insurance required
-----------------------------
under this Section 11.1 shall: (1) be in a form, and written by an insurer,
reasonably acceptable to Landlord, (ii) be maintained at Tenant's sole cost and
expense, and (iii) require at least thirty (30) days' written notice to Landlord
prior to any cancellation, nonrenewal or modification of insurance coverage.
Insurance companies issuing such policies shall have rating classifications of
"A" or better and financial size category ratings of "VII" or better according
to the latest edition of the A.M. Best Key Rating Guide. All insurance companies
issuing such policies shall be admitted carriers licensed to do business in the
state where the Property is located. Any deductible amount under such insurance
shall not exceed $5,000. Tenant shall provide to Landlord, upon request,
evidence that the insurance required to be carried by Tenant pursuant to this
Section, including any endorsement effecting the additional insured status, is
in full force and effect and that premiums therefor have been paid.
(d) Updating Coverage. Tenant shall increase the amounts of insurance
-----------------
as required by any Mortgagee, and, not more frequently than once every three (3)
years, as recommended by Landlord's insurance broker, if, in the opinion of
either of them, the amount of insurance then required under this Lease is not
adequate and such higher amount is standard for other first class office
buildings in San Francisco. Any limits set forth in this Lease on the amount or
type of coverage required by Tenant's insurance shall not limit the liability of
Tenant under this Lease.
(e) Certificates of Insurance. Prior to occupancy of the Premises by
-------------------------
Tenant, and not less than thirty (30) days prior to expiration of any policy
thereafter, Tenant shall furnish to Landlord a certificate of insurance
reflecting that the insurance required by this Section is in force, accompanied
by an endorsement showing the required additional insureds satisfactory to
Landlord in substance and form. Notwithstanding the requirements of this
paragraph, Tenant shall at Landlord's request provide to Landlord a certified
copy of each insurance policy required to be in force at any time pursuant to
the requirements of this Lease or its Exhibits.
11.2 Landlord's Insurance. During the Term, to the extent such coverages
--------------------
are available at a commercially reasonable cost, Landlord shall maintain in
effect insurance on the Building with responsible insurers, on an "all risk" or
"special form" basis, insuring the Building and the Tenant Improvements in an
amount equal to at least 90% of the replacement cost thereof, excluding land,
foundations, footings and underground installations. Landlord may, but shall not
be obligated to, carry insurance against additional perils and/or in greater
amounts.
11.3 Mutual Waiver of Right of Recovery & Waiver of Subrogation. Landlord
----------------------------------------------------------
and Tenant each hereby waive any right of recovery against each other and the
partners, managers,
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members, shareholders, officers, directors and authorized representatives of
each other for any loss or damage that is covered by any policy of property
insurance maintained by either party (or required by this Lease to be
maintained) with respect to the Premises or the Property or any operation
therein, regardless of cause, including negligence (active or passive) of the
party benefiting from the waiver. If any such policy of insurance relating to
this Lease or to the Premises or the Property does not permit the foregoing
waiver or if the coverage under any such policy would be invalidated as a result
of such waiver, the party maintaining such policy shall obtain from the insurer
under such policy a waiver of all right of recovery by way of subrogation
against either party in connection with any claim, loss or damage covered by
such policy.
12. DAMAGE OR DESTRUCTION.
12.1 Landlord's Duty to Repair.
-------------------------
(a) If all or a substantial part of the Premises are rendered
untenantable or inaccessible by damage to all or any part of the Property from
fire or other casualty then, unless either party is entitled to and elects to
terminate this Lease pursuant to Sections 12.2 - Landlord's Right to Terminate
and 12.3 - Tenant's Right to Terminate, Landlord shall, at its expense, use
reasonable efforts to repair and restore the Premises and/or the Property, as
the case may be, to substantially their former condition to the extent permitted
by then applicable Laws; provided, however, that in no event shall Landlord have
any obligation for repair or restoration beyond the extent of insurance proceeds
received by Landlord for such repair or restoration, or for any of Tenant's
personal property, Trade Fixtures or Alterations.
(b) If Landlord is required or elects to repair damage to the Premises
and/or the Property, this Lease shall continue in effect, but Tenant's Base Rent
and Additional Rent shall be abated with regard to any portion of the Premises
that Tenant is prevented from using by reason of such damage or its repair from
the date of the casualty until substantial completion of Landlord's repair of
the affected portion of the Premises as required under this Lease. In no event
shall Landlord be liable to Tenant by reason of any injury to or interference
with Tenant's business or property arising from fire or other casualty or by
reason of any repairs to any part of the Property necessitated by such casualty.
12.2 Landlord's Right to Terminate. Landlord may elect to terminate this
-----------------------------
Lease following damage by fire or other casualty under the following
circumstances:
(a) If, in the reasonable judgment of Landlord, the Premises and the
Property cannot be substantially repaired and restored under applicable Laws
within one (1) year from the date of the casualty;
(b) If, in the reasonable judgment of Landlord, adequate proceeds are
not, for any reason, made available to Landlord from Landlord's insurance
policies (and/or from Landlord's funds made available for such purpose, at
Landlord's sole option) to make the required repairs;
(c) If the Building is damaged or destroyed to the extent that, in the
reasonable judgment of Landlord, the cost to repair and restore the Building
would exceed twenty-five percent
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(25%) of the full replacement cost of the Building, whether or not the Premises
are at all damaged or destroyed; or
(d) If the fire or other casualty occurs during the last year of the
Term.
If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of
this Section 12.2 occur or arise, Landlord shall give Tenant notice within one
hundred and twenty (120) days after the date of the casualty, specifying whether
Landlord elects to terminate this Lease as provided above and, if not,
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease.
12.3 Tenant's Right to Terminate. If all or a substantial part of the
---------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Property from fire or other casualty, and Landlord does not elect to
terminate as provided above, then Tenant may elect to terminate this Lease if
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease is greater than one (1) year, in which event Tenant
may elect to terminate this Lease by giving Landlord notice of such election to
terminate within thirty (30) days after Landlord's notice to Tenant pursuant to
Section 12.2 - Landlord's Right to Terminate.
12.4 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Civil Code Sections 1932(2), 1933(4) and any other applicable
existing or future Law permitting the termination of a lease agreement in the
event of damage or destruction under any circumstances other than as provided in
Sections 12.2 - Landlord's Right to Terminate and 12.3 - Tenant's Right to
Terminate.
13. CONDEMNATION.
13.1 Definitions.
-----------
(a) "Award" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation.
(b) "Condemnation" shall mean (i) a permanent taking (or a temporary
taking for a period extending beyond the end of the Term) pursuant to the
exercise of the power of condemnation or eminent domain by any public or quasi-
public authority, private corporation or individual having such power
("Condemnor"), whether by legal proceedings or otherwise, or (ii) a voluntary
sale or transfer by Landlord to any such authority, either under threat of
condemnation or while legal proceedings for condemnation are pending.
(c) "Date of Condemnation" shall mean the earlier of the date that
title to the property taken is vested in the Condemnor or the date the Condemnor
has the right to possession of the property being condemned.
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13.2 Effect on Lease.
---------------
(a) If the Premises are totally taken by Condemnation, this Lease
shall terminate as of the Date of Condemnation. If a portion but not all of the
Premises is taken by Condemnation, this Lease shall remain in effect; provided,
however, that if the portion of the Premises remaining after the Condemnation
will be unsuitable for Tenant's continued use, then upon notice to Landlord
within thirty (30) days after Landlord notifies Tenant of the Condemnation,
Tenant may terminate this Lease effective as of the Date of Condemnation.
(b) If twenty-five percent (25%) or more of the Project or of the
parcel(s) of land on which the Building is situated or of the Parking Facility
or of the floor area in the Building is taken by Condemnation, or if as a result
of any Condemnation the Building is no longer reasonably suitable for use as an
office building, whether or not any portion of the Premises is taken, Landlord
may elect to terminate this Lease, effective as of the Date of Condemnation, by
notice to Tenant within thirty (30) days after the Date of Condemnation.
(c) If all or a portion of the Premises is temporarily taken by a
Condemnor for a period not extending beyond the end of the Term, this Lease
shall remain in full force and effect.
13.3 Restoration. If this Lease is not terminated as provided in Section
-----------
13.2 - Effect on Lease, Landlord, at its expense, shall diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete office building; provided, however, that
Landlord's obligations to so repair and restore shall be limited to the amount
of any Award received by Landlord and not required to be paid to any Mortgagee
(as defined in Section 20.2 below). In no event shall Landlord have any
obligation to repair or replace any improvements in the Premises beyond the
amount of any Award received by Landlord for such repair or to repair or replace
any of Tenant's personal property, Trade Fixtures, or Alterations.
13.4 Abatement and Reduction of Rent. If any portion of the Premises is
-------------------------------
taken in a Condemnation or is rendered permanently untenantable by repairs
necessitated by the Condemnation, and this Lease is not terminated, the Base
Rent and Additional Rent payable under this Lease shall be proportionally
reduced as of the Date of Condemnation based upon the percentage of rentable
square feet in the Premises so taken or rendered permanently untenantable. In
addition, if this Lease remains in effect following a Condemnation and Landlord
proceeds to repair and restore the Premises, the Base Rent and Additional Rent
payable under this Lease shall be abated during the period of such repair or
restoration to the extent such repairs prevent Tenant's use of the Premises.
13.5 Awards. Any Award made shall be paid to Landlord, and Tenant hereby
------
assigns to Landlord, and waives all interest in or claim to, any such Award,
including any claim for the value of the unexpired Term; provided, however, that
Tenant shall be entitled to receive, or to prosecute a separate claim for, an
Award for a temporary taking of the Premises or a portion thereof by a Condemnor
where this Lease is not terminated (to the extent such Award relates to the
unexpired Term), or an Award or portion thereof separately designated for
relocation expenses or the
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interruption of or damage to Tenant's business or as compensation for Tenant's
personal property, Trade Fixtures or Alterations.
13.6 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Code of Civil Procedure Section 1265.130 and any other applicable
existing or future Law allowing either party to petition for a termination of
this Lease upon a partial taking of the Premises and/or the Property.
14. ASSIGNMENT AND SUBLETTING.
14.1 Landlord's Consent Required. Tenant shall not assign this Lease or
---------------------------
any interest therein, or sublet or license or permit the use or occupancy of the
Premises or any part thereof by or for the benefit of anyone other than Tenant,
or in any other manner transfer all or any part of Tenant's interest under this
Lease (each and all a "Transfer"), without the prior written consent of
Landlord, which consent (subject to the other provisions of this Section 14)
shall not be unreasonably withheld. If Tenant is a business entity, any direct
or indirect transfer of fifty percent (50%) or more of the ownership interest
of the entity (whether in a single transaction or in the aggregate through more
than one transaction) shall be deemed a Transfer. Notwithstanding any provision
in this Lease to the contrary, Tenant shall not mortgage, pledge, hypothecate or
otherwise encumber this Lease or all or any part of Tenant's interest under this
Lease.
14.2 Reasonable Consent.
------------------
(a) Prior to any proposed Transfer, Tenant shall submit in writing to
Landlord (i) the name and legal composition of the proposed assignee, subtenant,
user or other transferee (each a "Proposed Transferee"); (ii) the nature of the
business proposed to be carried on in the Premises; (iii) a current balance
sheet, income statements for the last two years and such other reasonable
financial and other information concerning the Proposed Transferee as Landlord
may request; and (iv) a copy of the proposed assignment, sublease or other
agreement governing the proposed Transfer. Within ten (10) Business Days after
Landlord receives all such information it shall notify Tenant whether it
approves or disapproves such Transfer or if it elects to proceed under Section
14.7 - Landlord's Right to Space.
(b) Tenant acknowledges and agrees that, among other circumstances for
which Landlord could reasonably withhold consent to a proposed Transfer, it
shall be reasonable for Landlord to withhold consent where (i) the Proposed
Transferee does not intend itself to occupy the entire portion of the Premises
assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed
Transferee's business operating ability or history, reputation or
creditworthiness or the character of the business to be conducted by the
Proposed Transferee at the Premises, (iii) the Proposed Transferee is a
governmental agency or unit or an existing tenant in the Project, unless, in the
case of an existing tenant, Landlord does not have space available for lease
containing the same or more square feet as is contained in the Premises to
accommodate the existing tenant's expansion or renewal in the Project, as
identified in writing by such existing tenant, (iv) the proposed Transfer would
violate any "exclusive" rights of any tenants in the Project, (v) Landlord or
Landlord's agent has shown space in the Building to the Proposed Transferee or
submitted a written proposal in response to any inquiries from the Proposed
Transferee or the Proposed Transferee's agent
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concerning availability of space in the Building, at any time within the
preceding four months, or (vi) Landlord otherwise determines that the proposed
Transfer would have the effect of decreasing the value of the Building or
increasing the expenses associated with operating, maintaining and repairing the
Property. In no event may Tenant publicly offer or advertise all or any portion
of the Premises for assignment or sublease at a rental less than that then
sought by Landlord for a direct lease (non-sublease) of comparable space in the
Project.
14.3 Excess Consideration. If Landlord consents to the Transfer, Landlord
--------------------
shall be entitled to receive as Additional Rent hereunder, fifty percent (50%)
of all "Sublease Profits" (as defined below). "Sublease Profits" shall mean any
consideration paid by the Transferee for the assignment or sublease and, in the
case of a sublease, the excess of the rent and other consideration payable by
the subtenant over the amount of Base Rent and Additional Rent payable hereunder
applicable to the subleased space, less any and all direct, out-of-pocket
expenses and cash concessions, including costs for necessary Alterations and
brokerage commission, paid by Tenant to procure the assignee or subtenant.
Tenant shall pay to Landlord as additional rent, within ten (10) days after
receipt by Tenant, any such excess consideration paid by any transferee (the
"Transferee") for the Transfer provided any capital expenditures and brokerage
commissions in connection with any sublease shall be amortized over the term of
the sublease.
14.4 No Release Of Tenant. No consent by Landlord to any Transfer shall
--------------------
relieve Tenant of any obligation to be performed by Tenant under this Lease,
whether occurring before or after such consent, assignment, subletting or other
Transfer. Each Transferee shall be jointly and severally liable with Tenant (and
Tenant shall be jointly and severally liable with each Transferee) for the
payment of rent (or, in the case of a sublease, rent in the amount set forth in
the sublease) and for the performance of all other terms and provisions of this
Lease. The consent by Landlord to any Transfer shall not relieve Tenant or any
such Transferee from the obligation to obtain Landlord's express prior written
consent to any subsequent Transfer by Tenant or any Transferee. The acceptance
of rent by Landlord from any other person (whether or not such person is an
occupant of the Premises) shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any Transfer.
14.5 Expenses and Attorneys' Fees. Tenant shall pay to Landlord on demand
----------------------------
all reasonable costs and expenses (including reasonable attorneys' fees not to
exceed $1,500 per request for Landlord's consent to a proposed Transfer)
incurred by Landlord in connection with reviewing or consenting to any proposed
Transfer (including any request for consent to, or any waiver of Landlord's
rights in connection with, any security interest in any of Tenant's property at
the Premises).
14.6 Effectiveness of Transfer. Prior to the date on which any permitted
-------------------------
Transfer (whether or not requiring Landlord's consent) becomes effective, Tenant
shall deliver to Landlord a counterpart of the fully executed Transfer document
and Landlord's standard form of Consent to Assignment or Consent to Sublease
executed by Tenant and the Transferee in which each of Tenant and the Transferee
confirms its obligations pursuant to this Lease. Failure or refusal of a
Transferee to execute any such instrument shall not release or discharge the
Transferee from liability as provided herein. The voluntary, involuntary or
other surrender of this Lease by Tenant, or a mutual cancellation by Landlord
and Tenant, shall not work a merger, and any such surrender or
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cancellation shall, at the option of Landlord, either terminate all or any
existing subleases or operate as an assignment to Landlord of any or all of such
subleases.
14.7 Landlord's Right to Space. Notwithstanding any of the above
-------------------------
provisions of this Section to the contrary, if Tenant notifies Landlord that it
desires to enter into a Transfer, Landlord, in lieu of consenting to such
Transfer, may elect (x) in the case of an assignment or a sublease of the entire
Premises, to terminate this Lease, or (y) in the case of a sublease of less than
the entire Premises, to terminate this Lease as it relates to the space proposed
to be subleased by Tenant. In such event, this Lease will terminate (or the
space proposed to be subleased will be removed from the Premises subject to this
Lease and the Base Rent and Tenant's Share under this Lease shall be
proportionately reduced) on the earlier of sixty (60) days after the date of
Landlord's notice to Tenant making the election set forth in this Section 14.7
or the date the Transfer was proposed to be effective, and Landlord may lease
such space to any party, including the prospective Transferee identified by
Tenant.
14.8 Assignment of Sublease Rents. Tenant hereby absolutely and
----------------------------
irrevocably assigns to Landlord any and all rights to receive rent and other
consideration from any sublease and agrees that Landlord, as assignee or as
attorney-in-fact for Tenant for purposes hereof, or a receiver for Tenant
appointed on Landlord's application may (but shall not be obligated to) collect
such rents and other consideration and apply the same toward Tenant's
obligations to Landlord under this Lease; provided, however, that Landlord
grants to Tenant at all times prior to occurrence of any breach or default by
Tenant a revocable license to collect such rents (which license shall
automatically and without notice be and be deemed to have been revoked and
terminated immediately upon any Event of Default).
14.9 Permitted Transfers. Notwithstanding any provision contained in the
-------------------
Section 14 to the contrary, Tenant shall have the right, without the consent of
Landlord, upon ten (10) days prior written notice to Landlord, to engage in any
of the following transactions (each a "Permitted Transfer") and to Transfer the
Lease to any of the following entities (each, a "Permitted Transferee"): (i) a
successor corporation related to Tenant by merger, consolidation, or non-
bankruptcy-reorganization, (ii) a purchaser of at least ninety percent (90%) of
Tenant's assets as an ongoing concern, or (iii) an "Affiliate" of Tenant. The
provisions of Sections 14.2, 14.3 and 14.7 shall not apply with respect to a
Permitted Transfer, but any transfer pursuant to the provisions of this Section
14.9 shall be subject to all other terms and conditions of this Lease, including
the provisions of this Section 14.9. Tenant shall remain liable under this Lease
after any such transfer. For the purposes of this Article 14, the term
"Affiliate" of Tenant shall mean and refer to any entity controlling, controlled
by or under common control with Tenant or Tenant's parent, as the case may be.
"Control" as used herein shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
controlled entity; and the ownership, or possession of the right to vote, in the
ordinary direction of its affairs, of at least fifty percent (50%) of the voting
interest in any entity. Notwithstanding Tenant's right to make a Permitted
Transfer pursuant to the provisions of this Section 14.9, Tenant may not,
through use of its rights under this Article 14 in two or more transactions
(whether separate transactions or steps or phases of a single transaction), at
one time or over time, whether by first assigning this Lease to a subsidiary and
then merging the subsidiary into another entity or selling the stock of the
subsidiary or by other means, assign or sublease the Premises, or transfer
control of Tenant,
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within ninety (90) days of such notice; provided, however, that if Landlord in
Landlord's reasonable judgment determines that such failure cannot or will not
be cured by Tenant within such ninety (90) days, then such failure shall
constitute an Event of Default immediately upon such notice to Tenant.
15.2 Remedies. Upon the occurrence of an Event of Default, Landlord shall
--------
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:
(a) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including re-entry into the Premises, efforts to relet the Premises,
reletting of the Premises for Tenant's account, storage of Tenant's personal
property and Trade Fixtures, acceptance of keys to the Premises from Tenant or
exercise of any other rights and remedies under this Section, shall constitute
an acceptance of Tenant's surrender of the Premises or constitute a termination
of this Lease or of Tenant's right to possession of the Premises. Upon such
termination in writing of Tenant's right to possession of the Premises, as
herein provided, this Lease shall terminate and Landlord shall be entitled to
recover damages from Tenant as provided in California Civil Code Section 1951.2
and any other applicable existing or future Law providing for recovery of
damages for such breach, including the worth at the time of award of the amount
by which the rent which would be payable by Tenant hereunder for the remainder
of the Term after the date of the award of damages, including Additional Rent as
reasonably estimated by Landlord, exceeds the amount of such rental loss as
Tenant proves could have been reasonably avoided, discounted at the discount
rate published by the Federal Reserve Bank of San Francisco for member banks at
the time of the award plus one percent (1%).
(b) Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).
(c) Landlord may cure the Event of Default at Tenant's expense. If
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest at the Interest Rate from the date the sum is paid or the
expense is incurred until Landlord is reimbursed by Tenant.
(d) Landlord may remove all Tenant's property from the Premises, and
such property may be stored by Landlord in a public warehouse or elsewhere at
the sole cost and for the account of Tenant. If Landlord does not elect to store
any or all of Tenant's property left in the Premises, Landlord may consider such
property to be abandoned by Tenant, and Landlord may thereupon dispose of such
property in any manner deemed appropriate by Landlord. Any proceeds realized by
Landlord on the disposal of any such property shall be applied first to offset
all expenses of storage and sale, then credited against Tenant's outstanding
obligations to Landlord under this Lease, and any balance remaining after
satisfaction of all obligations of Tenant under this Lease shall be delivered to
Tenant.
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16. LATE CHARGE AND INTEREST.
16.1 Late Charge. If any payment of rent is not received by Landlord when
-----------
due, Tenant shall pay to Landlord on demand as a late charge ("Late Charge") an
additional amount equal to four percent (4%) of the overdue payment.
Notwithstanding the foregoing, Tenant shall not be obligated to pay a Late
Charge on the first payment of rent not received by Landlord when due in any
consecutive twelve (12) month period unless Tenant does not pay such rent within
five (5) days after written notice from Landlord (the "Past Due Notice") that
such payment of rent is past due. Tenant shall pay the Late Charge to Landlord
on demand commencing with the second (2nd) past due payment in any twelve (12)
month period, and continuing with each past due payment thereafter in such
twelve (12) month period. A Late Charge shall not be imposed more than once on
any particular installment not paid when due, but imposition of a Late Charge on
any payment not made when due does not eliminate or supersede late charges
imposed on other (prior) payments not made when due or preclude imposition of a
late charge on other installments or payments not made when due.
16.2 Interest. In addition to the late charges referred to above, which
--------
are intended to defray Landlord's costs resulting from late payments, any
payment from Tenant to Landlord not paid when due shall at Landlord's option
bear interest from the date due until paid to Landlord by Tenant at the rate of
twelve percent (12%) per annum or the maximum lawful rate that Landlord may
charge to Tenant under applicable laws, whichever is less (the "Interest Rate").
Acceptance of any late charge and/or interest shall not constitute a waiver of
Tenant's default with respect to the overdue sum or prevent Landlord from
exercising any of its other rights and remedies under this Lease.
17. WAIVER. No provisions of this Lease shall be deemed waived by Landlord
unless such waiver is in a writing signed by Landlord. The waiver by Landlord of
any breach of any provision of this Lease shall not be deemed a waiver of such
provision or of any subsequent breach of the same or any other provision of this
Lease. No delay or omission in the exercise of any right or remedy of Landlord
upon any default by Tenant shall impair such right or remedy or be construed as
a waiver. Landlord's acceptance of any payments of rent due under this Lease
shall not be deemed a waiver of any default by Tenant under this Lease
(including Tenant's recurrent failure to timely pay rent) other than Tenant's
nonpayment of the accepted sums, and no endorsement or statement on any check or
payment or in any letter or document accompanying any check or payment shall be
deemed an accord and satisfaction. Landlord's consent to or approval of any act
by Tenant requiring Landlord's consent or approval shall not be deemed to waive
or render unnecessary Landlord's consent to or approval of any subsequent act by
Tenant.
18. ENTRY, INSPECTION AND CLOSURE. Upon reasonable oral or written notice to
Tenant (and without notice in emergencies), Landlord and its authorized
representatives may enter the Premises at all reasonable times to: (a) determine
whether the Premises are in good condition, (b) determine whether Tenant is
complying with its obligations under this Lease, (c) perform any maintenance or
repair of the Premises or the Building that Landlord has the right or obligation
to perform, (d) install or repair improvements for other tenants where access to
the Premises is required for such installation or repair, (e) serve, post or
keep posted any notices required or allowed under the provisions of this Lease,
(f) show the Premises to prospective brokers, agents,
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buyers, transferees, Mortgagees or tenants, or (g) do any other act or thing
necessary for the safety or preservation of the Premises or the Building. When
reasonably necessary Landlord may temporarily close entrances, doors, corridors,
elevators or other facilities in the Building without liability to Tenant by
reason of such closure. Landlord shall conduct its activities under this Section
in a manner that will minimize inconvenience to Tenant without incurring
additional expense to Landlord. In no event shall Tenant be entitled to an
abatement of rent on account of any entry by Landlord, and Landlord shall not be
liable in any manner for any inconvenience, loss of business or other damage to
Tenant or other persons arising out of Landlord's entry on the Premises in
accordance with this Section. No action by Landlord pursuant to this paragraph
shall constitute an eviction of Tenant, constructive or otherwise, entitle
Tenant to an abatement of rent or to terminate this Lease or otherwise release
Tenant from any of Tenant's obligations under this Lease.
19. SURRENDER AND HOLDING OVER.
19.1 Surrender. Upon the expiration or termination of this Lease, Tenant
---------
shall surrender the Premises and all Tenant Improvements and Alterations to
Landlord broom-clean and in their original condition, except for reasonable wear
and tear, damage from casualty or condemnation and any changes resulting from
approved Alterations; provided, however, that prior to the expiration or
termination of this Lease Tenant shall remove all telephone and other cabling
installed in the Building by Tenant and remove from the Premises all Tenant's
personal property and any Trade Fixtures and all Alterations that Landlord has
elected to require Tenant to remove as provided in Section 6.1 - Tenant
Improvements & Alterations, and repair any damage caused by such removal. If
such removal is not completed before the expiration or termination of the Term,
Landlord shall have the right (but no obligation) to remove the same, and Tenant
shall pay Landlord on demand for all reasonable costs of removal and storage
thereof and for the rental value of the Premises for the period from the end of
the Term through the end of the time reasonably required for such removal.
Landlord shall also have the right to retain or dispose of all or any portion of
such property if Tenant does not pay all such costs and retrieve the property
within thirty (30) days after notice from Landlord (in which event title to all
such property described in Landlord's notice shall be transferred to and vest in
Landlord). Tenant waives all Claims against Landlord for any damage or loss to
Tenant resulting from Landlord's removal, storage, retention, or disposition of
any such property. Upon expiration or termination of this Lease or of Tenant's
possession, whichever is earliest, Tenant shall surrender all keys to the
Premises or any other part of the Building and shall deliver to Landlord all
keys for or make known to Landlord the combination of locks on all safes,
cabinets and vaults that may be located in the Premises. Tenant's obligations
under this Section shall survive the expiration or termination of this Lease.
19.2 Holding Over. If Tenant (directly or through any Transferee or other
------------
successor-in-interest of Tenant) remains in possession of the Premises after the
expiration or termination of this Lease, Tenant's continued possession shall be
on the basis of a tenancy at the sufferance of Landlord. No act or omission by
Landlord, other than its specific written consent, shall constitute permission
for Tenant to continue in possession of the Premises, and if such consent is
given or declared to have been given by a court judgment, Landlord may terminate
Tenant's holdover tenancy at any time upon seven (7) days written notice. In
such event, Tenant shall continue to comply with or perform all the terms and
obligations of Tenant under this Lease, except that the monthly Base Rent during
Tenant's holding over shall be one hundred seventy-five percent (175%)
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<PAGE>
of the Base Rent payable in the last full month prior to the termination hereof.
Acceptance by Landlord of rent after such termination shall not constitute a
renewal or extension of this Lease; and nothing contained in this provision
shall be deemed to waive Landlord's right of re-entry or any other right
hereunder or at law. Tenant shall indemnify, defend and hold Landlord harmless
from and against all Claims arising or resulting directly or indirectly from
Tenant's failure to timely surrender the Premises, including (i) any rent
payable by or any loss, cost, or damages claimed by any prospective tenant of
the Premises, and (ii) Landlord's damages as a result of such prospective tenant
rescinding or refusing to enter into the prospective lease of the Premises by
reason of such failure to timely surrender the Premises.
20. ENCUMBRANCES.
20.1 Subordination. This Lease is expressly made subject and subordinate
-------------
to any mortgage, deed of trust, ground lease, underlying lease or like
encumbrance affecting any part of the Property or any interest of Landlord
therein which is now existing or hereafter executed or recorded ("Encumbrance");
provided, however, that such subordination shall only be effective, as to future
Encumbrances, if the holder of the Encumbrance agrees that this Lease shall
survive the termination of the Encumbrance by lapse of time, foreclosure or
otherwise so long as Tenant is not in default under this Lease. Provided the
conditions of the preceding sentence are satisfied, Tenant shall execute and
deliver to Landlord, within ten (10) days after written request therefor by
Landlord and in a form reasonably requested by Landlord, any additional
documents evidencing the subordination of this Lease with respect to any such
Encumbrance and the nondisturbance agreement of the holder of any such
Encumbrance. If the interest of Landlord in the Property is transferred pursuant
to or in lieu of proceedings for enforcement of any Encumbrance (including,
without limitation, any judicial foreclosure or foreclosure by a power of sale
in a deed of trust), Tenant shall, at the request of the new owner,
immediately attorn to, and become the tenant of, the new owner, and this Lease
shall continue in full force and effect as a direct lease between the
transferee and Tenant on the terms and conditions set forth in this Lease and,
at such new owner's request, shall execute a new lease confirming the lease
terms of this Lease. In furtherance of the foregoing, any such successor to
the Landlord shall not be liable for any offsets, defenses, claims,
counterclaims, liabilities or obligations of the "landlord" under the Lease
accruing prior to the date that such new owner exercises its rights pursuant
to the preceding sentence. Landlord agrees to use reasonable good faith
efforts to obtain within 60 days after execution of this Lease, a
Subordination, Attornment and Non-Disturbance Agreement (the "SNDA") from the
holder of any Encumbrance existing at the date of this Lease pursuant to the
provisions contained above; provided, Landlord's failure to obtain an SNDA
shall not affect the validity of this Lease. Tenant shall be responsible for
all costs and fees charged by any holder of an Encumbrance to prepare or
negotiate an SNDA.
20.2 Mortgagee Protection. Tenant agrees to give any holder of any
--------------------
Encumbrance covering any part of the Property ("Mortgagee"), by registered mail,
a copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such Mortgagee. If Landlord
shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
to cure such default (including the time necessary to foreclose or otherwise
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<PAGE>
terminate its Encumbrance, if necessary to effect such cure), and this Lease
shall not be terminated so long as such remedies are being diligently pursued.
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.
21.1 Estoppel Certificates. Within ten (10) Business Days after written
---------------------
request therefor, Tenant shall execute and deliver to Landlord, in a form
provided by or satisfactory to Landlord, a certificate stating that this Lease
is in full force and effect, describing any amendments or modifications hereto,
acknowledging that this Lease is subordinate or prior, as the case may be, to
any Encumbrance and stating any other information Landlord may reasonably
request, including the Term, the monthly Base Rent, the date to which Rent has
been paid, the amount of any security deposit or prepaid rent, whether either
party hereto is in default under the terms of the Lease, and whether Landlord
has completed its construction obligations hereunder (if any). If Tenant fails
timely to execute and deliver such certificate as provided above, then Landlord
and the addressee of such certificate shall be entitled to rely upon the
information contained in the certificate submitted to Tenant as true, correct
and complete, and Tenant shall be estopped from later denying, contradicting or
taking any position inconsistent with the information contained in such
certificate. Any person or entity purchasing, acquiring an interest in or
extending financing with respect to the Property shall be entitled to rely upon
any such certificate. If Tenant fails to deliver such certificate within ten
(10) days after Landlord's second written request therefor, Tenant shall be
liable to Landlord for any damages incurred by Landlord including any profits or
other benefits from any financing of the Property or any interest therein which
are lost or made unavailable as a result, directly or indirectly, of Tenant's
failure or refusal to timely execute or deliver such estoppel certificate.
21.2 Financial Statements. Within twenty (20) days after written request
--------------------
therefor, but not more than once a year, Tenant shall deliver to Landlord a copy
of the financial statements (including at least a year end balance sheet and a
statement of profit and loss) of Tenant (and of each guarantor of Tenant's
obligations under this Lease) for each of the three most recently completed
years, prepared in accordance with generally accepted accounting principles
(and, if such is Tenant's normal practice, audited by an independent certified
public accountant), all then available subsequent interim statements, and such
other financial information as may reasonably be requested by Landlord or
required by any Mortgagee.
22. NOTICES. Any notice, demand, request, consent or approval that either party
desires or is required to give to the other party under this Lease shall be in
writing and shall be served personally, delivered by messenger or courier
service, or sent by U.S. certified mail, return receipt requested, postage
prepaid, addressed to the other party at the party's address for notices set
forth in the Basic Lease Information. Any notice required pursuant to any Laws
may be incorporated into, given concurrently with or given separately from any
notice required under this Lease. Notices shall be deemed to have been given and
be effective on the earlier of (a) receipt (or refusal of delivery or receipt);
or (b) one (1) day after acceptance by the independent service for delivery, if
sent by independent messenger or courier service, or three (3) days after
mailing if sent by mail in accordance with this Section. Either party may change
its address for notices hereunder, effective fifteen (15) days after notice to
the other party complying with this Section. If Tenant sublets the
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<PAGE>
Premises, notices from Landlord shall be effective on the subtenant when given
to Tenant pursuant to this Section.
23. ATTORNEYS' FEES. In the event of any dispute between Landlord and Tenant in
any way related to this Lease, and whether involving contract and/or tort
claims, the non-prevailing party shall pay to the prevailing party all
reasonable attorneys' fees and costs and expenses of any type, without
restriction by statute, court rule or otherwise, incurred by the prevailing
party in connection with any action or proceeding (including any appeal and the
enforcement of any judgment or award), whether or not the dispute is litigated
or prosecuted to final judgment (collectively, "Fees"). The "prevailing party"
shall be determined based upon an assessment of which party's major arguments or
positions taken in the action or proceeding could fairly be said to have
prevailed (whether by compromise, settlement, abandonment by the other party of
its claim or defense, final decision, after any appeals, or otherwise) over the
other party's major arguments or positions on major disputed issues. Any Fees
incurred in enforcing a judgment shall be recoverable separately from any other
amount included in the judgment and shall survive and not be merged in the
judgment. The Fees shall be deemed an "actual pecuniary loss" within the meaning
of Bankruptcy Code Section 365(b)(l)(B), and notwithstanding the foregoing, all
Fees incurred by either party in any bankruptcy case filed by or against the
other party, from and after the order for relief until this Lease is rejected or
assumed in such bankruptcy case, will be "obligations of the debtor" as that
phrase is used in Bankruptcy Code Section 365(d)(3).
24. QUIET POSSESSION. Subject to Tenant's full and timely performance of all of
Tenant's obligations under this Lease and subject to the terms of this Lease,
including Section 20 - Encumbrances, Tenant shall have the quiet possession of
the Premises throughout the Term as against any persons or entities lawfully
claiming by, through or under Landlord.
25. SECURITY MEASURES. Landlord may, but shall be under no obligation to,
implement security measures for the Property, such as the registration or search
of all persons entering or leaving the Building, requiring identification for
access to the Building, evacuation of the Building for cause, suspected cause,
or for drill purposes, the issuance of magnetic pass cards or keys for Building
or elevator access and other actions that Landlord deems necessary or
appropriate to prevent any threat of property loss or damage, bodily injury or
business interruption; provided, however, that such measures shall be
implemented in a way as not to inconvenience tenants of the Building
unreasonably. If Landlord uses an access card system, Landlord may require
Tenant to pay Landlord a deposit for each after-hours Building access card
issued to Tenant, in the amount specified in the Basic Lease Information. Tenant
shall be responsible for any loss, theft or breakage of any such cards, which
must be returned by Tenant to Landlord upon expiration or earlier termination of
the Lease. Landlord may retain the deposit for any card not so returned.
Landlord shall at all times have the right to change, alter or reduce any such
security services or measures. Tenant shall cooperate and comply with, and cause
Tenant's Representatives and Visitors to cooperate and comply with, such
security measures. Landlord, its agents and employees shall have no liability to
Tenant or its Representatives or Visitors for the implementation or exercise of,
or the failure to implement or exercise, any such security measures or for any
resulting disturbance of Tenant's use or enjoyment of the Premises.
-31-
<PAGE>
26. FORCE MAJEURE. If Landlord is delayed, interrupted or prevented from
performing any of its obligations under this Lease, including its obligations
under the Construction Rider (if any), and such delay, interruption or
prevention is due to fire, act of God, governmental act or failure to act, labor
dispute, unavailability of materials or any cause outside the reasonable control
of Landlord, then the time for performance of the affected obligations of
Landlord shall be extended for a period equivalent to the period of such delay,
interruption or prevention.
27. RULES AND REGULATIONS. Tenant shall be bound by and shall comply with the
rules and regulations attached to and made a part of this Lease as Exhibit C to
---------
the extent those rules and regulations are not in conflict with the terms of
this Lease, as well as any reasonable rules and regulations hereafter adopted by
Landlord for all tenants of the Building, upon notice to Tenant thereof
(collectively, the "Building Rules"). Landlord shall not be responsible to
Tenant or to any other person for any violation of, or failure to observe, the
Building Rules by any other tenant or other person.
28. LANDLORD'S LIABILITY. The term "Landlord," as used in this Lease, shall mean
only the owner or owners of the Building at the time in question. In the event
of any conveyance of title to the Building, then from and after the date of such
conveyance, the transferor Landlord shall be relieved of all liability with
respect to Landlord's obligations to be performed under this Lease after the
date of such conveyance. Notwithstanding any other term or provision of this
Lease, the liability of Landlord for its obligations under this Lease is limited
solely to Landlord's interest in the Building as the same may from time to time
be encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's partners
or members or its or their respective partners, shareholders, members,
directors, officers or managers on account of any of Landlord's obligations or
actions under this Lease.
29. CONSENTS AND APPROVALS.
29.1 Determination in Good Faith. Wherever the consent, approval, judgment
---------------------------
or determination of Landlord is required or permitted under this Lease, Landlord
may exercise its good faith business judgment in granting or withholding such
consent or approval or in making such judgment or determination without
reference to any extrinsic standard of reasonableness, unless the specific
provision contained in this Lease providing for such consent, approval, judgment
or determination specifies that Landlord's consent or approval is not to be
unreasonably withheld, or that such judgment or determination is to be
reasonable, or otherwise specifies the standards under which Landlord may
withhold its consent. If it is determined that Landlord failed to give its
consent where it was required to do so under this Lease (except in the case
where Tenant requests Landlord's consent to a proposed Transfer), Tenant shall
be entitled to injunctive relief but shall not to be entitled to monetary
damages or to terminate this Lease for such failure. If Tenant requests
Landlord's consent to a Transfer, Landlord withholds consent, and Tenant
believes that Landlord unreasonably withheld consent to a Transfer is in
violation of the provisions of Section 14 of this Lease, Tenant shall be
entitled to invoke the arbitration provisions of the subsection 29.2 below to
determine whether Landlord unreasonably withheld consent to a Transfer, but
Tenant shall not be entitled to monetary damages; provided, however, if (a) if
the arbitration results in a determination that Landlord unreasonably withheld
consent to a Transfer in violation of the provisions of Section 14 of this
Lease, and (b) the Proposed Transferee refuses to enter into the proposed
Transfer, then
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<PAGE>
within thirty (30) days after the ruling by the arbitrators, Tenant shall have
the right to terminate this Lease upon ten (10) days prior written notice to
Landlord.
29.2. Dispute Subject to Arbitration. If Tenant claims that Landlord
------------------------------
unreasonably withheld consent to a Transfer in violation of the provisions of
Section 14 of this Lease, and Tenant's claim is not resolved by the parties
within ten (10) days after Tenant gives written notice ("Arbitration Notice") to
Landlord of its desire to arbitrate such dispute, the dispute shall be resolved
solely by arbitration in accordance with the provisions of this Section 29.2.
Any such arbitration shall be limited exclusively to whether Landlord
unreasonably withheld consent to a Transfer. Nothing in this Section 29.2,
however, shall be construed to require Landlord to submit any other dispute to
arbitration or otherwise limit Landlord's substantive or procedural remedies
against Tenant. In no event shall any provision of this Section 29.2 in any way
limit or delay exercise of Landlord's rights to pursue an action in unlawful
detainer upon the occurrence of an Event of Default (as defined in Section 15.1
- - "Events of Default").
(a) Arbitration. Any dispute between the parties that is to be
-----------
resolved by arbitration as provided in Subsection 29.2 shall be settled and
decided by arbitration conducted by the American Arbitration Association in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, as then in effect, except as provided below. Any such arbitration
shall be held and conducted in San Francisco, California before a single
arbitrator (or three (3) arbitrators) who shall be appointed by the American
Arbitration Association; or if the American Arbitration Association does not
appoint an arbitrator within fifteen (15) days after its receipt of notice of
arbitration, then selected by Landlord and Tenant, as provided in this Section
29.2. Landlord and Tenant shall endeavor in good faith to agree upon a single
arbitrator. If Landlord and Tenant have not agreed upon a single arbitrator
within ten (10) days after the expiration of time for the American Arbitration
Association to select an arbitrator, then each party shall select one arbitrator
and give the other party written notice of such selection within twenty (20)
days after the Arbitration Notice is given. Within ten (10) days of their
selection, the two (2) arbitrators so selected shall mutually agree on the
selection of a third (3rd) arbitrator. If either party fails timely to give
written notice of its selection, the arbitrator timely selected and designated
in writing by the other party shall be the sole arbitrator.
The provisions of the Commercial Arbitration Rules of the American
Arbitration Association shall apply and govern such arbitration, subject,
however, to the following:
(a) Any demand for arbitration shall be made by giving an
Arbitration Notice and shall be made within a reasonable time after the
claim, dispute or other matter in question has arisen. In no event shall the
demand for arbitration be made after the date that institution of legal or
equitable proceedings based on such claim, dispute or other matter would be
barred by the applicable statute of limitations.
(b) Each arbitrator appointed shall be a former or retired judge or
attorney with at least seven (7) years' experience in real property and
commercial matters, or a nonattorney with like experience in the area of
dispute.
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<PAGE>
31. BROKERS. Landlord shall pay the fee or commission of the broker or brokers
identified in the Basic Lease Information (the "Broker") in accordance with
Landlord's separate written agreement with the Broker, if any. Tenant warrants
and represents to Landlord that in the negotiating or making of this Lease
neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or
finder who might be entitled to a fee or commission for this Lease other than
the Broker. Tenant shall indemnify and hold Landlord harmless from any claim or
claims, including costs, expenses and attorney's fees incurred by Landlord
asserted by any other broker or finder for a fee or commission based upon any
dealings with or statements made by Tenant or Tenant's Representatives.
32. RELOCATION OF PREMISES. [Intentionally Deleted].
33. ENTIRE AGREEMENT. This Lease, including the Exhibits and any Addenda
attached hereto, and the documents referred to herein, if any, constitute the
entire agreement between Landlord and Tenant with respect to the leasing of
space by Tenant in the Building, and supersede all prior or contemporaneous
agreements, understandings, proposals and other representations by or between
Landlord and Tenant, whether written or oral, all of which are merged herein.
Neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building, the Project or this Lease
except as expressly set forth herein, and no rights, easements or licenses shall
be acquired by Tenant by implication or otherwise unless expressly set forth
herein. The submission of this Lease for examination does not constitute an
option for the Premises and this Lease shall become effective as a binding
agreement only upon execution and delivery thereof by Landlord to Tenant.
34. MISCELLANEOUS. This Lease may not be amended or modified except by a writing
signed by Landlord and Tenant. Subject to Section 14 - Assignment and Subletting
and Section 28 - Landlord's Liability, this Lease shall be binding on and shall
inure to the benefit of the parties and their respective successors, assigns and
legal representatives. The determination that any provisions hereof may be void,
invalid, illegal or unenforceable shall not impair any other provisions hereof
and all such other provisions of this Lease shall remain in full force and
effect. The unenforceability, invalidity or illegality of any provision of this
Lease under particular circumstances shall not render unenforceable, invalid or
illegal other provisions of this Lease, or the same provisions under other
circumstances. This Lease shall be construed and interpreted in accordance with
the laws (excluding conflict of laws principles) of the State in which the
Building is located. The provisions of this Lease shall be construed in
accordance with the fair meaning of the language used and shall not be strictly
construed against either party, even if such party drafted the provision in
question. When required by the context of this Lease, the singular includes the
plural. Wherever the term "including" is used in this Lease, it shall be
interpreted as meaning "including, but not limited to" the matter or matters
thereafter enumerated. The captions contained in this Lease are for purposes of
convenience only and are not to be used to interpret or construe this Lease. If
more than one person or entity is identified as Tenant hereunder, the
obligations of each and all of them under this Lease shall be joint and several.
Time is of the essence with respect to this Lease, except as to the conditions
relating to the delivery of possession of the Premises to Tenant. Neither
Landlord nor Tenant shall record this Lease.
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<PAGE>
35. AUTHORITY. If Tenant is a corporation, partnership, limited liability
company or other form of business entity, each of the persons executing this
Lease on behalf of Tenant warrants and represents that Tenant is a duly
organized and validly existing entity, that Tenant has full right and authority
to enter into this Lease and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Lease. Tenant
shall provide Landlord upon request with evidence reasonably satisfactory to
Landlord confirming the foregoing representations.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of
the date first above written.
TENANT: LANDLORD:
MEDIAPLEX, 188 EMBARCADERO ASSOCIATES, L.P.
a Delaware corporation a California limited partnership
By: /s/ Jon Edwards By: CORNERSTONE HOLDINGS, LLC,
------------------------- a Delaware limited liability company,
Name: Jon Edwards Manager
-----------------------
Title: President
---------------------- By: /s/ Steve Elliot
-------------------------
By: /s/ Gregory R. Raifman Name: Steve Elliot
---------------------- -----------------------
Name: Gregory R. Raifman Title: Authorized Signatory
---------------------- ----------------------
Title: Chairman and CEO
----------------------
(For corporate entities, signature by TWO corporate officers is required: one by
(x) the chairman of the board, the president, or any vice president; and the
other by (y) the secretary, any assistant secretary, the chief financial
officer, or any assistant treasurer.)
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<PAGE>
EXHIBIT A
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF SEPTEMBER 8, 1999
BETWEEN
188 EMBARCADERO ASSOCIATES, L.P., AS LANDLORD,
AND
MEDIAPLEX, AS TENANT ("LEASE")
THE PREMISES
------------
[MAP APPEARS HERE]
INITIALS:
/SE/
Landlord -------
Tenant /JE/
-------
Exhibit A, Page 1
<PAGE>
EXHIBIT B
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF SEPTEMBER 8, 1999
BETWEEN
188 EMBARCADERO ASSOCIATES, L.P., AS LANDLORD,
AND
MEDIAPLEX, AS TENANT ("LEASE")
CONSTRUCTION RIDER
------------------
1. No Work to be Performed by Landlord. Tenant has inspected and examined
-----------------------------------
the Premises and has elected to lease the Premises as provided in the Lease on a
strictly "AS IS" basis. Landlord shall have no obligation to perform any work to
prepare the Premises for use or occupancy by Tenant. Tenant shall be solely
responsible for making any alterations or improvements to the Premises required
or desired by Tenant, subject to and in accordance with the provisions of
Article 6 - Alterations - of the Lease.
2. Access to Premises. If and when Landlord obtains possession of the
------------------
Premises from the Existing Tenant pursuant to the provisions of Section 2 of the
Lease, Landlord may allow Tenant and Tenant's Representatives to enter the
Premises prior to the Commencement Date to permit Tenant to make the Premises
ready for Tenant's use and occupancy; provided, however, that prior to such
entry of the Premises, Tenant shall provide evidence reasonably satisfactory to
Landlord that Tenant's insurance, as described in Section 11.1 -- Tenant's
Insurance of the Lease, shall be in effect as of the time of such entry. Such
permission may be revoked at any time upon twenty-four (24) hours' notice.
Tenant agrees that Landlord shall not be liable in any way for any injury, loss
or damage which may occur to any of Tenant's property placed upon or installed
in the Premises prior to the Commencement Date, the same being at Tenant's sole
risk, and Tenant shall be liable for all injury, loss or damage to persons or
property arising as a result of such entry into the Premises by Tenant or
Tenant's Representatives.
3. Ownership of Tenant Improvements. All Tenant Improvements, whether
--------------------------------
installed by Landlord or Tenant, shall become a part of the Premises, shall be
the property of Landlord and, subject to the provisions of the Lease, shall be
surrendered by Tenant with the Premises, without any compensation to Tenant, at
the expiration or termination of the Lease in accordance with the provisions of
the Lease.
INITIALS:
Landlord /SE/
______
Tenant /JE/
______
Exhibit B, Page 1
<PAGE>
EXHIBIT C
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF SEPTEMBER 8, 1999
BETWEEN
188 EMBARCADERO ASSOCIATES, L.P., AS LANDLORD,
AND
MEDIAPLEX, AS TENANT ("LEASE")
BUILDING RULES
--------------
The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.
1. Use of Common Areas. Tenant will not obstruct the sidewalks, halls,
-------------------
passages, exits, entrances, elevators or stairways of the Building ("Common
Areas"), and Tenant will not use the Common Areas for any purpose other than
ingress and egress to and from the Premises. The Common Areas, except for the
sidewalks, are not open to the general public and Landlord reserves the right to
control and prevent access to the Common Areas of any person whose presence, in
Landlord's opinion, would be prejudicial to the safety, reputation and interests
of the Building and its tenants.
2. No Access to Roof. Tenant has no right of access to the roof of the
-----------------
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Building, without
the prior written consent of Landlord. Any such device installed without such
written consent is subject to removal at Tenant's expense without notice at any
time. In any event Tenant will be liable for any damages or repairs incurred or
required as a result of its installation, use, repair, maintenance or removal of
such devices on the roof and agrees to indemnify and hold harmless Landlord from
any liability, loss, damage, cost or expense, including reasonable attorneys'
fees, arising from any activities of Tenant or of Tenant's Representatives on
the roof of the Building.
3. Signage. No sign, placard, picture, name, advertisement or notice
-------
visible from the exterior of the Premises will be inscribed, painted, affixed or
otherwise displayed by Tenant on or in any part of the Building without the
prior written consent of Landlord. Landlord reserves the right to adopt and
furnish Tenant with general guidelines relating to signs in or on the Building.
All approved signage will be inscribed, painted or affixed at Tenant's expense
by a person approved by Landlord, which approval will not be unreasonably
withheld.
4. Prohibited Uses. The Premises will not be used for manufacturing, for
---------------
the storage of merchandise held for sale to the general public, for lodging or
for the sale of goods to the general public. Tenant will not permit any food
preparation on the Premises except that Tenant
Exhibit C, Page 1
<PAGE>
may use Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages so long as such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations. Notwithstanding the foregoing, Tenant may use a UL approved
microwave oven in the Premises to warm foods and beverages for consumption by
Tenant's employees and clients, provided that any such use is strictly
non-commercial, is in accordance with all applicable Laws, and does not generate
any annoying noise, odors or sanitation problems.
5. Janitorial Services. Tenant will not employ any person for the purpose
-------------------
of cleaning the Premises or permit any person to enter the Building for such
purpose other than Landlord's janitorial service, except with Landlord's prior
written consent. Tenant will not necessitate, and will be liable for the cost
of, any undue amount of janitorial labor by reason of Tenant's carelessness in
or indifference to the preservation of good order and cleanliness in the
Premises. Janitorial service will not be furnished to areas in the Premises on
nights when such areas are occupied after 9:30 p.m., unless such service is
extended by written agreement to a later hour in specifically designated areas
of the Premises.
6. Keys and Locks. Landlord will furnish Tenant, free of charge, two keys
--------------
to each door or lock in the Premises. Landlord may make a reasonable charge for
any additional or replacement keys. Tenant will not duplicate any keys, alter
any locks or install any new or additional lock or bolt on any door of its
Premises or on any other part of the Building without the prior written consent
of Landlord and, in any event, Tenant will provide Landlord with a key for any
such lock. On the termination of the Lease, Tenant will deliver to Landlord all
keys to any locks or doors in the Building which have been obtained by Tenant.
7. Freight. Upon not less than twenty-four hours prior notice to Landlord,
-------
which notice may be oral, an elevator will be made available for Tenant's use
for transportation of freight, subject to such scheduling as Landlord in its
discretion deems appropriate. Tenant shall not transport freight in loads
exceeding the weight limitations of such elevator. Landlord reserves the right
to prescribe the weight, size and position of all equipment, materials,
furniture or other property brought into the Building, and no property will be
received in the Building or carried up or down the freight elevator or stairs
except during such hours and along such routes and by such persons as may be
designated by Landlord. Landlord reserves the right to require that heavy
objects will stand on wood strips of such length and thickness as is necessary
to properly distribute the weight. Landlord will not be responsible for loss of
or damage to any such property from any cause, and Tenant will be liable for all
damage or injuries caused by moving or maintaining such property.
8. Nuisances and Dangerous Substances. Tenant will not conduct itself or
----------------------------------
permit Tenant's Representatives or Visitors to conduct themselves, in the
Premises or anywhere on or in the Property in a manner which is offensive or
unduly annoying to any other Tenant or Landlord's property managers. Tenant will
not install or operate any phonograph, radio receiver, musical instrument, or
television or other similar device in any part of the Common Areas and shall not
operate any such device installed in the Premises in such manner as to disturb
or annoy other tenants of the Building. Tenant will not use or keep in the
Premises or the Property any kerosene, gasoline or other combustible fluid or
material other than limited quantities thereof
Exhibit C, Page 2
<PAGE>
reasonably necessary for the maintenance of office equipment, or, without
Landlord's prior written approval, use any method of heating or air conditioning
other than that supplied by Landlord. Tenant will not use or keep any foul or
noxious gas or substance in the Premises or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors or vibrations, or interfere
in any way with other tenants or those having business therein. Tenant will not
bring or keep any animals in or about the Premises or the Property.
9. Building Name and Address. Without Landlord's prior written consent,
-------------------------
Tenant will not use the name of the Building in connection with or in promoting
or advertising Tenant's business except as Tenant's address.
10. Building Directory. A directory for the Building will be provided for
------------------
the display of the name and location of tenants. Landlord reserves the right to
approve any additional names Tenant desires to place in the directory and, if so
approved, Landlord may assess a reasonable charge for adding such additional
names.
11. Window Coverings. No curtains, draperies, blinds, shutters, shades,
----------------
awnings, screens or other coverings, window ventilators, hangings, decorations
or similar equipment shall be attached to, hung or placed in, or used in or with
any window of the Building without the prior written consent of Landlord, and
Landlord shall have the right to control all lighting within the Premises that
may be visible from the exterior of the Building.
12. Floor Coverings. Tenant will not lay or otherwise affix linoleum,
---------------
tile, carpet or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Landlord. Tenant will be liable for the
cost of repair of any damage resulting from the violation of this rule or the
removal of any floor covering by Tenant or its contractors, employees or
invitees.
13. Wiring and Cabling Installations. Landlord will direct Tenant's
--------------------------------
electricians and other vendors as to where and how data, telephone, and
electrical wires and cables are to be installed. No boring or cutting for wires
or cables will be allowed without the prior written consent of Landlord. The
location of burglar alarms, smoke detectors, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the written
approval of Landlord.
14. Office Closing Procedures. Tenant will see that the doors of the
-------------------------
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant or its employees leave the Premises, so as
to prevent waste or damage. Tenant will be liable for all damage or injuries
sustained by other tenants or occupants of the Building or Landlord resulting
from Tenant's carelessness in this regard or violation of this rule. Tenant will
keep the doors to the Building corridors closed at all times except for ingress
and egress.
15. Plumbing Facilities. The toilet rooms, toilets, urinals, wash bowls
-------------------
and other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Tenant will be liable
Exhibit C, Page 3
<PAGE>
for any breakage, stoppage or damage resulting from the violation of this rule
by Tenant, its employees or invitees.
16. Use of Hand Trucks. Tenant will not use or permit to be used in the
------------------
Premises or in the Common Areas any hand trucks, carts or dollies except those
equipped with rubber tires and side guards or such other equipment as Landlord
may approve.
17. Refuse. Tenant shall store all Tenant's trash and garbage within the
------
Premises or in other facilities designated By Landlord for such purpose. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of removing and disposing of
trash and garbage in the city in which the Building is located without being in
violation of any law or ordinance governing such disposal. All trash and garbage
removal shall be made in accordance with directions issued from time to time by
Landlord, only through such Common Areas provided for such purposes and at such
times as Landlord may designate. Tenant shall comply with the requirements of
any recycling program adopted by Landlord for the Building.
18. Soliciting. Canvassing, peddling, soliciting and distribution of
----------
handbills or any other written materials in the Building are prohibited, and
Tenant will cooperate to prevent the same.
19. Parking. Tenant will use, and cause Tenant's Representatives and
-------
Visitors to use, any parking spaces to which Tenant is entitled under the Lease
in a manner consistent with Landlord's directional signs and markings in the
Parking Facility. Specifically, but without limitation, Tenant will not park, or
permit Tenant's Representatives or Visitors to park, in a manner that impedes
access to and from the Building or the Parking Facility or that violates space
reservations for handicapped drivers registered as such with the California
Department of Motor Vehicles. Landlord may use such reasonable means as may be
necessary to enforce the directional signs and markings in the Parking Facility,
including but not limited to towing services, and Landlord will not be liable
for any damage to vehicles towed as a result of noncompliance with such parking
regulations.
20. Fire, Security and Safety Regulations. Tenant will comply with all
-------------------------------------
safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.
21. Responsibility for Theft. Tenant assumes any and all responsibility
------------------------
for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.
22. Sales and Auctions. Tenant will not conduct or permit to be conducted
------------------
any sale by auction in, upon or from the Premises or elsewhere in the Property,
whether said auction be voluntary, involuntary, pursuant to any assignment for
the payment of creditors or pursuant to any bankruptcy or other insolvency
proceeding.
Exhibit C, Page 4
<PAGE>
23. Waiver of Rules. Landlord may waive any one or more of these Building
---------------
Rules for the benefit of any particular tenant or tenants, but no such waiver by
Landlord will be construed as a waiver of such Building Rules in favor of any
other tenant or tenants nor prevent Landlord from thereafter enforcing these
Building Rules against any or all of the tenants of the Building.
24. Effect on Lease. These Building Rules are in addition to, and shall
---------------
not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Violation of these Building
Rules constitutes a failure to fully perform the provisions of the Lease, as
referred to in Section 15.1 - "Events of Default".
25. Non-Discriminatory Enforcement. Subject to the provisions of the Lease
------------------------------
(and the provisions of other leases with respect to other tenants), Landlord
shall use reasonable efforts to enforce these Building Rules in a non-
discriminatory manner, but in no event shall Landlord have any liability for any
failure or refusal to do so (and Tenant's sole and exclusive remedy for any such
failure or refusal shall be injunctive relief preventing Landlord from enforcing
any of the Building Rules against Tenant in a manner that discriminates against
Tenant).
26. Additional and Amended Rules. Landlord reserves the right to rescind
----------------------------
or amend these Building Rules and/or adopt any other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.
INITIALS:
Landlord /SE/
____
Tenant /JE/
----
Exhibit C, Page 5
<PAGE>
EXHIBIT D
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF SEPTEMBER 8, 1999
BETWEEN
188 EMBARCADERO ASSOCIATES, L.P., AS LANDLORD,
AND
MEDIAPLEX, AS TENANT ("LEASE")
ADDITIONAL PROVISIONS RIDER
---------------------------
36. LETTER OF CREDIT.
(a) Upon execution of this Lease, Tenant shall deliver to Landlord an
unconditional, irrevocable, transferable and negotiable standby letter of credit
(the "L/C") in an amount equal to $100,000.00 ("Face Amount"), issued by a bank
or trust company ("Issuer") and in form and content acceptable to Landlord, in
its sole and absolute discretion, as additional security for the performance of
Tenant's obligations under this Lease. An L/C in the form attached hereto as
Exhibit E is hereby approved by Landlord. The L/C shall name Landlord as
- ---------
beneficiary thereunder and provide that draws, including partial draws, at
Landlord's election, will be honored upon the delivery to the Issuer of a
certificate signed by Landlord, or its authorized agent, that Tenant has failed
to perform its obligations under the Lease. The L/C shall also provide that it
will be automatically extended upon each renewal date unless the Issuer thereof
delivers to Landlord, no later than forty-five (45) days prior to the stated
expiration date of the L/C, written notice of Issuer's intent not to extend or
renew the L/C. During any period that Tenant is required to maintain the L/C,
Tenant shall, at least thirty (30) days prior to any expiration or termination
of the L/C, provide Landlord either with written confirmation that the existing
L/C will be automatically extended and renewed or with a new L/C that satisfies
all of the requirements for the L/C in this Section 36. In addition, upon a
proposed sale or other transfer of any interest in the Building, the Land, this
Lease or Landlord (including consolidations, mergers, or other entity changes),
Tenant, at its sole cost and expense and upon ten (10) Business Days' notice,
shall, concurrent with Landlord's delivery to Tenant of the then outstanding
L/C, deliver to any such transferees, successors, or assigns a replacement L/C
on identical terms (except for the stated beneficiary) from the same Issuer or
another bank or trust company acceptable to Landlord, in Landlord's sole
discretion, naming the new landlord as the beneficiary thereof Tenant's failure
to perform or observe any of the covenants set forth in this Section 36 for any
reason shall entitle Landlord to draw on the full amount of the L/C and shall
constitute an Event of Default under this Lease without the requirement of any
notice from Landlord. Any amount(s) drawn under the L/C shall be held or used by
Landlord in accordance with the terms of Section 4 of the Lease.
(b) If there has been no Event of Default under the Lease during the
eighteen (18) months preceding such request, and if Tenant has an initial public
offering of the Tenant's stock which results in a market valuation of all issued
and outstanding publicly traded common stock of
Exhibit D, Page l
<PAGE>
Tenant that exceeds One Hundred Million Dollars ($100,000,000.00) (as averaged
over any five [5] consecutive days of public trading of Tenant's common stock
following the initial public offering), then the Face Amount of the L/C shall be
reduced to $50,000.00.
(c) If, following any initial public offering of Tenant's stock on any
public stock exchange there has been no Event of Default under the Lease during
the eighteen (18) months preceding such request by Tenant, the market valuation
of all issued and outstanding publicly traded common stock of Tenant exceeds One
Hundred Million Dollars ($100,000,000.00) for each trading day during any
consecutive twelve (12) consecutive month period, then the Face Amount of the
L/C shall be reduced to $25,000.00.
37. PARKING.
(a) Tenant's Parking Rights. Landlord shall provide Tenant, at a designated
-----------------------
location, for use by Tenant, at the users' sole risk, two (2) parking spaces in
the Parking Facility. The parking spaces to be made available to Tenant
hereunder may contain a reasonable mix of spaces for compact cars and up to ten
percent (10%) of the unassigned spaces may also be designated by Landlord as
Building visitors' parking.
(b) Availability of Parking Spaces. Landlord shall take reasonable actions
--------------- --------------
to ensure the availability of the parking spaces leased by Tenant, but Landlord
does not guarantee the availability of those spaces at all times against the
actions of other tenants of the Building and users of the Parking Facility.
Access to the Parking Facility may, at Landlord's option, be regulated by card,
pass, bumper sticker, decal or other appropriate identification issued by
Landlord. Landlord retains the right to revoke the parking privileges of any
user of the Parking Facility who violates the rules and regulations governing
use of the Parking Facility (and Tenant shall be responsible for causing any
employee of Tenant or other person using parking spaces allocated to Tenant to
comply with all parking rules and regulations).
(c) Monthly Parking Rental. Tenant shall pay to Landlord, as monthly rent
----------------------
for the parking spaces leased by Tenant hereunder, a "Monthly Parking Rental"
per space, which shall be the "Prevailing Parking Rental" for such parking
spaces in effect from time to time. As of the date of this Lease the Prevailing
Parking Rental is $370.00 per parking space. The Prevailing Parking Rental shall
be determined by Landlord, based on the monthly rental charged by Landlord from
time to time for spaces in the Parking Facility, the unassigned or reserved
nature of such parking spaces, and the fair market rental charged for comparable
parking facilities in comparable buildings in the vicinity of the Property.
Tenant's Monthly Parking Rental shall be paid on the first day of each month
during the Term of this Lease; provided, however, that in the event Tenant fails
to pay Tenant's Monthly Parking Rental when due, Landlord may assess a late
charge of $40.00 on the delinquent amount, which late charge shall be in
addition to the late charge and interest that may be charged pursuant to Section
16.1 - Late Charge and Interest in the Lease, and provided further that in the
event Tenant fails to pay Tenant's Monthly Parking Rental within thirty (30)
days of Landlord's notice of such delinquency, Landlord shall have the right by
notice to Tenant permanently to terminate Tenant's rights to use parking spaces
hereunder, whether or not Landlord declares a default under the Lease.
Exhibit D, Page 2
<PAGE>
(d) Assignment and Subletting. Notwithstanding any other provision of the
-------------------------
Lease to the contrary, Tenant shall not assign its rights to the parking spaces
or any interest therein, or sublease or otherwise allow the use of all or any
part of the parking spaces to or by any other person, except with Landlord's
prior written consent, which may be granted or withheld by Landlord in its sole
discretion. In the event of any separate assignment or sublease of parking space
rights that is approved by Landlord, Landlord shall be entitled to receive, as
additional Rent hereunder, one hundred percent (100%) of any profit received by
Tenant in connection with such assignment or sublease.
(e) Condemnation, Damage or Destruction. In the event the Parking Facility
-----------------------------------
is the subject of a Condemnation, or is damaged or destroyed, and this Lease is
not terminated, and if in such event the available number of parking spaces in
the Parking Facility is permanently reduced, then Tenant's rights to use parking
spaces hereunder may, at the election of Landlord, thereafter be reduced in
proportion to the reduction of the total number of parking spaces in the Parking
Facility, and the Monthly Parking Rental payable hereunder shall be reduced
proportionately. In such event, Landlord reserves the right to reduce the number
of parking spaces to which Tenant is entitled or to relocate some or all of the
parking spaces to which Tenant is entitled to other areas in the Parking
Facility.
38. EXTENSION OPTION.
Provided that MediaPlex has not assigned this Lease or sublet any or all
of the Premises (it being intended that all rights pursuant to this provision
are and shall be personal to the original Tenant under this Lease and shall not
be transferable or exercisable for the benefit of any Transferee), and provided
Tenant is not in default under this Lease at the time of exercise or at any time
thereafter until the beginning of any such extension of the Term, Tenant shall
have the option (the "Extension Option") to extend the Term for one (1)
additional consecutive period of five (5) years ("Extension Period"), by giving
written notice to Landlord of the exercise of such Extension Option at least
nine (9) months, but not more than twelve (12) months, prior to the expiration
of the initial Term. The exercise of the Extension Option by Tenant shall be
irrevocable and shall cover the entire Premises leased by Tenant pursuant to
this Lease. Upon such exercise, the term of the Lease shall automatically be
extended for the Extension Period without the execution of any further
instrument by the parties; provided that Landlord and Tenant shall, if requested
by either party, execute and acknowledge an instrument confirming the exercise
of the Extension Option. The Extension Option shall terminate if not exercised
precisely in the manner provided herein. Any extension of the Term shall be upon
all the terms and conditions set forth in this Lease and all Exhibits thereto,
except that: (i) Tenant shall have no further option to extend the Term of the
Lease; (ii) Landlord shall not be obligated to contribute funds toward the cost
of any remodeling, renovation, alteration or improvement work in the Premises;
and (iii) Base Rent for any such Extension Period shall be the then Fair Market
Base Rental (as defined below) for the Premises for the space and term involved,
which shall be determined as set forth below.
(a) "Fair Market Base Rental" shall mean the "fair market" Base Rent
at the time or times in question for the applicable space, based on the
prevailing rentals then being charged to tenants in the Building and tenants in
other office buildings in the general vicinity of
Exhibit D, Page 3
<PAGE>
the Building of comparable size, location, quality and age as the Building for
leases with terms equal to the Extension Period, taking into account the
creditworthiness and financial strength of the tenant, the financial guaranties
provided by the tenant (if any), and the desirability, location in the building,
size and quality of the space, tenant finish allowance and/or tenant
improvements, included services, operating expenses and tax and expense stops or
other escalation clauses, for the space in the Building for which Fair Market
Base Rental is being determined and for comparable space in the buildings which
are being used for comparison. Fair Market Base Rental shall also reflect the
then prevailing rental structure for comparable office buildings in the general
vicinity of the Property, so that if, for example, at the time Fair Market Base
Rental is being determined the prevailing rental structure for comparable space
and for comparable lease terms includes periodic rental adjustments or
escalations, Fair Market Base Rental shall reflect such rental structure.
(b) Landlord and Tenant shall endeavor to agree upon the Fair Market
Base Rental. If they are unable to so agree within thirty (30) days after
receipt by Landlord of Tenant's notice of exercise of the Extension Option,
Landlord and Tenant shall mutually select a licensed real estate broker who is
active in the leasing of office space in the general vicinity of the Property.
Landlord shall submit Landlord's determination of Fair Market Base Rental and
Tenant shall submit Tenant's determination of Fair Market Base Rental to such
broker, at such time or times and in such manner as Landlord and Tenant shall
agree (or as directed by the broker if Landlord and Tenant do not promptly
agree). The broker shall select either Landlord's or Tenant's determination as
the Fair Market Base Rental, and such determination shall be binding on Landlord
and Tenant. If Tenant's determination is selected as the Fair Market Base
Rental, then Landlord shall bear all of the broker's cost and fees. If
Landlord's determination is selected as the Fair Market Base Rental, then Tenant
shall bear all of the broker's cost and fees.
(c) In the event the Fair Market Base Rental for any Extension Period
has not been determined at such time as Tenant is obligated to pay Base Rent for
such Extension Period, Tenant shall pay as Base Rent pending such determination,
the Base Rent in effect for such space immediately prior to the Extension
Period; provided, that upon the determination of the applicable Fair Market Base
Rental, any shortage of Base Rent paid, together with interest at the rate
specified in the Lease, shall be paid to Landlord by Tenant.
(d) In no event shall the Base Rent during any Extension Period be
less than the Base Rent in effect immediately prior to such Extension Period.
(e) The term of this Lease, whether consisting of the Initial Term
alone or the Initial Term as extended by any Extension Period (if any Extension
Option is exercised), is referred to in this Lease as the "Term."
39. TENANT'S SIGNAGE
Tenant may install, at Tenant's sole cost and expense, unlighted signage in
the sixth (6th) floor lobby, subject to Landlord's prior written approval of the
size, location, material, color, method of attachment to the Building, and all
other aspects of Tenant's
Exhibit D, Page 4
<PAGE>
sign, which approval shall not be unreasonably withheld so long as such signage
is consistent with the nature and quality of the other existing signage in the
Building. Throughout the Term of the Lease Tenant shall, at Tenant's sole cost
and expense, maintain such signage in a first class condition. Throughout the
Term of this Lease Tenant shall not make any change to such signage without
Landlord's prior written consent.
INITIALS
Landlord /SE/
----
Tenant /JE/
----
Exhibit D, Page 5
<PAGE>
EXHIBIT E
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF SEPTEMBER 8, 1999
BETWEEN
188 EMBARCADERO ASSOCIATES, L.P., AS LANDLORD,
AND
MEDIAPLEX, AS TENANT ("LEASE")
APPROVED LETTER OF CREDIT FORM
[Letterhead of Issuing Bank]
[must be a Bank whose location, credit and practices Landlord has approved]
RE: IRREVOCABLE COMMERCIAL LETTER OF CREDIT NO.
TO: [Name of project owner] ("Landlord"), ______________________________________
___________________ [Landlord's address]
Gentlemen:
We hereby issue our Irrevocable Commercial Letter of Credit in your favor, for
the account of _____________________________ [name of tenant and type of entity
(e.g. "ABC Corporation, a California corporation")] ("Tenant"), in the amount of
________________________________ Dollars ( $). This amount is available to you
on presentation of your sight draft drawn upon us referring to the above letter
of credit number, date and amount being drawn hereunder, accompanied by the
signed statement of you or your authorized agent, Cornerstone Properties Limited
Partnership dba Wilson Cornerstone Properties Limited Partnership, that the
amount drawn hereunder is being drawn pursuant to the terms of the
_________________ [title of lease document (e.g. Office Lease, Lease Agreement,
etc.)] dated as of________, between Tenant, as tenant, and Landlord, as
landlord, for certain premises located at ________________
____________________________________ (the "Lease").
Any draft presented for payment must be presented on or before _________________
[term should be at least one year], the date this Letter of Credit expires.
Partial drawings are permitted.
Exhibit E, Page 1
<PAGE>
If you sell or otherwise transfer any interest in the "Building" (as defined in
the Lease) [be sure to use the defined terms used in the Lease (e.g. if the
building is called the "Property" in the Lease, then use that term here)], in
the land upon which the same is located, in the Lease, or in Landlord (including
consolidations, mergers or other entity changes), you shall have the right to
transfer this Letter of Credit to your transferee(s), successors or assigns.
We hereby certify that this is an unconditional and irrevocable Letter of Credit
and agree that a draft drawn under and in compliance with the terms hereof will
be honored upon presentation at our office at _________________________________
[it must be a location easily accessible to us (e.g. no country banks located in
some tiny town in the Southeastern corner of Texas].
This Letter of Credit shall automatically be extended and renewed for successive
one year periods at the end of the stated expiration date and each anniversary
thereof unless we notify you in writing, no later than forty-five (45) days
prior to the then applicable expiration date, that we will not extend and renew
the Letter of Credit for another one year term.
Except to the extent inconsistent with the express provisions hereof, this
Letter of Credit is subject to and governed by Uniform Customs and Practice for
Documentary Credits (1993 Revision) International Chamber of Commerce
publication number 500.
[Name of Bank]
------------------------------------
Authorized Signature
INITIALS:
Landlord ^^??
_____
Tenant ^^??
_____
Exhibit E, Page 2
<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
November 18, 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
November 18, 1999
