<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 2000.
REGISTRATION NO. 333-96359
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REAL MEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7310 13-3871342
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
260 FIFTH AVENUE
NEW YORK, NY 10001
(212) 725-4537
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHRISTOPHER D. NEIMETH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
REAL MEDIA, INC.
260 FIFTH AVENUE
NEW YORK, NY 10001
(212) 725-4537
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
GIL C. TILY, ESQ. ANDREW R. KELLER, ESQ.
DECHERT PRICE & RHOADS SIMPSON THACHER & BARTLETT
4000 BELL ATLANTIC TOWER 425 LEXINGTON AVENUE
1717 ARCH STREET NEW YORK, NY 10017
PHILADELPHIA, PA 19103 (212) 455-2000
(215) 994-4000
</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, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE (2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share......... 7,100,000 shares $10.00 $78,100,000 $20,618
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(2) Includes $19,800 previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 22, 2000
7,100,000 Shares
[REALMEDIA LOGO]
REAL MEDIA, INC.
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $9.00 and $11.00 per share. We have applied to list our common stock on
the Nasdaq Stock Market's National Market and on the SWX New Market of the SWX
Swiss Exchange under the symbol "RLMD."
The underwriters have an option to purchase a maximum of 1,065,000
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS REAL MEDIA, INC.
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, .
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON BANC OF AMERICA SECURITIES LLC
LAZARD FRERES & CO. LLC
The date of this prospectus is , .
<PAGE> 3
[REALMEDIA(TM) LOGO]
A GLOBAL INTERNET ADVERTISING
NETWORK, FEATURING INTERNATIONAL
BRAND NAME WEB SITES, PROPRIETARY
TECHNOLOGY AND MEDIA AND
MARKETING SERVICES.
<PAGE> 4
AD NETWORK
We provide ad sales representation to a global network of over 1,000 web sites,
featuring brand name sites in over 30 countries. The focus of our network is to
increase advertising revenue and enhance the brand value for each web site in
the network. Advertisers purchase ad inventory on one web site or across
multiple web sites, depending upon the size and type of audience they are trying
to reach. We also offer customized opportunities that combine online and offline
advertising space. Over 900 advertisers throughout the world have used our
network, including British Telecom, Ford Motor Company, IBM, Intel, Microsoft,
Swisscom and UBS.
TECHNOLOGY [Open Adstream Logo]
Open AdStream, our proprietary ad management software, provides web sites with
the technology platform to manage all aspects of targeted ad campaigns,
including campaign planning, delivery, measurement and reporting. Open
AdStream's unique architecture enables it to maintain high performance levels
during periods of extremely high web site traffic, scaling to over 100 million
advertisements per web site, per day. Over 700 web sites worldwide use Open
AdStream to power targeted ad delivery and measure campaign performance. Our top
25 clients use Open AdStream to serve over 6 billion ads per month on their
sites.
MEDIA SERVICES
We offer a suite of media and marketing services to Web sites that include user
base analysis and profiling tools, as well as consulting and other services.
REALMEDIA(TM)
[ARTWORK]
[The New York Times on the web Logo]
[EUDORA Logo]
[Bloomberg.com Logo]
[THE WEATHER CHANNEL Logo]
[Playboy Online Logo]
North America
[Artwork]
[MAP of North America & South America]
Latin America
[INFOSEL Logo]
[EL TIEMPO Logo]
[O GLOBO Logo]
[el mercurio Logo]
[UOI Logo]
<PAGE> 5
[ARTWORK]
[excite Logo]
[The Times Logo]
[Suddeutsche Zeitung Logo]
[bonjour! Logo]
[Swiss Online Logo]
EUROPE
[ARTWORK]
[Map of Europe, Asia & Africa]
AFRICA
[Independent Online Logo]
[iafrica Logo]
[sbc Television Logo]
[Mobile Telegraph Networks Logo]
Asia/Pacific
[Scmp Logo]
[Lycos Asia Logo]
[Netvigator Logo]
<PAGE> 6
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY...................... 1
RISK FACTORS............................ 4
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS............................ 15
USE OF PROCEEDS......................... 15
DIVIDEND POLICY......................... 15
CAPITALIZATION.......................... 16
DILUTION................................ 17
SELECTED FINANCIAL INFORMATION OF REAL
MEDIA, INC. .......................... 18
SELECTED COMBINED FINANCIAL INFORMATION
OF REAL MEDIA EUROPE.................. 19
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION................. 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................ 23
BUSINESS................................ 33
MANAGEMENT.............................. 50
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RELATED PARTY TRANSACTIONS.............. 57
PRINCIPAL STOCKHOLDERS.................. 62
DESCRIPTION OF CAPITAL STOCK............ 64
SHARES ELIGIBLE FOR FUTURE SALE......... 67
PRINCIPAL TAX CONSEQUENCES TO NON-U.S.
HOLDERS............................... 69
UNDERWRITING............................ 73
NOTICE TO CANADIAN RESIDENTS............ 76
LEGAL MATTERS........................... 77
EXPERTS................................. 77
WHERE YOU CAN FIND MORE INFORMATION..... 77
TRANSFER OF SHARES ON THE SWX
SWISS EXCHANGE........................ 78
NOTICE TO HOLDERS OF SHARES TRADED ON
THE SWX NEW MARKET OF THE SWX SWISS
EXCHANGE.............................. 79
INDEX TO FINANCIAL STATEMENTS........... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
------------------
Prior to the completion of the business combination described in this
prospectus, Real Media's business was conducted by Real Media, Inc. in North
America, Latin America and Africa, and by a group of affiliated companies in
Europe. These European companies were owned by PubliGroupe S.A., one of our
principal stockholders. We refer to these European companies as "Real Media
Europe." We completed the business combination on March 15, 2000, and Real
Media, Inc. now owns 100% of the businesses of Real Media Europe, except for a
51% interest in Real Media S.A. in Switzerland that is owned by PubliGroupe.
Therefore, unless otherwise indicated, "Real Media" and "we," "us," "our," and
similar terms refer at all times to Real Media, Inc., Real Media Europe and
other recent acquisitions collectively and, subsequent to their formation or
acquisition, their subsidiaries.
------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 7
[This page intentionally left blank]
<PAGE> 8
PROSPECTUS SUMMARY
This summary is not complete and may not contain all of the information
that may be important to you. You should read the entire prospectus carefully,
including the financial information and related notes, before making an
investment decision. Except as otherwise indicated, information in this
prospectus assumes that the underwriters do not exercise their over-allotment
option and gives effect to a 3-for-2 stock split for our previously issued
shares of common stock.
REAL MEDIA
Real Media provides comprehensive Internet advertising solutions for web
sites and advertisers throughout the world. Web sites use our products and
services to increase ad sales, to improve pricing for their ad space and to
manage the targeting and delivery of advertisements to site users. We focus on
developing relationships with leading web sites worldwide whose brands are
widely recognized and trusted by Internet users. These relationships allow us to
offer advertisers opportunities to target their ads to large online audiences in
environments that are favorable to generating user interest and response.
Our complementary products and services for Internet advertising consist
of:
The Real Media Network. We provide ad sales representation services to
over 1,000 web sites in 33 countries, which we call the Real Media Network. Our
global sales forces sells the ad space of our network sites to advertisers
through a sales process that emphasizes the unique qualities of each site,
including brand and user base characteristics. During 1999, over 900 advertisers
throughout the world purchased ad space on our network, including British
Telecom, Ford Motor Company, IBM, Intel, Microsoft, Swisscom and UBS.
Open AdStream(TM). Our proprietary ad management software is used by over
700 web sites worldwide to manage the planning, delivery, measurement and
reporting of ad campaigns on their sites. Open AdStream provides web sites the
ability to target advertisements to individual site users and maintain exclusive
ownership of information collected from users as they interact with site content
and advertisements. Our top 25 web sites use Open AdStream to deliver over six
billion advertisements per month.
Media and Marketing Services. We offer a suite of media and marketing
services to web sites that include user base analysis and profiling tools, as
well as consulting and other services.
We currently provide our products and services to over 1,400 web sites in
40 countries, including key operations in the United States (founded May 1995),
Switzerland (February 1996), Germany (October 1997), the United Kingdom (October
1997) and France (January 1998). Our clients include web sites of:
<TABLE>
<CAPTION>
EUROPE NORTH AMERICA LATIN AMERICA ASIA/PACIFIC AFRICA
------ ------------- ------------- ------------ ------
<S> <C> <C> <C> <C>
Excite@Home The New York Times Universo Online (UOL) Lycos Times Media
The Times Qualcomm Eudora Infosel South China Morning Post iAfrica
Suddeutsche Zeitung The Weather Channel El Tiempo Apple Daily Independent Online
Swiss Online Bloomberg O Globo Pacific Internet SABC
Bonjour Playboy El Mercurio Netvigator Mweb
</TABLE>
STRATEGY
We believe that as the number of web sites throughout the world continues
to increase, those with widely recognized and trusted brands will become
increasingly attractive to advertisers. Our objective is to be the leading
provider of comprehensive products and services that enable branded web sites
worldwide to increase revenue from Internet advertising.
1
<PAGE> 9
The key elements of our strategy are to:
- expand operations in existing global markets and extend into new markets;
- add selected sites to our network;
- enhance and extend Open AdStream(TM) capabilities;
- further develop media and marketing services;
- continue to develop cross-media platforms for our products and services;
and
- pursue selected acquisitions and joint ventures.
HISTORY OF SIGNIFICANT LOSSES
We have a history of significant losses, including a pro forma net loss of
approximately $41.4 million for the year ended December 31, 1999, including the
amortization of goodwill and intangibles of $28.1 million for that year. As of
December 31, 1999, we had an accumulated deficit of $14.2 million. We anticipate
incurring substantial losses and negative operating cash flow in the foreseeable
future. For more information regarding these and other risks involved in
investing in our common stock, you should read the "Risk Factors" section in
this prospectus beginning on page 4.
OUR RELATIONSHIP WITH PUBLIGROUPE
We maintain a close strategic relationship with our principal stockholder,
PubliGroupe, which will own approximately 63.1% of our common stock immediately
after this offering. PubliGroupe is a leading seller of print advertising
throughout the world, with approximately $1.5 billion in revenue in 1999 and a
100-year history of media representation. As we have expanded globally, we have
taken advantage of PubliGroupe's relationships with publishers, media buyers and
advertisers, and its extensive resources in and operating knowledge of local
markets worldwide. Our relationship with PubliGroupe also provides
cross-promotional marketing opportunities, such as jointly planned and executed
ad campaigns that use both print and online media.
------------------------
Our principal executive offices are located at 260 Fifth Avenue, New York,
NY 10001, and our telephone number at that location is (212) 725-4537. We
maintain a web site at www.realmedia.com. The information on our web site is not
part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 7,100,000 shares
Common stock to be outstanding after this
offering................................... 46,719,013 shares
Use of proceeds.............................. For general corporate purposes and to repay
loans from our principal stockholders.
Proposed Nasdaq National Market and SWX New
Market symbol.............................. RLMD
</TABLE>
The information in the above table excludes:
- 2,242,809 shares subject to outstanding stock options at a weighted
average exercise price of $2.74 as of December 31, 1999; and
- 149,907 shares issuable upon exercise of unissued stock options under our
1999 employee stock option plan as of December 31, 1999.
2
<PAGE> 10
SUMMARY CONDENSED AND PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF REAL
MEDIA, INC.
The following table presents summary condensed and pro forma combined
condensed financial information with respect to Real Media and has been derived
from (1) the audited financial statements of Real Media, Inc. for the three-year
period ended December 31, 1999, included elsewhere in this prospectus, (2) the
audited financial statements of Real Media, Inc. for the year ended December 31,
1996, which are not included in this prospectus, and (3) the unaudited pro forma
combined condensed financial information of Real Media included elsewhere in
this prospectus that gives effect to the business combination of Real Media,
Inc. and Real Media Europe completed on March 15, 2000. The information set
forth below should be read in conjunction with "Unaudited Pro Forma Combined
Condensed Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the financial statements of Real
Media, Inc. and the notes thereto and the combined financial statements of Real
Media Europe and the notes thereto, included elsewhere in this prospectus. Pro
forma information assumes the completion of the business combination of Real
Media, Inc. and Real Media Europe as of January 1, 1999. The weighted average
shares outstanding used to calculate pro forma net loss per share assumes the
issuance of 24,189,788 shares of Real Media's common stock and 675,000 shares of
Real Media's common stock issuable upon the conversion of Real Media's Series A
Convertible Preferred Stock, which were issued in connection with the business
combination, as if such shares were outstanding from the beginning of the
periods presented. Pro forma as adjusted information assumes the completion of
the business combination and the completion of this offering as of December 31,
1999, assuming the sale of 7,100,000 shares of our common stock at an assumed
initial public offering price of $10.00 per share (the midpoint of the range of
initial public offering prices set forth on the cover page of this prospectus),
after deducting the underwriting discounts and estimated offering expenses, and
the application of the net proceeds of this offering.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------------------------------------------- ------------
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------------- DECEMBER 31,
1996 1997 1998 1999 1999
---------- ---------- ---------- ---------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Revenue.............................................. $ 93 $ 553 $ 2,103 $ 8,115 $ 24,843
Cost of revenue...................................... 72 335 868 3,522 15,380
---------- ---------- ---------- ---------- ------------
Gross profit......................................... 21 218 1,235 4,593 9,463
Operating expenses................................... 491 1,997 3,389 14,323 22,470
Amortization of goodwill and intangibles............. -- -- -- -- 28,136
---------- ---------- ---------- ---------- ------------
Loss from operations................................. $ (470) $ (1,779) $ (2,154) $ (9,730) $ (41,143)
========== ========== ========== ========== ============
Net loss............................................. $ (476) $ (1,797) $ (2,116) $ (9,803) $ (41,430)
========== ========== ========== ========== ============
Net loss per share:
Basic and diluted.................................. $ (0.23) $ (0.20) $ (0.18) $ (0.70) $ (1.06)
========== ========== ========== ========== ============
Weighted average shares outstanding:
Basic and diluted.................................. 2,034,740 8,953,151 11,773,880 14,038,458 38,903,246
========== ========== ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents................................... $1,389 $ 7,154 $ 71,814
Total assets................................................ 6,513 103,012 167,542
Total long-term debt........................................ -- -- --
Total stockholders' equity (deficiency)..................... (6,066) 89,746 154,276
</TABLE>
3
<PAGE> 11
RISK FACTORS
Investing in our common stock will provide you with an equity ownership
position in Real Media. As one of our stockholders, your investment will be
subject to risks inherent in our business. The price of our common stock may
decline. You should carefully consider the following factors as well as other
information contained in this prospectus before deciding to invest in shares of
our common stock.
RISKS RELATING TO REAL MEDIA
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE US, AND WE HAVE
VIRTUALLY NO OPERATING HISTORY AS A COMBINED COMPANY
We did not begin selling our products and services until 1996, and we
completed the business combination on March 15, 2000. We therefore have a
limited operating history upon which you can evaluate our business, and we have
virtually no operating history as a combined company. Our limited operating
history makes our historical results of operations unreliable indicators of our
future prospects. In addition, our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by early-stage companies
in the rapidly-evolving Internet advertising market. We may not be successful in
addressing these risks, and our business strategy may not succeed. These risks
include our ability to:
- maintain and increase the number of web sites and advertisers that use
our products and services;
- deploy our business model in new markets;
- implement and improve operational, financial and management information
systems; and
- attract, retain and motivate qualified personnel.
If we are unable to address these risks, our stock price may decline and we
may be unable to compete effectively. You should consider these risks when
evaluating our prospects.
THE BUSINESS COMBINATION OF REAL MEDIA, INC. AND REAL MEDIA EUROPE MAY DISRUPT
OUR OPERATIONS
Pursuant to a stock purchase agreement among Real Media, Inc., Real Media
Europe Holding S.A., a holding company for Real Media Europe, and PubliGroupe,
Real Media, Inc. and Real Media Europe were combined on March 15, 2000. See
"Related Party Transactions -- Business Combination with Real Media Europe."
Prior to this business combination, Real Media, Inc. and Real Media Europe
operated their businesses in collaboration with each other but did not have
formally integrated management and operations. The formal integration of Real
Media, Inc.'s operations with Real Media Europe's operations may divert
management's attention from the day-to-day operations of the combined company.
The difficulties of combining the two companies may be increased by the
necessity of:
- managing geographically separate organizations;
- integrating management and employees with disparate business backgrounds,
operating experiences and cultures; and
- combining our operational, financial and management information systems,
controls and internal reporting standards.
The process of combining the two organizations may cause an interruption
of, or loss of momentum in, the activities of the combined company. The failure
to integrate the two businesses effectively could have an adverse effect on our
ability to develop and execute our business strategy, which in turn could have
an adverse effect on our revenue and operating results in the near term or
longer.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT SUCCEED
Our business model is to generate revenue by selling Internet advertising
solutions, primarily to web sites with strong brand identities. The profit
potential of our business model is unproven. To be successful,
4
<PAGE> 12
we must continue to enhance our solutions to achieve broad market acceptance. We
cannot assure you that our approach to Internet advertising in general, and the
potential value of branded web sites in particular, will achieve sufficient
market acceptance to allow us to become profitable.
WEB SITES ON WHICH WE FOCUS OUR SELLING EFFORTS MAY DEVELOP THEIR OWN
CAPABILITIES FOR INTERNET ADVERTISING AND NOT PURCHASE OUR PRODUCTS AND SERVICES
Even if Internet advertising gains broad acceptance, web sites,
particularly those with strong brand identities, may choose to sell and manage
advertising themselves and not to engage independent companies such as Real
Media. If the proportion of branded web sites that deploy exclusively in-house
ad sales forces increases, our ability to generate ad sales revenue will be
diminished. Moreover, web sites may choose not to use our technology for ad
management, which could decrease our revenue from technology sales.
OUR SALES REVENUE MAY SUFFER IF DIFFERENT PRICING MODELS BECOME THE MARKET
STANDARD
Our ad sales representation pricing model is currently based primarily on
the number of users to whom advertising is delivered. We also use, to a lesser
extent, pricing models that depend on the number of users who respond to an
advertisement for more information, or who make purchases after viewing the
advertisement. If response-based pricing models become the market standard, or
if our primary pricing model ceases to be the market standard, we may have
difficulty sustaining revenue growth and maintaining profit margins. Because of
these uncertainties, we cannot assure you that our business model will succeed
in sustaining revenue growth and achieving profitability.
WE DO NOT CURRENTLY GENERATE SUFFICIENT CASH TO FUND OUR OPERATIONS, AND WE MAY
NEED ADDITIONAL FINANCING
We incurred a pro forma net loss of approximately $41.4 million for the
year ended December 31, 1999, which includes the amortization of goodwill and
intangibles of $28.1 million for the year ended December 31, 1999 incurred in
connection with the business combination with Real Media Europe. We anticipate
that our operating expenses will increase substantially in the foreseeable
future as we:
- expand our products and services and enter new markets;
- increase sales and marketing operations;
- increase advertising to establish our brand;
- fund greater levels of research and development;
- improve operational, financial and management information systems; and
- broaden customer support capabilities.
As a result of these expenses, we expect to incur additional losses which
may increase substantially from existing levels. If any of these and other
expenses are not accompanied by increased revenue, our losses may be greater
than we anticipate. Although we have experienced revenue growth in recent
periods, these results are not necessarily meaningful and you should not rely
upon them as an indication of future performance.
In the event of continuing losses, we may need to raise additional funds in
the future. All of our financing to date has been from investments by our
stockholders, particularly PubliGroupe and Advance Internet Inc. We cannot
assure you that we will be able to obtain additional financing from these
stockholders or other persons on favorable terms, if at all. If we are unable to
obtain any required financing in a timely manner or on acceptable terms, our
ability to operate our business could suffer.
WE MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY
Our business may not succeed if we do not manage our growth successfully.
We have grown substantially since our formation, both in terms of the size of
our organization and the number of the
5
<PAGE> 13
markets that we serve. This rapid growth has placed, and is expected to continue
to place, a significant strain on our managerial, operational and financial
resources. Since inception, we have grown to 301 employees worldwide as of
January 21, 2000. To better serve the global marketplace, we plan to open new
offices in our existing and new national markets and to expand our sales and
marketing, customer support and other departments. To meet the demands of this
anticipated growth, we expect to continuously develop, monitor and update our
financial and management controls and our reporting and operating systems. We
cannot assure you that these systems will be adequate to manage our expanded
operations or that we will otherwise be able to manage our growth effectively.
If we do not manage our growth effectively, we may be unable to offer
competitive services and implement our business plan.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS AND PLANS FOR
EXPANSION
We operate in many countries in Europe, North America, Latin America,
Asia/Pacific and Africa, and our strategy relies heavily on continuing to expand
our operations by entering new national markets. Operating in multiple countries
involves many uncertainties and risks, including:
- complying with the laws and regulations of many countries, which may
change at any time;
- difficulties hiring qualified personnel and the higher costs of staffing
and managing operations in some countries;
- managing operations in multiple economies that may experience political,
economic and social instability;
- potentially adverse tax consequences;
- difficulties enforcing contracts and intellectual property rights in some
countries;
- fluctuations in currency exchange rates and difficulties in moving
capital across borders; and
- seasonal reductions in business activity in different parts of the world,
particularly in Europe during the summer.
Our inability to manage these risks effectively may materially and adversely
affect our business, results of operations and financial condition.
FUTURE ACQUISITIONS MAY ABSORB SIGNIFICANT RESOURCES AND MAY BE UNSUCCESSFUL
As part of our growth strategy, we expect to pursue acquisitions,
investments and other relationships involving products, technologies or
businesses. Acquisitions may involve significant cash expenditures, debt
incurrence, additional operating losses, dilutive issuances of equity
securities, and expenses that could have a material adverse effect on our
financial condition and results of operations. Acquisitions involve numerous
risks, including:
- difficulties integrating acquired technologies and personnel into our
business;
- diversion of management from daily operations;
- inability to obtain required financing on favorable terms;
- entering new markets in which we have little previous experience;
- potential loss of key employees or customers of acquired companies;
- assumption of the liabilities and exposure to unforeseen liabilities of
acquired companies; and
- amortization of the intangible assets of acquired companies.
We have a limited history of acquiring businesses, which may affect our ability
to complete transactions quickly and integrate them efficiently into our
business. We cannot assure you that any acquisition will accomplish its goals,
or that any acquisition will not ultimately have a negative impact on our
business and financial condition.
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OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL OR
IF MANAGEMENT DOES NOT WORK TOGETHER EFFECTIVELY
We depend on the services of our senior management and key technical and
sales personnel. In particular, our success depends on the continued efforts of
those key members of our management team who have extensive experience in this
rapidly evolving industry, including David Morgan, Christopher Neimeth, Pascal
Zahner and Gil Beyda. The loss of services of any key person could have a
material adverse effect on our business, financial condition and results of
operations. Our future success also depends on our continuing ability to attract
and retain highly qualified personnel, especially in the advertising sales area.
Competition for such personnel in the Internet industry is intense, and we
cannot assure you that we will be able to attract and retain qualified personnel
in the future.
We may experience difficulties as we integrate the separate management
teams of Real Media, Inc. and Real Media Europe, which may distract management
from their daily operational responsibilities. This integration process may take
significant time to complete, and we face the risk that key personnel may leave
the company due to changes in our operations and management.
CERTAIN STOCKHOLDERS WILL EXERCISE SIGNIFICANT CONTROL OVER US FOLLOWING THE
OFFERING
Immediately after this offering, PubliGroupe, Advance Internet and five
founders of our company will own 63.1%, 10.0% and 11.0%, respectively, of our
common stock. PubliGroupe, Advance Internet and these founders have entered into
a stockholders voting agreement that establishes the composition of our board of
directors. Subject to the terms of the stockholders voting agreement, these
stockholders, particularly PubliGroupe, may be able to affect or control the
outcome of corporate matters requiring stockholder approval, including business
combinations, amendments to our certificate of incorporation and bylaws, and
other extraordinary transactions. See "Related Party
Transactions -- Stockholders Voting Agreement." The interests of these
stockholders may conflict with our interests and the interests of our other
stockholders. In addition, the ownership or management of PubliGroupe could
change, which could disrupt our relationship with it.
WE WILL RELY ON PUBLIGROUPE TO PROVIDE US WITH KEY SERVICES
Prior to the business combination, Real Media Europe has depended on
PubliGroupe for various financial, business development, legal and other
functions that typically are performed by in-house personnel of public
companies. Following the business combination and for at least some period of
time thereafter, we will continue to rely on PubliGroupe for these services,
which will be made available under an interim administrative services agreement
between Real Media Europe Holding and PubliGroupe. See "Related Party
Transactions -- Interim Administrative Services Agreement." Except as expressly
required by the interim administrative services agreement, PubliGroupe could
choose not to provide these services. If PubliGroupe ceases to provide us with
these services, we will have to develop the internal capability to perform them
or hire other providers of these services. Either of these alternatives could be
more costly than our current reliance on PubliGroupe and could cause a
disruption to our business.
PUBLIGROUPE MAY COMPETE WITH US
PubliGroupe is a leading seller of print advertising throughout the world.
Subject to restrictions in a cooperation agreement, PubliGroupe may separately
enter the Internet advertising market and compete with us, directly or
indirectly. See "Related Party Transactions -- Cooperation Agreement." If this
were to occur, PubliGroupe would likely continue to have access to our business
plan and other confidential information through its board representation, giving
it a competitive advantage over us.
IF OUR RELATIONSHIP WITH PUBLIGROUPE DETERIORATES, WE MAY LOSE THE STRATEGIC
BENEFITS OF THIS RELATIONSHIP
PubliGroupe has a long history operating globally in advertising sales,
particularly in print media. PubliGroupe has provided us with customer
introductions, helped to raise advertisers' awareness of our capabilities, and
provided a source for our management recruiting efforts. We anticipate continued
strategic
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<PAGE> 15
benefits from our relationship with PubliGroupe, such as opportunities in
cross-selling. PubliGroupe may disagree with us over important business
decisions such as business strategy and potential acquisitions. Although
PubliGroupe owns more than a majority of our common stock, PubliGroupe's control
over us is limited by the terms of a stockholders voting agreement. Therefore,
PubliGroupe may not be able to determine the outcome of these important business
decisions. This could damage the relationship between PubliGroupe and our
management. We cannot predict how PubliGroupe may respond, but it is likely that
we would lose the benefits of our relationship with them.
ANY FAILURE BY US TO PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR BUSINESS
AND COMPETITIVE POSITION
To date, we have not sought patent protection or copyright registration for
our proprietary software and other technologies. As a result, we may not be able
to prevent others from using any inventions in our software and other
technologies, and we may not have adequate remedies to compensate us fully for
any infringement of our copyrights by others.
We have pending applications to register REAL MEDIA and other key
trademarks in the United States, Europe and other foreign jurisdictions.
However, we have not yet secured registrations for any of these marks. We cannot
guarantee that any of our applications will be approved by the applicable
governmental authorities. Moreover, even if the applications are approved, third
parties may seek to oppose or otherwise challenge such registrations. A failure
to obtain trademark registrations in jurisdictions outside the United States
could limit our ability to use the mark and impede our marketing efforts in
those jurisdictions. RealNetworks, Inc., a provider of Internet streaming
technology, has applied to register REAL MEDIA in connection with its products
in the United States, the European Community and in certain other jurisdictions.
We have initiated an opposition proceeding in the U.S. Patent and Trademark
Office challenging RealNetworks' right to register its mark in the United States
on the grounds that the mark is likely to be confused with our prior mark.
RealNetworks has also filed an opposition proceeding challenging our right to
register REAL MEDIA in the European Community. We are negotiating an agreement
with RealNetworks regarding the use and registration of the mark REAL MEDIA on a
worldwide basis. However, we cannot assure you that these negotiations will
succeed or that in the future RealNetworks or another entity will not assert the
right to use or register marks that are the same as or confusingly similar to
our marks in a way that harms us. It is also possible that litigation over the
right to use the REAL MEDIA mark could arise between us and RealNetworks. We
cannot predict the range of potential outcomes if any litigation were to arise,
and we cannot assure you that our right to use our name will not be limited or
lost. Our business could be adversely affected if we are required to change or
substantially limit the use of our name. Any litigation involving our
intellectual property rights may also result in substantial legal cost and
potential damage awards.
We cannot assure you that any measures we take are sufficient to prevent
others from obtaining our valuable trade secrets, and we may not have adequate
remedies to preserve our trade secrets or to compensate us fully for their loss
if our employees breach their confidentiality agreements with us. In addition,
we cannot assure you that our trade secrets will provide us with any proprietary
or competitive advantage, as they may otherwise become known to or be
independently developed by our competitors, regardless of the success of any
measures we may take to try to preserve their confidentiality.
ENFORCEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS
AND COMPETITIVE POSITION
Several of our competitors have sought patent protection for technology or
methods of doing business in the field of Internet advertising. For example,
DoubleClick, Inc. has obtained U.S. Pat. No. 5,948,061, entitled "Method of
Delivery, Targeting, and Measuring Advertising Over Networks." Another
competitor, 24/7 Media, Inc., has announced that it has received a notice of
allowance in connection with its application for a United States patent, which
purportedly relates to an ad delivery and management system. While we believe
that Open AdStream(TM), our proprietary ad management software, and our methods
of doing business are substantially different from those owned and used by our
competitors and do not violate any of their patent rights of which we are aware,
it is possible that any one of our competitors may file a suit against us,
alleging that we are infringing their patent rights. We are aware that
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<PAGE> 16
DoubleClick has filed patent infringement actions against two other companies
that provide Internet advertising solutions, at least one of which has filed a
countersuit against DoubleClick. In addition, our competitors or other persons
may have already obtained or may in the future obtain patents relating to one or
more aspects of our technology or methods of doing business. If we are sued for
patent infringement, we may be forced to incur substantial costs in defending
ourselves. If such litigation were to result in a judgment that we infringed a
valid and enforceable patent, a court may order us to pay substantial damages to
the owner of the patent and to cease using any infringing technology or method
of doing business. Such an order could cause a significant disruption in our
business and force us to incur substantial costs to develop and implement
alternative, non-infringing technology or methods of doing business, or to
obtain a license from the patent owner. We cannot assure you that we would be
able to develop non-infringing alternatives at a reasonable cost that would be
commercially acceptable, or that we would be able to obtain a license from any
such patent owner on commercially reasonable terms, if at all.
WE MAY BE LIABLE FOR CONTENT AVAILABLE OR POSTED ON WEB SITES
We may be held liable to third parties for content in the advertising we
serve if the music, artwork, text or other content involved is found to be
defamatory, to invade the privacy or publicity rights of such third parties, to
violate the copyright, trademark, or other intellectual property rights of such
third parties, or to violate any applicable laws or regulations. Defending any
claims or counterclaims regarding these types of liabilities could be
time-consuming, result in costly litigation or divert management's attention
from daily operations.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, WHICH COULD AFFECT THE MARKET
PRICE OF YOUR SHARES
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors. These factors include:
- the ability of web sites in the Real Media Network to maintain or
increase traffic on their sites;
- the addition or loss of web sites and advertisers that use our products
and services;
- the introduction of new Internet advertising solutions by us or our
competitors;
- changes in pricing policies resulting from competitive conditions;
- changes in our mix of products and services;
- the amount and timing of expenditures relating to expanding our
operations, improving ad management technology and further developing new
products and technologies;
- the demand for, and pricing of, Internet advertising;
- the growth of the Internet as a communications medium; and
- general economic conditions.
Expenditures by advertisers tend to vary in cycles that reflect overall economic
conditions. Our revenue could be materially reduced by a decline in the economic
prospects of advertisers or the economy in general, which could alter current or
prospective advertisers' spending priorities. In addition, we believe that our
revenue may be subject to seasonal fluctuations because advertisers generally
place fewer advertisements during the first and third quarters of each year.
Due to these factors, we believe that quarter-to-quarter comparisons of our
results of operations are not necessarily meaningful and should not be relied
upon as an indication of our future performance. Furthermore, it is possible
that in future periods our results of operations will be below the expectations
of securities analysts and investors. If so, the market price of your shares
would likely decline.
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<PAGE> 17
RISKS RELATING TO THE INTERNET ADVERTISING INDUSTRY
WE HAVE MANY COMPETITORS IN THE INTERNET ADVERTISING INDUSTRY AND WE MAY NOT BE
ABLE TO COMPETE SUCCESSFULLY.
The Internet advertising industry is highly competitive. Competition is
likely to increase because there are low barriers to entry in this market, and
the evolving nature of the Internet will present new opportunities for existing
competitors and new entrants to exploit. Numerous well-established companies and
smaller entrepreneurial companies are focusing significant resources on
developing and marketing products and services that compete with our products
and services. See "Business -- Competition." Currently, our industry is
dominated by well-capitalized entities. Several of these entities, such as
DoubleClick, CMGI, Inc. and 24/7 Media, have greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. These and other competitors may be able to:
- respond more quickly to emerging technologies and changing customer
demands;
- devote more resources to product development and promotion;
- access capital markets more easily;
- adopt aggressive pricing policies; and
- develop superior products and services.
Increased competition is likely to result in price reductions, reduced
profit margins and loss of market share, any one of which could impede our
growth and hinder our ability to compete in the future. We cannot assure you
that we will be able to compete effectively against existing or future
competitors, or that competitive pressures will not have a material adverse
effect on our financial condition and competitive position.
WE FACE COMPETITION FOR ADVERTISERS' BUSINESS FROM OTHER MEDIA
We also compete with other advertising media, such as print, television and
radio, for a share of advertising budgets. To the extent that the Internet does
not develop as an attractive advertising medium, we may be unable to increase
our revenue and we may lose market share to these other media.
INDUSTRY CONSOLIDATION MAY INCREASE OUR COMPETITORS' RESOURCES
Our industry is consolidating rapidly, and a number of acquisitions have
been announced or completed recently. See "Business -- Competition." Our
competitors may also form joint ventures and other cooperative relationships
that will compete with us in our market. It is therefore possible that newer or
significantly larger competitors may emerge and attain significant market share
and brand recognition, which could have a material adverse effect on our ability
to maintain market share for our products and services.
OUR BUSINESS MAY NOT GROW IF THE MARKET FOR INTERNET ADVERTISING DOES NOT
CONTINUE TO DEVELOP
We expect to derive all of our revenue in the foreseeable future from the
products and services that we offer to the market for Internet advertising.
Therefore, our future success depends on the level of use of the Internet as an
advertising medium. If the market for Internet advertising fails to develop or
develops more slowly than we anticipate, we may be unable to increase or even
maintain our revenue. The Internet may not develop as a successful advertising
medium because it has not existed long enough to demonstrate its effectiveness
in communicating messages and establishing brand awareness when compared to
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<PAGE> 18
traditional advertising media. Companies that have relied on traditional media
for advertising may be reluctant to adopt the Internet as an advertising medium
because these companies:
- have limited or no experience using the Internet as an advertising
medium;
- have allocated only a limited portion of their advertising budgets to
Internet advertising and may be unwilling to reallocate their resources
from traditional media to Internet advertising; and
- may conclude that Internet advertising is less effective than traditional
advertising media.
There are no widely accepted standards for the measurement of the
effectiveness of Internet advertising, and we cannot assure you that such
standards will develop to support Internet advertising as a significant
advertising medium. In addition, the effectiveness of Internet advertising is
partly dependent upon the accuracy of information contained in the databases
used to target advertisements. Actual or perceived ineffectiveness of Internet
advertising in general, or inaccurate measurements or database information in
particular, could limit the long-term growth of Internet advertising and cause
our revenue to decline.
WE DEPEND ON THE CONTINUED GROWTH OF INTERNET USAGE FOR OUR BUSINESS
Our business depends significantly on the increase in Internet usage. If
Internet usage does not grow, the market for Internet advertising is likely not
to grow as well. Internet usage may be inhibited for a number of reasons, such
as:
- inadequate network infrastructure;
- security and privacy concerns;
- inconsistent quality of service; and
- limited availability of cost-effective, high-speed service.
In addition, due to the increasing popularity and use of the Internet, a
number of laws and regulations may be adopted covering issues such as pricing,
content, gambling, database protection, unsolicited commercial e-mail and
taxation. Some local telephone carriers are advocating the regulation of
Internet service providers in a manner similar to long distance telephone
carriers. Any of these laws and regulations could slow the growth of Internet
use and decrease the Internet's effectiveness as an advertising medium. If use
of the Internet does not continue to grow, or if the Internet infrastructure
does not effectively support the growth that may occur, the demand for our
products and services may not grow.
TECHNOLOGICAL CHANGES MAY RENDER OUR PRODUCTS AND SERVICES OBSOLETE
The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, frequent new product and service
introductions, and evolving customer demands. These uncertainties are
exacerbated by the emerging nature of Internet use and advertising. For example,
computer users may install "filter" programs that limit or prevent the display
of advertising on the users' monitors. The widespread adoption of filter
software could have a material adverse effect upon the commercial viability of
Internet advertising. Our future success will therefore depend on our ability to
modify our products and services to respond in a timely and cost-effective
manner to new technologies and changing customer demands. If we are unable to
adapt our technologies to these pressures or to develop products to address new
and converging technologies, we may be unable to compete successfully. We cannot
assure you that we will not experience difficulties that could delay or prevent
our introduction of new products and services, or that any new products and
services will be attractive to our customers. Any delay or inability to
introduce competitive solutions may cause customers to forgo our solutions and
purchase those of our competitors.
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PRIVACY CONCERNS MAY LEAD TO RESTRICTIONS ON INTERNET ADVERTISING OR MAKE OUR
TECHNOLOGY OBSOLETE
Potential governmental and consumer reactions to concerns about privacy and
the Internet pose risks to our business. Many web sites, including our clients,
collect personal data through registrations and surveys and use that data to
build profiles for advertising. There is substantial public debate over the
collection and use of Internet user information. Some United States legislators
have introduced bills that would regulate the collection and use of personal
data from Internet users. The European Union has adopted a directive addressing
data privacy that may result in limitations on the collection and use of such
information. Many proposals focus on requiring the consent of the Internet user
before collecting the user's information. While currently the more common
practice is to give users the option to prohibit the use of their personal data
for profiling uses, it may become the standard practice to require users to
approve the use of personal data. If a user must approve the use of personal
information, rather than not prohibit it, the number of users about whom
information can be collected and to whom targeted ads can be delivered may
decrease. This may limit the effectiveness of our sales and marketing efforts
and adversely affect our financial condition and results of operations.
A particular area of concern has been the use of "cookies," which are small
files placed on a user's hard drive without the user's knowledge or consent.
Cookies allow certain information to be collected without the users' knowledge.
Due to privacy concerns, some Internet commentators and governmental bodies have
called for the use of cookies to be limited or eliminated. For example, the use
of cookies in Germany, while legally permitted, has not been a widely accepted
practice. In addition, web browsers may allow users to prevent cookies from
being placed on users' hard drives. Our Internet ad management software, Open
AdStream(TM), has features that rely on the use of cookies. If the use of
cookies is limited or eliminated, we may have to employ alternative technologies
to enable the gathering of demographic information. We believe that alternative
technologies that currently exist are not as effective as cookies. Devising new
technologies to replace cookies could require significant engineering time and
resources. We cannot assure you that we could develop and market successful
alternative technologies.
PRIVATE OR GOVERNMENT LAWSUITS MAY BE FILED AGAINST WEB SITES THAT USE OPEN
ADSTREAM(TM) OR US OVER THE COLLECTION OF INTERNET USER INFORMATION
Privacy concerns have also led to numerous class action lawsuits that
currently involve at least one of our competitors. This competitor is also the
subject of an investigation by the Federal Trade Commission and more than one
state attorney general over the competitor's collection and maintenance of user
information through its central ad serving technology. Open AdStream(TM) enables
web sites to use cookies to collect user information. We cannot assure you that
we or web sites that use Open AdStream(TM) will not be named in lawsuits or
become the subject of other legal actions stemming from privacy concerns. We
could also be sued because we collect user information in some of our anonymous
network ad sales programs. If we are sued or become the subject of an
investigation, we may incur substantial costs defending or responding to the
suit or investigation, in addition to any potential liability that may be
imposed against us. Even if we are not found liable, publicity about the actions
could harm our reputation. If our web site clients are sued, we cannot predict
the consequences. However, it is possible that their Internet advertising may
suffer, or they may not use Open AdStream(TM) for their Internet advertising.
Either of these outcomes could have a material effect on our business.
RISKS RELATING TO THE OFFERING
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE THAT COULD AFFECT YOUR
INVESTMENT
Prior to this offering, there has been no public market for our common
stock, and we cannot predict how active or volatile the trading market for our
common stock will be. However, the Nasdaq National Market has experienced
significant price and volume fluctuations that have affected the market prices
for the common stocks of technology companies, particularly Internet companies.
Some of these market fluctuations have been unrelated or disproportionate to the
operating performance of these companies.
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Therefore, the price at which our common stock will trade after this offering is
likely to be highly volatile and may fluctuate substantially due to factors such
as:
- actual or anticipated fluctuations in our results of operations;
- changes in or failure by us to meet securities analysts' expectations;
- announcements of technological innovations;
- introduction of new services by us or our competitors;
- conditions and trends in the Internet and other technology industries;
and
- general market conditions.
Any significant fluctuations in the future might result in a material
decline in the market price of our common stock. The value of our common stock
may also fluctuate because it will be listed on both the Nasdaq National Market
and the SWX New Market of the SWX Swiss Exchange. We cannot be certain what
effect, if any, the dual listing will have on the price of our stock in either
market. Listing on both exchanges may increase stock price volatility due to
trading in different time zones and different trading volumes.
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against the company. We may become involved in this type of
litigation in the future. Litigation is often expensive and diverts management's
attention and resources, which could have a material adverse effect upon our
business and results of operations.
WE HAVE BROAD DISCRETION IN THE USE OF THE PROCEEDS OF THIS OFFERING
The net proceeds of this offering will be added to our working capital and
will be available for general corporate purposes, including capital expenditures
and potential future acquisitions. We cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of this
offering. Our management will have broad discretion in the application of the
net proceeds. See "Use of Proceeds."
SALES OF OUR SHARES AFTER THIS OFFERING COULD RESULT IN A DECLINE IN OUR STOCK
PRICE
If our stockholders sell substantial amounts of common stock in the public
market following this offering, the market price of our common stock could fall.
These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Based on shares outstanding as of December 31, 1999, upon
completion of this offering, we will have 46,719,013 shares of common stock
outstanding. If the underwriters exercise their over-allotment option in full,
we will have 47,784,013 shares of common stock outstanding. Of these shares, the
shares being offered hereby will be freely tradable and 39,619,013 shares will
become eligible for resale as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ------------------------------------------------------------
<C> <S>
625,968 Beginning 91 days after the date of this prospectus
1,748,580 Beginning 181 days after the date of this prospectus,
subject to a stockholders voting agreement. See "Related
Party Transactions -- Stockholders Voting Agreement."
37,244,465 Beginning 181 days after the date of this prospectus,
subject to compliance with Rule 144, and in some cases,
subject to a stockholders voting agreement.
</TABLE>
We have applied to list our common stock on both the Nasdaq National Market
and the SWX New Market of the SWX Swiss Exchange. Sales on the SWX New Market
will still be subject to United States securities laws including Rule 144 and
Regulation S, which may restrict sales.
As of December 31, 1999, options to purchase 2,242,809 shares of common
stock were outstanding and, when exercised, these shares will be eligible for
resale, subject in some cases to Rule 144 volume limitations, lock-up agreements
with the underwriters, and/or a stockholders voting agreement. These stock
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<PAGE> 21
options generally have exercise prices significantly below the expected initial
public offering price of our common stock. The possible sale of a significant
number of these shares may cause the price of our common stock to decline. In
addition, prior to the completion of this offering, we expect to file a
registration statement on Form S-8 to register 1,640,046 shares of our common
stock issuable under our 1999 employee stock option plan. See "Shares Eligible
for Future Sale."
PURCHASERS IN THIS OFFERING WILL INCUR AN IMMEDIATE DILUTION OF THEIR INVESTMENT
Investors purchasing shares of our common stock in this offering will incur
immediate and substantial dilution of their investment, equal to $8.50 per
share. To the extent outstanding options to purchase our common stock are
exercised, there will be further dilution, or $8.53 per share. If we elect to
purchase, or PubliGroupe elects to sell to us, the remaining interest in Real
Media S.A., we may elect to pay the purchase price in shares of our common
stock. Issuing more common stock to pay the purchase price for the remaining
interest in Real Media S.A. may result in further dilution. See "Dilution" and
"Related Party Transactions -- Business Combination with Real Media Europe."
WE HAVE ADOPTED ANTI-TAKEOVER MEASURES THAT MAY INHIBIT THE SALE OF REAL MEDIA
Following the closing of this offering, our board of directors will have
the authority to issue up to 9,000,000 shares of preferred stock without your
approval. These shares could be issued with voting, liquidation, dividend and
other rights superior to yours that could discourage a third party from
acquiring Real Media, even if the acquisition would be beneficial to you. Our
certificate of incorporation provides for a classified board of directors, and
our bylaws and Delaware law contain other provisions that could have the effect
of delaying or preventing a change in control of Real Media.
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<PAGE> 22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify
forward-looking statements. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding the
growth of Internet use, Internet advertising and electronic commerce. You should
not place undue reliance on these forward-looking statements, which apply only
as of the date of this prospectus. Because these forward-looking statements
involve risks and uncertainties, there are important factors discussed under
"Risk Factors" that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements.
USE OF PROCEEDS
Based on an assumed initial public offering price of $10.00 per share (the
midpoint of the range of estimated initial public offering prices set forth on
the cover page of this prospectus), our net proceeds from the sale of the shares
of our common stock offered in this offering will be approximately $64.5
million, or $74.4 million if the underwriters' over-allotment option is
exercised in full, after deducting the estimated underwriting discounts and
commissions and estimated expenses that are payable by us in this offering.
We intend to use some of the proceeds of this offering to repay in full,
with interest, loans from PubliGroupe and Advance Internet described below. We
expect to use the remaining net proceeds from this offering for general
corporate purposes, including expansion of our sales, marketing and operating
capabilities, product and technology development and possible acquisitions of or
investments in companies or assets. We are currently involved in negotiations to
acquire a European Internet advertising business, but we have no binding
obligation with respect to any acquisition of or investments in this or any
other companies or assets. Pending these uses, we intend to invest the net
proceeds of this offering in short-term, investment grade instruments,
certificates of deposit, or direct or guaranteed obligations of the United
States.
Under a stockholders voting agreement with Real Media, Inc., PubliGroupe
and Advance Internet have agreed to make available to us from time to time prior
to the completion of this offering loans up to $13.0 million and $2.0 million,
respectively, for working capital. The loans from PubliGroupe and Advance
Internet will bear interest at an annual rate equal to the prime rate, as
published in the Wall Street Journal, Eastern Edition, and will be due upon the
completion of this offering. See "Related Party Transactions -- Stockholders
Voting Agreement." In addition, we must repay any intercompany loans made by
PubliGroupe to Real Media Europe between January 1, 2000 and the completion of
the business combination to fund Real Media Europe's operations. See "Related
Party Transactions -- Business Combination with Real Media Europe."
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock, and we do
not intend to pay dividends in the foreseeable future. We plan to retain any
earnings for use in the operation of our business and to fund future growth.
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<PAGE> 23
CAPITALIZATION
The Actual column in the following table sets forth Real Media, Inc.'s
capitalization as of December 31, 1999. The Pro Forma column gives effect to the
business combination of Real Media, Inc. and Real Media Europe, which was
completed on March 15, 2000, including the issuance of 24,189,788 shares of our
common stock and 450,000 shares of our Series A Convertible Preferred Stock to
PubliGroupe.
The Pro Forma As Adjusted column gives effect to:
- the net proceeds from the sale of 7,100,000 shares of common stock
offered at an assumed initial public offering price of $10.00 per share
(the midpoint of the range of estimated initial public offering prices
set forth on the cover page of this prospectus), after deducting
underwriting discounts and commissions and estimated offering expenses;
- the application of those proceeds to repay $4.7 million in loans incurred
subsequent to December 31, 1999 from our principal stockholders,
PubliGroupe and Advance Internet; and
- the conversion of 450,000 shares of our Series A Convertible Preferred
Stock into 675,000 shares of our common stock.
You should read this table with the "Unaudited Pro Forma Combined Condensed
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and each of Real Media, Inc.'s and Real
Media Europe's audited financial statements and the related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Total debt................................................ $ -- $ -- $ --
Stockholders' equity (deficiency):
Preferred stock, $.001 par value, 9,000,000 shares
authorized, no shares issued and outstanding, actual;
9,000,000 shares authorized, 450,000 shares issued
and outstanding, pro forma; 9,000,000 shares
authorized, no shares issued and outstanding, pro
forma as adjusted.................................... -- 1 --
Common stock, $.001 par value, 120,000,000 shares
authorized, 14,754,225 shares issued and outstanding,
actual; 120,000,000 shares authorized, 38,944,013
shares issued and outstanding, pro forma; 120,000,000
shares authorized, 46,719,013 shares issued and
outstanding, pro forma as adjusted................... 15 39 47
Additional paid-in capital.............................. 8,273 104,060 168,583
Accumulated deficit..................................... (14,192) (14,192) (14,192)
Deferred compensation................................... (162) (162) (162)
-------- -------- --------
Total stockholders' equity (deficiency)................. (6,066) 89,746 154,276
-------- -------- --------
Total capitalization............................ $ (6,066) $ 89,746 $154,276
======== ======== ========
</TABLE>
The table excludes the following shares:
- 2,242,809 shares subject to outstanding stock options as of December 31,
1999, of which 767,738 stock options were exercisable as of December 31,
1999 and
- 149,907 shares issuable upon exercise of unissued stock options under our
1999 employee stock option plan as of December 31, 1999.
16
<PAGE> 24
DILUTION
Assuming that the business combination of Real Media, Inc. and Real Media
Europe had been completed as of December 31, 1999, Real Media's pro forma net
tangible book value at December 31, 1999 would have been approximately $5.2
million, or $0.13 per share. Pro forma net tangible book value per share is
equal to our total tangible assets less our total liabilities, divided by the
total number of shares of our common stock outstanding. Assuming we had also
sold the shares of our common stock offered hereby at an assumed initial public
offering price of $10.00 per share (the midpoint of the range of estimated
initial public offering prices set forth on the cover page of this prospectus)
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our as adjusted pro forma net
tangible book value at December 31, 1999 would have been approximately $69.9
million, or $1.50 per share. This represents an immediate increase in pro forma
net tangible book value of $1.37 per share to existing stockholders and an
immediate dilution of $8.50 per share to new investors purchasing shares of our
common stock in this offering. Dilution in pro forma net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of our common stock in this offering and the as adjusted pro forma net
tangible book value per share of our common stock immediately following this
offering. The following table illustrates the immediate per share dilution to
new investors.
<TABLE>
<CAPTION>
PER SHARE
---------
<S> <C> <C>
Assumed initial public offering price....................... $10.00
Pro forma net tangible book value at December 31, 1999.... $0.13
Increase attributable to this offering.................... 1.37
As adjusted pro forma net tangible book value after this
offering.................................................. 1.50
------
Dilution to new investors in this offering.................. $ 8.50
======
</TABLE>
The following table sets forth, on an as adjusted pro forma basis, as of
December 31, the total number of shares of common stock purchased from Real
Media, Inc., the total cash consideration paid and the average price per share
paid by the existing stockholders and by the new investors in this offering at
an assumed initial public offering price of $10 per share (the midpoint of the
range of estimated initial public offering prices set forth on the cover page of
this prospectus):
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
--------------------- ----------------------- -------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 39,619,013 84.8% $103,736,985 59.4% $ 2.62
New investors..................... 7,100,000 15.2 71,000,000 40.6 10.00
---------- ----- ------------ -----
Total................... 46,719,013 100.0% $174,736,985 100.0% $ 3.74
========== ===== ============ =====
</TABLE>
The foregoing discussion and tables are based on the number of shares
issued and outstanding on December 31, 1999, assuming the completion of the
business combination and this offering, no exercise of the underwriters'
over-allotment option to purchase 1,065,000 additional shares and no exercise of
any stock options outstanding and exercisable as of December 31, 1999. As of
December 31, 1999, there were 2,242,809 shares issuable upon the exercise of
outstanding stock options, of which 767,738 stock options were exercisable at a
weighted average exercise price of $1.11 per share and 149,907 shares were
issuable upon exercise of unissued stock options under our 1999 employee stock
option plan. Options for 1,475,071 shares were outstanding but not exercisable
as of December 31, 1999.
Assuming the completion of the business combination, this offering and the
exercise in full of all of the options outstanding and exercisable as of
December 31, 1999, including the underwriters' over-allotment option, our as
adjusted pro forma net tangible book value as of December 31, 1999 would have
been approximately $79.8 million, or $1.65 per share. This represents an
immediate increase in pro forma net tangible book value of $1.52 per share to
existing stockholders and an immediate dilution in the pro forma net tangible
book value of $8.35 per share to new investors purchasing shares of our common
stock in this offering.
17
<PAGE> 25
SELECTED FINANCIAL INFORMATION OF REAL MEDIA, INC.
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Real Media, Inc.'s financial statements and the notes thereto
included elsewhere in this prospectus. The selected statement of operations
information for the three-year period ended December 31, 1999 and the balance
sheet information as of December 31, 1998 and 1999 are derived from the
financial statements of Real Media, Inc., which have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this prospectus.
The selected statement of operations information for the year ended December 31,
1996 and the balance sheet information as of December 31, 1996 and 1997 are
derived from the financial statements of Real Media, Inc., which have been
audited by Ernst & Young LLP, independent auditors, and are not included in this
prospectus. The historical results are not necessarily indicative of the
operating results to be expected in the future.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 1998 1999
--------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Revenue..................................... $ 93 $ 553 $ 2,103 $ 8,115
Cost of revenue............................. 72 335 868 3,522
--------- --------- ---------- ----------
Gross profit................................ 21 218 1,235 4,593
--------- --------- ---------- ----------
Operating expenses:
Sales and marketing....................... 140 973 1,720 8,734
Product and technology development........ 61 428 543 897
General and administrative................ 290 596 1,126 4,692
--------- --------- ---------- ----------
Total operating expenses.................... 491 1,997 3,389 14,323
--------- --------- ---------- ----------
Loss from operations........................ (470) (1,779) (2,154) (9,730)
Interest income (expense), net.............. (6) (18) 38 (73)
--------- --------- ---------- ----------
Net loss.................................... $ (476) $ (1,797) $ (2,116) (9,803)
========= ========= ========== ==========
Net loss per share:
Basic and diluted......................... $ (0.23) $ (0.20) $ (0.18) $ (0.70)
========= ========= ========== ==========
Weighted average shares outstanding:
Basic and diluted......................... 2,034,740 8,953,151 11,773,880 14,038,458
========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997 1998 1999
---- ----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents................................ $594 $ 49 $ 639 $ 1,389
Total assets............................................. 662 361 1,670 6,513
Total long-term debt..................................... -- -- -- --
Total stockholders' equity (deficiency).................. 530 (923) 28 (6,066)
</TABLE>
18
<PAGE> 26
SELECTED COMBINED FINANCIAL INFORMATION OF REAL MEDIA EUROPE
The following selected combined financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Real Media Europe's combined financial statements
and the notes thereto included elsewhere in this prospectus. The selected
combined statement of operations information for the three-year period ended
December 31, 1999 and the combined balance sheet information as of December 31,
1998 and 1999 are derived from the combined financial statements of Real Media
Europe, which have been audited by ATAG Ernst & Young AG, independent auditors,
and are included elsewhere in this prospectus. The selected combined statement
of operations information for the year ended December 31, 1996 and the combined
balance sheet information as of December 31, 1996 and 1997 are derived from the
combined financial statements of Real Media Europe, which have been audited by
ATAG Ernst & Young AG, independent auditors, and are not included in this
prospectus. The historical results are not necessarily indicative of the
operating results to be expected in the future.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998 1999
----- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS INFORMATION:
Revenue............................................. $ 289 $ 925 $ 5,436 $ 17,021
Cost of revenue..................................... 335 751 3,684 12,151
----- ------- ------- --------
Gross profit (loss)................................. (46) 174 1,752 4,870
----- ------- ------- --------
Operating expenses:
Sales and marketing............................... 294 730 2,000 4,626
Product and technology development................ -- 73 312 575
General and administrative........................ 360 612 1,405 2,946
----- ------- ------- --------
Total operating expenses............................ 654 1,415 3,717 8,147
----- ------- ------- --------
Loss from operations................................ (700) (1,241) (1,965) (3,277)
Interest expense, net............................... (5) (15) (55) (214)
----- ------- ------- --------
Net loss............................................ $(705) $(1,256) $(2,020) $ (3,491)
===== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1997 1998 1999
----- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
COMBINED BALANCE SHEET INFORMATION:
Cash and cash equivalents............................ $ -- $ 103 $ 191 $ 588
Total assets......................................... 139 1,087 3,410 7,509
Total long-term debt................................. 635 1,746 3,837 5,878
Total shareholder's equity (deficiency).............. (711) (1,389) (3,349) (6,397)
</TABLE>
19
<PAGE> 27
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
illustrates the effect of the business combination of Real Media, Inc. and Real
Media Europe, a wholly-owned subsidiary of PubliGroupe, that was completed on
March 15, 2000. See "Related Party Transactions -- Business Combination with
Real Media Europe." The unaudited pro forma combined condensed financial
information is based on the historical financial statements of Real Media, Inc.
and Real Media Europe. The unaudited pro forma combined condensed balance sheet
as of December 31, 1999 gives effect to the business combination as if it had
been completed at that date. The unaudited pro forma combined condensed
statement of operations for the year ended December 31, 1999 gives effect to the
business combination as if it had been completed on January 1, 1999.
ACCOUNTING TREATMENT
Real Media, Inc. plans to record the business combination with Real Media
Europe using the purchase method of accounting. Accordingly, the assets acquired
and liabilities assumed will be recorded at their estimated fair values, which
are subject to further adjustment based upon appraisals and other analyses. The
pro forma adjustments are based upon available information and assumptions that
Real Media, Inc. believes are reasonable at the time made. The unaudited pro
forma combined condensed financial information does not purport to present our
financial position or results of operations had the business combination
occurred on the date specified, nor are they necessarily indicative of the
financial position or results of operations that may be achieved in the future.
The unaudited pro forma combined condensed financial information should be read
in conjunction with the audited financial statements of Real Media, Inc. and the
notes thereto and the audited combined financial statements of Real Media Europe
and the notes thereto included elsewhere in this prospectus.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended December 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
REAL MEDIA, REAL MEDIA PRO FORMA PRO FORMA
INC. EUROPE ADJUSTMENTS REAL MEDIA, INC.
----------- ---------- ----------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue.................................. $ 8,115 $17,021 $ (293)(1) $ 24,843
Cost of revenue.......................... 3,522 12,151 (293)(1) 15,380
------- ------- -------- -----------
Gross profit............................. 4,593 4,870 -- 9,463
Operating expenses:
Sales and marketing.................... 8,734 4,626 -- 13,360
Product and technology development..... 897 575 -- 1,472
General and administrative............. 4,692 2,946 -- 7,638
Amortization of goodwill and
intangibles......................... -- -- 28,136(2) 28,136
------- ------- -------- -----------
Total operating expenses................. 14,323... 8,147 28,136 50,606
------- ------- -------- -----------
Loss from operations..................... (9,730) (3,277) (28,136) (41,143)
Other income (expense):
Interest income........................ 22 11 -- 33
Interest expense....................... (95) (225) -- (320)
------- ------- -------- -----------
Net loss................................. $(9,803) $(3,491) $(28,136) $ (41,430)
======= ======= ======== ===========
Basic and diluted loss per common
share ................................. $ (1.06)
===========
Number of shares used in computing basic
and diluted loss per share (3)......... 38,903,246
===========
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
combined
condensed financial information are integral parts of this statement.
20
<PAGE> 28
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of December 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
REAL MEDIA, REAL MEDIA PRO FORMA PRO FORMA
INC. EUROPE ADJUSTMENTS REAL MEDIA, INC.
----------- ---------- ----------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 1,389 $ 588 $ 5,177(4) $ 7,154
Accounts receivable, net............... 3,946 5,279 -- 9,225
Due from affiliates.................... 214 708 (595)(5) 327
Due from stockholder................... 46 -- -- 46
Prepaid and other current assets....... 70 120 -- 190
-------- ------- -------- --------
Total current assets..................... 5,665 6,695 4,582 16,942
Property and equipment, net.............. 610 714 1,324
Goodwill and intangibles................. -- -- 84,408(4) 84,408
Other.................................... 238 100 -- 338
-------- ------- -------- --------
Total assets............................. $ 6,513 $ 7,509 $ 88,990 $103,012
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Bank overdraft......................... $ -- $ 118 $ -- $ 118
Accounts payable....................... 3,761 3,451 -- 7,212
Accrued expenses....................... 1,307 2,822 -- 4,129
Due to affiliates...................... 328 1,074 (983)(4)(5) 419
Notes payable -- stockholders.......... 6,000 -- (6,000)(4) --
Capital lease obligations.............. -- 59 -- 59
Deferred revenue....................... 825 504 -- 1,329
Deferred revenue -- stockholder........ 358 -- (358)(5) --
-------- ------- -------- --------
Total current liabilities................ 12,579 8,028 (7,341) 13,266
Note payable............................. -- 5,878 (5,878)(4) --
Stockholders' equity (deficiency):
Preferred stock........................ -- -- 1(4) 1
Common stock........................... 14 711 (686)(4) 39
Additional paid-in capital............. 8,274 -- 95,786(4) 104,060
Deferred compensation.................. (162) -- -- (162)
Accumulated deficit.................... (14,192) (7,531) 7,531(4) (14,192)
Accumulated other comprehensive income
(loss).............................. -- 423 (423)(4) --
-------- ------- -------- --------
Total stockholders' equity
(deficiency)........................... (6,066) (6,397) 102,209 89,746
-------- ------- -------- --------
Total liabilities and stockholders'
equity (deficiency).................... $ 6,513 $ 7,509 $ 88,990 $103,012
======== ======= ======== ========
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
combined
condensed financial information are integral parts of this statement.
21
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
1. Reflects the elimination of inter-company revenue and expenses.
2. Reflects amortization of costs in excess of the net tangible assets acquired
in the business combination by use of the straight-line method over three
years.
3. The weighted average common shares outstanding used to calculate pro forma
net loss per common share assumes the issuance of 24,189,788 shares of Real
Media's common stock and 675,000 shares of Real Media's common stock issuable
upon the conversion of 450,000 shares of Real Media's Series A Convertible
Preferred Stock, which has been issued in connection with the business
combination, as if such shares were outstanding from the beginning of the
period presented.
4. Reflects the issuance of 24,189,788 shares of Real Media's common stock and
450,000 shares of Real Media's Series A Convertible Preferred Stock in
exchange for (i) all of the outstanding shares of Real Media Europe Holding's
common stock, (ii) the conversion of $6.0 million in notes payable and (iii)
the contribution to capital of $4.0 million.
<TABLE>
<S> <C> <C>
Value of shares issued...................................... $95,812,000
Cash received............................................... (4,000,000)
Conversion of notes......................................... (6,000,000)
Transaction costs........................................... 100,000
-----------
Total acquisition costs..................................... 85,912,000
Less net tangible assets acquired:
Real Media Europe's net tangible assets as of December 31,
1999................................................... $(6,397,000)
Notes payable to PubliGroupe contributed to capital....... 5,878,000
Inter-company balances due to PubliGroupe contributed to
capital................................................ 746,000
Capital contribution commitment........................... 1,277,000
-----------
Real Media Europe's net tangible assets acquired............ 1,504,000
-----------
Excess of cost over net tangible assets acquired............ $84,408,000
===========
Cash received............................................... $ 4,000,000
Capital contribution commitment............................. 1,277,000
Transaction costs........................................... (100,000)
-----------
Pro forma adjustment to cash................................ $ 5,177,000
===========
Intercompany balances due to PubliGroupe contributed to
capital................................................... $ 746,000
Intercompany balances between Real Media, Inc. and Real
Media Europe (see note 2 below)........................... 237,000
-----------
Pro forma adjustment to due to affiliates................... $ 983,000
===========
</TABLE>
We have made a preliminary allocation to intangible assets of cost in excess
of the net tangible assets acquired. Real Media Europe's historical tangible
assets and liabilities are estimated to approximate fair value. However, there
can be no assurance that the actual allocation will not differ significantly
from the pro forma allocation.
5. Reflects the elimination of inter-company balances.
22
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The historical information discussed below is derived from the audited
financial statements of the separate operations of Real Media, Inc. and Real
Media Europe for each of the periods presented. You should refer to the
unaudited pro forma combined condensed financial statements and related notes
for information regarding our operations on a consolidated basis.
OVERVIEW
Real Media is a global provider of comprehensive Internet advertising
solutions for web sites and advertisers. We provide brand-focused ad sales
representation, technology for planning and delivery of Internet advertising,
and media and marketing services to web sites and advertisers.
Real Media, Inc. was incorporated in May 1995 in Delaware. Following its
founding, Real Media, Inc. began developing its ad management software
technology, Open AdStream(TM), and creating its web site portfolio strategy. In
1995, Real Media, Inc. had no revenue, and the costs of its initial activities
were paid directly by its founding stockholders. In 1996, Real Media, Inc. began
to market its products and services in the United States.
Real Media Europe comprises businesses that commenced operations in
February 1996, when PubliGroupe established an online advertising business in
Switzerland. In December 1996, PubliGroupe entered into technology licensing and
joint marketing agreements with Real Media, Inc. to develop an Internet ad sales
representation business in Europe and began offering Open AdStream(TM) to its
customers in Europe. Throughout 1997 and 1998, the European operations expanded
with the establishment of offices located in Germany, the United Kingdom and
France.
In December 1996, PubliGroupe made its initial equity investment in Real
Media, Inc., concurrent with entering into the technology licensing and joint
marketing agreements noted above. PubliGroupe made subsequent equity investments
in Real Media, Inc. in June 1997 and March 1999. Advance Internet made its
initial equity investment in Real Media, Inc. in April 1998 and made subsequent
investments in March and August 1999.
In August 1999, in connection with discussions regarding a potential
business combination and to provide working capital to Real Media, Inc.
PubliGroupe entered into a commitment to lend Real Media, Inc. $10.0 million to
be evidenced by promissory notes convertible into common stock of Real Media,
Inc. upon the completion of the business combination. Real Media, Inc. had
borrowed all $10.0 million available under this commitment as of February 9,
2000. On February 8, 2000, Real Media, Inc. and PubliGroupe finalized their
agreement regarding the business combination.
On March 15, 2000, Real Media, Inc. and PubliGroupe completed the business
combination, in which PubliGroupe transferred to Real Media, Inc.:
- All of the stock of Real Media Europe's holding company. The holding
company owns 100% of Real Media SARL, Real Media Deutschland GmbH, Real
Media Holding (UK) Ltd. and Real Media (UK) Ltd, which conduct our
business in France, Germany and the United Kingdom, respectively. The
holding company also owns 100% of Real Media Technology S.A., which
provides technical support to our European operations, and 49% of Real
Media S.A., which conducts our business in Switzerland.
- Real Media Limited, which conducts our business in Hong Kong.
- Real Media Pte Ltd., which conducts our business in Singapore.
In exchange for the transfer of the stock of Real Media Europe's holding company
and $10.0 million borrowed by Real Media, Inc. from PubliGroupe, Real Media,
Inc. issued to PubliGroupe 24,189,788 shares of common stock and 450,000 shares
of Series A Convertible Preferred Stock. The preferred stock will convert into
675,000 shares of our common stock immediately upon the completion of this
offering.
23
<PAGE> 31
Real Media, Inc. also paid PubliGroupe $10.00 in exchange for the stock of Real
Media Limited and Real Media Pte Ltd. Immediately after this offering,
PubliGroupe will own approximately 63.1% of the issued and outstanding common
stock of Real Media, Inc. See "Related Party Transactions -- Business
Combination with Real Media Europe."
As a result of the business combination, we own a 49% interest in Real
Media S.A. We have an option to acquire the remaining interest of that company
from PubliGroupe, which we intend to exercise in 2000. In addition, PubliGroupe
will have the option to sell to us the remaining interest in Real Media S.A. We
will consolidate the results of operations of Real Media S.A., recognizing 100%
of the revenue and the losses but only 49% of the profits, if any, of that
company until we acquire PubliGroupe's 51% interest. See "Related Party
Transactions -- Business Combination with Real Media Europe."
The business combination will be accounted for as a purchase of Real Media
Europe's holding company by Real Media, Inc. and will create approximately $84.4
million of goodwill and intangibles to be amortized on the straight-line basis
over three years.
We currently generate revenue from offering a combination of ad sales, the
sale or license of Open AdStream(TM) and related products and services, and
media and marketing services. A significant percentage of our revenue is
generated from over 300 web sites that contract for both advertising sales and
technology related services. To date, we have generated an insignificant amount
of revenue directly attributable to media and marketing services, but we expect
the related revenue to increase as a percentage of our total revenue. For the
year ended December 31, 1999, virtually all of our revenue was generated by
sales in the United States, France, Germany, Switzerland and the United Kingdom.
We sell the advertising space of Excite in France and Germany, which accounted
for approximately 12% of our pro forma combined revenue for 1999.
Advertising revenue is derived from advertisers who place ads on the web
sites in the Real Media Network on a purchase order basis, net of any
commissions paid to ad agencies representing the advertisers. The cost to
advertisers of placing ads is generally determined on a cost per thousand ads
delivered basis. Ad sales revenue is recognized in the period in which the
advertisement is delivered to the web sites, provided that no significant
obligations remain to be performed. We bill and collect the amounts from the
advertisers or ad agencies. We bear the risk of loss from the non-collection of
fees payable from advertisers for ads sold. We purchase ad space from web sites
and include the cost of this space in "cost of revenue."
Technology revenue is composed of revenue from the licensing and
maintenance and support of our Open AdStream software. Revenue from software
licensing agreements is recognized upon delivery of the software when collection
is probable, all license payments are due within one year, and the license fee
is fixed and determinable. Revenue from maintenance and support services is
recognized ratably over the lives of the maintenance agreements, which typically
do not exceed one year. Maintenance and support revenue received in advance of
the related services is recorded as deferred revenue. Expenses related to
maintenance and support revenue are primarily payroll costs incurred to deliver,
modify and support the software. These expenses are included in cost of revenue.
Pricing for our Internet advertising products and services is based on a
standard matrix, and component prices are influenced by various factors,
including the number of products and services purchased. For example, software
license fees may be discounted in return for more favorable ad space cost.
Sales and marketing expenses are composed primarily of salaries and
benefits expenses, including commissions, for sales and marketing staff and also
include sales support, travel, advertising, trade show costs and marketing
materials costs.
Product and technology expenses consist primarily of salaries and benefits
for all technical and engineering staff, and consulting fees. Salaries and
benefits for maintenance and support staff are included in cost of revenue.
24
<PAGE> 32
General and administrative expenses consist primarily of salaries and
benefits for all other staff, professional fees, facilities and general office
expenses.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Revenue
Real Media, Inc.'s revenue was $8.1 million for the year ended December 31,
1999, a 286% increase from $2.1 million in the prior year. This increase in
revenue was primarily attributable to growth in technology revenue, resulting
from a greater number of Open AdStream(TM) licenses sold, at higher average
prices, and higher maintenance and support revenue, due to a larger installed
base of web site licensees contracting for such services, and increased
advertising revenue, resulting from an increase in the number of advertisers and
ads delivered. It is expected that growth in advertising revenue will outpace
growth in technology revenue in 2000.
Real Media Europe's revenue was $17.0 million for the year ended December
31, 1999, a 213% increase from $5.4 million in the prior year. This increase in
revenue was primarily attributable to higher advertising sales, resulting from
an increase in the number of advertisers and ads delivered. Technology revenue
also increased during the period, but at a slower rate, and had a lesser impact
in absolute terms.
Gross Profit
Real Media, Inc.'s gross profit was $4.6 million and $1.2 million, or 57%
and 59% of revenue, for the years ended December 31, 1999 and 1998,
respectively. The gross profit margin percentage decreased due to higher
technology support costs, and the implementation of certain lower margin
promotional campaigns. It is anticipated that gross profit margin percentages
will continue to decline in 2000 as advertising sales growth begins to exceed
technology sales growth.
Real Media Europe's gross profit was $4.9 million and $1.8 million, or 29%
and 32% of revenue, for the years ended December 31, 1999 and 1998,
respectively. This decrease in the gross profit margin percentage was primarily
due to the rapid growth of lower margin advertising sales relative to technology
sales growth.
Operating Expenses
Sales and Marketing. Real Media, Inc.'s sales and marketing expenses were
$8.7 million for the year ended December 31, 1999, a 408% increase from $1.7
million in the prior year. This increase in sales and marketing expenses
reflects the additional salary, benefits and commission expenses incurred with
the expansion of the sales force, the hiring of additional marketing and sales
support personnel and greater advertising expenditures incurred in connection
with a major brand awareness campaign that began in September 1999. Additional
increases in staffing and advertising expenditures will continue in 2000.
Real Media Europe's sales and marketing expenses were $4.6 million for the
year ended December 31, 1999, a 131% increase from $2.0 million in the prior
year. This increase in sales and marketing expenses reflects the additional
salary, benefits and commission expenses incurred with the expansion of the
sales force, the hiring of additional marketing personnel and greater
advertising expenditures. It is anticipated that advertising expenses, which
have been lower in Europe than in the United States due to better brand
recognition and less competition, will grow substantially in 2000 as Real Media
Europe enters new markets.
Product and Technology Development. Real Media, Inc.'s product and
technology development expenses were $897,000 for the year ended December 31,
1999, a 65% increase from $543,000 in the prior year. This increase in product
and technology development expenses was principally due to the hiring of
software engineering personnel to develop enhanced features incorporated into
new releases of Open AdStream(TM). Compensation expense for additional research
and development, product enhancement and quality assurance personnel is expected
to increase significantly in 2000.
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<PAGE> 33
Real Media Europe relied on the product development efforts of Real Media,
Inc., licensing its technology from Real Media, Inc. for sale or licensing to
web sites in Europe. Real Media Europe maintained a technology team to provide
customized solutions of Open AdStream(TM). The related costs of the team were
$575,000 in the year ended December 31, 1999, an 84% increase from $312,000 in
the prior year. This increase in product and technology development expenses was
principally due to the hiring of additional personnel to serve a growing
installed customer base.
General and Administrative. Real Media, Inc.'s general and administrative
expenses were $4.7 million for the year ended December 31, 1999, a 317% increase
from $1.1 million in the prior year. This increase in general and administrative
expenses was primarily related to increased personnel, professional fees and
facilities expenses necessary to support growth, including the opening of a
Miami office to service Latin America. General and administrative expenses are
expected to continue to increase as a result of hiring additional senior
management, accounting and information systems personnel and from additional
facilities and infrastructure costs to support the growth of Real Media, Inc.'s
business and operations as a public company.
Real Media Europe's general and administrative expenses were $2.9 million
for the year ended December 31, 1999, a 110% increase from $1.4 million in the
prior year. This increase in general and administrative expenses was primarily
related to increased personnel and other expenses associated with increased
activity levels. These costs are expected to continue to increase to support the
growth of the European businesses and expansion into new markets in Austria,
Italy, the Netherlands, Spain and Sweden, and as Real Media Europe begins to
perform in-house administrative functions that were previously performed by
PubliGroupe.
Income taxes
No income tax benefits were recorded for either of the periods presented.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Revenue
Real Media, Inc.'s revenue was $2.1 million for the year ended December 31,
1998, a 280% increase from $553,000 in the prior year. This increase in revenue
was due to growth in both advertising and technology revenue. Increases in the
number of advertisers and ads delivered drove growth in advertising revenue.
Technology revenue growth was driven by an increase in the number of Open
AdStream(TM) licenses sold, at higher average prices, and higher maintenance and
support revenue, due to a larger installed base of web site licensees
contracting for such services.
Real Media Europe's revenue was $5.4 million for the year ended December
31, 1998, a 488% increase from $925,000 in the prior year. This increase in
revenue was primarily attributable to higher advertising sales, stemming from
the launching of Real Media France in January 1998, and more significant
contributions from operations in the United Kingdom and Germany, which did not
begin to generate revenue until the fourth quarter of 1997. Technology revenue
increased at a faster rate but was smaller on an absolute basis.
Gross Profit
Real Media Inc.'s gross profit was $1.2 million and $218,000, or 59% and
39% of revenue, for the years ended December 31, 1998 and 1997, respectively.
Gross profit margin increased because higher margin technology sales accounted
for a greater proportion of revenue generated in the year ended December 31,
1998.
Real Media Europe's gross profit was $1.8 million and $174,000, or 32% and
19% of revenue, for the years ended December 31, 1998 and 1997, respectively.
Gross profit margin increased because higher margin technology sales accounted
for a greater proportion of revenue generated in the year ended December 31,
1998.
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<PAGE> 34
Operating Expenses
Sales and Marketing. Real Media, Inc.'s sales and marketing expenses were
$1.7 million for the year ended December 31, 1998, a 77% increase from $973,000
in the prior year. This increase in sales and marketing expenses primarily
reflects an increase in advertising expenditures, as well as the hiring of new
sales and marketing personnel and related costs such as travel and
entertainment.
Real Media Europe's sales and marketing expenses were $2.0 million for the
year ended December 31, 1998, a 174% increase from $730,000 in the prior year.
This increase in sales and marketing expenses was primarily a result of
increased sales and marketing personnel costs as Real Media Europe opened a new
office in Paris, and to a lesser extent, increased advertising expenditures, as
Real Media Europe entered new markets.
Product and Technology Development. Real Media, Inc.'s product and
technology development expenses were $543,000 for the year ended December 31,
1998, a 27% increase from $428,000 in the prior year. This increase in product
and technology development expenses was principally due to the hiring of
additional personnel and related costs.
Real Media Europe's product and technology development expenses were
$312,000 for the year ended December 31, 1998, a 327% increase from $73,000 in
the prior year. The increase in product and technology development expenses was
attributable to higher salary, benefits and related expenses incurred in the
expansion of the European technology team.
General and Administrative. Real Media, Inc.'s general and administrative
expenses were $1.1 million for the year ended December 31, 1998, an 89% increase
from $596,000 in the prior year. This increase in general and administrative
expenses was primarily related to increases in personnel, facilities and general
office expenses relating to Real Media, Inc.'s growth, including a full year of
operation for the San Francisco office, which was opened in the fourth quarter
of 1997.
Real Media Europe's general and administrative expenses were $1.4 million
for the year ended December 31, 1998, a 130% increase from $612,000 in the prior
year. This increase in general and administrative expenses was primarily related
to the first full year of Real Media Europe's operations in France, Germany and
the United Kingdom.
Income taxes
No income tax benefits were recorded for either of the periods presented.
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<PAGE> 35
PRO FORMA COMBINED CONDENSED AND HISTORICAL QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited pro forma combined condensed
quarterly results of operations and unaudited historical quarterly results of
operations of Real Media, Inc. and Real Media Europe for the periods indicated
in dollars and as a percentage of revenue. The pro forma information reflects
the business combination of Real Media, Inc. and Real Media Europe as if it were
completed on January 1, 1999. Goodwill and other intangibles are being amortized
over three years. In the opinion of management, this information has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this prospectus, and all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited pro forma consolidated quarterly results of
operations. The quarterly data should be read in conjunction with the audited
financial statements of Real Media, Inc., the audited combined financial
statements of Real Media Europe and the notes to the financial statements
appearing elsewhere in this prospectus.
Pro forma
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS ENDED
-------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C>
Revenue........................................... $ 3,368 $ 4,737 $ 5,800 $ 10,938
Cost of revenue................................... 1,893 3,044 3,598 6,845
------- ------- -------- --------
Gross profit...................................... 1,475 1,693 2,202 4,093
Operating expenses:
Sales and marketing............................. 1,383 1,653 3,228 7,096
Product and technology development.............. 276 357 413 426
General and administrative...................... 1,331 1,341 1,717 3,249
Amortization of goodwill and intangibles........ 7,034 7,034 7,034 7,034
------- ------- -------- --------
Total operating expenses.......................... 10,024 10,385 12,392 17,805
------- ------- -------- --------
Loss from operations.............................. (8,549) (8,692) (10,190) (13,712)
Interest income (expense), net.................... (33) (34) (47) (173)
------- ------- -------- --------
Net loss.......................................... $(8,582) $(8,726) $(10,237) $(13,885)
======= ======= ======== ========
As a percentage of revenue:
Revenue........................................... 100% 100% 100% 100%
Cost of revenue................................... 56 64 62 63
------- ------- -------- --------
Gross profit...................................... 44 36 38 37
Operating expenses:
Sales and marketing............................. 41 35 56 65
Product and technology development.............. 8 8 7 4
General and administrative...................... 40 28 30 29
Amortization of goodwill and intangibles........ 209 148 121 64
------- ------- -------- --------
Total operating expenses.......................... 298 219 214 162
------- ------- -------- --------
Loss from operations.............................. (254) (183) (176) (125)
Interest income (expense), net.................... (1) (1) (1) (2)
------- ------- -------- --------
Net loss.......................................... (255)% (184)% (177)% (127)%
======= ======= ======== ========
</TABLE>
The table above gives effect to the elimination of intercompany revenue and
expenses between Real Media, Inc. and Real Media Europe and the amortization of
cost in excess of tangible assets acquired in the business combination by use of
the straight-line method over three years.
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<PAGE> 36
Our revenue increased during each quarter of 1999, rising by 41% from the
first quarter to the second quarter, by 22% from the second quarter to the third
quarter, and by 89% from the third quarter to the fourth quarter. Between the
second quarter and the third quarter of 1999, the revenue growth rate was
adversely impacted by seasonal slowdown in Europe.
Gross profit increased sequentially in all quarters in 1999. Over this
period, gross profit as a percentage of revenue fluctuated due to changes in the
mix of revenues between advertising and technology sales.
Increases in total operating expenses were due primarily to an increase in
salaries and benefits resulting from increased hiring of sales and marketing,
technical and administrative personnel required to sustain our growth and
develop our infrastructure for future growth.
Historical Real Media, Inc.
<TABLE>
<CAPTION>
HISTORICAL THREE MONTHS ENDED
-------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C>
Revenue........................................... $ 1,177 $ 1,430 $ 2,212 $ 3,296
Cost of revenue................................... 379 495 988 1,660
------- ------- -------- --------
Gross profit...................................... 798 935 1,224 1,636
Operating expenses:
Sales and marketing............................. 817 786 2,015 5,116
Product and technology development.............. 160 201 280 256
General and administrative...................... 814 814 1,064 2,000
------- ------- -------- --------
Total operating expenses.......................... 1,791 1,801 3,359 7,372
------- ------- -------- --------
Loss from operations.............................. (993) (866) (2,135) (5,736)
Interest income (expense), net.................... 2 12 (2) (85)
------- ------- -------- --------
Net loss.......................................... $ (991) $ (854) $ (2,137) $ (5,821)
======= ======= ======== ========
As a percentage of revenue:
Revenue........................................... 100% 100% 100% 100%
Cost of revenue................................... 32 35 45 50
------- ------- -------- --------
Gross profit...................................... 68 65 55 50
Operating expenses:
Sales and marketing............................. 69 55 91 155
Product and technology development.............. 14 14 13 8
General and administrative...................... 69 57 48 61
------- ------- -------- --------
Total operating expenses.......................... 152 126 152 224
------- ------- -------- --------
Loss from operations.............................. (84) (61) (97) (174)
Interest income (expense), net.................... -- 1 -- (3)
------- ------- -------- --------
Net loss.......................................... (84)% (60)% (97)% (177)%
======= ======= ======== ========
</TABLE>
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<PAGE> 37
Historical Real Media Europe
<TABLE>
<CAPTION>
HISTORICAL THREE MONTHS ENDED
-------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C>
Revenue........................................... $ 2,258 $ 3,356 $ 3,641 $ 7,766
Cost of revenue................................... 1,581 2,598 2,663 5,309
------- ------- -------- --------
Gross profit...................................... 677 758 978 2,457
Operating expenses:
Sales and marketing............................. 566 867 1,213 1,980
Product and technology development.............. 116 156 133 170
General and administrative...................... 517 527 653 1,249
------- ------- -------- --------
Total operating expenses.......................... 1,199 1,550 1,999 3,399
------- ------- -------- --------
Loss from operations.............................. (522) (792) (1,021) (942)
Interest income (expense), net.................... (35) (46) (45) (88)
------- ------- -------- --------
Net loss.......................................... $ (557) $ (838) $ (1,066) $ (1,030)
======= ======= ======== ========
As a percentage of revenue:
Revenue........................................... 100% 100% 100% 100%
Cost of revenue................................... 70 77 73 68
------- ------- -------- --------
Gross profit...................................... 30 23 27 32
Operating expenses:
Sales and marketing............................. 25 26 33 25
Product and technology development.............. 5 5 4 2
General and administrative...................... 23 16 18 16
------- ------- -------- --------
Total operating expenses.......................... 53 46 55 44
------- ------- -------- --------
Loss from operations.............................. (23) (24) (28) (12)
Interest income (expense), net.................... (2) (1) (1) (1)
------- ------- -------- --------
Net loss.......................................... (25)% (25)% (29)% (13)%
======= ======= ======== ========
</TABLE>
SEASONALITY
Our advertising revenue has historically been, and we expect it to continue
to be, subject to seasonal fluctuations because advertisers generally place
fewer advertisements during the first and third quarters of each year.
Seasonality is more pronounced in Europe than in the United States. In Europe,
the third quarter is typically substantially weaker than the fourth quarter, and
often equal to or slightly lower than the second quarter. If as expected,
advertising revenue increases at a faster pace than our technology revenue,
these seasonal fluctuations may become more significant. Additionally,
expenditures by advertisers tend to be cyclical, reflecting overall economic
conditions, as well as budgeting and buying patterns.
LIQUIDITY AND CAPITAL RESOURCES
Real Media, Inc.
From 1996 through December 31, 1999, Real Media, Inc. has financed its
operations through a combination of private placements of equity, debt and
convertible debt to its two major stockholders, PubliGroupe and Advance
Internet. Real Media, Inc. has used the net proceeds from these financings,
totaling approximately $14.5 million, to develop and market its Internet
advertising solutions, to hire additional personnel, and for general corporate
purposes related to the expansion of the business.
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<PAGE> 38
Net cash used by Real Media, Inc.'s operating activities for the year ended
December 31, 1999 was $8.2 million. Net cash used by operating activities was
$2.1 million and $1.6 million for the years ended December 31, 1998 and 1997,
respectively. Cash used for the year ended December 31, 1999 resulted primarily
from net losses and increases in accounts receivable partially offset by
increases in accounts payable and other current liabilities. Cash used from
operating activities for the two prior years resulted primarily from net losses.
Net cash used by Real Media, Inc.'s investing activities in the year ended
December 31, 1999 was $650,000, consisting of purchases of property and
equipment. Similar purchases account for the cash used in investing activities
of $73,000 and $80,000 in the years ended December 31, 1998 and 1997,
respectively.
Net cash provided by Real Media, Inc.'s financing activities during the
year ended December 31, 1999 totaled $9.6 million, and consisted of two private
equity placements aggregating $3.6 million and convertible debt issuances of
$6.0 million. See "-- Overview." Net cash provided by financing activities in
1998 was $2.7 million, consisting of a $3.0 million private equity placement and
the issuance of stockholder notes in the amount of $225,000, offset by the
repayment of stockholder notes of $508,000. In 1997, Real Media, Inc. raised a
total of $1.2 million through the issuance of common stock ($330,000) and
stockholder notes ($834,000). From 1997 through 1999, Real Media, Inc. incurred
interest expense of approximately $150,000 on amounts due to PubliGroupe.
Real Media Europe
Real Media Europe has been funded solely by loans and equity contributions
by PubliGroupe. From 1996 through December 31, 1999, Real Media Europe has
received net proceeds of approximately $6.7 million to launch, develop and
operate offices in Switzerland, Germany, the United Kingdom and France.
Net cash used by Real Media Europe's operating activities for the year
ended December 31, 1999 was $1.4 million. Net cash used by operating activities
was $1.5 million and $1.4 million for the years ended December 31, 1998 and
1997, respectively. Cash used for all periods resulted primarily from net losses
and increases in accounts receivable partially offset by increases in accounts
payable and other current liabilities.
Net cash used in investing activities in the year ended December 31, 1999
was $494,000, consisting of purchases of $725,000 of property and equipment, net
of proceeds from the sale of marketable securities of $231,000. Net cash used in
investing activities for the year ended December 31, 1998 was $509,000,
consisting of purchases of property and equipment and marketable securities of
$283,000 and $226,000, respectively. Purchases of property and equipment account
for the cash used in investing activities of $156,000 in the year ended December
31, 1997.
Net cash provided by financing activities during the year ended December
31, 1999 totaled $2.3 million and consisted of advances from PubliGroupe. Net
cash provided by financing activities in 1998 was $2.1 million, consisting of a
capital contribution from PubliGroupe of $170,000 and loans from PubliGroupe of
$1.9 million. In 1997, Real Media Europe received $1.6 million in financing from
PubliGroupe, consisting of $531,000 in capital contributions and $1.1 million in
borrowings. From 1997 through 1999, Real Media Europe incurred interest expense
of approximately $290,000 on amounts due to PubliGroupe.
Consolidated Real Media
We currently anticipate that operating expenses will increase by more than
100% in 2000 and that these operating expenses will be a material use of our
cash resources. We currently have working capital commitments relating to recent
acquisitions that total approximately $1.5 million through December 31, 2000,
and we expect to incur an increase in capital expenditures consistent with our
anticipated growth in operations, infrastructure and personnel. Prior to the
completion of this offering, we expect funding for our
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<PAGE> 39
continued expansion to come from an aggregate of up to $15.0 million to be
loaned to us by PubliGroupe and Advance Internet under a stockholders voting
agreement, which will be repaid from the proceeds of this offering. See "Related
Party Transactions -- Stockholders Voting Agreement." In the event that this
offering is not completed, we may need to obtain financing from other sources in
excess of the $15.0 million committed by PubliGroupe and Advance Internet. After
the completion of this offering, we expect funding for our continued expansion
to come from the proceeds from this offering, which we believe, together with
our existing cash, will be sufficient to meet our currently anticipated cash
needs for working capital, repayment of debt and capital expenditures for at
least the next twelve months. However, our industry is evolving rapidly, and our
cash needs may change dramatically in response to future events such as changes
in competition and technological developments.
RECENT ACCOUNTING PRONOUNCEMENTS
We do not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on our net results of operations,
financial position or cash flows.
CURRENCY HEDGING INSTRUMENTS
We transact business in various currencies. Accordingly, we are subject to
exposure from adverse movements in currency exchange rates. This exposure is
primarily related to revenues and operating expenses in several European
countries, particularly France, Germany, Switzerland and the United Kingdom,
denominated in the respective local currency.
We currently do not use financial instruments to hedge operating expenses
in any of the countries in which we operate. Instead, we believe that a natural
partial hedge exists, because local currency revenues will substantially offset
the operating expenses denominated in the respective local currency. We assess
the need to utilize financial instruments to hedge currency exposures on an
ongoing basis.
We do not use derivative financial instruments for speculative trading
purposes, nor do we hedge our foreign currency exposure in a manner that offsets
the effects of changes in exchange rates. See "Risk Factors -- Risks Relating to
Real Media -- We face risks associated with our international operations and
plans for expansion."
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<PAGE> 40
BUSINESS
OVERVIEW
Real Media provides comprehensive Internet advertising solutions for web
sites and advertisers throughout the world. Web sites use our products and
services to increase ad sales, to improve pricing for their ad space and to
manage the targeting and delivery of advertisements to site users. We focus on
developing relationships with leading web sites worldwide whose brands are
widely recognized and trusted by Internet users. These relationships allow us to
offer advertisers opportunities to target their ads to large online audiences in
environments that are favorable to generating user interest and response.
Our complementary products and services for Internet advertising consist
of:
The Real Media Network. We provide ad sales representation services to
over 1,000 web sites in 33 countries, which we call the Real Media Network. We
organize our network by country or geographic region into portfolios that
include several categories of sites, such as portals, general interest sites and
specific interest sites. Our global sales force sells the advertising space of
portfolio web sites to advertisers by interest category, such as finance or
travel, or by geographic relevance, such as local online newspapers. We also
provide customized opportunities through the sponsorship of specific web sites
by advertisers or the combination of online and offline advertising. Our sales
process emphasizes the unique qualities of each site including brand and user
base characteristics. During 1999, over 900 advertisers throughout the world
have used our network, including British Telecom, Ford Motor Company, IBM,
Intel, Microsoft, Swisscom and UBS.
Open AdStream(TM). Our proprietary ad management software provides web
sites with the technology to manage all aspects of targeted ad campaigns,
including campaign planning, ad delivery, measurement and reporting, and allows
them to manage sales relationships with advertisers and ad agencies. Open
AdStream(TM) enables web sites to collect information resulting from user
interaction with site content and advertisements and maintain exclusive
ownership over this data. Currently over 700 web sites worldwide use Open
AdStream(TM). Our top 25 web sites use Open AdStream(TM) to deliver over six
billion advertisements per month.
Media and Marketing Services. We offer a suite of media and marketing
services to web sites that include user base analysis and profiling tools, as
well as consulting and other services.
We currently provide our products and services to over 1,400 web sites in
40 countries, including key operations in the United States (founded May 1995),
Switzerland (February 1996), Germany (October 1997), the United Kingdom (October
1997) and France (January 1998).
INDUSTRY BACKGROUND
THE EMERGENCE OF GLOBAL INTERNET ADVERTISING
The Internet has rapidly emerged as an important medium for facilitating
communication, disseminating information and conducting commerce. Growth in the
number of Internet users is expected to continue as new technologies are
developed and adopted, as web access and bandwidth increase, and as Internet
content improves and becomes more dynamic. International Data Corporation
estimates that the number of worldwide Internet users will grow from about 142
million in 1998 to approximately 502 million in 2003. The percentage of these
users residing outside the United States is also expected to increase, growing
from approximately 56% in 1998 to approximately 65% in 2003.
As the number of people using the Internet worldwide grows, advertisers are
predicted to increase spending on online advertising. Forrester Research
projects that total worldwide online advertising expenditures will grow from an
estimated $3.3 billion in 1999 to $33.1 billion in 2004 and that a portion of
this increase will come from offline budgets. Moreover, Forrester Research
predicts that the largest area of growth for online advertising will occur
outside the United States; non-U.S. online advertising expenditures are expected
to grow from 16% of the total in 1999 to 33% in 2004. The Direct Marketing
Association
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<PAGE> 41
expects that worldwide expenditures for online direct marketing will grow from
approximately $603 million in 1998 to approximately $5.3 billion in 2003.
We believe that increasing acceptance of the Internet as an advertising
medium, combined with further advances in technology, will lead to new forms of
interactive advertising delivered across emerging platforms such as digital
television and wireless communication devices. In particular, Forrester Research
estimates that advertising revenue via interactive television, which brings
together traditional broadcast content with interactive content and
advertisements, will reach $9.4 billion by 2004.
ADVANTAGES OF INTERNET ADVERTISING OVER TRADITIONAL MEDIA
The interactive nature of the Internet offers advertisers several distinct
advantages over traditional media such as television, radio and print. Internet
users communicate with web sites in multiple ways, such as registering for the
sites, requesting information and purchasing goods or services. Internet ad
management software enables sites to capture the data generated by this
interaction, which may include user demographics and preferences as well as
transactional data. Analyzing this data permits web sites to better understand
the characteristics of their user base and communicate this detailed information
to advertisers, providing several advantages:
Ability to Target Specific/Individual Audiences. Internet ad management
software enables web sites to deliver different advertisements to different
users who are viewing the same web page at the same time. As a result, sites
that can identify individuals and gather information through user interaction
with the site can offer advertisers the ability to target or personalize their
messages to specific audiences or individuals.
Ability to Track and Measure Advertising Effectiveness. Internet ad
management software enables web sites to track and measure the effectiveness of
ad campaigns as they are running; in traditional media, advertisers receive
general reports at the conclusion of a campaign. The ability to receive
continuous campaign feedback enables advertisers and direct marketers to refine
campaigns in "real time" according to actual customer behavior or product
availability.
Greater Cost-Effectiveness. Internet advertising campaigns tend to be more
cost-effective than similar types of traditional media campaigns because
advertisers can better target their messages to individuals, modify campaigns as
they are delivered and pay less, in general, to reach a similar audience size.
Additionally, the Internet allows advertisers to more efficiently deliver
campaigns in multiple markets worldwide by allowing ads to be delivered
simultaneously to a number of different web sites without having to purchase ad
space from each site separately. According to data from the Direct Marketing
Association, each dollar spent during 1998 on Internet advertising generated
over $7.50 in sales, versus $5.00 and $6.25 for television and radio
advertising, respectively.
CHALLENGES OF GLOBAL INTERNET ADVERTISING
While advertising online offers many advantages over traditional
advertising, branded web sites and advertisers face significant challenges in
maximizing the full value of global Internet advertising opportunities.
Challenges for Branded Web Sites
Increasing Ad Sales. Web sites face numerous hurdles in increasing the
sale of their ad inventory, including the time and expense of building an
experienced sales force with national or global coverage, the lack of access to
media buyers at large ad agencies, and the difficulty of implementing the
necessary billing and collections procedures. These challenges can require
significant management attention and resources that could otherwise be devoted
to other aspects of a site's business. As a result, many web sites choose to
outsource their ad sales function to experienced parties that have extensive and
established Internet ad sales organizations and who typically represent a
portfolio or network of many web sites.
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Maintaining and Improving Advertising Rates. Several Internet advertising
techniques can negatively impact the rates sites can charge to advertisers for
their ad space. These techniques include:
- Centralized, Profile-Based Advertising. This technique involves a
third-party ad sales representative selling the ad inventory of
multiple web sites based solely on aggregated user characteristics.
This method places little or no emphasis on the value of the site's
brand during the sales process. Web sites that permit their ad space
to be sold in this manner risk losing pricing power as advertisers
discount the significant value of placing ads on sites with well
known, trusted brands.
- Remnant Inventory Sales. Most web sites have significant amounts of
unsold, or remnant, ad inventory. Many web sites put themselves at
risk of diluting their brand value by selling remnant ad inventory to
advertisers at rates that are much lower than the site's published
rates. While providing incremental revenue in the short-term, such
selling may reduce the site's ability to maintain premium pricing over
the long term.
Selecting Appropriate Ad Management Technology. In choosing ad management
technology, web sites must consider the following factors:
- Business Issues: Web sites must determine how important it is for
them to be able to:
-- control the collection and use of user data generated by user
interaction with the web sites' content and advertisements;
-- customize ad targeting, delivery and reporting features to meet
their specific needs; and
-- integrate ad management technology with existing internal systems or
other technologies.
Local ad management software solutions, which are installed and
operated at web sites, typically offer greater flexibility in
addressing these issues than central serving solutions, which
manage ad delivery and data collection from a remote location.
- Technical Issues: Ad management technologies vary widely in terms
of technical performance. Compared to central serving, local
software solutions generally deliver ads to users at a faster rate,
which can improve user viewing experience and increase the number of
ads delivered. Faster delivery rates typically occur for the
following reasons:
-- ad delivery decisions are made at the site, instead of from a remote
location, reducing communication delays;
-- the number of steps required to deliver an ad is typically lower;
and
-- central serving solutions may suffer from processing bottlenecks
that arise because ad delivery decisions are made simultaneously for
a large number of sites, especially during times of peak user
traffic.
- Total Cost of Ownership: Sites using local software solutions incur
fixed installation and maintenance costs while those that use central
serving solutions typically pay on a per-ad-delivered basis. Local
software solutions allow sites to leverage an infrastructure
investment instead of paying fees each time an ad is delivered. As a
result, purchasing ad management software may cost less over time than
a central serving alternative for sites with high levels of user
traffic.
Realizing Value from Proprietary User Information. User interaction with
web sites generates data that can be gathered and analyzed to better understand
user base characteristics and enable targeted advertising. Sites that collect
user information on their own servers retain access to and control over this
proprietary asset and can capture all of the resulting value generated by using
such data to target advertising on their sites. Web sites may also choose to
rely on central serving or profiling companies to collect user information,
which is then co-owned between the third party and the site and typically
combined by the third party with data from other sites. Once collected, such
information could be used in
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ways that are competitive to the sites' interests, such as to enhance targeted
direct marketing campaigns on rival sites.
Responding to User Privacy Concerns. Web sites have come under increased
scrutiny with respect to their privacy policies and their handling of user
information. While users typically provide information to web sites through
registration and interaction with content, users may not understand that this
information may be shared with third parties. Legislatures worldwide have
enacted or are considering enacting restrictions on the use of personal
information collected on the Internet. Web sites must be prepared to adapt their
practices to respond to user privacy concerns.
Challenges for Advertisers
Overcoming Internet Audience Fragmentation. Low barriers to entry and
easy-to-use web site authoring software have resulted in a proliferation of web
sites worldwide. eMarketer estimates that there were 3.6 million web sites
worldwide in June 1999. As a result of web site and web user growth, advertisers
are faced with an increasingly complex and fragmented environment in which to
develop and execute their advertising campaigns.
Reaching Consumers in a Trusted, Relevant Environment. As Internet
advertising continues to evolve, advertisers must find ways to reach audiences
in environments that are relevant to individuals' purchasing decisions and
through sites that users are likely to trust.
Obtaining Accurate Information on Ad Campaign Performance. Unlike
traditional broadcast and print media which are delivered to mass audiences,
Internet ads are delivered to individual users. Internet ad campaigns are
usually measured and billed by the number of ad impressions that are delivered
and sometimes by the number of actions that users take, such as clicking on a
banner ad. Accurate and timely measurement of the delivery and performance of ad
campaigns is important to Internet advertisers in determining the
cost-effectiveness of their campaigns.
THE REAL MEDIA SOLUTION
Real Media provides comprehensive Internet advertising solutions that
address many of the challenges facing web sites and advertisers. Our
complementary products and services, which include the Real Media Network, Open
AdStream(TM) and a suite of media and marketing services, benefit web sites and
advertisers in the following ways:
THE REAL MEDIA NETWORK
Global Sales Presence. Web sites in the Real Media Network benefit from
our global sales force consisting of over 70 account executives in 22 offices in
16 countries, as of January 21, 2000. This sales presence and our knowledge of
local and national markets, which is enhanced by the worldwide relationships of
our strategic partner PubliGroupe, permit sites to avoid the potentially
significant cost of building their own national or global sales forces.
Sales Approach Emphasizing Individual Sites. We sell the ad space for our
web sites through a site-oriented approach which emphasizes the unique qualities
of each web site and helps ensure that advertisers recognize and pay for the
full value they receive when placing ads on these sites. Using this approach, we
design ad campaigns that typically run across selected sites that meet an
advertiser's objectives.
Overcoming a Fragmented Marketplace. By creating national and regional
portfolios of complementary web sites, we provide the necessary scale for these
sites to attract the interest of major national and transnational advertisers.
For advertisers and their agencies, our portfolio approach significantly
simplifies the process of planning and executing advertising campaigns across
multiple web sites and geographic markets.
Reaching Large Audiences in Desirable Environments. We design our
portfolios to include several categories of web sites, such as portals and other
general interest content sites, specialized content sites
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<PAGE> 44
and transnational sites. We focus on developing relationships with web sites
that have well-known and trusted brands. Our advertisers benefit from our focus
on branded web sites because they are able to target their ads to large online
audiences in environments that are favorable to generating user interest and
response.
OPEN ADSTREAM(TM)
Comprehensive and Flexible Ad Management Software. Open AdStream(TM)
provides web sites with the technology to manage all aspects of targeted ad
campaigns, including campaign planning, ad delivery, measurement and reporting.
Our OAS Enterprise 2000 product line also allows web sites to better manage
relationships with advertisers and ad agencies through workplace automation
features that improve the sales, billing and financial management processes
related to Internet advertising. Many Open AdStream(TM) features are
customizable, which gives sites increased flexibility in managing their business
and provides competitive advantages over sites that use a central serving
solution.
Exclusive Ownership and Use of User Data. Open AdStream(TM) allows web
sites to gather information resulting from user interaction with the web site
and use this data to sell targeted advertising to advertisers. While most
central serving solutions have this capability, Open AdStream(TM) enables sites
to collect and warehouse user data without sharing ownership of the information
with a third party. Consequently, all value that is created by analyzing the
resulting proprietary user information is retained exclusively by the site,
which helps to preserve the site's brand value. Moreover, this data may be used
to generate user profiles, through systems such as our audience management
solution, to conduct profile-based marketing on the site, which can help web
sites maintain or improve their advertising rates.
Superior Performance and Scalability. Because Open AdStream(TM) is
installed directly on the web server that delivers content to a user's browser,
the time needed to make and deliver ad decisions is often less than with a
central serving solution, which makes the same decisions from a remote location
and is therefore subject to network communication delays. As a result, Open
AdStream(TM) is capable of serving more ads per page without significantly
increasing the page delivery time. In addition, the proprietary architecture of
Open AdStream(TM) allows it to maintain its performance levels in situations
where sites experience dramatic increases in user traffic, allowing sites to
maximize potential advertising revenues.
Lower Total Cost of Ownership. While the installation of Open AdStream(TM)
may require greater up-front expenditures than using a central serving solution,
these costs and the ongoing maintenance costs are fixed. This is in contrast to
most central serving solutions, which charge on the basis of each ad delivered.
For web sites whose traffic and advertising revenues are growing rapidly, a
fixed cost solution such as Open AdStream(TM) can provide greater operating
leverage and a lower total cost of ownership than a central serving solution.
Adaptable in Response to Privacy Issues. Open AdStream(TM) allows web
sites to have flexibility to collect information from users in a manner
consistent with the site's privacy policy. By using a software add-on to Open
AdStream(TM) called the Privacy Proxy(TM), sites can also prevent third party ad
serving companies from obtaining data on the site's users.
MEDIA AND MARKETING SERVICES
User Base Analysis and Profiling. Through our audience management service,
we help sites to collect registration and other data provided by users and
combine it with information about user browsing activity within their site,
which is called clickstream data, to form the basis of a data warehouse. This
information can be analyzed to develop insights into the characteristics of a
site's user base for purposes of selling more effectively to advertisers. Users
may also be identified and profiled during this interaction with the web site
for simultaneous targeting of advertising and direct marketing campaigns.
Strategic Positioning. Through our consulting services, we advise web
sites on how to increase awareness of their site, increase site traffic, and
enhance the aesthetic appeal and navigability of the site.
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We also offer a range of additional consulting, training and other services,
which increases our ability to maintain strong web site relationships.
STRATEGY
We believe that as the number of web sites throughout the world continues
to increase, those with widely recognized and trusted brands will become
increasingly attractive to advertisers. Our objective is to be the leading
provider of comprehensive products and services that enable branded web sites
worldwide to increase revenue from Internet advertising.
The key elements of our strategy are to:
Expand Operations in Existing Global Markets and Extend into New
Markets. Our global expansion strategy is to develop long-term relationships
with web sites that have strong brand identities in their national and local
markets by (1) establishing an early presence in targeted national markets; (2)
employing experienced local management; and (3) leveraging PubliGroupe's local
knowledge and contacts. We have built what we believe is a market-leading
position in Europe by executing this strategy in Switzerland, Germany, France
and the United Kingdom. We have also built an active local and national presence
in 12 other markets throughout Europe, North America, Latin America,
Asia/Pacific and Africa.
Add Selected Sites to our Portfolios. Our portfolio strategy is to
represent the best possible collection of web site brands in national or
regional markets with significant or rapidly growing online audiences. To build
our portfolios, we assess the value of potential sites to advertisers, determine
whether they complement other portfolio sites, and seek exclusive, long-term
representation relationships with those that meet these criteria. In particular,
we seek to build portfolios comprising a broad mixture of national and regional
sites. As we continue to build our national and regional portfolios throughout
the world, we will remain selective in adding web site brands.
Enhance and Extend Open AdStream(TM) Capabilities. We will continue to
position Open AdStream(TM) as the leading Internet advertising software by
improving its existing capabilities and adding new features. In addition, we
will continue to integrate Open AdStream(TM) with complementary Internet
technology, expanding upon our existing relationships with NetPerceptions and
the iPlanet Sun/Netscape alliance. As we develop more advanced features or
add-ons for Open AdStream(TM), we plan to take greater advantage of
opportunities to sell these product enhancements to existing clients, in
addition to marketing them to new clients.
Further Develop Media and Marketing Services. We intend to expand our
suite of media and marketing services through strategic relationships, internal
development and acquisitions. Our media and marketing services enable our
clients to better compete for Internet advertising dollars and strengthen our
relationships with those clients. We will increasingly seek to sell media and
marketing services to existing ad sales representation and technology clients.
Continue to Develop Cross-Media Platforms for our Products and
Services. We will continue to position our products and services to take full
advantage of cross-media opportunities, including the convergence of Internet
content and other broadband distribution platforms such as interactive
television and wireless communication devices. Additionally, we offer
advertisers the opportunity to package the purchase of online and offline media
through our Print Plus program, which we jointly market with PubliGroupe.
Pursue Selected Acquisitions and Joint Ventures. Real Media may acquire
companies or form joint ventures to enhance or establish its presence in
targeted global markets. In January 2000, we acquired a South African company to
which we previously licensed our technology and which sells our products and
services in South Africa. We also acquired in January 2000 a 25% interest in an
Australian Internet advertising company, and we have an option to increase our
ownership to 51%. In December 1998, we acquired Cubicmedia GmbH, which helped us
build a strong market position in Germany. Also, we may seek to acquire
companies with products or services that complement our existing Internet
advertising solutions.
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PRODUCTS AND SERVICES
We provide a comprehensive package of products and services to web sites.
Pricing is based on a standard matrix, and component prices are influenced by
various factors, including the number of products and services purchased. We
typically enter into one-year contracts to represent web sites for ad sales. We
earn license and maintenance and support fees for the sales of Open
AdStream(TM). We also offer media and marketing services on a fee basis.
THE REAL MEDIA NETWORK: AD SALES REPRESENTATION FOR BRANDED WEB SITES
Through the Real Media Network, we provide ad sales representation services
to over 1,000 web sites in 33 countries. We organize our network by country or
geographic region into portfolios that include several categories of sites:
- portals and other general interest content sites, which include portals
and other national and regional coverage sites, such as online
newspapers;
- vertical content sites, which focus on specific interest areas, such as
business, technology, entertainment and sports; and
- transnational sites, which operate in multiple national markets.
In our portfolios, we typically seek to include one large portal site with
national coverage and high user traffic; several high traffic national or
regional content sites, frequently including leading online newspapers; vertical
content sites covering specific interest areas; and several transnational sites.
We select sites in each category that meet various criteria, such as well-known
national or local brand, loyal user base, minimum number of monthly page views,
and attractive user demographics. This enables advertisers to reach targeted
audiences in specific markets. To date, we have built 17 national and regional
portfolios around the world. Representative web sites in our portfolios include:
<TABLE>
<CAPTION>
FRANCE GERMANY SWITZERLAND
- ------ ------- -----------
<S> <C> <C>
Excite@Home Excite@Home Swiss Online
Bonjour Suddeutsche Zeitung Tages-Anzeiger
Web66 Planet-Interkom Search
Le Revenu Game Channel Edicom
Cadresonline Aktiencheck Blue Window
</TABLE>
<TABLE>
<CAPTION>
UNITED KINGDOM UNITED STATES AUSTRALIA
- -------------- ------------- ---------
<S> <C> <C>
The Sun Qualcomm Eudora MP3
The Times Money.net Shopfree
ADHunter Boston Globe Stuff
E*Trade Golf Online Net Quote
Arsenal FC Washington Post Sanity
</TABLE>
<TABLE>
<CAPTION>
BRAZIL MEXICO HONG KONG/CHINA
- ------ ------ ---------------
<S> <C> <C>
Universo Online (UOL) Infosel South China Morning Post
Zero Hora Digital La Reforma Apple Daily
O Globo Mexico.com Yahoo!
Lancenet! El Economista Netvigator
Placar Novedades Boom.com
</TABLE>
To generate sales from advertisers, we often package together ad space from
one or more portfolio sites. We offer several different types of packages
designed to:
Target Vertical Audiences. Through our Real Media Content Networks, we
group our sites by content categories and aggregate ad inventory across
participating sites. We sell ad space as a collection of
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<PAGE> 47
individual brands to advertisers trying to reach an audience with particular
lifestyle, demographic or other characteristics. These web sites feature content
in the following areas:
<TABLE>
<S> <C> <C>
Automotive Entertainment Personal Finance
Business Health & Fitness Small Business
College Home and Living Sports
E-Commerce Local News Technology
Elite Professional Multicultural Travel
News and Information
</TABLE>
Reach Local Audiences. We have very strong relationships with most of the
world's leading online newspapers, which offer our advertisers the ability to
target audiences in local or regional markets. We group these online newspapers
into:
World's Interactive Newspapers -- comprises selected online newspapers
around the world, including Suddeutsche Zeitung, The Times, De
Telegraaf, O Globo, South China Morning Post, and many others;
America's Interactive Newspapers -- consists of U.S. online newspapers,
including Los Angeles Times, The Boston Globe, The New York Post,
Chicago Sun-Times and The Washington Post.
Advertisers typically buy ad space on our interactive newspaper sites in groups
of five to eight web sites. Ad space on our interactive newspaper sites is also
sold through the Content Networks. For example, we sell ad inventory on The
Times through the Business Content Network as well as part of The Times in
World's Interactive Newspapers.
Create Individual Site Opportunities. Real Media works with selected sites
on an individual basis to create site-specific ad sales opportunities that
emphasize the value of a site's brand and user base. Examples include
sponsorships of an entire web site or sections of the site, event-driven
campaigns and exclusive representation in specific international markets. Real
Media matches these opportunities with advertisers seeking to work with
individual sites to target specific audiences.
Increase Ad Space Sold. Real Media offers sites the opportunity to
maximize the amount of ad space sold by allowing sites to make available
previously unsold ad space on an anonymous basis at rates below the site's
published rates. Sites are therefore able to generate incremental revenue from
their ad space while protecting their published rates. Advertisers purchasing
this ad space gain access to discounted ad space on participating top branded
sites without knowing on which sites their ads run. To determine the success of
the campaign, advertisers receive detailed reports that measure the particular
parameters relevant to the campaign, such as the number of users clicking on the
ad.
Content Syndication. We offer our portfolio web sites the opportunity to
increase their available ad space by receiving free content, such as travel,
financial and other specialized information, from third party providers. This
syndicated content can augment existing content or create new sections on the
site, often in a way that emphasizes the brands of both parties. This additional
content increases the opportunities of our portfolio web sites to create and
sell incremental ad space.
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During 1999, over 900 advertisers have purchased the ad space of our
portfolios, including:
<TABLE>
<CAPTION>
FRANCE GERMANY SWITZERLAND
- ------ ------- -----------
<S> <C> <C>
IBM Weltbild/Booxtra UBS
Intel IBM Credit Suisse
France Telecom Comdirect Bank IBM
QXL Primus -- Online Swisscom
Peugeot Deutsche Telekom Teledata
UNITED STATES UNITED KINGDOM AUSTRALIA
- ---------------------- ---------------------- ----------------------
Lexus Egg Telstra
Cnet Virgin Intel
Bell Atlantic British Telecom Motorola
Amazon.com QXL Look Smart
Marriott Hotels British Gas Top Jobs
MEXICO HONG KONG/CHINA SOUTH AFRICA
- ---------------------- ---------------------- ----------------------
Consejero Star Alliance Mobile Telegraph
3Com E-Finance Networks
Dell Boom.com Investec Bank
Querico Hong Kong Tourist South Africa Airways
Florida Atlantic Authority BMW
University Quokka Sports Symantec
</TABLE>
Many of our advertisers hire ad agencies to place ads on web sites we represent.
Some of these ad agencies include DDB Digital, Lot21, McCann Erickson, OgilvyOne
and Saatchi & Saatchi Advertising.
OPEN ADSTREAM(TM): TECHNOLOGY FOR INTERACTIVE ADVERTISING
Real Media develops, markets and supports the Open AdStream(TM) family of
ad management software and offers related support services. Open AdStream(TM)
5.0 provides sites with the technology to plan, deliver, measure and report on
targeted ad campaigns. OAS Enterprise 2000 combines the capabilities of Open
AdStream(TM) 5.0 with additional software modules that provide workplace
automation features that allow web sites to consolidate the entire ad sales,
billing and financial management processes into one application. In addition,
Open AdStream(TM) functions across existing web-based platforms, including UNIX,
Linux and Windows NT. Within these environments, Open AdStream(TM) integrates
with other Internet technologies, such as NetPerceptions' AdTargeting product
and the Sun/Netscape alliance's iPlanet suite of e-commerce products. Open
AdStream(TM) fully supports "rich media" advertisements and allows sites to
deliver personalized content and promotional offers directly to users. Rich
media refers to the integration of animation, sound, interactivity and commerce
in Internet advertising. Open AdStream(TM) also provides the technology backbone
for our audience management system by collecting user information and targeting
ads to individuals in real-time, based on user profiles. Privacy Proxy(TM), an
Open AdStream(TM) add-on, prevents third parties from obtaining a site's user
information.
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Open AdStream(TM) is used by over 700 web sites worldwide. Our top 25 web
sites use Open AdStream(TM) to serve over six billion advertisements per month.
Some of our clients whose web sites use Open AdStream(TM) include:
<TABLE>
<CAPTION>
FRANCE GERMANY SWITZERLAND UNITED KINGDOM
- ------ ------- ----------- --------------
<S> <C> <C> <C>
Le Monde Axel Springer Tages-Anzeiger The Sun
Les Echos Spiegel Online Swiss Online Shopsmart
Bonjour OMS Swissclick E*Trade
Canal Plus Bertelsmann SF-DRS Cable & Wireless
TF1 Infoseek Edicom Conde Nast
UNITED STATES MEXICO HONG KONG/CHINA SOUTH AFRICA
- -------------------- --------------- ------------------------- -------------------
The New York Times Infosel Lycos SABC
The Weather Channel Mexico.com South China Morning Post Independent Online
Bloomberg La Reforma Apple Daily iAfrica
MP3 El Norte Recruit Times Media
USA Today El Universal Hutch City Global Internet
Access
</TABLE>
The Open AdStream(TM) Architecture
A significant challenge for Internet ad management technology is to
minimize delays in delivering ads to the web site user, which directly affects
the user's viewing experience. One potential ad delivery bottleneck involves the
location of where decisions are made regarding which ad to deliver. Open
AdStream(TM) is designed to make ad delivery decisions directly on the site's
web server, which allows for the nearly simultaneous delivery of content and ads
to the user. By contrast, most central serving solutions make ad delivery
decisions at a remote location, which requires additional communication steps
over the Internet. By eliminating these extra steps to deliver an ad, Open
AdStream(TM) maximizes ad delivery speed, which improves the viewing experience
for users on the web site and allows sites to add incremental advertisements to
web pages without decreasing ad delivery performance.
Open AdStream(TM) 5.0
Open AdStream(TM) 5.0 is a complete Internet advertising management
solution enabling web sites to manage the planning, delivering and reporting of
advertising campaigns. Open AdStream(TM) comprises three main subsystems:
AdPlanning, AdDelivery and AdReporting.
AdPlanning -- allows Open AdStream(TM) users to manage all aspects of an
advertising campaign, including scheduling, targeting and storing
advertisements.
Campaign Scheduling -- determines the placement of ads on the site, the
dates and times ads will run, and the frequency with which ads are
served. For example, an ad can be served based on the availability of ad
space, serving the ad as many times as it is requested until the
commitment has been fulfilled, or in even intervals over the duration of
a selected time period.
Campaign Targeting -- designates specific ad delivery to users based on
one or more criteria pre-selected by the advertiser, such as context
(e.g., sports, news or entertainment), environmental factors (e.g.,
operating system or browser type), or visitor profile information, to
ensure that campaigns are targeted at users most likely to respond to
the ads.
Storing Advertisements -- Open AdStream(TM) supports many types of ads,
including images, streaming media, e-commerce banners, Java ads and rich
media ads.
AdDelivery -- automates the ad decision-making process, placement of ads on
a page and distribution of ads to a specific user's browser in real-time as web
pages are requested.
AdDelivery Engine -- automates the ad delivery decision process to
ensure that the correct number, type and specific location of ads are
served on a visitor's browser. This process occurs
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through the integration of Open AdStream(TM) with the web site's user
information databases, or Real Media's audience management system, which
enables targeted advertising to specific visitors based on the criteria
specified in the ad planning process.
AdDelivery Logging -- each ad delivery is recorded in a log file, with
details of the ad delivery, for later analysis by the reporting
subsystem.
AdReporting -- analyzes campaign delivery details and presents them in an
easy-to-understand format, allowing the web site and advertisers to evaluate the
performance of an ad campaign and adjust it for optimal campaign performance.
Open AdStream(TM) provides detailed ad campaign performance reports of the
number of impressions and click-throughs by category of visitor, by sections and
position on the web sites, by demographic groups and by customized targeting
profiles.
Dynamic Reports -- using a standard web browser, web site personnel and
advertisers are able to access detailed campaign reports.
Inventory Management -- allows sites to forecast traffic volume and to
determine available ad space, enabling sites to more effectively plan,
price and sell their ad inventory.
OAS Enterprise 2000
OAS Enterprise 2000 is a new end-to-end Internet ad business management
software product that combines the planning, delivery and reporting capabilities
of Open AdStream(TM) 5.0 with advanced features that improve the ad sales,
billing and finance processes of web sites. OAS Enterprise 2000 contains the
following:
AdSales. AdSales is a contact management solution that enables sales
personnel to manage relationships with agencies and advertisers throughout the
ad sales process, from tracking prospects to signing contracts. AdSales tracks
all salesperson information, such as number of prospects and active campaigns,
and provides advanced search tools to allow the sharing of information across
the organization.
AdBilling. AdBilling synthesizes campaign information from Open
AdStream(TM) and delivers it in a usable format to the web site's existing
billing system. This module also calculates agency commissions and generates
invoicing information.
AdFinance. AdFinance provides tools for sales managers and financial
personnel to analyze data generated through AdSales and other Open AdStream(TM)
features. Sales managers can oversee the efforts of individual sales people or
the collective sales force to measure performance and generate forecasts.
Financial personnel can analyze revenue by advertiser, campaign or contract, as
well as measure the potential impact of changing advertising rates.
Privacy Proxy(TM)
Privacy Proxy(TM) is an add-on software product for Open AdStream(TM) that
prevents third parties from capturing a web site's user information. When a
third party serves an ad, the third party typically gains access to the web site
user's profile information and, potentially, other information as well. Privacy
Proxy(TM) acts as an intermediary between the web site user and a third-party ad
server, preventing the flow of specific user information between the two.
Therefore, the user's profile information is kept private and the web site
maintains control over its user information.
Technical Support Services
We offer web sites that use Open AdStream(TM) three different options for
technical support services. Basic technical support includes remote installation
support and telephone training/support during normal business hours. Premium
technical support adds 24-hour availability for telephone support, quarterly
training seminars and ad server monitoring. Partner level technical support,
which is mandatory for clients that buy one of our customization packages,
includes all premium support features plus on-site installation,
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support for all customizations and access to a private web site from which they
can download fixes or enhancements.
Product and Technology Development
We continually engage in research and development activities as we work to
enhance and expand the capabilities of Open AdStream(TM) and related
technologies. Our pro forma combined product and technology development expense
in 1999 was $1.47 million. In 1998 and 1997, Real Media, Inc.'s product and
technology development expenses were $897,000 and $543,000, respectively. In
1998 and 1997, Real Media Europe's product and technology development expenses
were $312,000 and $73,000, respectively.
MEDIA AND MARKETING SERVICES
We offer a suite of media and marketing services to web sites that includes
user base analysis and profiling tools, as well as consulting and other
services. These services enable web sites to better compete for Internet
advertising dollars.
Audience Management
We offer an audience management system to web sites in partnership with
Cyber Dialogue, an Internet database marketing company, that enables sites to
collect registration and other data from users and then combine it with
information regarding the user's browsing to form a data warehouse. After
information is collected through Open AdStream(TM) and other tools, it is
analyzed to identify users and develop insights into their characteristics and
preferences. This information may also be used to profile individual users to
allow Open AdStream(TM) to target advertisements to users as they interact with
the web sites. By better understanding their user base and offering
profile-based marketing, we believe web sites that use our audience management
system will increase their value to advertisers and potentially raise their
rates.
Consulting and Other Services
We offer consulting services to sites, including site promotion, public
relations strategies, developing banner advertisements, sponsorship strategies
and advice on the integration of direct marketing and e-commerce technologies.
We also offer training services designed to help educate web sites on certain
aspects of running an Internet advertising-based business and outsourced
campaign management services to web sites that need temporary assistance in
managing the process of ad campaign execution.
SELECTED CASE STUDIES
Below are some examples of how Real Media works with web sites and
advertisers.
NYTIMES.COM
Challenge
NYTimes.com, the online offering of The New York Times, currently has over
10 million users who provide personal information when registering to use the
site. NYTimes.com required an ad management solution that would support the
collection of this user information and target advertising to its users based on
this information. NYTimes.com also wanted to prevent third parties that
centrally served ads to the NYTimes.com site from capturing this proprietary
information.
Solution
NYTimes.com converted from an internally developed ad management system to
Open AdStream(TM) to improve the collection of user profiles and perform basic
ad targeting to these users. We also integrated Open AdStream(TM) with the
subsequently deployed NYTimes.com decision support system, facilitating advanced
ad targeting. NYTimes.com also uses our Privacy Proxy(TM) add-on module,
preventing third
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parties from tracking NYTimes.com users after they leave the web site.
Consequently, the site is able to maintain control over the data regarding its
demographically attractive user base and to realize the value of this
information by charging premium advertising rates.
SAMSUNG
Challenge
Samsung wanted to market its portable MP3 player, called Yepp, to teens and
young adults in France.
Solution
Working with two of Samsung's advertising agencies, OMD Interactive Paris
and Agency Paris, we created a customized campaign with two web sites in our
French portfolio, Nirvanet and Infodeclics, that have a high percentage of users
between the ages of 15 and 25. Recognizing that information on the Yepp product
and MP3 files in general might be interesting to these sites' primary users, we
worked with Nirvanet and Infodeclics to include Yepp product information on
their sites, with links to other information about Samsung's portable MP3
player. During and after the campaign, Real Media also placed rich media banners
on both sites, using Open AdStream(TM) to manage this portion of the campaign.
The Nirvanet homepage is made up of four asteroid-shaped rocks on the
screen, with each rock leading to a different section of the site. We added an
additional rock, which led to a section with information on the Yepp product and
MP3 files. From those pages, over 4% of users clicked through to a Samsung web
site that contained further product information. In the music section of
Nirvanet, a small rich media ad, run by Open AdStream(TM), was used to remind
people about the Yepp product. The digital image of a man surfing would move
back and forth across the screen, and when a user moved his mouse over the
image, a special message with a link to the Samsung Yepp web site would replace
the surfer. Approximately 13% of visitors to the site clicked on the ad.
On the Infodeclics web site, multiple sections of the site also reinforced
the Yepp product. For example, in the music section, a complete article
presented the product, with links to the Samsung site. Approximately 3% of all
visitors to the Infodeclics site clicked through to the Samsung site, which
exceeded Samsung's expectations.
WEATHER.COM
Challenge
At times of peak audience traffic, such as during severe weather,
Weather.com, the web site of the Weather Channel, lost significant potential
advertising revenue because the site's existing ad management technology could
not scale effectively.
Solution
After examining alternative ad management technologies, Weather.com
selected Open AdStream(TM) 5.0 to replace a competitor's technology because of
the scalable architecture of Open AdStream(TM), which enables the delivery of
ads even during spikes of high user traffic. Within weeks of the Open
AdStream(TM) installation, Hurricane Floyd hit the United States mainland. Open
AdStream(TM) successfully delivered ads throughout the storm period, during
which the site recorded over 20 million page views each day. Open AdStream(TM)'s
scalability enabled Weather.com to maximize ad delivery opportunities during
this period of peak audience traffic in contrast to Weather.com's previous ad
management technology. Moreover, with Open AdStream(TM) installed directly onto
the site's primary web servers, Weather.com was immediately able to redeploy
over 20 secondary servers previously dedicated to ad delivery. This reallocation
of computer resources also resulted in a significant reduction in maintenance
and operation costs related to ad management. More recently, Open AdStream(TM)
has enabled Weather.com to hit new daily highs in excess of 100 million ad
deliveries.
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SALES AND MARKETING
Our sales and marketing efforts emphasize the value of Real Media's
comprehensive solution for web sites and advertisers. Throughout the sales
generation process, we highlight an approach to ad sales representation and ad
management technology that focuses on web site brand value, site ownership of
user information and accurate measurement of ad campaign effectiveness.
We seek to develop long-term relationships with leading web sites worldwide
by providing a full range of products and services to help them build
advertising-based Internet businesses. Once we establish a relationship with a
client, web site account managers coordinate cross-selling efforts and provide
general customer service, while product specialists for the Real Media Network,
Open AdStream(TM) and media and marketing services promote specific sales ideas.
In Europe, Latin America and the United States, our Open AdStream(TM) sales
effort is augmented by resellers that either offer Open AdStream(TM) directly to
customers with whom we had no prior relationship, or sell Open AdStream(TM) as
part of a bundled suite of technology. Our web site clients may use products or
services from more than one of our core offerings.
To sell ad space for sites in the Real Media Network, we employ account
executives that work closely with advertisers and their agencies to offer
solutions that meet their specific needs. To simplify the sales process, we have
developed several types of ad inventory packages that are designed to reach
specific audiences on our network. Account executives are typically either
category specialists, focusing on selling campaigns to advertisers in particular
industries, such as automotive or travel, or web site specialists, who focus on
selling specific web site inventory.
We support our global sales operations with marketing efforts directed at
ad agency professionals, major advertisers, and potential web site clients in
each of our markets. The objective of these efforts is to elevate awareness of
Real Media's brand and differentiated market position, and also generate
business leads, through print and online advertising campaigns, direct
marketing, public relations, the Real Media web site, participation in trade
shows and event sponsorships. To emphasize the value of, and our commitment to,
our web site client base, we are beginning to feature selected sites in our
advertising campaigns to showcase their unique characteristics. Another way in
which we market Real Media throughout the world is by actively cross promoting
our solutions with our strategic partner PubliGroupe, which has operated
internationally for over 100 years. In addition to referring qualified leads to
each other, we jointly develop and execute cross media campaigns that have
online and offline components for selected clients.
Our global sales force consists of over 100 individuals as of January 21,
2000, and operates through 23 offices around the world. United States and Latin
America sales are headquartered in New York, with local operations in Chicago,
Dallas, Fort Washington (Pennsylvania), Mexico City, Miami, San Francisco and
Sao Paulo. European sales are headquartered in Lausanne, with offices in
Amsterdam, Hamburg, London, Madrid, Munich, Paris, Stockholm, Vienna and Zurich.
In Asia/Pacific, we have sales offices in Hong Kong, Seoul, Singapore and
Sydney. In Africa, we operate in Johannesburg. We intend to continue expanding
our sales force for web sites and advertisers by hiring employees with extensive
experience in and knowledge of local advertising markets and by opening new
offices in selected countries.
PRIVACY STATEMENT
Real Media is committed to providing branded web sites with Internet
advertising products and services that benefit the sites while protecting the
privacy of consumers. Real Media believes that information collected by web
sites using Open AdStream(TM) software and/or our audience management system is
owned exclusively by the sites. We do not sell or license this information to
any third parties. Moreover, an add-on module to Open AdStream(TM) is the
Privacy Proxy(TM), which prevents third-party ad serving or profiling companies
from collecting information on site users without their consent. Sites may
therefore ensure that user information is handled in a manner consistent with
the site's privacy policy.
For ad campaigns that are centrally delivered by Real Media, we do collect
certain non-personally identifiable information about users, such as the type of
browser, IP address, operating system, domain
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<PAGE> 54
name, day and time of visit, pages visited and search term, if any, and other
data that is not used to identify, contact or locate a person. Such information
is used exclusively for the purpose of targeting ads and measuring ad
effectiveness on behalf of Real Media's advertisers, and is not used to create
user profiles.
Real Media takes an active role in Internet privacy initiatives. We
actively promote site ownership of the data that they collect from third
parties. Real Media is a founding member of the Network Advertising Initiative
working on self-regulation by Internet advertising networks. We strive to
educate our business customers about data collection and privacy concerns and
consumers on their privacy rights.
COMPETITION
The market for global Internet advertising solutions is highly competitive
and we expect this competition to increase in each of our targeted national
markets worldwide from both existing participants and new entrants, due to the
lack of barriers to entry in the marketplace. See "Risk Factors -- Risks
Relating to the Internet Advertising Industry -- We have many competitors in the
Internet advertising industry, and we may not be able to compete successfully."
We compete against a fragmented landscape of participants in the Internet
advertising solutions market, many of whom possess greater financial resources
and brand recognition than we do. The competition for each element of our
solution includes:
THE REAL MEDIA NETWORK
The Real Media Network competes directly with a number of different types
of companies. Our competition differs considerably across the markets in which
we operate. Competitors include: (1) other third-party Internet advertising
networks, (2) large Internet media companies, (3) other Internet ad sales
representation firms and (4) to a lesser extent, Internet direct marketing
firms. In addition, the Real Media Network also indirectly competes with
traditional media companies in the television, radio and print industries to
capture a greater portion of total advertising expenditures.
We compete with other third-party ad networks, such as CMGI, DoubleClick
and 24/7 Media or their affiliates, in the markets in which we operate,
especially in the United States, France and the United Kingdom, and across many
of the other European, Latin American and Asian markets.
We also face competition in various markets from several large online media
companies that are not part of our network and which use in-house sales forces
to sell advertising on their sites. These include America Online in the United
States and Brazil, Yahoo! in the United States, France and Germany, and Rignier
in Switzerland.
Other online ad sales representation firms that may be independent or part
of larger media companies compete with us in a variety of markets. These include
independent sales representation firms such as Adlink in France, TSMSI in the
United Kingdom, AdPepper in Switzerland, BMC Media in Australia and several
smaller independents in these and other markets in which we operate. In Germany,
two of our principal competitors are the third-party ad representation units of
Axel Springer Verlag and Bertelsmann.
OPEN ADSTREAM(TM)
We face competition for our Open AdStream(TM) technology principally from
other third-party ad management technology companies, including DoubleClick,
Engage Technologies' Accipiter unit, CMGI's AdForce unit and Excite@Home's
MatchLogic division, as well as internally-developed web serving technology.
Because we focus primarily on providing local ad management software solutions,
we may not be able to compete effectively if centrally-served solutions gain
popularity with branded web sites.
We also expect to face indirect competition from software companies that
offer products to help web sites personalize their interaction with users. Such
companies include Allaire, BroadVision and Vignette. Additionally many larger
software firms with significantly greater financial and technical resources than
us,
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<PAGE> 55
such as Microsoft and Oracle, may develop products that compete with Open
AdStream(TM) or that bundle the technology of our competitors with their own.
MEDIA AND MARKETING SERVICES
We currently face competition for our media and marketing services from
Internet user profiling companies, including Engage Technologies, MatchLogic
division, and DoubleClick, which offer alternatives to our audience management
solution. We may also encounter competition in the future from database
marketing firms, data mining and analysis firms, and Internet consulting, public
relations and related firms.
CONSOLIDATION IN THE INDUSTRY
Our industry is consolidating rapidly with several of our principal
competitors, including CMGI, DoubleClick, Engage Technologies and 24/7 Media
having announced or completed numerous acquisitions in recent months. While we
currently face fragmented competition in many markets, this consolidation may
lead to changes in our competitors and the size and resources of our competitors
in the near term. See "Risk Factors -- Risks Relating to the Internet
Advertising Industry -- Industry consolidation may increase our competitors'
resources."
INTELLECTUAL PROPERTY
The computer software market is characterized by frequent and substantial
intellectual property litigation, which is often complex and expensive, and
involves a significant diversion of corporate resources. We are not currently
involved in any litigation involving intellectual property rights, nor have we
been put on notice of any potential claims, but some may arise in the ordinary
course of business. However, there can be no assurances that our business
activities will not infringe upon the proprietary rights of others, or that
other parties will not assert infringement claims against us whether meritorious
or not. Should such claims arise, it could have a material adverse effect on our
business. See "Risk Factors -- Any Failure by us to protect our intellectual
property could harm our business and competitive position."
Our success and ability to compete are substantially dependent on our
proprietary technologies, including Open AdStream(TM), OAS Enterprise(TM) 2000
and Privacy Proxy(TM), that we protect through a combination of intellectual
property laws. We are actively evaluating the extent to which we may be able to
claim patent protection for our proprietary technologies. To date, however, we
have not sought patent protection or copyright registration for our proprietary
software and other technologies. As a result, we may not be able to prevent
others from using any inventions in our software and other technologies, and we
may not have adequate remedies to compensate us fully for any infringement of
our copyrights by others. Although we have applied to register trademarks in the
United States and internationally, we have not secured registrations for our
marks. We cannot guarantee that any of our trademark registrations will be
approved. Even if they are approved, these trademarks may be successfully
challenged by others or invalidated since the validity, enforceability and scope
of protection on intellectual property rights in Internet-related industries are
uncertain and still evolving. Furthermore, if our trademark registrations are
not approved because third parties own these trademarks, our use of these
trademarks will be restricted unless we enter into arrangements with these third
parties. We cannot assure you that we can enter into arrangements with these
third parties on commercially reasonable terms, if at all. We are aware that
other companies claim rights to the mark REAL MEDIA and we may not be able to
prevent all third-party use of our marks. Further, the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the U.S. and effective copyright, trademark and trade secret protection
may not be available in all jurisdictions.
We generally enter into confidentiality or license agreements with our
employees, consultants 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 use of our advertising solutions or technologies. Our
precautions may not prevent misappropriation of our advertising solutions or
technologies, particularly in foreign countries where laws or law enforcement
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<PAGE> 56
practices may not protect our rights as fully as in the United States. Further,
we cannot assure you that others will not develop technologies that are similar
or superior to our technology.
EMPLOYEES
As of January 21, 2000, we had 301 employees worldwide. None of our
employees is represented by a collective bargaining agreement. We believe that
we maintain good relationships with our employees.
FACILITIES
Our global headquarters are in New York, New York, where we lease
approximately 8,500 square feet pursuant to a lease that expires in February
2002. Our principal technology development center is located in a 16,820 square
foot office in Fort Washington, Pennsylvania, under a lease that expires in
2005.
Our European operations are headquartered in Lausanne, Switzerland, where
we lease approximately 1,700 square feet pursuant to a lease that expires in
2005.
We continually evaluate our facilities requirements and believe that
suitable additional space will be available in the future on commercially
reasonable terms.
LEGAL PROCEEDINGS
Except as described under "Risk Factors -- Any failure by us to protect our
intellectual property could harm our business and competitive position" with
respect to the trademark opposition proceedings with Real Networks, we are not a
party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors, and their ages and positions are set
forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David Morgan.................. 36 Chairman and Director
Christopher Neimeth........... 30 President, Chief Executive Officer and Director
Gil Beyda..................... 36 Chief Technology Officer and Director
Norman Blashka................ 46 Chief Financial Officer, Executive Vice President and Secretary
Pascal Zahner................. 39 Chief Executive Officer, Europe
Silvana Imperiali............. 32 Chief Operating Officer
Philippe Paget................ 38 Chief Operating Officer, Europe
Walter Annasohn............... 54 Director
Hans Steiner.................. 51 Director
Heinz Wagli................... 57 Director
</TABLE>
- ---------------
(1) Member of the audit committee
(2) Member of the compensation committee
David Morgan is a co-founder of Real Media and has served as Chairman and
Director since its inception in May 1995. From May 1995 to December 1999, Mr.
Morgan was also our President and Chief Executive Officer. Before co-founding
Real Media, from 1992 to May 1995, Mr. Morgan was General Counsel and a Director
of New Media Ventures for the Pennsylvania Newspaper Publisher's Association.
Mr. Morgan obtained a J.D. from the Dickinson School of Law and a B.A. in
political science from The Pennsylvania State University.
Christopher Neimeth has served as Real Media's President and Chief
Executive Officer since December 1999 and has served as a Director since the
completion of the business combination of Real Media, Inc. and Real Media Europe
in March 2000. Before joining Real Media, from August 1999 to December 1999, Mr.
Neimeth was Senior Vice President, Business Development and Strategic Planning
of Times Company Digital, the Internet unit of The New York Times Company. From
September 1995 to August 1999, Mr. Neimeth was Director of Marketing, then Vice
President, Director of Sales and Marketing and later Group Vice President of the
predecessor of Times Company Digital. From April 1994 to September 1995, Mr.
Neimeth worked at Grey Interactive, where he was a co-founder and associate
director. Mr. Neimeth is a founding member of the Advertising Research
Foundation Video/Interactive Media Council and The New York New Media
Association, and a member of the advisory board of the AdCouncil's Internet
Committee. He is also a founding member and director of the Internet Advertising
Bureau. Mr. Neimeth obtained a B.A. in anthropology and economics from Hamilton
College.
Gil Beyda is a co-founder of Real Media and has served as a Director and
Chief Technology Officer since its inception in May 1995. Before co-founding
Real Media, Mr. Beyda was President and Technology Consultant of Beyda
Consulting Group, a computer consulting firm he founded in 1979, specializing in
designing, developing and deploying complex software systems for Fortune 500
companies. Mr. Beyda obtained an M.B.A. and a B.S. in computer science from
California State University at Northridge and is fluent in 15 computer
programming languages, 14 computer operating systems and over 20 computer
systems.
Norman Blashka has served as Real Media's Chief Financial Officer and
Executive Vice President since September 1999 and Secretary since October 1999.
Before joining Real Media, from January 1997 to September 1999, Mr. Blashka was
Senior Vice President and Chief Financial Officer of Mickelberry Communications,
Inc., an integrated marketing services company, and Executive Vice President of
Union
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Capital Corporation, a merchant bank and holding company affiliated with
Mickelberry. From January 1999 to September 1999, Mr. Blashka was also the Chief
Investment Officer at Union Capital. From October 1993 to September 1996, Mr.
Blashka was the Vice President and Chief Financial Officer of Lang
Communications, L.P., a privately-held magazine publisher. Mr. Blashka, a
certified public accountant, obtained an M.B.A. from Columbia University's
Graduate School of Business and a B.A., summa cum laude, in economics from the
State University of New York, College at New Paltz.
Pascal Zahner is the founder of Real Media Europe and has served as Chief
Executive Officer, Europe since February 2000. From November 1997 to March 2000,
Mr. Zahner served as a Director of Real Media, Inc. From January 1997 to January
2000, Mr. Zahner served as Real Media Europe's Managing Director and Chief
Executive Officer Europe & Asia. From May 1995 to December 1996, Mr. Zahner
participated in the launch of MMD Multimedia Development S.A. as a member of the
management team. MMD is a subsidiary of PubliGroupe dedicated to interactive
advertising and web development, mainly active in Switzerland. From April 1994
to April 1995, Mr. Zahner was part of PubliGroupe's R&D team, focusing on
defining a development strategy in interactive media for the group. Mr. Zahner
obtained a degree in political science from the University of Lausanne
(Switzerland) and an M.S. in journalism from Columbia University's Graduate
School of Journalism.
Silvana Imperiali has served as Real Media's Chief Operating Officer since
September 1999. Before joining Real Media, from April 1998 to September 1999,
Ms. Imperiali was a Marketing Director at Publicitas/Globe Media, an affiliate
of PubliGroupe. From October 1994 to March 1998, Ms. Imperiali was a Managing
Director of Publicitas Swiss Press, an affiliate of PubliGroupe in Zurich,
Switzerland, where she directed advertising and marketing for Swiss publishing
groups. Ms. Imperiali obtained a masters degree in management of publishing
houses at SZV/SAWI and a degree in politics with special certificates in
economics and law from the University of Lausanne (Switzerland).
Philippe Paget has served as Chief Operating Officer of Real Media Europe
since January 2000. From June 1997 to January 2000, Mr. Paget served as Managing
Director of Real Media France. From September 1994 to June 1997, Mr. Paget was
an Associated Manager of Presence D'Esprits, a French communication agency. Mr.
Paget obtained a degree in marketing from the European Business School (France).
Walter Annasohn has served as a Director of Real Media, Inc. since April
1999. Dr. Annasohn has served as the CEO of operations in North America, Russia
and Ukraine of Publicitas Promotion Network as a Senior Vice President of
PubliGroupe since May 1994. From July 1990 to April 1994, Dr. Annasohn was the
CEO of the International Division of Ascom, a Swiss telecommunications company.
Dr. Annasohn is also a high ranking officer (colonel) and member of the general
staff of the Swiss Army. Dr. Annasohn obtained a degree, magna cum laude, in
economics, and a Ph.D., magna cum laude, in economics, from the University of
Bern (Switzerland).
Hans Steiner has served as a Director since the completion of the business
combination of Real Media, Inc. and Real Media Europe in March 2000. Mr. Steiner
has served as a Director and a Senior Vice President of the PubliOnline Division
of PubliGroupe since October 1999. From February 1986 to September 1999, Mr.
Steiner was a Senior Vice President with managerial responsibilities in Europe,
Asia, Latin America and the United States of Societe Generale de Surveillance, a
Swiss-based service company. Mr. Steiner obtained a B.S. in business through
studies at the Ecole de Commerce in Neuchatel (Switzerland) with additional
coursework at The University of Hartford and Babson College. Mr. Steiner
obtained an M.B.A. in marketing and finance from Babson College.
Heinz Wagli has served as a Director since the completion of the business
combination of Real Media, Inc. and Real Media Europe in March 2000. Dr. Wagli
has served as Chief Financial Officer of PubliGroupe since October 1993. From
1987 to September 1993, Dr. Wagli was the Chief Financial Officer of the
personal and business communications division of Ascom, a Swiss
telecommunications company. Dr. Wagli obtained a degree, magna cum laude, in
economics and a Ph.D., magna cum laude, in economics from the University of Bern
(Switzerland).
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BOARD COMPOSITION
Upon the completion of this offering, the Company will have nine directors
and the composition of our board of directors will be determined by a
stockholders voting agreement. See "Related Party Transactions -- Stockholders
Voting Agreement."
Our certificate of incorporation provides for a board of directors of at
least three but not more than nine directors, to be divided into three classes
of directors. These classes are as nearly equal in number as possible and serve
staggered three-year terms. As a result, approximately one-third of our board of
directors will be elected each year. See "Description of Capital
Stock -- Section 203 of the Delaware General Corporation Law, Certain
Anti-Takeover, Limited Liability and Indemnification Provisions -- Classified
Board of Directors."
BOARD COMMITTEES
The compensation committee reviews and makes recommendations to the board
of directors regarding the compensation to be paid to our executive officers and
directors. Beginning , 2000, the compensation committee will
administer our 1999 employee stock option plan. The compensation committee
consists of Messrs. , and .
The audit committee reviews and monitors our corporate financial reporting,
external audits, internal control functions and compliance with laws and
regulations that could have a significant effect on our financial condition or
results of operations. In addition, the audit committee has the responsibility
to consider and recommend the appointment of, and to review fee arrangements
with, our independent auditors. The current members of the audit committee are
Messrs. , and .
BOARD COMPENSATION
We do not pay cash compensation to our directors, other than our
independent directors. For their services as directors, we intend to pay our
independent directors $15,000 annually and grant them 30,000 stock options with
an exercise price equal to the fair market value of our common stock at the time
of grant. All of our directors are reimbursed for the expenses they incur in
attending meetings of the board or board committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers, directors or compensation committee members
currently serves, or has in the past served, on the compensation committee of
any other company whose directors or executive officers have served on our
compensation committee.
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<PAGE> 60
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned by our chief executive officer and our other executive
officers who earned more than $100,000 in total cash compensation during the
year ended December 31, 1999. The value of certain perquisites and other
personal benefits is not included in the amounts disclosed because it did not
exceed for any officer listed in the table below the lesser of either $50,000 or
10% of the total annual salary and bonus reported for such officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ------------
SHARES
OTHER UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------- ---- -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Christopher Neimeth................... 1999 $ 10,416(1) -- -- 945,264
President and Chief Executive
Officer
David Morgan.......................... 1999 77,500 -- -- --
Former President and Chief Executive
Officer (through December 14, 1999)
Gil Beyda............................. 1999 160,000 -- -- --
Chief Technology Officer
</TABLE>
- ---------------
(1) Compensation commenced on December 15, 1999. See "-- Employment Agreement."
In 2000, we expect that executive officers in addition to those listed
above will earn more than $100,000 in total cash compensation.
The following tables set forth certain information concerning grants to
purchase shares of our common stock made to each of the officers named in the
summary compensation table above during the year ended December 31, 1999. The
exercise price per share of each option was greater than or equal to the fair
market value of our common stock on the date of grant as determined by our board
of directors. We calculate the potential realizable value of options by assuming
that the fair market value of our common stock appreciates from the date of
grant at the indicated annual rate compounded annually for the entire term of
the option, and that the option is exercised and sold on the last day of its
term for the appreciated stock price. These numbers are calculated based on the
requirements of the Securities and Exchange Commission and do not reflect our
estimate of future stock price growth.
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED 1999 SHARE DATE 5% 10%
- ---- ---------- ------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Christopher Neimeth.......... 945,264 53.4% $4.00 12/14/09 $2,377,886 $6,026,029
David Morgan................. -- -- -- -- -- --
Gil Beyda.................... -- -- -- -- -- --
</TABLE>
Of Mr. Neimeth's 945,264 options, 236,316 are vested, and 59,079 will vest
at the end of each calendar quarter from the first quarter of 2000 to the fourth
quarter of 2002.
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The following table sets forth certain information concerning option
exercises by the officers named in the above summary compensation table. The
value of unexercised in-the-money options at fiscal year-end is based on an
assumed initial public offering price of $10 per share (the midpoint of the
range of initial public offering prices set forth on the cover page of this
prospectus), less the exercise price, multiplied by the number of shares
underlying the option.
YEAR-END DECEMBER 31, 1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher Neimeth........ 0 0 236,316 708,948 $1,417,896 $4,253,688
David Morgan............... -- -- -- -- -- --
Gil Beyda.................. 0 0 15,000 0 $ 149,550 0
</TABLE>
EMPLOYMENT AGREEMENT
We have entered into an employment agreement with Mr. Neimeth, dated as of
December 15, 1999, under which we have agreed to employ Mr. Neimeth as our chief
executive officer and a director for an initial term ending on December 31, 2002
and automatically renewing for successive one-year periods thereafter. Mr.
Neimeth's annual base salary under the agreement will be $250,000, $300,000 and
$350,000 for 2000, 2001 and 2002, respectively. Mr. Neimeth is eligible for an
annual incentive bonus based on performance targets, subject to modification by
our board of directors. The agreement provides that Mr. Neimeth will receive
three weeks of vacation per year and other benefits that we generally provide to
our senior executives. Under the agreement, we granted Mr. Neimeth options to
acquire 945,264 shares of our common stock. All shares of common stock Mr.
Neimeth acquires from exercising these options will be subject to the
stockholders voting agreement among Real Media, PubliGroupe, Advance Internet
and our five founders. See "Related Party Transactions -- Stockholders Voting
Agreement." The employment agreement prohibits Mr. Neimeth from competing with
us or soliciting our employees for employment for two years following the
termination of his employment. We can terminate Mr. Neimeth's employment with or
without cause, and Mr. Neimeth can terminate his employment with good reason,
such as a reduction in salary or responsibilities. If we terminate Mr. Neimeth's
employment without cause, or if he terminates it with good reason, we are
required to pay him six months' severance pay, and all stock options previously
granted to Mr. Neimeth that are vested on the termination date or would have
vested within 12 months following the termination date will immediately vest. In
addition, the covenant not to compete will no longer apply.
1999 EMPLOYEE STOCK OPTION PLAN
The board of directors adopted the Real Media, Inc. 1999 Employee Stock
Option Plan on July 15, 1999. The purpose of the plan is to provide incentives
to our directors, key employees, independent contractors, agents and consultants
and to aid in attracting and retaining valued directors, employees, independent
contractors, agents and consultants by offering them a greater stake in our
success and a closer identity with us and our stockholders. The plan is designed
to accomplish these goals by allowing for the grant of stock options and stock
appreciation rights. The total number of shares of common stock authorized under
the plan is 1,640,046 (subject to adjustments for stock splits, stock dividends
and other similar changes in our capitalization). If any awards expire or
terminate prior to exercise or if any award is paid in cash in lieu of stock,
the shares of common stock subject to such award will again be available for
grant under the plan. Once our common stock becomes publicly traded, no
individual employee may receive awards covering more than 75,000 shares under
the plan during any calendar year.
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Eligibility. Any officer, director, employee, independent contractor,
agent or consultant of Real Media or any of its subsidiaries is eligible to
participate in the plan.
Administration and Implementation. Currently, our board of directors
administers the plan. Once our common stock becomes publicly traded, the
compensation committee composed of at least two non-employee, outside directors
selected by the board of directors will administer the plan. The committee may:
- interpret and administer the plan;
- prescribe, amend and rescind rules and regulations to aid in the
interpretation and administration of the plan;
- select who among the eligible individuals will participate in the plan;
- determine the terms and conditions of awards under the plan; and
- make all determinations with respect to any controversies and claims
arising under the plan.
All determinations made by the compensation committee will be conclusive and
binding on all persons.
Options. An option is a grant by us of the right to purchase a specified
number of shares of our common stock for a specified time period at a fixed
price. Options may be either incentive stock options or non-qualified stock
options. Grants of options will be evidenced by option agreements which will
specify when an option may be exercisable and the terms and conditions
applicable to the option. The exercise price of an option will be determined by
the compensation committee, but, in the case of incentive stock options, the
exercise price will not be less than the fair market value of a share of common
stock on the date of grant (or 110% of such fair market value if such option is
granted to a person who owns more than 10% of the voting power of the company).
The term of an option will in no event be greater than ten years (or five years
in the case of an incentive stock option granted to a person who owns more than
10% of the voting power of the company). The compensation committee may provide
that non-qualified stock options may be transferred in accordance with such
limitations and conditions determined by the compensation committee.
The compensation committee may also provide in an option recipient's option
agreement that an additional option may be granted upon the exercise of the
initial option if the exercise price is paid in shares of our common. Such
additional option would be for the same number of shares so paid, would have an
exercise price equal to the fair market value of the common stock on the date of
grant and would not be exercisable until six months after the date of grant.
Options may be exercised by payment of the exercise price in cash, by
check, by delivery of shares of our common stock, or any combination of such
methods, or, if permitted by the compensation committee, with the proceeds of a
loan from us. Any such loan would be secured by the stock acquired pursuant to
the exercise of the option or by any other security as determined by the
compensation committee.
Options may be terminated upon the occurrence of one of the following:
three months after a recipient's voluntary or involuntary termination without
cause, termination of a recipient's employment for cause, or one year after a
recipient's employment is terminated for retirement, disability or death.
Stock Appreciation Rights. A stock appreciation right allows a recipient
to receive, upon exercise of the right, the increase in the fair market value of
a specified number of shares of common stock from the date of grant to the date
of exercise. Stock appreciation rights may be granted only in conjunction with
the grant of a stock option and will be exercisable at such times and to the
same extent as the related stock option is exercisable. Upon exercise of a stock
appreciation right, the related stock option will be forfeited and surrendered.
Payment upon exercise of a stock appreciation right may be made in cash or
common stock. Once our common stock is publicly traded, a stock appreciation
right generally may only be exercised in limited
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periods following the release of certain financial reports. The terms of a stock
appreciation right will be evidenced by a stock appreciation right agreement.
Amendment and Termination. The plan will terminate on July 15, 2009,
unless terminated earlier by the board of directors. The board of directors has
authority to amend or terminate the plan at any time. However, no termination or
amendment of the plan may adversely affect the rights of a holder of an
outstanding award granted under the plan without the consent of the holder. In
addition, certain amendments require the approval of the stockholders. The
following amendments require stockholder approval:
- any amendment that would, if it were not approved by the stockholders,
cause the plan to fail to comply with any requirement of applicable law
or regulation; and
- any amendment materially modifying the classes of individuals eligible to
participate in the plan.
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RELATED PARTY TRANSACTIONS
David Morgan, our chairman, Mark Pinney, a director until completion of the
business combination, and Gil Beyda, our chief technology officer and a
director, were involved in our founding and organization and may be considered
our promoters.
In 1995, our promoters paid for our operating expenses incurred in 1995.
The following table summarizes sales of our common stock and grants of
stock options to our promoters, PubliGroupe and Advance Internet:
<TABLE>
<CAPTION>
NAME DATE NUMBER OF SHARES OR OPTIONS CONSIDERATION/EXERCISE PRICE
- ---- ------------- --------------------------- -----------------------------
<S> <C> <C> <C>
Gil Beyda.............. August 1996 1,506,000 shares $1,004 or $.0007 per share
October 1996 15,000 options $.03 per share
David Morgan........... August 1996 1,632,000 shares(1) $1,088 or $.0007 per share
October 1996 30,000 options(2) $.03 per share
Mark Pinney............ August 1996 1,566,000 shares $1,004 or $.0007 per share
October 1996 75,000 options $.03 per share
January 1998 107,580 options $.40 per share
PubliGroupe............ December 1996 3,375,000 shares $1,000,000 or $.30 per share
June 1997 825,000 shares $330,000 or $.40 per share
March 1999 416,667 shares $750,000 or $1.80 per share
Advance Internet....... April 1998 3,292,500 shares $3,000,000 or $.91 per share
March 1999 1,250,000 shares $2,250,000 or $1.80 per share
August 1999 142,511 shares $500,000 or $3.51 per share
</TABLE>
- ---------------
(1) We repurchased 60,000 of these shares at $.0007 per share, in July 1999.
(2) In July 1999, Mr. Morgan terminated these options to make additional shares
of our common stock available for the grant of options to our employees.
On May 13, 1997, we issued a $100,000 note payable to PubliGroupe, which
was repaid in June 1997.
On June 19, 1997, we issued a $770,000 note payable to PubliGroupe.
In December 1997, Real Media, Inc. issued a $64,000 note payable to Mr.
Pinney, which was repaid in April 1998.
In January and February 1998, Real Media, Inc. issued notes payable to
PubliGroupe in the aggregate principal amount of $225,000.
In April 1998, we repaid to PubliGroupe principal and interest of $500,000
in connection with the $770,000 and $225,000 notes payable. The balance
(aggregating approximately $551,000) was canceled and set up as deferred revenue
in accordance with the Amended and Restated Technology Transfer Agreement, dated
April 8, 1998, between Real Media, Inc. and PubliGroupe.
Under an agreement between Advance Internet and Real Media, Inc. in April
1998, Real Media, Inc. became a non-exclusive Internet ad sales representative
for Advance Internet affiliated web sites. As a result of this agreement, Real
Media, Inc. sold ad space of Advance Internet's web sites totaling approximately
$42,000 in 1998 and $171,000 in 1999.
In June and November 1999, Mr. Pinney exercised stock options for 182,580
shares of our common stock for an aggregate consideration of $45,532. In
addition, we paid Mr. Pinney a $50,000 retainer fee in 1999 for consulting and
advisory services provided to us.
Also in August 1999, in connection with discussions regarding a potential
business combination and to provide working capital to Real Media, Inc. prior to
the completion of the business combination, PubliGroupe entered into a
commitment to lend Real Media, Inc. $10.0 million. Loans made pursuant to this
commitment were to be evidenced by promissory notes convertible into common
stock of Real Media, Inc. upon the completion of the business combination.
PubliGroupe loaned Real Media, Inc. all $10.0 million under this commitment
through loans made in September ($1.0 million), October ($2.5 million),
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<PAGE> 65
November ($1.5 million), and December 1999 ($1.0 million), and January ($2.4
million) and February 2000 ($1.6 million). On March 15, 2000, these notes were
converted into shares of our common stock in connection with the business
combination.
BUSINESS COMBINATION WITH REAL MEDIA EUROPE
On March 15, 2000, pursuant to a stock purchase agreement between Real
Media, Inc., PubliGroupe and Real Media Europe Holding S.A., dated February 8,
2000, PubliGroupe transferred Real Media Europe to Real Media, Inc. in exchange
for 24,189,788 shares of common stock of Real Media, Inc. and 450,000 shares of
Series A Convertible Preferred Stock of Real Media, Inc. Prior to the completion
of this business combination, Real Media Europe consisted of a group of
affiliated companies, all of which were subsidiaries of PubliGroupe. These
companies are:
- Real Media SARL, which conducts our business in France;
- Real Media Holding (UK) Ltd. and Real Media (UK) Ltd, which conduct our
business in the United Kingdom;
- Real Media Deutschland GmbH, which conducts our business in Germany;
- Real Media S.A., which conducts our business in Switzerland; and
- Real Media Technology S.A., which provides technical support to our
European operations.
PubliGroupe created a holding company, called Real Media Europe Holding
S.A., organized under the laws of Switzerland. PubliGroupe transferred all of
the capital stock of the Real Media Europe companies to Real Media Europe
Holding, except that PubliGroupe transferred only a 49% interest in Real Media
S.A. As a result of the business combination, Real Media Europe Holding and its
wholly-owned subsidiaries became wholly-owned subsidiaries of Real Media, Inc.
In addition, PubliGroupe transferred to Real Media, Inc. for $10.00 all of the
capital stock of Real Media Pte Ltd., which conducts our business in Singapore,
and Real Media Limited, which conducts our business in Hong Kong. Simultaneously
with this transaction, the promissory notes issued to PubliGroupe for its August
1999 $10.0 million loan commitment described above were converted into shares of
our common stock, which are included in the 24,189,788 shares of our common
stock that PubliGroupe received in the business combination. The preferred stock
issued to PubliGroupe will convert into 675,000 shares of our common stock
immediately upon the completion of this offering.
The companies of Real Media Europe have various loan facilities with
PubliGroupe. Interest accrues on these loans at rates ranging between 4.0% and
6.75% per year. PubliGroupe has agreed to forgive intercompany loans and
eliminate all accumulated losses of Real Media Europe through December 31, 1999
through capital contributions. We must repay any intercompany loans made by
PubliGroupe to Real Media Europe between January 1, 2000 and the completion of
the business combination within 60 days following the business combination.
Following the business combination, we own 49% of Real Media S.A. through
Real Media Europe Holding, and PubliGroupe owns 51%. Under the terms of our
stock purchase agreement with PubliGroupe, we have the right, exercisable until
January 1, 2002, to purchase all, but not less than all, of PubliGroupe's
interest in Real Media S.A. Until that date, PubliGroupe has the right to elect
to sell to us all, but not less than all, of its interest in Real Media S.A. The
purchase price of a sale of Real Media S.A. will be determined by negotiations
between us and PubliGroupe and shall be payable in cash, or, at our election, in
shares of our common stock. If we are unable to agree on a purchase price, we
will agree to be bound by a value determined by investments banks retained by
PubliGroupe and us.
PubliGroupe and Real Media gave each other customary representations and
warranties in the stock purchase agreement as to the organization and
capitalization of the companies, their financial condition, title to their
assets, the absence of adverse changes to their businesses, the absence of
certain liabilities, and other matters typically covered in acquisition
agreements. We have agreed to indemnify each other for any losses caused by a
breach of those representations and warranties. PubliGroupe has also agreed to
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indemnify us for certain potential tax liabilities. In addition to the stock
purchase agreement, on March 15, 2000 we have entered into several ancillary
agreements regarding our relationship with PubliGroupe and other stockholders.
The principal terms of these agreements are described below.
Stockholders Voting Agreement
Real Media, PubliGroupe USA Holding, Inc. (a wholly-owned subsidiary of
PubliGroupe), PubliGroupe, Advance Internet and our five founders, David Morgan,
Gil Beyda, Mark Pinney, Charles Smith and Joshua Rosen, entered into a Second
Amended and Restated Voting and Stockholders Agreement upon the closing of the
business combination. Among other things, under this agreement, PubliGroupe and
Advance Internet agree to make available to us from time to time prior to the
completion of this offering up to $13.0 million and $2.0 million, respectively,
at an interest rate equal to the prime rate. These loans are all due on the
earlier of one year from the date of the first loan or the completion of this
offering, and we will repay them in full from the proceeds of this offering.
The Second Amended and Restated Voting and Stockholder Agreement will be
terminated, and the parties will enter into a new stockholders voting agreement,
on the closing date of this offering. This stockholders voting agreement will
provide for a board of directors of nine members, three to be nominated by
PubliGroupe, two to be nominated by the founders, one to be the chief executive
officer of Real Media, and three to be independent directors. Initially, one of
the independent directors shall be nominated by Advance Internet, and two shall
be nominated by a vote of at least five of the other seven directors.
If Advance Internet and our founders shall own less than 10% of our
outstanding common stock, then the number of directors nominated by the founders
shall be one instead of two, and our board will designate an independent
successor. If all the parties to the stockholders voting agreement shall
together own less than 51% of our outstanding common stock, or if Advance
Internet and our founders shall own less than 5% of our outstanding common
stock, then the founders will not have a nominee on our board. Our board would
then be composed of five independent nominees, three PubliGroupe nominees and
our chief executive officer.
The parties to the stockholders voting agreement will agree not to sell or
transfer their shares of our common stock except:
- to Real Media, another party to the stockholders voting agreement or an
affiliate of that party, or any other person or entity who agrees to be
bound by the stockholders voting agreement;
- to the public in a sale registered under the Securities Act, or open
market sales made in accordance with Rule 144 under the Securities Act on
the Nasdaq National Market or the SWX New Market of the SWX Swiss
Exchange;
- pursuant to a tender offer, merger, recapitalization or other business
combination that is recommended by our board of directors; or
- in a transaction after the stockholder has offered to sell the stock to
the other parties to the stockholders voting agreement on the same terms
as a proposed sale.
PubliGroupe will agree to vote all of the shares that it holds in excess of
one-third of our outstanding common stock in accordance with the recommendation
of the majority of our board of directors on any matter submitted to our
stockholders for their vote. This limitation on PubliGroupe's voting rights does
not apply, however, to a vote on any merger or other business combination that
would result in the conversion of our common stock into cash or other securities
or would result in the stockholders of the other entity acquiring control of a
majority of the voting power of the combined entity. This requirement also does
not apply to any sale of all or substantially all of our assets.
During the term of the stockholders voting agreement, we will agree to give
PubliGroupe a right of first refusal on any proposed sale by us of our interest
in Real Media S.A. If PubliGroupe exercises this right, it will have the right
to buy our interest on the same terms as the proposed sale. If PubliGroupe does
not exercise its right of first refusal, we may sell our interest in Real Media
S.A., subject to our being able to complete the sale within a specified time
period.
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The stockholders voting agreement will terminate on the earliest date on
which:
- PubliGroupe ceases to own at least 36% of our outstanding common stock;
- the parties to the agreement cease to own in the aggregate at least 51%
of our outstanding common stock, and Advance Internet owns less than
4,216,509 shares of our common stock; or
- Advance Internet and the founders cease to own at least 5% of our
outstanding common stock, and Advance Internet owns less than 4,216,509
shares of our common stock.
Cooperation Agreement
Pursuant to a cooperation agreement with PubliGroupe, PubliGroupe agreed to
promote us as an Internet advertising organization, and we will pay PubliGroupe
a percentage of our advertising revenue for advertising sales leads that they
deliver. We agreed to promote PubliGroupe as a transnational print media
representation and sales organization, and PubliGroupe will pay us a share of
its sales commissions for any sale leads we generate. PubliGroupe agreed to
promote Open AdStream(TM), and we will pay PubliGroupe a commission of 8% of the
first year license fee on all Open AdStream(TM) sales it generates. In the
cooperation agreement, we and PubliGroupe agreed that we will not actively seek
relationships with companies that compete with the other's core business and
that we will not develop activities that compete with each other's core
businesses. This agreement, including the non-competition provisions, pertains
to all of the countries of the world except Switzerland. This agreement has an
initial term of three years and will renew automatically for one-year periods
unless terminated.
Interim Administrative Services Agreement
PubliGroupe has provided administrative services to Real Media Europe since
its formation. Pursuant to this agreement, PubliGroupe agreed to provide to Real
Media Europe Holding substantially the same financial management, information
technology and network services, legal, contract and corporate planning services
as PubliGroupe provided to Real Media Europe prior to the business combination.
Real Media Europe Holding will pay PubliGroupe a quarterly fee for these
services equal to the cost to PubliGroupe to provide the services, plus 5% of
that cost. This agreement will terminate on January 31, 2001 unless extended,
except that PubliGroupe may terminate the agreement upon notice or if
PubliGroupe owns, directly or indirectly, less than a majority of Real Media's
then outstanding common stock.
Real Media S.A. Stockholders Agreement
Real Media Europe Holding entered into a stockholders agreement with
PubliGroupe and Real Media, Inc. with respect to Real Media S.A. Real Media
S.A.'s board of directors will be composed of three members designated by
PubliGroupe and two members designated by us. However, many important corporate
decisions must be approved by both Real Media Europe and PubliGroupe. The
agreement also restricts transfers of shares of Real Media S.A. PubliGroupe will
also agree to fund the operations of Real Media S.A. through loans as needed for
working capital and other general corporate purposes. Loans by PubliGroupe to
Real Media S.A. will bear interest at the prime rate as determined from time to
time by banks of Switzerland and will be repaid in full with interest when we
acquire PubliGroupe's 51% interest in Real Media S.A. The Real Media S.A.
stockholders agreement will terminate when we acquire PubliGroupe's 51% interest
in Real Media S.A.
Real Media S.A. Technology Transfer Agreement
Real Media and Real Media S.A. entered into a technology transfer agreement
in which we granted to Real Media S.A. an exclusive license to use and modify
the Open AdStream(TM) system technology in connection with planning and delivery
of Internet advertising in Switzerland. Until December 31, 2005, Real Media S.A.
will have the exclusive right to relicense Open AdStream(TM) and provide related
services in Switzerland and will pay us a fee, ranging from 5% to 30%, of the
gross receipts it receives from those sales. The Open AdStream(TM) technology
may not be transferred by Real Media S.A. without our consent, except that Real
Media S.A. may grant non-exclusive licenses of the technology to third parties
to the
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extent necessary to comply with compulsory license requirements and to keep any
patents in full force. During the term of the agreement, we will grant a license
to Real Media S.A. for any improvements to the technology that we develop,
acquire or discover, and Real Media S.A. will grant us a fully paid-up license
during the term of the agreement for any improvements that they develop, acquire
or discover. The technology transfer agreement requires us and Real Media S.A.
to notify each other if either of us becomes aware of any unauthorized use or
infringement of the technology. Real Media S.A. has the exclusive right in its
discretion to defend any actions against it in Switzerland resulting from any
claim of unauthorized use or infringement of the technology.
Real Media S.A. Trademark and Tradename Agreement
We entered into a trademark and tradename agreement with Real Media S.A.
under which we granted Real Media S.A. the exclusive right to use in Switzerland
the tradename REAL MEDIA S.A., the trademark REAL MEDIA, and any other
trademarks or trade names used by us in connection with the operation of our
business outside Switzerland. Real Media S.A. agreed not to use the marks
outside of Switzerland and will not grant anyone else the right to use the
trademarks or its tradename. We and Real Media S.A. will cooperate in seeking
registrations and approvals of the tradename and trademarks. The trademark and
tradename agreement remains in effect until terminated by mutual agreement of
the parties or terminated due to a breach by either party or the insolvency of
Real Media S.A.
IMAS License Agreement
We have entered into two agreements with Consultas, a PubliGroupe company,
regarding the development and support of an advertising management information
system, known as IMAS. We expect IMAS to be operational in the first quarter
2000. Under a development agreement relating to IMAS, Consultas will own all
intellectual property rights to the first version of IMAS, IMAS 1.0, and we will
have a perpetual, fully paid-up license to use IMAS 1.0. Consultas has
contributed the salaries and benefits of personnel and other developmental costs
to the development of IMAS 1.0, and we will pay Consultas a fee of $250,000 over
nine months for the license to use IMAS 1.0. We will have the right to license
IMAS to third parties under a revenue-sharing arrangement with Consultas. We and
Consultas will also jointly develop IMAS 2.0, which Consultas will have the
right to use internally for PubliGroupe companies. Under a related application
service provider agreement, Consultas will provide us with computer hosting and
technical support for IMAS in exchange for a monthly fee of $5,000 while IMAS is
deployed only in Europe and $10,000 when IMAS is both deployed in Europe and
also outside of Europe.
We believe that our transactions with PubliGroupe and Advance Internet are
on terms no less favorable to us than those terms that would be available to us
in transactions with a non-affiliated third party.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of December 31, 1999, and as adjusted to
reflect the sale of shares of our common stock offered by this prospectus, by:
- each person (or group of affiliated persons) who is known by us to own
more than 5% of the outstanding shares of our common stock;
- each of our directors and our executive officers named in the summary
compensation table; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Unless otherwise noted, we believe that all persons named in the table have sole
voting and sole investment power with respect to all shares beneficially owned
by them. All figures include shares of common stock issuable upon the exercise
of options or warrants exercisable within 60 days of the date of this
prospectus. Options or warrants that are exercisable for common stock and other
ownership rights in common stock that vest within 60 days of the date of this
prospectus are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrants for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
PERCENT OF SHARES OUTSTANDING(1)
5% BENEFICIAL OWNERS, DIRECTORS, NUMBER OF SHARES -----------------------------------------
NOMINEES FOR DIRECTOR, NAMED OFFICERS BENEFICIALLY OWNED(1) BEFORE THE OFFERING AFTER THE OFFERING
- ------------------------------------- --------------------- ------------------- ------------------
<S> <C> <C> <C>
PubliGroupe S.A.(2)(3)(4)................ 27,918,045 70.5% 59.8%
Advance Internet Inc.(5)................. 4,685,010 11.8% 10.0%
David Morgan............................. 1,572,000 4.0% 3.4%
Christopher Neimeth(6)................... 295,395 * *
Gil Beyda(7)(8).......................... 1,521,000 3.8% 3.3%
Walter Annasohn(4)(9).................... 27,918,045 70.5% 59.8%
Hans Steiner(4)(9)....................... 27,918,045 70.5% 59.8%
Heinz Wagli(4)(9)........................ 27,918,045 70.5% 59.8%
All executive officers and directors as a
group (thirteen persons)(10)........... 32,134,413 80.4% 68.3%
</TABLE>
- ---------------
* Less than 1%
(1) Gives effect to the 24,189,788 shares of our common stock and 450,000
shares of Series A Convertible Preferred Stock issued to PubliGroupe in the
business combination of Real Media, Inc. and Real Media Europe. Upon the
completion of this offering, each share of Series A Convertible Preferred
Stock will convert into one and a half shares of our common stock
immediately upon the completion of this offering. Excludes 1,563,410 shares
of our common stock that PubliGroupe will receive in the business
combination, which it will sell to eleven employees of Real Media Europe.
(2) Includes 4,616,667 shares owned by PubliGroupe USA Holding, Inc., a wholly
owned subsidiary of PubliGroupe.
(3) PubliGroupe's address is Avenue des Toises 12, CH-1202, Lausanne,
Switzerland.
(4) Voting of these shares is subject to a stockholders voting agreement. See
"Related Party Transactions -- Stockholders Voting Agreement."
(5) Advance Internet's address is 30 Journal Square, Suite 400, Jersey City, NJ
07306.
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(6) Includes 295,395 options that are or will become exercisable within 60 days
of the date of this prospectus.
(7) Includes 150,000 shares owned by AS-IS Holdings, LLC, a limited liability
company of which Mr. Beyda, his spouse and the Gil Beyda 1999 Family Trust
Indenture are the only members.
(8) Includes 15,000 options that are or will become exercisable within 60 days
of the date of this prospectus.
(9) Drs. Annasohn and Wagli and Mr. Steiner are members of the executive
committee of PubliGroupe and may be deemed to beneficially own the shares
of our common stock owned by PubliGroupe. Their business address is the
same as PubliGroupe's.
(10) Includes 325,395 options that are or will become exercisable within 60 days
of the date of this prospectus.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 120,000,000 shares of common
stock, par value $.001 per share, and 9,000,000 shares of preferred stock, par
value $.001 per share. Upon completion of this offering, we will have
approximately 46,719,000 shares (47,784,000 shares if the underwriters'
over-allotment option is exercised in full) of common stock issued and
outstanding, and no shares of preferred stock issued and outstanding.
The following is a summary only of our certificate of incorporation and
bylaws and of the Delaware General Corporation Law. We have filed copies of our
certificate of incorporation and bylaws as exhibits to the registration
statement of which this prospectus forms a part.
COMMON STOCK
The holders of our common stock are entitled to dividends that our board of
directors may declare from funds legally available therefor, subject to the
preferential rights of the holders of our preferred stock, if any. The holders
of our common stock are entitled to one vote per share on any matter to be voted
upon by stockholders. Our certificate of incorporation does not provide for
cumulative voting in connection with the election of directors, and accordingly,
holders of more than 50% of the shares voting will be able to elect all of the
directors.
Upon any voluntary or involuntary liquidation, dissolution, or winding up
of our affairs, the holders of our common stock are entitled to share ratably in
all assets remaining after payment of creditors and subject to prior
distribution rights of holders of our preferred stock, if any. All of the
outstanding shares of common stock are, and the shares offered by us will be,
fully paid and non-assessable.
PREFERRED STOCK
Our certificate of incorporation provides that our board of directors may
by resolution establish one or more classes or series of preferred stock having
such number of shares and relative voting rights, designation, dividend rates,
liquidation, and other rights, preferences and limitations as may be fixed by
them without further stockholder approval. The holders of our preferred stock
may be entitled to preferences over common stockholders with respect to
dividends, liquidation, dissolution or our winding up in such amounts as are
established by our board of directors' resolutions issuing such shares.
The issuance of our preferred stock may have the effect of delaying,
deferring or preventing a change in control of Real Media without further action
by the stockholders and may adversely affect voting and other rights of holders
of our common stock. In addition, the issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire a majority of the outstanding shares of voting stock. At present, we
have no plans to issue any shares of preferred stock.
Prior to the completion of this offering, 450,000 shares of our Series A
Convertible Preferred Stock will be outstanding. The holders of Series A
Convertible Preferred Stock are not entitled to vote on matters submitted to our
stockholders. Shares of Series A Convertible Preferred Stock convert into
675,000 shares of our common stock immediately upon the completion of this
offering.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW; CERTAIN ANTI-TAKEOVER,
LIMITED LIABILITY AND
INDEMNIFICATION PROVISIONS
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the
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person became an "interested stockholder," unless the business combination is
approved in a prescribed manner. A "business combination" includes certain
mergers, asset sales, and other transactions resulting in a financial benefit to
the "interested stockholder." Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15% of the corporation's voting stock.
Certain provisions of our certificate of incorporation and bylaws could
have anti-takeover effects. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the corporate
policies formulated by our board of directors. In addition, these provisions
also are intended to ensure that our board of directors will have sufficient
time to act in what the board of directors believes to be in the best interests
of us and our stockholders. These provisions also are designed to reduce our
vulnerability to an unsolicited proposal for our takeover that does not
contemplate the acquisition of all of our outstanding shares or an unsolicited
proposal for the restructuring or sale of all or part of Real Media. The
provisions are also intended to discourage certain tactics that may be used in
proxy fights. However, these provisions could delay or frustrate the removal of
incumbent directors or the assumption of control of us by the holder of a large
block of common stock, and also could discourage or make more difficult a
merger, tender offer or proxy contest, even if such event would be favorable to
the interests of our stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation provides for our board of directors to be
divided into three classes of directors, with each class as nearly equal in
number as possible, serving staggered three-year terms (other than directors who
may be elected by holders of preferred stock). As a result, approximately
one-third of our board of directors will be elected each year. The classified
board provision will help assure the continuity and stability of our board of
directors and our business strategies and policies as determined by our board of
directors. The classified board provision could have the effect of discouraging
a third party from making an unsolicited tender offer or otherwise attempting to
obtain control of us without the approval of our board of directors. In
addition, the classified board provision could delay stockholders who do not
like the policies of our board of directors from electing a majority of our
board of directors for two years.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our certificate of incorporation provides that stockholder action can only
be taken at an annual or special meeting of stockholders and prohibits
stockholder action by written consent in lieu of a meeting. Our bylaws provide
that special meetings of stockholders may be called only by our board of
directors or our chief executive officer. Our stockholders are not permitted to
call a special meeting of stockholders or to require that our board of directors
call a special meeting.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINEES
Our bylaws establish an advance notice procedure for our stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of our stockholders. The advance notice
procedure provides that only persons who are nominated by, or at the direction
of, our board of directors or its chairman, or by a stockholder who has given
timely written notice to our secretary or any assistant secretary prior to the
meeting at which directors are to be elected, will be eligible for election as
our directors. The advance notice procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, our board of directors or its chairman or by
a stockholder who has given timely written notice to our secretary or any
assistant secretary of such stockholder's intention to bring such business
before such meeting. Under the advance notice procedure, if a stockholder
desires to submit a proposal or nominate persons for election as directors at an
annual meeting, the stockholder must submit written notice to Real Media not
less than 90 days nor more than 120 days prior to the first anniversary of the
previous year's annual meeting. In addition, under the advance notice procedure,
a stockholder's notice to Real Media proposing to nominate
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a person for election as a director or relating to the conduct of business other
than the nomination of directors must contain certain specified information. If
the chairman of a meeting determines that business was not properly brought
before the meeting, in accordance with the advance notice procedure, such
business shall not be discussed or transacted.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
Our certificate of incorporation and bylaws provide that our board of
directors will consist of not less than three nor more than nine directors
(other than directors elected by holders of our preferred stock), the exact
number to be fixed from time to time by resolution adopted by our directors.
Further, subject to the rights of the holders of any series of our preferred
stock, if any, our certificate of incorporation and bylaws authorize our board
of directors to elect additional directors under specified circumstances and
fill any vacancies that occur in our board of directors by reason of death,
resignation, removal or otherwise. A director so elected by our board of
directors to fill a vacancy or a newly created directorship holds office until
the next election of the class for which such director has been chosen and until
his successor is elected and qualified. Subject to the rights of the holders of
any series of our preferred stock, if any, our certificate of incorporation and
bylaws also provide that directors may be removed only for cause and only by the
affirmative vote of holders of a majority of the combined voting power of the
then outstanding stock of Real Media. The effect of these provisions is to
preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of our Board of Directors by filling the
vacancies created by such removal with its own nominees.
INDEMNIFICATION
We have included in our certificate of incorporation and bylaws provisions
to eliminate the personal liability of our directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
Delaware General Corporation Law, and to indemnify our directors and officers to
the fullest extent permitted by Section 145 of the Delaware General Corporation
Law, including circumstances in which indemnification is otherwise
discretionary. We believe that these provisions are necessary to attract and
retain qualified persons as directors and officers.
CERTIFICATE OF INCORPORATION
The provisions of our certificate of incorporation that could have
anti-takeover effects as described above are subject to amendment, alteration,
repeal or rescission by the affirmative vote of the holders of not less than
two-thirds (66 2/3%) of the outstanding shares of voting securities. This
requirement makes it more difficult for stockholders to make changes to the
provisions in our certificate of incorporation, which could have anti-takeover
effects by allowing the holders of a minority of the voting securities to
prevent the holders of a majority of voting securities from amending these
provisions of our certificate of incorporation.
BYLAWS
Our certificate of incorporation provides that our bylaws are subject to
adoption, amendment, alteration, repeal or rescission either by our board of
directors without the assent or vote of our stockholders, or by the affirmative
vote of the holders of not less than two-thirds (66 2/3%) of the outstanding
shares of voting securities. This provision makes it more difficult for
stockholders to make changes in our bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company. The transfer agent and registrar's address is 40 Wall
Street, New York, New York 10005, and its telephone number is (212) 936-5100.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately upon completion of this offering, 46,719,013 shares of our
common stock will be outstanding, or 47,784,013 shares if the underwriters
exercise their over-allotment option in full. Of these shares, the 8,165,000
shares of our common stock sold in this offering, assuming the underwriters
exercise their over-allotment option in full, assuming no exercise of
outstanding options, will be freely transferable without restriction or further
registration under the Securities Act of 1933, unless held by one of our
"affiliates," as that term is defined under Rule 144 under the Securities Act.
The remaining 39,619,013 shares of our common stock were issued prior to this
offering and are "restricted securities," as that term is defined under Rule
144. These shares are restricted securities because they were issued in private
transactions not involving a public offering and may not be sold in the absence
of registration other than in accordance with Rule 144 or another exemption from
registration. In addition, there are outstanding options to purchase 2,242,809
shares of our common stock which will be eligible for sale in the public market
from time to time, subject to vesting and applicable laws and, in some cases, to
the expiration of lock-up agreements.
Beginning on the 91st day after the date of this prospectus,
- 625,968 restricted shares will be eligible for sale.
Beginning on the 181st day after the date of this prospectus,
- 1,748,580 restricted shares will be eligible for sale, subject to a
stockholders voting agreement. See "Related Party
Transaction -- Stockholders Voting Agreement."
- 37,244,465 restricted shares will be eligible for sale, subject to
compliance with Rule 144 and in some cases, subject to a stockholders
voting agreement.
We have applied to list our common stock on both the Nasdaq National Market
and the SWX New Market of the SWX Swiss Exchange. Sales on the SWX New Market
will still be subject to United States securities laws including Rule 144 and
Regulation S under the Securities Act, which may restrict sales.
Prior to this offering, there has been no public market for our common
stock. No information is currently available and we cannot predict the timing or
amount of future sales of shares, or the effect, if any, that future sales of
the shares, or the availability of shares for future sale, will have on the
market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock (including shares issuable upon the
exercise of stock options) in the public market after the lapse of the
restrictions described below, or the perception that such sales may occur, could
materially adversely effect the prevailing market prices for our common stock
and our ability to raise equity in the future. See "Risk Factors -- Risks
Relating to the Offering -- We expect to experience volatility in our stock
price that could affect your investment" and "Risk Factors -- Risks Relating to
the Offering -- Sales of our shares after this offering could result in a
decline in our stock price."
RULE 144
In general, under Rule 144, beginning on the 91st day after the date of
this prospectus, a person who owns shares that were purchased from us or any of
our affiliates at least one year previously, including a person who may be
deemed our affiliate, is entitled to sell within any three-month period a number
of shares that does not exceed the greater of:
- 1% of the then outstanding shares of our common stock, which we expect
will equal approximately 467,190 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 preceding the date on
which notice of the sale is filed with the SEC.
Sales under Rule 144 are also subject to certain restrictions as to the
manner of sale, notice requirements and the availability of current public
information about us.
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In addition, under Rule 144(k), if a period of at least two years has
elapsed since the later of the date restricted securities were acquired from us
or one our affiliates, a stockholder who is not one of our affiliates at the
time of sale and who has not been one of our affiliates for at least three
months prior to the sale would be entitled to sell shares of our common stock on
the public market immediately without complying with the volume limitations,
manner of sale, public information or notice provisions of requirements under
Rule 144. Rule 144 does not require the same person to have held the securities
for the applicable periods.
RULE 701
Any employee, director or officer of, or some consultants to, Real Media
who acquired shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701 of the Securities Act,
which permits non-affiliates to sell their Rule 701 shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144, and permits Real Media affiliates to sell their Rule 701
shares without having to comply with the holding period restrictions of Rule
144, in each case, beginning on the 91st day after the date of this prospectus.
625,968 shares issued will be eligible for sale in reliance upon Rule 701.
LOCK-UP AGREEMENTS
In addition to the restrictions on resale described above, Real Media,
PubliGroupe, Advance Internet, our directors, our executive officers and certain
other stockholders have entered into lock-up agreements under which they have
agreed not to offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or, in the case of Real Media, file with the SEC a
registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, without the prior written
consent of Credit Suisse First Boston Corporation and Banc of America Securities
LLC, for a period of 180 days after the date of this prospectus, except in our
use for the filing of a registration statement on Form S-8 or grants of employee
stock options in connection with or pursuant to the terms of a plan in effect on
the date hereof, issuances of securities pursuant to the exercise of employee
stock options outstanding on the date hereof or the exercise of any other stock
options outstanding on the date hereof. Consequently, although some of the
shares owned by these persons and entities may be eligible for earlier sale
under the provisions of Rule 144, these persons may not sell these shares until
181 days after the date of this prospectus.
SWX SWISS EXCHANGE
Under the listing rules of the SWX New Market of the SWX Swiss Exchange,
Real Media and any stockholder who owns more than two percent of our common
stock prior to this offering must jointly and severally agree not to sell or
announce any intention to sell any of their equity securities of Real Media
during the six-month period beginning on the first trading day of our common
stock. After this six-month period, there are no restrictions under the rules of
the SWX New Market of the SWX Swiss Exchange on such stockholders' ability to
sell our common stock on the SWX New Market of the SWX Swiss Exchange.
REGISTRATION ON FORM S-8
Prior to the completion of this offering, we intend to file a registration
statement on Form S-8 to register 1,640,046 shares of our common stock issuable
under our 1999 employee stock option plan. All of these shares generally will be
available for sale in the open market from time to time, subject to vesting
provisions, Rule 144 volume limitations applicable to our affiliates and, in the
case of some of the options, the expiration of lock-up agreements.
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PRINCIPAL TAX CONSEQUENCES TO NON-U.S. HOLDERS
CERTAIN UNITED STATES TAX CONSEQUENCES
The following discussion summarizes principal U.S. federal income and
estate tax consequences of the ownership and disposition of common stock by
"Non-U.S. Holders". You are a "non-U.S. holder" for U.S. federal income tax
purposes if you are:
- a non-resident alien individual;
- a foreign corporation;
- a foreign partnership; or
- an estate or trust that in either case is not subject to U.S. federal
income tax on a net income basis on income or gain from common stock.
This discussion does not consider the specific facts and circumstances that
may be relevant to particular holders and does not address the treatment of
holders of common stock under the laws of any state, local or foreign taxing
jurisdiction. This discussion is based on the tax laws of the U.S., including
the Internal Revenue Code, as amended to the date hereof, existing and proposed
regulations thereunder, and administrative and judicial interpretation thereof,
as currently in effect. These laws are subject to change, possibly on a
retroactive basis.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF
THE FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS TO THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS TO WHICH YOU
MAY BE SUBJECT.
DIVIDENDS
If you are a non-U.S. holder of our common stock, dividends paid to you are
subject to withholding of U.S. federal income tax at a 30% rate or at a lower
rate if so specified in an applicable income tax treaty. If, however, the
dividends are effectively connected with your conduct of a trade or business
within the U.S., and they are attributable to a permanent establishment that you
maintain in the U.S., if that is required by an applicable income tax treaty as
a condition for subjecting you to U.S. income tax on a net income basis on such
dividends, then such "effectively connected" dividends generally are not subject
to withholding tax. Instead, such effectively connected dividends are taxed at
rates applicable to U.S. citizens, resident aliens and domestic U.S.
corporations.
Effectively connected dividends received by a non-U.S. corporation may,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or at a lower rate if so specified in an applicable income tax
treaty.
Under currently effective U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country, unless the payor has knowledge to the contrary, for purposes of the 30%
withholding tax discussed above. Under current interpretations of U.S. Treasury
regulations, this presumption that dividends paid to an address in a foreign
country are paid to a resident of that country, unless the payor has knowledge
to the contrary, also applies for the purposes of determining whether a lower
tax treaty rate applies.
Under U.S. Treasury regulations that will generally apply to dividends paid
after December 31, 2000, the "New Regulations," if you claim the benefit of a
lower treaty rate, you must satisfy certain certification requirements. In
addition, in the case of common stock held by a foreign partnership, the
certification requirements generally will apply to the partners of the
partnership and the partnership must provide certain information, including a
U.S. taxpayer identification number. The final withholding regulations also
provide look-through rules for tiered partnerships.
If you are eligible for a reduced rate of U.S. withholding tax under a tax
treaty, you may obtain a refund of any excess amounts withheld by filing a
refund claim with the IRS.
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GAIN ON DISPOSITION OF COMMON STOCK
If you are a non-U.S. holder you generally will not be subject to U.S. federal
income tax on gain recognized on a disposition of common stock unless:
- the gain is effectively connected with your conduct of a trade or
business in the U.S., and the gain is attributable to a permanent
establishment that you maintain in the U.S., if that is required by an
applicable income tax treaty as a condition for subjecting you to U.S.
taxation on a net income basis on gain from the sale or other disposition
of the common stock;
- you are an individual, you hold the common stock as a capital asset and
you are present in the U.S. for 183 or more days in the taxable year of
the sale and certain other conditions exist; or
- we are or have been a "United States real property holding corporation"
for federal income tax purposes and you held, directly or indirectly, at
any time during the five-year period ending on the date of disposition,
more than 5% of our common stock, and you are not eligible for any treaty
exemption.
Effectively connected gains recognized by a corporate non-U.S. holder may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or at a lower rate if so specified in an applicable income
tax treaty.
We have not been, are not, and do not anticipate becoming a "United States
real property holding corporation" for federal income tax purposes.
FEDERAL ESTATE TAXES
Common stock held by an individual non-U.S. holder at the time of death
will be included in the holder's gross estate for U.S. federal estate tax
purposes and may be subject to U.S. federal estate taxes, unless an applicable
estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, U.S. information reporting requirements and backup withholding
tax will not apply to dividends paid to you if you are either:
- subject to the 30% withholding tax discussed above, or
- not subject to the 30% withholding tax because an applicable tax treaty
reduces or eliminates such withholding tax.
If you do not meet either of these requirements for exemption and you fail to
provide certain information, including your U.S. taxpayer identification number,
or otherwise establish your status as an "exempt recipient," you may be subject
to backup withholding of U.S. federal income tax at a rate of 31% on dividends
paid with respect to common stock.
Under current law, the payor may generally treat dividends paid to a payee
with a foreign address as exempt from backup withholding and information
reporting unless the payor has definite knowledge that the payee is a U.S.
person. However, under the New Regulations, dividend payments generally will be
subject to information reporting and backup withholding unless certain
certification requirements are met. See the discussion under "Dividends" in this
section for the rules applicable to foreign partnerships under the New
Regulations.
U.S. information reporting and backup withholding requirements generally
will not apply to a payment of the proceeds of a sale of common stock made
outside the U.S. through an office outside the U.S. of a non-U.S. broker.
However, U.S. information reporting, but not backup withholding, will apply to a
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payment made outside the U.S. of the proceeds of a sale of common stock through
an office outside the U.S. of a broker that:
- is a U.S. person;
- derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S.;
- is a "controlled foreign corporation" as to the U.S.; or
- with respect to payments made after December 31, 2000, is a foreign
partnership with certain connections to the U.S.
in each case, unless the broker has documentary evidence in its records that the
holder or beneficial owner is a non-U.S. person and has no knowledge to the
contrary or the holder otherwise establishes an exemption.
Payment of the proceeds of a sale of common stock to or through a U.S.
office of a broker is subject to both U.S. backup withholding and information
reporting unless the holder certifies its non-U.S. status under penalty of
perjury or otherwise establishes an exemption.
Backup withholding is not an additional tax and you may apply any taxes
that are withheld against your tax liability and you generally may obtain a
refund of any excess amounts withheld under the backup withholding rules by
filing a refund claim with the Internal Revenue Service.
CERTAIN SWISS TAX CONSEQUENCES
The following is a summary of certain Swiss federal income tax
considerations relevant to the purchase, ownership and disposition of shares of
common stock and, unless otherwise indicated, is applicable only to stockholders
that are resident in Switzerland. This summary does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to an investment in shares of common stock, and is based on treaties, laws,
regulations, rulings and decisions currently in effect, all of which are subject
to change. Prospective investors should consult their own advisers as to the tax
consequences of the purchase, ownership and disposition of shares of common
stock in light of their particular circumstances.
The statements and discussion of certain Swiss taxes set forth below are of
a general nature only and do not address every potential tax consequence of an
investment in shares under Swiss law. Potential investors will therefore need to
consult their own tax advisers to determine the special tax consequences of the
receipt, ownership and sale or other dispositions of shares of common stock.
CREDIT FOR U.S. WITHHOLDING TAXES
Subject to certain requirements, stockholders resident in Switzerland may
claim the U.S. withholding tax withheld from any dividends that we may pay to
them as a credit against their Swiss income taxes on the respective dividend
income.
GAIN ON SALE OF COMMON STOCK
Under current Swiss tax rules, gain on the sale of shares of common stock
of individuals resident in Switzerland is generally not subject to income tax
provided the shares of common stock are part of their private property (as
defined under applicable tax regulation), and further provided that such persons
are not taxed as professional securities dealers. We currently have no intention
of repurchasing any of the shares we sell in this offering. However, if we were
to repurchase any such shares, any private gains an individual resident in
Switzerland may realize may be deemed taxable dividend income rather than gain
if certain conditions are met.
Gains realized on shares of common stock as part of the business property
of a Swiss tax resident person or entity are included in the taxable income of
such person or entity.
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Under current Swiss tax law, a holder of our common stock who (i) is a
non-resident of Switzerland, (ii) during the taxable year has not engaged in a
trade or business through a permanent establishment within Switzerland and (iii)
is not subject to taxation in Switzerland for any other reason will be exempt
from Swiss Federal, Cantonal or Municipal Income Tax or other Swiss tax on gains
realized during such year on the sale of our common stock.
WITHHOLDING TAX ON DIVIDENDS AND DISTRIBUTIONS
Any dividends paid and similar cash or in kind distributions made by us to
a stockholder are not subject to Swiss Federal withholding tax.
INCOME TAX ON DIVIDENDS
Swiss residents receiving dividends or similar distributions (including
stock dividends and liquidation proceeds in excess of the par value of common
stock held) from us are required to include such amount in their personal income
tax returns. Swiss stockholders who are corporations may under certain
circumstances benefit from income tax relief with respect to qualifying dividend
income.
STAMP DUTY UPON TRANSFER OF COMMON STOCK
Each party to a transfer of ownership of our common stock (including
non-Swiss residents) may be subject to transfer stamp duty at a rate of 0.15% of
the consideration paid (i.e. up to a total of 0.3%) if a Swiss bank or any other
Swiss security dealer (as defined by the Swiss Federal Stamp Tax Act) is a
contractual party or acts as an intermediary to the transfer. Additionally,
sales of our common stock through the facilities of the SWX Swiss Exchange may
be subject to a stock exchange levy at a rate of up to 0.02% of the
consideration paid.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation and Banc of America
Securities LLC are acting as joint book-running lead managers, and Lazard Freres
& Co. LLC is acting as a co-manager, the following respective numbers of shares
of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Banc of America Securities LLC..............................
Lazard Freres & Co. LLC.....................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 1,065,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us............. $ $ $ $
Expenses payable by us............... $ $ $ $
</TABLE>
The underwriting discounts and commissions, which are expected to be 7% of
the initial public offering price, are determined on the basis of several
factors, including, among others, marketing expenses, advertising expenses,
legal expenses, market factors and costs of funds. In addition, we have agreed
to pay, and the underwriters will be deemed to have received as compensation,
the legal fees and expenses of their counsel incurred in connection with the
review of the underwriting terms of this offering by the National Association of
Securities Dealers, which are estimated to be $10,000.
We estimate that the expenses of the offering, not including the
underwriting discounts and commissions, will be $1,500,000. The following table
summarizes these expenses, as set out in part II of the registration statement
of which this prospectus is a part. All amounts shown are estimates, with the
exception of the SEC registration fee, the NASD filing fee, the Nasdaq National
Market listing fee and the SWX Swiss New Market listing fee.
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<TABLE>
<S> <C>
SEC registration fee.............. $20,618
NASD filing fee................... 8,000
Nasdaq National Market listing
fee............................. 17,500
SWX Swiss New Market listing
fee............................. 10,000
Blue Sky fees and expenses........ 5,000
Legal fees and expenses........... $525,000
Accounting fees and expenses...... 700,000
Registrar and transfer agent
fees............................ 10,000
Printing and engraving expenses... 200,000
Miscellaneous..................... 3,882
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, PubliGroupe, Advance Internet, our directors, our executive officers
and certain other stockholders have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or, in our case, file
with the SEC a registration statement under the Securities Act relating to, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, or publicly disclose the
intention to make any such offer, sale, pledge, disposition or filing, without
the prior written consent of Credit Suisse First Boston Corporation and Banc of
America Securities LLC, for a period of 180 days after the date of this
prospectus, except in our case for the filing of a registration statement on
Form S-8 or grants of employee stock options in connection with or pursuant to
the terms of a plan in effect on the date hereof, issuances of securities
pursuant to the exercise of employee stock options outstanding on the date
hereof or the exercise of any other stock options outstanding on the date
hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares of our common
stock available for sale to the general public in the offering will be reduced
to the extent these persons purchase reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect. PubliGroupe has agreed to indemnify the underwriters
against the breach of certain representations relating to Real Media Europe, or
contribute to payments which the underwriters may be required to make in that
respect.
Each of the underwriters has represented and agreed that:
(1) it has not offered or sold and prior to the date six months after
the date of issue will not offer or sell any of our common stock to persons
in the United Kingdom except to persons whose ordinary activities involved
them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted or do not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of the
Securities Regulations 1995;
(2) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to our common stock in, from or otherwise involving the United
Kingdom; and
(3) it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with the issue
of our common stock to a person who is of a kind described in Article II(3)
of the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom such document may otherwise lawfully be
issued or passed on.
We have applied to list the shares of our common stock on the Nasdaq
National Market, subject to official notice of issuance, and on the SWX New
Market of the SWX Swiss Exchange under the symbol "RLMD."
74
<PAGE> 82
Prior to the offering, there has been no public market for our common
stock. The initial public offering price for our common stock will be determined
by negotiation between us and the underwriters, and may not reflect the market
price for our common stock following the offering. Among the principal factors
considered in determining the initial public offering price will be:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- market conditions for initial public offerings;
- the history of and prospects for the industry in which we are competing;
- our past and present operations;
- our past and present earnings and current financial position;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;
- the general condition of the securities markets at the time of the
offering; and
- other relevant factors.
We cannot assure you that the initial public offering price will correspond
to the price at which our common stock will trade in the public market
subsequent to the offering or that an active trading market for our common stock
will develop and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short term positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
The underwriters and their affiliates have provided and will in the future
continue to provide investment banking and other financial services, including
the provision of credit facilities, for us and certain of our affiliates in the
ordinary course of business for which they have received and will receive
customary compensation.
75
<PAGE> 83
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS TO PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws; (2) where required
by law, that such purchaser is purchasing as principal and not as agent; and (3)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons outside
Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be filed in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one such
report must be filed in respect of common stock acquired on the same date and
under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
76
<PAGE> 84
LEGAL MATTERS
Dechert Price & Rhoads, Philadelphia, Pennsylvania, will pass upon the
validity of our common stock offered by this prospectus for Real Media. Simpson
Thacher & Bartlett, New York, New York, will pass upon certain legal matters for
the underwriters.
EXPERTS
The financial statements of Real Media, Inc. and the combined financial
statements of Real Media Europe as of December 31, 1998 and 1999 and for each of
the years in the three-year period ended December 31, 1999 appearing in this
prospectus and the registration statement of which this prospectus constitutes a
part, and the related financial statement schedule included elsewhere in the
registration statement, have been audited by Ernst & Young LLP, independent
auditors, in the case of Real Media, Inc., and by ATAG Ernst & Young AG,
independent auditors, in the case of Real Media Europe, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to our common stock offered by this prospectus. This
prospectus is a part of the registration statement and does not contain all of
the information set forth in the registration statement and the exhibits to the
registration statement. For further information with respect to Real Media and
our common stock, we refer you to the registration statement and the exhibits
filed as a part of the registration statement. Statements contained in this
prospectus concerning the contents of any contract, agreement or other document
are not necessarily complete; we refer you in each instance to the copy of the
contract or other document filed as an exhibit to the registration statement and
our statements are qualified by this reference. You may inspect the registration
statement, including its exhibits, without charge and obtain copies of all or
any part thereof at prescribed fees at the following SEC offices:
<TABLE>
<S> <C> <C>
Public Reference Room Citicorp Center Seven World Trade Center
450 Fifth Street, N.W. 500 West Madison Street 13th Floor
Washington, D.C. 20549 Suite 1400 New York, New York 10048
Chicago, Illinois 60661
</TABLE>
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site that
provides online access to reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC at the
address http://www.sec.gov.
Upon completion of this offering, we will be required to file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy any of these documents at the SEC's offices
identified above. Upon approval of our common stock for listing on the Nasdaq
National Market, you may also review these documents at 1735 K Street, N.W.,
Washington, D.C. 20006.
77
<PAGE> 85
TRANSFER OF SHARES ON THE SWX SWISS EXCHANGE
Our common stock is issued only in registered form, which means that the
holder of such shares is registered in our stock register maintained by our
United States transfer agent and registrar. The United States transfer agent and
registrar for the common stock is American Stock Transfer & Trust Company. In
general, the common stock will trade on the SWX Swiss Exchange only through
transfers of beneficial interests held through transfers of shares registered in
the name of the Swiss Nominee Company (SNOC). SNOC is a corporation incorporated
in Switzerland and owned by a number of Swiss banks and provides nominee
services for the benefit of beneficial holders of shares. Any investor who holds
a certificate representing shares of common stock directly, rather than such
beneficial interests registered in the name of SNOC, and who desires to sell
such shares of common stock on the SWX Swiss Exchange, will be required to
deposit the certificate with the United States transfer agent. The United States
transfer agent will register the shares in the name of SNOC in order to make the
share certificates eligible for the Swiss security clearing system SIS
SEGAINTERSETTLE AG (SIS) and tradable on the SWX Swiss Exchange and the investor
will receive a beneficial interest therein. Certificates representing shares of
common stock held through SNOC will not be issued unless such shares are
withdrawn from SNOC, in which case the shares will not be eligible to trade on
the SWX Swiss Exchange unless redeposited as described above. SNOC will be the
registered owner of all shares of Common Stock that are held by investors
through SNOC.
Generally, all transfers of common stock will be registered by brokers and
other financial institutions and SIS in SNOC's books. In this connection SIS is
acting as clearing house for transactions involving more than one broker or
other financial institutions. The United States transfer agent will not know the
beneficial owners of the common stock that is held through SNOC. The brokers and
other financial institutions will be responsible for keeping account of the
common stock holdings on behalf of their customers.
Communications by us to our stockholders regarding stockholders' meetings
and dividend payments will be transmitted through the U.S. transfer agent to
SNOC. SNOC will transmit these communications to SIS which will make available
such communications to brokers or other financial institutions for the benefit
of the investors. Such communications will also be made by publications in
newspapers in Zurich and Geneva and on at least one electronic media such as
Reuters or Bloomberg.
SNOC will consent or vote with respect to such shares on behalf of
beneficial owners thereof provided it receives appropriate instructions from
brokers or other financial institutions acting on behalf of beneficial owners in
accordance with SNOC's standard rules and procedures and any laws or other
regulations applicable to Real Media.
Any dividend or other payments on common stock held through SNOC will be
made by us to the U.S. transfer agent who upon receipt of such payments, will
credit SNOC for the amount of such payments. Payments by SNOC to the beneficial
owners of common stock will be governed by SNOC's and SIS's customary practices,
and will be the sole responsibility of SNOC subject to any statutory or
regulatory requirements as may be in effect from time to time. Any dividends
will be converted into Swiss Francs and distributed by SIS.
78
<PAGE> 86
NOTICE TO HOLDERS OF SHARES TRADED ON THE
SWX NEW MARKET OF THE SWX SWISS EXCHANGE
CLEARING CODES
The SIS security number (Valorennummer) for the shares of Real Media common
stock is 1 035 929. The ISIN is CH 001 035 929 4. The ticker symbol will be
RLMD.
PAYING AGENT
Real Media has appointed Credit Suisse First Boston, Zurich, and Credit
Suisse, Zurich, as paying agents for the shares traded on the SWX New Market of
the SWX Swiss Exchange to make dividend or related payments.
MARKET MAKER
Credit Suisse First Boston, Zurich, will serve as a market marker for the
shares of Real Media common stock on the SWX New Market of the SWX Swiss
Exchange.
NOTICES
Notices required under the Listing Rules of the SWX Swiss Exchange will be
published in two Swiss newspapers in German and French. Real Media or the SWX
Swiss Exchange may also disseminate the relevant information about the online
exchange information systems.
RESPONSIBILITY
We have taken reasonable care to assure ourselves that the facts contained
in this prospectus are true and accurate in all material respects and that there
are no other material facts the omission of which would make misleading any
statement herein.
79
<PAGE> 87
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REAL MEDIA, INC.
Report of Independent Auditors.............................. F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Changes in Stockholders' Equity (Deficiency)
for the years ended December 31, 1997, 1998 and 1999...... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
REAL MEDIA EUROPE
Report of Independent Auditors.............................. F-16
Combined Balance Sheets as of December 31, 1998 and 1999.... F-17
Combined Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-18
Combined Statements of Changes in Shareholder's Equity
(Deficiency) for the years ended December 31, 1997, 1998
and 1999.................................................. F-19
Combined Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-20
Notes to Combined Financial Statements...................... F-21
</TABLE>
F-1
<PAGE> 88
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Real Media, Inc.
We have audited the accompanying balance sheets of Real Media, Inc. (the
"Company") as of December 31, 1998 and 1999, and the related statements of
operations, changes in stockholders' equity (deficiency) and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Real Media, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, New York
February 9, 2000, except for Note 9, as to which the date is March 15, 2000.
F-2
<PAGE> 89
REAL MEDIA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 638,998 $ 1,388,510
Accounts receivable, less allowance of $40,000 in 1998 and
$334,000 in 1999....................................... 883,743 3,945,739
Due from affiliates....................................... 10,622 213,785
Due from stockholder...................................... -- 46,500
Prepaid and other current assets.......................... 14,422 70,553
---------- ------------
Total current assets........................................ 1,547,785 5,665,087
Property and equipment, net................................. 111,446 609,630
Other....................................................... 10,760 238,390
---------- ------------
Total assets................................................ $1,669,991 $ 6,513,107
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 861,452 $ 3,761,015
Accrued expenses.......................................... 32,947 1,306,841
Notes payable -- stockholders............................. -- 6,000,000
Due to affiliates......................................... -- 327,988
Deferred revenue.......................................... 273,783 824,951
Deferred revenue -- stockholder........................... 473,506 358,206
---------- ------------
Total current liabilities................................... 1,641,688 12,579,001
Commitments
Stockholders' equity (deficiency):
Preferred stock -- $.001 par value; 9,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock -- $.001 par value; 120,000,000 shares
authorized; 12,660,093 and 14,754,225 shares issued and
outstanding at December 31, 1998 and 1999,
respectively........................................... 12,660 14,754
Additional paid-in capital................................ 4,405,282 8,273,697
Accumulated deficit....................................... (4,389,639) (14,192,235)
Deferred compensation..................................... -- (162,110)
---------- ------------
Total stockholders' equity (deficiency)..................... 28,303 (6,065,894)
---------- ------------
Total liabilities and stockholders' equity (deficiency)..... $1,669,991 $ 6,513,107
========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 90
REAL MEDIA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenue............................................. $ 553,520 $ 2,103,288 $ 8,115,029
Cost of revenue..................................... 335,342 868,072 3,521,951
----------- ----------- -----------
Gross profit........................................ 218,178 1,235,216 4,593,078
Operating expenses:
Sales and marketing............................... 972,590 1,719,805 8,733,517
Product and technology development................ 427,632 543,132 896,621
General and administrative........................ 596,678 1,126,653 4,692,494
----------- ----------- -----------
Total operating expenses............................ 1,996,900 3,389,590 14,322,632
----------- ----------- -----------
Loss from operations................................ (1,778,722) (2,154,374) (9,729,554)
Other income (expense):
Interest income................................... 13,538 63,047 21,901
Interest expense.................................. (31,994) (24,928) (94,943)
----------- ----------- -----------
Net loss............................................ $(1,797,178) $(2,116,255) $(9,802,596)
=========== =========== ===========
Basic and diluted net loss per common share......... $ (0.20) $ (0.18) $ (0.70)
=========== =========== ===========
Number of shares used in computing basic and diluted
net loss per share................................ 8,953,151 11,773,880 14,038,458
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 91
REAL MEDIA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
---------- ------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 8,535,000 $ 8,535 $ 997,399 $ (476,206) $ -- $ 529,728
Issuance of common
stock.................. 825,000 825 329,175 -- -- 330,000
Issuance of stock options
to consultants......... -- -- 14,714 -- -- 14,714
Net loss................. -- -- -- (1,797,178) -- (1,797,178)
---------- ------- ---------- ------------ --------- -----------
Balance at December 31,
1997................... 9,360,000 9,360 1,341,288 (2,273,384) -- (922,736)
Issuance of common
stock.................. 3,292,500 3,293 2,996,707 -- -- 3,000,000
Exercise of stock
options................ 7,593 7 2,904 -- -- 2,911
Issuance of stock options
to consultants......... -- -- 64,383 -- -- 64,383
Net loss................. -- -- -- (2,116,255) -- (2,116,255)
---------- ------- ---------- ------------ --------- -----------
Balance at December 31,
1998................... 12,660,093 12,660 4,405,282 (4,389,639) -- 28,303
Issuance of common
stock.................. 1,809,177 1,809 3,498,191 -- -- 3,500,000
Return of common stock by
a founder.............. (60,000) (60) 20 -- -- (40)
Exercise of stock
options................ 344,955 345 88,013 -- -- 88,358
Issuance of stock options
to consultants......... -- -- 201,411 -- (201,411) --
Deferred compensation
related to employee
stock options.......... -- -- 80,780 -- (80,780) --
Amortization of deferred
compensation........... -- -- -- -- 120,081 120,081
Net loss................. -- -- -- (9,802,596) -- (9,802,596)
---------- ------- ---------- ------------ --------- -----------
Balance at December 31,
1999................... 14,754,225 $14,754 $8,273,697 $(14,192,235) $(162,110) $(6,065,894)
========== ======= ========== ============ ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 92
REAL MEDIA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(1,797,178) $(2,116,255) $(9,802,596)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 32,181 49,780 151,701
Bad debt expense.......................................... -- 102,302 403,848
Amortization of deferred compensation..................... -- -- 10,902
Amortization of deferred revenue -- stockholder........... -- (77,405) (115,300)
Nonemployee stock compensation expense.................... 14,714 64,383 109,179
Changes in operating assets and liabilities:
Accounts receivable.................................... (169,596) (798,037) (3,465,844)
Due from affiliates.................................... (24,210) 13,588 (203,163)
Due from stockholder................................... -- -- (46,500)
Prepaid and other current assets....................... 1,514 (10,715) (56,131)
Other assets........................................... (1,260) (2,000) (227,630)
Accounts payable....................................... 173,919 578,708 2,899,563
Accrued expenses....................................... 40,200 (34,358) 1,273,894
Due to affiliates...................................... -- -- 327,988
Deferred revenue....................................... 100,000 173,783 551,168
----------- ----------- -----------
Net cash used in operating activities....................... (1,629,716) (2,056,226) (8,188,921)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (79,896) (73,248) (649,885)
----------- ----------- -----------
Net cash used in investing activities....................... (79,896) (73,248) (649,885)
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 330,000 3,002,911 3,588,358
Proceeds from stockholders' notes........................... 834,000 225,000 6,000,000
Repayment of stockholders' notes............................ -- (508,089) --
Return of common stock by a founder......................... -- -- (40)
----------- ----------- -----------
Net cash provided by financing activities................... 1,164,000 2,719,822 9,588,318
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents............ (545,612) 590,348 749,512
Cash and cash equivalents, beginning of year................ 594,262 48,650 638,998
----------- ----------- -----------
Cash and cash equivalents, end of year...................... $ 48,650 $ 638,998 $ 1,388,510
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid............................................... $ 237 $ 56,000 $ --
=========== =========== ===========
Noncash investing and financing activity:
Stockholder's debt converted to deferred revenue.......... $ -- $ 550,911 $ --
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 93
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1997, 1998 and 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Real Media, Inc. (the "Company") was incorporated in the State of Delaware
on May 15, 1995 and commenced sales of its Internet advertising solutions in
1996. The Company provides Internet advertising solutions for its extensive
network of branded web sites. As part of its comprehensive Internet advertising
solution, the Company also markets and supports its proprietary ad management
software, Open AdStream(TM), which provides web sites with the technology
infrastructure to manage targeted ad campaigns.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Revenue Recognition
The Company generates its revenue from the sale and delivery of advertising
impressions through third-party web sites, licensing of its software and
providing maintenance and support services with respect to its software.
Revenue from advertising sales is recorded gross in accordance with Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, as the Company is a principal in separate, approximately concurrent,
transactions to purchase and sell advertising space and has the risks and
rewards of ownership, such as the risk of loss due to performance, delivery or
distribution failure, in addition to credit risk. The Company's obligation to
pay the seller of the ad space is independent of the purchaser's obligation to
pay the Company for the ad space.
Revenue from advertising is recognized in the period in which the
advertising impressions are delivered to the web sites, provided that no
significant obligations remain to be performed. The Company becomes obligated to
make payments to third-party web sites, which have contracted with the Company
in the period the advertising impressions are delivered. Such expenses are
classified as cost of revenue in the statements of operations.
Revenue from software licensing agreements is recognized in accordance with
Statement of Position ("SOP") 97-2, Software Revenue Recognition, upon delivery
of the software, which is generally when customers begin utilizing the software,
there is pervasive evidence of an arrangement, collection is reasonably assured,
the fee is fixed or determinable, and vendor-specific objective evidence exists
to allocate the total fees to all elements of the arrangement.
Revenue from maintenance and support services is recognized ratably over
the lives of the maintenance agreements, which typically do not exceed one year.
Maintenance revenue received in advance of the related services is recorded as
deferred revenue. Expenses from the Company's licensing maintenance and support
revenues are primarily payroll costs incurred to deliver, modify and support the
software. These expenses are classified as cost of revenues in the statements of
operations.
F-7
<PAGE> 94
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
Advertising Costs
Advertising costs are expensed as incurred. For the years ended December
31, 1997, 1998 and 1999, advertising expense amounted to approximately $43,000,
$614,000 and $4,123,000, respectively, and is included in sales and marketing
expenses.
Software Development Costs
Software development costs incurred in the process of developing product
improvements or new products are charged to expenses as incurred.
Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon the completion of a working model. Costs
incurred by the Company between completion of the working model and the point at
which the product is ready for general release have been insignificant.
Therefore, all software development costs have been expensed.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains the majority of its cash and cash
equivalents with one financial institution. The Company's sales are primarily to
companies located in the United States. The Company performs periodic credit
evaluations of its customers' financial condition and does not require
collateral and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of customers, historical trends and other
information; to date, such losses have been within management's expectations.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and notes
payable approximate their fair values.
Property and Equipment
Property and equipment are stated at cost and depreciation for financial
reporting purposes is calculated using the straight-line method over the
estimated useful lives of the assets ranging from three to five years. Leasehold
improvements are amortized over the lesser of the useful life of the asset or
the remaining period of the lease.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash
F-8
<PAGE> 95
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
flows is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and carrying value of that asset.
Stock-Based Compensation
The Company measures compensation expense related to the grant of stock
options and stock-based awards to employees in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, under which compensation
expense, if any, is generally based on the difference between the exercise price
of an option, or the amount paid for the award and the market price or fair
value of the underlying common stock at the date of the award. Stock-based
compensation arrangements involving nonemployees are accounted for under SFAS
No. 123, Accounting for Stock-Based Compensation, under which such arrangements
are accounted for based on the fair value of the option or award. As required by
SFAS No. 123, the Company discloses pro forma net loss per share information
reflecting the effect of applying SFAS No. 123 fair value measurement to
employee arrangements.
Earnings (Loss) Per Share
The Company calculates earnings per share in accordance with SFAS No. 128,
Computation of Earnings Per Share, and SEC Staff Accounting Bulletin No. 98.
Accordingly, basic earnings per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of shares issuable upon the exercise of
stock options (using the treasury stock method); common equivalent shares are
excluded from the calculation if their effect is anti-dilutive.
Segment Information
The Company discloses information regarding segments in accordance with
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 establishes standards for reporting of financial
information about operating segments in annual financial statements and requires
reporting selected information about operating segments in interim financial
reports. The disclosure of segment information was not required as the Company
operates in only one business segment.
As of and for the years ended December 31, 1997, 1998 and 1999,
substantially all of the Company's assets were located in the United States and
the Company derived substantially all of its revenue from businesses located in
the United States.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ---------
<S> <C> <C>
Computer equipment.......................................... $170,657 $ 498,452
Purchased software.......................................... 4,201 57,705
Office furniture, fixtures and equipment.................... 22,365 139,274
Leasehold improvements...................................... -- 151,677
-------- ---------
197,223 847,108
Less accumulated depreciation............................... (85,777) (237,478)
-------- ---------
$111,446 $ 609,630
======== =========
</TABLE>
F-9
<PAGE> 96
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
3. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted net loss per share...... $(1,797,178) $(2,116,255) $(9,802,596)
=========== =========== ===========
Denominator:
Denominator for basic and dilutive net loss per share --
weighted average shares............................... $ 8,953,151 11,773,880 14,308,458
=========== =========== ===========
Basic and diluted net loss per share...................... $ (0.20) $ (0.18) $ (0.70)
=========== =========== ===========
</TABLE>
The following securities are not included in the diluted net loss per share
computation as they are antidilutive:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Stock options........................................ 767,295 975,375 2,242,809
</TABLE>
4. RELATED PARTY TRANSACTIONS
From September 1999 through December 1999, the Company issued four
convertible promissory notes aggregating $6,000,000 to a wholly-owned subsidiary
of a stockholder. These notes bear interest at the prime rate and for the year
ended December 31, 1999, the Company incurred interest of approximately $95,000
in connection with these loans. Pursuant to the note agreements, the notes will
be converted into the Company's common stock upon completion of the business
combination of the Company and Real Media Europe at a conversion price equal to
the per share fair market value at the date the business combination is
completed (see Note 9).
During 1997 and 1998, the Company borrowed $770,000 and $225,000,
respectively, from a stockholder. In April 1998, the Company repaid principal
and interest of $500,000 in connection with this debt and the remaining balance
(aggregating approximately $551,000) was canceled and set up as deferred revenue
in accordance with a technology transfer agreement. Prior to their cancellation,
the notes bore interest at 8.5%.
Deferred revenue from this stockholder will be amortized as revenue is
earned by the Company pursuant to the technology transfer agreement whereby the
stockholder can (i) sell the Company's Open AdStream(TM) software to customers
located in Europe and (ii) receive technical support services from the Company.
For the years ended December 31, 1998 and 1999, the Company recognized revenue
of approximately $77,000 and $115,000, respectively, in connection with software
sales pursuant to this agreement.
During the year ended December 31, 1997, the Company issued a $64,000 note
payable to a founding stockholder which was repaid in April 1998.
Due from affiliates consists of compensation and advertising campaign
expenses incurred by the Company on behalf of certain companies located in
Europe that are wholly-owned subsidiaries of a major stockholder of the Company.
F-10
<PAGE> 97
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
Due from stockholder consists of revenue from the sale of software to a
wholly-owned subsidiary of a major stockholder.
Due to affiliates consists of advertising campaign expenses and sales
representation services provided by two of the Company's major stockholders,
respectively.
5. INCOME TAXES
The Company accounts for income taxes using the liability method required
by SFAS No. 109, Accounting for Income Taxes.
Significant components of the Company's net deferred tax assets and
liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net deferred tax assets:
Net operating loss carryforward......................... $ 1,610,371 $ 6,307,962
Compensation charge from issuance of stock options...... 36,511 79,421
Cash to accrual......................................... 332,271 450,366
Depreciation............................................ (21,007) 4,317
----------- -----------
Net deferred tax assets................................. 1,958,146 6,842,066
Valuation allowance..................................... (1,958,146) (6,842,066)
----------- -----------
Total net deferred tax assets............................. $ -- $ --
=========== ===========
</TABLE>
The net deferred tax assets have been fully offset by a valuation allowance
due to the uncertainty of the realization of these assets.
At December 31, 1998 and 1999, the Company has net operating loss
carryforwards of approximately $3,599,000 and $13,953,000, respectively, for
Federal, state and local income tax purposes expiring from 2011 through 2019.
Rate Reconciliation
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Statutory rate.............................................. (34)% (34)% (34)%
Losses for which no benefit is provided..................... 34% 34% 34%
--- --- ---
Tax provision............................................... --% --% --%
=== === ===
</TABLE>
6. STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Stock
In August 1999, the Company completed its fifth private placement offering
of shares of its common to an existing stockholder. The Company issued 142,511
shares of its common stock, at $3.51 per share, for proceeds of $500,000.
F-11
<PAGE> 98
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
In March 1999, the Company completed its fourth private placement offering
of shares of its common stock to two existing stockholders. The Company issued
1,666,667 shares of its common stock, at $1.80 per share, for proceeds of
$3,000,000.
In April 1998, the Company completed its third private placement offering
of shares of its common stock to a new investor. The Company issued 3,292,500
shares of its common stock, at $0.91 per share, for proceeds of $3,000,000.
During 1998, the Company increased its authorized number of shares of
common stock from 9,000,000 shares to 18,000,000 shares.
In June 1997, the Company completed its second private placement offering
of shares of its common stock to an existing stockholder. The Company issued
825,000 shares of its common stock, at $0.40 per share, for proceeds of
$330,000.
Stock Options
As of December 31, 1999, the Company has authorized the grant of options to
employees, officers and consultants for up to 2,745,264 shares of the Company's
common stock.
In 1999, the Company established the 1999 Employee Stock Option Plan (the
"Plan") and has authorized the grant of options to directors, key employees,
independent contractors, agents and consultants for up to 1,640,046 shares of
the Company's common stock as of December 31, 1999. For the year ended December
31, 1999, options to purchase 1,490,139 shares of the Company's common stock
were granted under the Plan.
During 1999, options to purchase 39,000 shares of the Company's common
stock were granted to employees at exercise prices below the estimated fair
value of the Company's common stock on the date of the grant. In accordance with
APB Opinion No. 25, the Company recorded deferred compensation of approximately
$81,000, in connection with these options which is being amortized over the
vesting period of the options.
Pro forma information regarding net loss, as required by SFAS No. 123, has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value of the options was
estimated at the date of grant using a Minimum Value option pricing model with
the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
ASSUMPTIONS 1997 1998 1999
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
Average risk-free interest rate.......... 6.04%-6.98% 4.80%-5.92% 4.98%-6.92%
Dividend yield........................... 0.0% 0.0% 0.0%
Average life............................. 10 years 10 years 10 years
</TABLE>
Option pricing models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-12
<PAGE> 99
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Pro forma net loss......................... $(1,821,454) $(2,159,232) $(10,136,000)
Pro forma basic and diluted net loss per
share.................................... (0.20) (0.18) (0.72)
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1997, 1998 and 1999 was $0.13, $0.21 and $0.17, respectively.
The Company recorded compensation expense for nonemployee granted options
for the years ended December 31, 1997, 1998 and 1999 of $14,714, $64,383 and
$109,179, respectively.
The following transactions occurred with respect to stock options for the
years ended December 31, 1997 and 1998 and 1999:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Options outstanding at December 31, 1996........... 297,000 $0.03
Granted.......................................... 510,795 0.39
Exercised........................................ -- --
Canceled......................................... (40,500) 0.33
----------
Options outstanding at December 31, 1997........... 767,295 0.25
Granted.......................................... 395,205 0.65
Exercised........................................ (7,593) 0.39
Canceled......................................... (179,532) 0.37
----------
Options outstanding at December 31, 1998........... 975,375 0.39
Granted.......................................... 1,769,514 3.39
Exercised........................................ (334,955) 0.25
Canceled......................................... (157,125) 0.89
----------
Options outstanding at December 31, 1999........... 2,242,809 2.74
==========
</TABLE>
The following table summarizes information concerning outstanding options
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------- ---------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE NUMBER OF STOCK AVERAGE
NUMBER EXERCISE REMAINING OPTIONS EXERCISE
OUTSTANDING PRICE CONTRACTUAL LIFE EXERCISABLE PRICE
----------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
129,000 $0.03 6.8 years 114,617 $0.03
115,500 0.33 7.2 years 115,460 0.33
184,170 0.40 7.8 years 183,304 0.40
244,125 0.91 8.9 years 166,472 0.91
56,250 1.80 9.3 years 18,676 1.80
221,250 2.91 9.6 years 101,310 2.91
245,250 3.51 9.7 years 44,609 3.51
1,047,264 4.00 9.7 years 23,291 4.00
- ------------- ------------
2,242,809 2.74 9.3 years 767,738 1.11
- ------------- ------------
- ------------- ------------
</TABLE>
F-13
<PAGE> 100
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
The options outstanding primarily vest in annual installments ranging from
one to three years commencing on the date of grant and expire the earlier of ten
years after the date of grant or 90 days following termination of employment
with the Company.
7. COMMITMENTS
Operating Lease Commitments
The Company leases office space and equipment under various noncancellable
operating leases expiring through 2006. Minimum rental commitments under such
operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $ 680,000
2001...................................................... 681,000
2002...................................................... 581,000
2003...................................................... 378,000
2004...................................................... 377,000
2005...................................................... 385,000
2006...................................................... 73,000
----------
$3,155,000
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $61,000, $75,000 and $236,000, respectively.
Letters of Credit
In December 1999, the Company issued a stand-by letter of credit for
approximately $307,000 as security required by various lease agreements.
8. BENEFIT PLAN
The Company has a defined contribution plan covering all eligible
employees, which qualifies under Section 401(k) of the Internal Revenue Code.
The Company's 401(k) plan provides that eligible employees may make
contributions of 1% to 15% of eligible compensation.
The Company may make discretionary matching contributions. Since the 401(k)
plan's inception in January 1998, no such discretionary contributions have been
made.
9. SUBSEQUENT EVENTS
In January and February 2000, the Company issued two convertible promissory
notes aggregating $4,000,000 to a wholly-owned subsidiary of a stockholder. The
interest on the notes was equal to the prime rate. Pursuant to the note
agreements, the notes were converted into shares of the Company's common stock
upon completion of the business combination of the Company and Real Media Europe
at a conversion price equal to the per share fair market value at that date.
On February 8, 2000, the Company entered into an agreement (the
"Agreement"), subject to customary closing requirements including the execution
of ancillary agreements, to acquire all of the outstanding shares of Real Media
Europe Holding S.A., a wholly-owned subsidiary of PubliGroupe S.A., a
stockholder of the Company. The acquisition was completed on March 15, 2000.
Notes payable aggregating $10,000,000 to this stockholder were converted into
shares of the Company's common stock. Under the Agreement, the Company issued
24,189,788 shares of its common stock, including 2,851,757 shares issued upon
conversion of the notes payable, and 450,000 shares of its Series A Convertible
Preferred Stock convertible into 675,000 shares of the Company's common stock at
the option of the holder or automatically upon the completion of an initial
public offering. The holders of Series A Convertible Preferred Stock are not
entitled to vote on matters submitted to the Company's stockholders.
F-14
<PAGE> 101
REAL MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
Immediately following this transaction, this stockholder owned approximately 74%
of the outstanding common stock of the Company (including common stock to be
sold by this stockholder to certain employees of Real Media Europe Holding S.A.
immediately following this transaction). The common shares were valued at $3.85
per share, the estimated fair market value of one share of the Company's common
stock on February 8, 2000, and the Series A preferred stock was valued at $5.78
per share based upon its convertibility into one and one-half shares of the
Company's common stock.
Real Media Europe Holding S.A. is a holding company for operations
throughout Europe and provides Internet advertising solutions and software sales
and support under exclusive licensing agreement with the Company. The
acquisition will be accounted for by the purchase method of accounting.
In connection with the acquisition of Real Media Europe Holding S.A., the
following summarizes the estimated fair value of the assets acquired and
liabilities assumed utilizing the most currently available financial statements
of Real Media Europe Holding S.A. as of December 31, 1999,
<TABLE>
<S> <C>
Current assets.............................................. $ 7,972
Property, plant and equipment, net.......................... 714
Other assets................................................ 100
Goodwill and intangibles.................................... 84,408
Current liabilities......................................... (7,282)
-------
$85,912
=======
</TABLE>
The allocation is preliminary and based upon management's estimation that
all existing assets and liabilities are stated at fair value. The allocation
will be adjusted, based on the March 15, 2000 closing of the acquisition and
further identification of specific intangibles.
The Company intends to effect a three-for-two stock split prior to the
completion of its initial public offering. All common share information in the
prospectus financial statements has been adjusted to reflect the three-for-two
stock split.
In connection with the Company's business combination with Real Media
Europe Holding S.A., the Company increased its authorized number of shares of
common stock from 18,000,000 to 120,000,000 shares.
F-15
<PAGE> 102
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholder of
Real Media Europe
We have audited the accompanying combined balance sheets of Real Media
Europe (the "Company") as of December 31, 1998 and 1999 and the related combined
statements of operations, changes in shareholder's equity (deficiency) and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Real Media
Europe as of December 31, 1998 and 1999, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ ATAG ERNST & YOUNG AG
Zurich, Switzerland
February 21, 2000
F-16
<PAGE> 103
REAL MEDIA EUROPE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 190,945 $ 588,079
Marketable securities..................................... 236,741 --
Accounts receivable, less allowance of $69,000 and
$184,000 at December 31, 1998 and 1999, respectively... 1,447,124 5,278,576
Due from affiliates....................................... 776,636 707,851
Prepaid and other current assets.......................... 374,682 120,128
----------- -----------
Total current assets........................................ 3,026,128 6,694,634
Property and equipment, net................................. 353,307 714,234
Other....................................................... 30,376 100,044
----------- -----------
Total assets................................................ $ 3,409,811 $ 7,508,912
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Bank overdraft............................................ $ -- $ 117,994
Accounts payable.......................................... 997,836 3,451,244
Accrued expenses.......................................... 1,017,247 2,821,826
Due to affiliates......................................... 516,266 1,074,360
Current portion of capital lease obligations.............. 11,063 59,194
Deferred revenue.......................................... 378,835 504,291
----------- -----------
Total current liabilities................................... 2,921,247 8,028,909
Notes payable to affiliate.................................. 3,780,479 5,877,572
Long-term portion of capital lease obligations.............. 56,765 --
Commitments
Shareholder's equity (deficiency):
Common stock.............................................. 710,677 710,677
Accumulated deficit....................................... (4,040,024) (7,531,076)
Accumulated comprehensive income (loss)................... (19,333) 422,830
----------- -----------
Total shareholder's equity (deficiency)..................... (3,348,680) (6,397,569)
----------- -----------
Total liabilities and shareholder's equity (deficiency)..... $ 3,409,811 $ 7,508,912
=========== ===========
</TABLE>
See accompanying notes.
F-17
<PAGE> 104
REAL MEDIA EUROPE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenue............................................. $ 924,986 $ 5,436,631 $17,020,910
Cost of revenue..................................... 751,400 3,684,242 12,150,593
----------- ----------- -----------
Gross profit........................................ 173,586 1,752,389 4,870,317
Operating expenses:
Sales and marketing............................... 729,698 1,999,665 4,625,938
Product and technology development................ 73,000 312,000 574,838
General and administrative........................ 612,565 1,405,223 2,946,108
----------- ----------- -----------
Total operating expenses............................ 1,415,263 3,716,888 8,146,884
----------- ----------- -----------
Loss from operations................................ (1,241,677) (1,964,499) (3,276,567)
Other income (expense):
Interest income................................... 78 16,621 10,522
Interest expense.................................. (14,891) (71,894) (225,007)
----------- ----------- -----------
Net loss............................................ $(1,256,490) $(2,019,772) $(3,491,052)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE> 105
REAL MEDIA EUROPE
COMBINED STATEMENTS OF CHANGES IN
SHAREHOLDER'S EQUITY (DEFICIENCY)
FOR THE YEAR ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON ACCUMULATED COMPREHENSIVE
STOCK DEFICIT INCOME (LOSS) TOTAL
-------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997.............. $ 3 $ (763,762) $ 52,939 $ (710,820)
-----------
Net loss................................ -- (1,256,490) -- (1,256,490)
Other comprehensive income -- foreign
currency translation.................. -- -- 36,886 36,886
-----------
Comprehensive loss...................... -- -- -- (1,219,604)
Capital contribution.................... 541,251 -- -- 541,251
-------- ----------- --------- -----------
Balance at December 31, 1997............ 541,254 (2,020,252) 89,825 (1,389,173)
-----------
Net loss................................ -- (2,019,772) -- (2,019,772)
Other comprehensive loss -- foreign
currency translation.................. -- -- (109,158) (109,158)
-----------
Comprehensive loss...................... -- -- -- (2,128,930)
Capital contribution.................... 169,423 -- -- 169,423
-------- ----------- --------- -----------
Balance at December 31, 1998............ 710,677 (4,040,024) (19,333) (3,348,680)
-----------
Net loss................................ -- (3,491,052) -- (3,491,052)
Other comprehensive income -- foreign
currency translation.................. -- -- 442,163 442,163
-----------
Comprehensive loss...................... -- -- -- (3,048,889)
-------- ----------- --------- -----------
Balance at December 31, 1999............ $710,677 $(7,531,076) $ 422,830 $(6,397,569)
======== =========== ========= ===========
</TABLE>
See accompanying notes.
F-19
<PAGE> 106
REAL MEDIA EUROPE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $(1,256,490) $(2,019,772) $(3,491,052)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization..................... 68,736 157,552 311,115
Bad debt expense.................................. 7,594 81,287 149,466
Amortization of prepaid license fees.............. -- 77,405 115,300
Changes in operating assets and liabilities:
Accounts receivable............................ (285,307) (1,105,018) (4,327,040)
Due from affiliates............................ (402,132) (358,378) (144,679)
Prepaid and other current assets............... (29,312) (336,377) 224,686
Other assets................................... -- (29,175) (91,991)
Bank overdraft................................. -- -- 125,292
Accounts payable and accrued expenses.......... 310,152 1,457,840 4,827,439
Due to affiliates.............................. 116,000 318,912 711,634
Deferred revenue............................... 83,511 283,764 175,727
----------- ----------- -----------
Net cash used in operating activities............... (1,387,248) (1,471,960) (1,414,103)
INVESTING ACTIVITIES
Purchase of marketable securities................... -- (226,324) --
Proceeds from sale of marketable securities......... -- -- 230,785
Purchases of property plant and equipment........... (155,553) (283,024) (724,839)
----------- ----------- -----------
Cash used in investing activities................... (155,553) (509,348) (494,054)
FINANCING ACTIVITIES
Capital contribution................................ 530,661 169,700 --
Net proceeds from borrowings from affiliate......... 1,123,294 1,907,542 2,328,467
Principal payments on capital lease obligations..... (6,861) (13,362) (6,929)
----------- ----------- -----------
Net cash provided by financing activities........... 1,647,094 2,063,880 2,321,538
Increase in cash and cash equivalents............... 104,293 82,572 413,381
Effect of exchange rate changes on cash............. (1,694) 5,774 (16,247)
Cash and cash equivalents, beginning of year........ -- 102,599 190,945
----------- ----------- -----------
Cash and cash equivalents, end of year.............. $ 102,599 $ 190,945 $ 588,079
=========== =========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE> 107
REAL MEDIA EUROPE
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31 1997, 1998 and 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Real Media Europe (the "Company") includes Real Media companies,
wholly-owned by PubliGroupe S.A., located in Germany, France, Switzerland and
the United Kingdom. Operations commenced as follows:
<TABLE>
<S> <C>
Switzerland................................................. February 1996
United Kingdom.............................................. October 1997*
Germany..................................................... October 1997
France...................................................... January 1998
</TABLE>
The Company provides Internet advertising solutions for its extensive
network of branded web sites. As part of its comprehensive Internet advertising
solution, the Company also markets and supports an affiliated company's
proprietary ad management software, Open AdStream(TM), which provides web sites
with the technology infrastructure to manage targeted ad campaigns.
The Company's customers are primarily located throughout Europe.
The accompanying financial statements reflect the predecessor Company's
operations for the period from January 1997 through October 1997.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Combination
The combined financial statements reflect the accounts of Real Media
Europe. Significant intercompany transactions and balances have been eliminated.
Revenue Recognition
The Company generates its revenue from the delivery of advertising
impressions through third-party web sites, licensing of its software and
providing maintenance services.
Revenue from advertising sales is recorded gross in accordance with Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, as the Company is a principal in separate, approximately concurrent,
transactions to purchase and sell advertising space and has the risks and
rewards of ownership, such as the risk of loss due to performance, delivery or
distribution failure, in addition to credit risk. The Company's obligation to
pay the seller of the ad space is independent of the purchaser's obligation to
pay the Company for the ad space.
Revenue from advertising is recognized in the period in which the
advertising impressions are delivered to the web sites, provided that no
significant obligations remain to be performed. The Company becomes obligated to
make payments to third-party web sites, which have contracted with the Company,
in the period the advertising impressions are delivered. Such expenses are
classified as cost of revenue in the statements of operations.
F-21
<PAGE> 108
REAL MEDIA EUROPE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31 1997, 1998 and 1999
Revenue from software licensing agreements is recognized in accordance with
Statement of Position ("SOP") 97-2, Software Revenue Recognition, upon delivery
of the software when collection is probable; all license payments are due within
one year, the license fee is otherwise fixed and determinable, vendor-specific
evidence exists to allocate the total fee to the elements of the arrangement and
persuasive evidence of an arrangement exists.
Revenue from maintenance and support services is recognized ratably over
the lives of the maintenance agreements, which typically do not exceed one year.
Maintenance revenue received in advance of the related services is recorded as
deferred revenue. Expenses from the Company's licensing maintenance and support
revenues are primarily payroll costs to deliver, modify and support the
software. These expenses are classified as cost of revenue in the statements of
operations and were not material.
Advertising Costs
Advertising costs are expensed as incurred. For the years ended December
31, 1997, 1998 and 1999, advertising expense amounted to approximately $24,000,
$145,000 and $371,000, respectively, and is included in sales and marketing
expenses.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities. At December 31, 1998 and
1999, the fair value of these instruments approximate their financial statement
carrying amount because of the short term maturity of these instruments.
The notes payable to affiliates bear interest at market rates and,
therefore, their carrying values approximate their fair values.
The Company performs periodic credit evaluations of its customers'
financial condition and does not require collateral and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information; to date, such losses have
been within management's expectations.
Property and Equipment
Property and equipment are stated at cost and depreciation for financial
reporting purposes is calculated using the straight-line method over the
estimated useful lives of the assets ranging from three to five years.
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.
F-22
<PAGE> 109
REAL MEDIA EUROPE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31 1997, 1998 and 1999
Income Taxes
Deferred income taxes are provided for temporary differences between the
carrying amount of assets and liabilities for financial reporting and income tax
purposes.
Segment Information
The Company discloses information regarding segments in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 establishes
standards for reporting of financial information about operating segments in
annual financial statements and requires reporting selected information about
operating segments in interim financial reports. The disclosure of segment
information was not required as the Company operates in only one business
segment. Geographical segment information is disclosed in Note 9.
Translation of Foreign Currencies
Balance sheets of the individual subsidiaries of the Company are translated
into United States dollars at the year end exchange rates. Statements of
operations are translated at the average exchange rate for the year. The
difference resulting from the use of these two annual rates is recorded as a
separate component of shareholder's equity (deficiency).
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. This statement requires that all items
that are required to be recognized as components of comprehensive income (loss)
be reported in a financial statement with the same prominence as other financial
statements. The Company has determined that their only item of comprehensive
income (loss) relates to its foreign currency translation adjustments.
2. MARKETABLE SECURITIES
During 1998, the Company purchased marketable securities and classified
them as available for sale securities in accordance with the SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. These
marketable securities were valued at cost at December 31, 1998 which
approximated market value. In 1999, the Company sold these marketable securities
and realized a gain of approximately $4,500.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ---------
<S> <C> <C>
Computer equipment.......................................... $298,454 $ 648,063
Motor vehicles.............................................. 119,389 112,959
Office furniture, fixtures and equipment.................... 199,413 467,643
-------- ---------
617,256 1,228,665
Less accumulated depreciation............................... (263,949) (514,431)
-------- ---------
$353,307 $ 714,234
======== =========
</TABLE>
F-23
<PAGE> 110
REAL MEDIA EUROPE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31 1997, 1998 and 1999
4. COMMON STOCK
Common stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Real Media (UK) Ltd.: L1 par value; 100,000 shares
authorized, issued and outstanding........................ $170,078 $170,078
Real Media S.A.: CHF1,000 par value; 500 shares authorized,
issued and outstanding.................................... 343,300 343,300
Real Media SARL: FRF100 par value; 10,000 participation
rights authorized, issued and outstanding................. 169,423 169,423
Real Media Deutschland GmbH: Capital contribution
DM50,000.................................................. 27,876 27,876
-------- --------
$710,677 $710,677
======== ========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company pays license fees to Real Media, Inc. based on a licensing
agreement for its proprietary product Open AdStream(TM). An affiliated company
made a prepayment to Real Media, Inc. in the amount of $551,000 during 1998. At
December 31, 1998 and 1999, the balance of this prepayment was $474,000 and
$358,000, respectively, and is included in due from affiliates. The amounts due
to the affiliated company are included in due to affiliates at December 31, 1998
and 1999, respectively.
The Company's subsidiaries have various loan facilities with PubliGroupe
S.A. Interest accrues on these loans at rates ranging between 4.0% and 6.75% per
annum. Certain of these notes require repayment upon the company achieving
positive cash flows for three consecutive months and others have no specific
repayment terms. No amounts relating to these loan facilities have been repaid.
The outstanding balances plus interest are disclosed as notes payable to
affiliate (see Note 11).
The Company surrendered $490,000 of trading losses for the year ended
December 31, 1998 to Powers International Ltd., an affiliate of PubliGroupe
S.A., as allowed for group relief purposes under Section 412 of the Income and
Corporation Taxes Act of 1988 in United Kingdom.
Due to affiliates consists of employee expenses, advertising campaign
expenses and prepaid licensing fees paid by affiliated companies on behalf of
the Company.
Due from affiliates consists of prepaid licensing fees and various expenses
and software services provided by the Company on behalf of affiliated companies.
6. INCOME TAXES
The Company accounts for income taxes using the liability method required
by SFAS No. 109, Accounting for Income Taxes.
At December 31, 1998 and 1999, the Company has net operating loss
carryforwards of approximately $656,000 and $442,000, respectively, for Federal,
state and local income tax purposes. The remaining net operating loss
carryforwards expire in 2005 and 2006.
The net operating loss carryforwards described above, will give rise to
future tax deductions and should be accounted for as deferred tax assets. Such
deferred tax assets have been fully offset by a valuation allowance, due to the
uncertainty of the realization of these assets.
F-24
<PAGE> 111
REAL MEDIA EUROPE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31 1997, 1998 and 1999
There were no other material temporary differences between carrying amounts
of assets and liabilities for financial reporting purposes and amounts used for
income taxes.
The effective income tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. (37)% (37)% (35)%
Loss for which no tax benefit was provided.................. 37 37 35
--- --- ---
Effective tax rate.......................................... 0% 0% 0%
=== === ===
</TABLE>
7. COMMITMENTS
Operating Lease Commitments
The Company leases office space and equipment under various noncancellable
operating leases. Minimum rental commitments under such operating leases are as
follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... 317,000
2001...................................................... 186,000
2002...................................................... 132,000
2003...................................................... 82,000
2004...................................................... 33,000
--------
$750,000
========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $42,000, $193,000 and $369,000, respectively.
Capital Lease Commitments
The Company leases vehicles which meet the criteria for capitalization in
accordance with SFAS No. 13, Accounting for Leases. These leased assets are
recorded as vehicles in property and equipment and had gross costs of $89,553 at
December 31, 1998, and 1999. These leased assets are being amortized over a four
year life. Accumulated amortization at December 31, 1998 and 1999 was $27,034
and $50,434, respectively. Amortization expense on these assets is included with
depreciation expense in the combined financial statements.
Future leasing commitments under capital leases at December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000........................................................ 61,370
Less: imputed interest...................................... (2,176)
-------
Capital lease obligation.................................... $59,194
=======
</TABLE>
8. BENEFIT PLAN
The Company participates in several pension plans covering substantially
all salaried employees of the Company.
F-25
<PAGE> 112
REAL MEDIA EUROPE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31 1997, 1998 and 1999
Three of the four plans are defined contribution plans in which eligible
employees make contributions to the plans based on a percentage of each
employee's annual salary, ranging from 5% to 9%. Under certain plans, the
Company is required to make matching contributions. Pension expense related to
these plans for the years ended December 31, 1997, 1998 and 1999 was $6,000,
$58,000 and $107,000, respectively.
The Company's employees located in Switzerland are covered under a pension
plan sponsored by PubliGroupe S.A. Employees make a minimum contribution of 9%
of their annual salary into the plan which is maintained in separate individual
accounts. The Company is required to make matching contributions to the Plan.
Upon retirement, employees receive the higher of their individual participant
contributions or a percentage of their insured salary up to 65% determined based
on years of service. The net periodic pension cost allocated to the Company
related to this plan was approximately $61,000, $80,000 and $113,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
9. GEOGRAPHICAL SEGMENTS
The Company's operations are primarily located in France, Germany,
Switzerland and the United Kingdom.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
REVENUE
France............................................... $ -- $ 569,938 $ 2,378,683
Germany.............................................. 130,749 1,700,655 5,054,856
Switzerland.......................................... 791,840 2,913,958 7,263,414
United Kingdom....................................... 2,397 252,080 2,323,957
---------- ----------- -----------
REVENUE.............................................. $ 924,986 $ 5,436,631 $17,020,910
========== =========== ===========
OPERATING RESULTS
France............................................... $ -- $ (473,133) $ (842,014)
Germany.............................................. (22,250) (113,496) (20,973)
Switzerland.......................................... (978,200) (343,410) (916,413)
United Kingdom....................................... (241,227) (1,034,460) (1,497,167)
---------- ----------- -----------
LOSS FROM OPERATIONS................................. $(1,241,677) $(1,964,499) $(3,276,567)
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
LONG-LIVED ASSETS
France...................................................... $ 47,034 $257,790
Germany..................................................... 69,607 184,022
Switzerland................................................. 91,692 174,125
United Kingdom.............................................. 175,350 198,341
-------- --------
LONG-LIVED ASSETS........................................... $383,683 $814,278
======== ========
</TABLE>
F-26
<PAGE> 113
REAL MEDIA EUROPE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31 1997, 1998 and 1999
10. CONCENTRATION OF CREDIT RISK
Revenues generated from one web site accounted for 20% and 18% of total
revenue for the years ended December 31, 1998 and 1999, respectively.
11. SUBSEQUENT EVENTS
PubliGroupe S.A. entered into an agreement, subject to customary closing
requirements, including the execution of ancillary agreements, with Real Media,
Inc., a United States affiliated company, to sell all of the capital stock of
the Company to Real Media, Inc. in exchange for shares of capital stock of Real
Media, Inc. In connection with the underlying stock purchase agreement, notes
payable and certain other amounts due PubliGroupe S.A. were contributed to
capital.
12. YEAR 2000 (UNAUDITED)
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementations
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change.
For the years ended December 31, 1997, 1998 and 1999, the Company incurred
no significant Year 2000 related expenses and it does not expect to incur
significant Year 2000 related expenses in the future.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the product and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the Year 2000 to ensure that any serious Year 2000 matters that may arise are
addressed promptly.
F-27
<PAGE> 114
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Real Media, Inc.
We have audited the financial statements of Real Media, Inc. as of December
31, 1998 and 1999 and for each of the three years in the period ended December
31, 1999, and have issued our report thereon dated February 9, 2000 except for
Note 9, as to which the date is March 15, 2000 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
February 9, 2000
F-28
<PAGE> 115
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
REAL MEDIA, INC.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------- ------------ ------------------------ ------------- ----------
ADDITIONS
------------------------
CHARGED TO CHARGED TO
BALANCE AT COSTS OTHER BALANCE AT
BEGINNING OF AND ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ------------ ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts....................... $40,000 $403,848 $ -- $110,325(1) $333,523
Year Ended December 31, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts....................... $ -- $102,302 $ -- $ 62,302(1) $ 40,000
Year Ended December 31, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts....................... $ -- $ -- $ -- $ -- $ --
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
F-29
<PAGE> 116
WE WORK WITH
TOP BRANDS ON THE WEB.
EUROPE
Excite@Home
The Times
Suddeutsche Zeitung
Blue Window
Bonjour
NORTH AMERICA
The New York Times
Eudora
The Weather Channel
Bloomberg
Playboy
LATIN AMERICA
Universo Online (UOL)
Infosel
El Tiempo
O Globo
El Mercurio
ASIA/PACIFIC
Lycos
South China Morning Post
Apple Daily
Pacific Internet
Netvigator
AFRICA
Times Media
iAfrica
Independent Online
SABC
Mweb
NOTHING ATTRACTS LIKE REAL MEDIA.
[REALMEDIA(TM)]
<PAGE> 117
realmedia logo
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 20,618
NASD Filing Fee............................................. 8,000
Nasdaq National Market Fee.................................. 17,500
SWX Swiss New Market Exchange Fees.......................... 10,000
Blue Sky Fees and Expenses.................................. 5,000
Legal Fees and Expenses..................................... 525,000
Accounting Fees and Expenses................................ 700,000
Registrar and Transfer Agent Fees........................... 10,000
Printing and Engraving Expenses............................. 200,000
Miscellaneous............................................... 3,882
----------
Total............................................. $1,500,000
==========
</TABLE>
- ---------------
* To be completed by amendment.
Each amount set forth above, except the SEC registration fee, the NASD
filing fee, Nasdaq National Market and Swiss New Market filing fee, is
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporation Law of the State of Delaware,
Real Media has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended. Real Media's bylaws (Exhibit 3.2 hereto)
also provide for mandatory indemnification of its directors and executive
officers, and permissive indemnification of its employees and agents, to the
fullest extent permissible under Delaware law.
Real Media's certificate of incorporation (Exhibit 3.1 hereto) provides
that the liability of its directors for monetary damages shall be eliminated to
the fullest extent permissible under Delaware law. Pursuant to Delaware law,
this includes elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to Real Media and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to Real Media, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Prior to the effective date of this Registration Statement, Real Media will
have entered into agreements with its directors and certain of its executive
officers that require Real Media to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of Real
Media or any of its affiliated enterprises, provided such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of Real Media and, with respect to any criminal proceeding,
had no reasonable cause to believe his or her
II-1
<PAGE> 119
conduct was unlawful. The indemnification agreements also set forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
Real Media intends to obtain in conjunction with the effectiveness of this
Registration Statement a policy of directors' and officers' liability insurance
that insures Real Media's directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification of the underwriters, their officers and
directors by Real Media for certain liabilities arising under the Securities Act
or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 13, 1997, Real Media sold a promissory note to PubliGroupe USA
Holding, Inc. (f/k/a Publicitas USA Holding, Inc.) ("PubliGroupe USA"), a
subsidiary of PubliGroupe S.A. ("PubliGroupe"), for $100,000 in cash, which was
repaid in June 1997.
In June 1997, PubliGroupe purchased 825,000 shares of Common Stock for
$330,000 in cash and loaned Real Media $770,000, which was evidenced by a
promissory note dated June 19, 1997. In December 1997, Real Media issued a
$64,000 note payable to a founding stockholder, which was repaid in April 1998.
In January and February 1998, Real Media issued notes payable to PubliGroupe in
the aggregate principal amount of $225,000. In April 1998, we repaid principal
and interest of $500,000 in connection with the debt and the remaining balance
(aggregating approximately $551,000) was canceled and set up as deferred revenue
in accordance with the Amended and Restated Technology Transfer Agreement, dated
April 8, 1998, between Real Media and PubliGroupe.
On April 8, 1998, Real Media sold 3,292,500 shares of Common Stock to
Advance Internet Inc. ("Advance Internet") for $3 million in cash.
In 1998, Real Media sold 7,593 shares of Common Stock to employees and
consultants for an aggregate consideration of $6,934.94 pursuant to the exercise
of options granted by Real Media. In 1999, Real Media sold 344,955 shares of
Common Stock to employees and consultants for an aggregate consideration of
$88,357 pursuant to the exercise of options granted by Real Media.
On March 29, 1999, Real Media sold an aggregate of 1,666,667 shares of
Common Stock to PubliGroupe USA and Advance Internet for $3 million in cash.
On August 16, 1999, Real Media sold 142,511 shares of Common Stock to
Advance Internet for $500,000 in cash.
On March 15, 2000, pursuant to a Stock Purchase Agreement among Real Media,
PubliGroupe and Real Media Europe Holding, S.A. dated as of February 8, 2000,
Real Media issued 24,189,788 shares of Common Stock and 450,000 shares of Series
A Convertible Preferred Stock to PubliGroupe in exchange for all of the
outstanding capital stock of Real Media Europe Holding, S.A. Real Media sold
convertible promissory notes to PubliGroupe dated October 11 and 25, November 9
and December 9, 1999, and January 7 and February 9, 2000, in the aggregate
principal amount of $10 million. These notes were converted into shares of
Common Stock of Real Media, which were included in the 24,189,788 shares of
Common Stock received by PubliGroupe in the business combination, and were
canceled.
The sale and issuance of securities in the transactions described above
were exempt from registration under the Securities Act in reliance on Section
4(2) thereof or Rule 701 promulgated thereunder. No underwriters were employed
in any of the above transactions. The information in this Item 15 gives effect
to a proposed 3 for 2 stock split for the previously issued outstanding shares
of common stock of Real Media.
II-2
<PAGE> 120
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Underwriting Agreement among Real Media, Inc., PubliGroupe
S.A., Credit Suisse First Boston Corporation, Banc of
America Securities LLC and Lazard Freres & Co. LLC, dated
, 2000(2)
2.1 Stock Purchase Agreement dated as of February 8, 2000, among
Real Media, Inc., PubliGroupe S.A. and Real Media Europe
Holding S.A.(1)
3.1 Amended and Restated Certificate of Incorporation of Real
Media, Inc.(2)
3.2 Amended and Restated By-laws of Real Media, Inc.(2)
4.1 Stockholders Voting Agreement dated , 2000
among Real Media, Inc., PubliGroupe USA Holding, Inc.,
PubliGroupe S.A., Advance Internet Inc. and certain Founders
named therein(2)
5.1 Opinion of Dechert Price & Rhoads(2)
10.1 Form of Real Media, Inc. Stock Option Agreement(1)
10.2 Real Media, Inc. 1999 Employee Stock Option Plan(1)
10.3 Second Amended and Restated Voting and Stockholders
Agreement, dated March , 2000, among Real Media, Inc.,
PubliGroupe USA Holding, Inc., PubliGroupe S.A., Advance
Internet Inc. and certain Founders named therein(2)
10.4+ Stock Purchase Agreement, dated April 8, 1998, between Real
Media, Inc. and Advance Internet Inc.(1)
10.5 Amended and Restated Voting and Stockholder Agreement, dated
April 8, 1998, among Real Media, Inc., PubliGroupe USA
Holding, Inc., Advance Internet Inc. and the Management
Stockholders listed therein(1)
10.6 Amended and Restated Technology Transfer Agreement, dated
April 8, 1998, among Real Media, Inc., PubliGroupe, S.A. and
Real Media, S.A.(1)
10.7 Amended and Restated Marketing Agreement, dated April 8,
1998, between Real Media, Inc. and Real Media, S.A.(1)
10.8 Amendment to Non-Competition Agreement, dated April 8, 1998,
among Real Media, Inc., PubliGroupe, S.A. and Real Media,
S.A.(1)
10.9+ Stock Purchase Agreement, dated March 29, 1999, among Real
Media, Inc., Advance Internet Inc. and PubliGroupe USA
Holding Inc.(1)
10.10+ Stock Purchase Agreement, dated August 16, 1999, between
Real Media, Inc. and Advance Internet Inc.(1)
10.11 Stock Option Termination and Stock Repurchase Agreement,
dated July 15, 1999, between Real Media, Inc. and David
Morgan(1)
10.12 Technology Transfer Agreement, dated March , 2000, between
Real Media, Inc. and Real Media S.A.(2)
10.13 Trademark and Tradename Agreement, dated March , 2000,
among Real Media, Inc., and Real Media S.A.(2)
10.14 Cooperation Agreement, dated March , 2000, between Real
Media, Inc. and PubliGroupe S.A.(2)
10.15 Interim Administrative Services Agreement, dated March ,
2000, between Real Media, Inc. and PubliGroupe S.A.(2)
</TABLE>
II-3
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.16 Stockholders Agreement, dated March , 2000, among
PubliGroupe S.A., Real Media, Inc. and Real Media Europe
Holding S.A.(2)
10.17 Convertible Promissory Note, dated October 11, 1999, payable
to PubliGroupe S.A.(1)
10.18 Convertible Promissory Note, dated October 25, 1999, payable
to PubliGroupe S.A.(1)
10.19 Convertible Promissory Note, dated November 9, 1999, payable
to PubliGroupe S.A.(1)
10.20 Convertible Promissory Note, dated December 9, 1999, payable
to PubliGroupe S.A.(1)
10.21 Convertible Promissory Note, dated January 7, 2000, payable
to PubliGroupe S.A.(1)
10.22 Agreement of Lease, dated February 1, 1999, between
Renaissance Acquisitions, LLC and Real Media, Inc. and
Addendum thereto, dated August 13, 1999 for office space in
New York, New York(1)
10.23 English translation of Agreement, dated December 14, 1998,
between PubliGroupe, S.A. and CubicMedia GmbH and Amendment
thereto, dated September 10, 1999(1)
10.24 Assignment of Lease, dated October 18, 1999, among
Renaissance Acquisitions, LLC, as successor in interest to
260 Delphi Associates D.I.P., Corporate Concepts, Ltd. and
Real Media, Inc. and Lease dated June 4, 1997, between 260
Delphi Associate's D.I.P. and Corporate Concepts, Ltd. for
office space in New York, New York(1)
10.25 General Lease Agreement, dated March 1, 1999, between Narco
Avionics, Inc. and Real Media, Inc. for office space in Fort
Washington, Pennsylvania(1)
10.26 Office lease, dated January 5, 2000, between HUB Properties
Trust and Real Media, Inc. for office space in Fort
Washington, Pennsylvania(1)
10.27 Employment Agreement between Real Media, Inc. and
Christopher Neimeth, dated as of December 15, 1999(2)
10.28 Convertible Promissory Note, dated February 9, 2000, payable
to PubliGroupe S.A.(2)
21.1 Subsidiaries of Real Media, Inc.(2)
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of ATAG Ernst & Young AG
23.4 Consent of Hans Steiner(1)
23.5 Consent of Heinz Wagli(1)
24.1 Powers of Attorney (included on the signature pages to this
Registration Statement)
27.1 Financial Data Schedule(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
(a) 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.
II-4
<PAGE> 122
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining the liability under the Securities Act
of 1933, 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 of 1933, 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> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York on March 22, 2000.
REAL MEDIA, INC.
By: /s/ CHRISTOPHER D. NEIMETH
------------------------------------
Christopher D. Neimeth
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chairman of the Board of March 22, 2000
- --------------------------------------------------- Directors
David R. Morgan
/s/ CHRISTOPHER D. NEIMETH President and Chief Executive March 22, 2000
- --------------------------------------------------- Officer (principal executive
Christopher D. Neimeth officer)
/s/ NORMAN M. BLASHKA Chief Financial Officer March 22, 2000
- --------------------------------------------------- (principal financial and
Norman M. Blashka accounting officer)
* Director March 22, 2000
- ---------------------------------------------------
Walter Annasohn
* Chief Technology Officer and March 22, 2000
- --------------------------------------------------- Director
Gil Beyda
</TABLE>
II-6
<PAGE> 124
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Director March 22, 2000
- ---------------------------------------------------
Michael Newhouse
* Director March 22, 2000
- ---------------------------------------------------
Mark Pinney
* Director March 22, 2000
- ---------------------------------------------------
Peter Weinberger
* Director March 22, 2000
- ---------------------------------------------------
Pascal Zahner
</TABLE>
*By: /s/ CHRISTOPHER D. NEIMETH
---------------------------------------------------------
Christopher D. Neimeth
Attorney-in-Fact
II-7
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Underwriting Agreement among Real Media, Inc., PubliGroupe
S.A., Credit Suisse First Boston Corporation, Banc of
America Securities LLC and Lazard Freres & Co. LLC, dated
, 2000(2)
2.1 Stock Purchase Agreement dated as of February 8, 2000, among
Real Media, Inc., PubliGroupe S.A. and Real Media Europe
Holding S.A.(1)
3.1 Amended and Restated Certificate of Incorporation of Real
Media, Inc.(2)
3.2 Amended and Restated By-laws of Real Media, Inc.(2)
4.1 Stockholders Voting Agreement dated , 2000
among Real Media, Inc., PubliGroupe USA Holding, Inc.,
PubliGroupe S.A., Advance Internet Inc. and certain Founders
named therein(2)
5.1 Opinion of Dechert Price & Rhoads(2)
10.1 Form of Real Media, Inc. Stock Option Agreement(1)
10.2 Real Media, Inc. 1999 Employee Stock Option Plan(1)
10.3 Second Amended and Restated Voting and Stockholders
Agreement, dated March , 2000, among Real Media, Inc.,
PubliGroupe USA Holding, Inc., PubliGroupe S.A., Advance
Internet Inc. and certain Founders named therein(2)
10.4+ Stock Purchase Agreement, dated April 8, 1998, between Real
Media, Inc. and Advance Internet Inc.(1)
10.5 Amended and Restated Voting and Stockholder Agreement, dated
April 8, 1998, among Real Media, Inc., PubliGroupe USA
Holding, Inc., Advance Internet Inc. and the Management
Stockholders listed therein(1)
10.6 Amended and Restated Technology Transfer Agreement, dated
April 8, 1998, among Real Media, Inc., PubliGroupe, S.A. and
Real Media, S.A.(1)
10.7 Amended and Restated Marketing Agreement, dated April 8,
1998, between Real Media, Inc. and Real Media, S.A.(1)
10.8 Amendment to Non-Competition Agreement, dated April 8, 1998,
among Real Media, Inc., PubliGroupe, S.A. and Real Media,
S.A.(1)
10.9+ Stock Purchase Agreement, dated March 29, 1999, among Real
Media, Inc., Advance Internet Inc. and PubliGroupe USA
Holding Inc.(1)
10.10+ Stock Purchase Agreement, dated August 16, 1999, between
Real Media, Inc. and Advance Internet Inc.(1)
10.11 Stock Option Termination and Stock Repurchase Agreement,
dated July 15, 1999, between Real Media, Inc. and David
Morgan(1)
10.12 Technology Transfer Agreement, dated March , 2000, between
Real Media, Inc. and Real Media S.A.(2)
10.13 Trademark and Tradename Agreement, dated March , 2000,
among Real Media, Inc., and Real Media S.A.(2)
10.14 Cooperation Agreement, dated March , 2000, between Real
Media, Inc. and PubliGroupe S.A.(2)
10.15 Interim Administrative Services Agreement, dated March ,
2000, between Real Media, Inc. and PubliGroupe S.A.(2)
10.16 Stockholders Agreement, dated March ,2000, among
PubliGroupe S.A., Real Media, Inc. and Real Media Europe
Holding S.A.(2)
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.17 Convertible Promissory Note, dated October 11, 1999, payable
to PubliGroupe S.A.(1)
10.18 Convertible Promissory Note, dated October 25, 1999, payable
to PubliGroupe S.A.(1)
10.19 Convertible Promissory Note, dated November 9, 1999, payable
to PubliGroupe S.A.(1)
10.20 Convertible Promissory Note, dated December 9, 1999, payable
to PubliGroupe S.A.(1)
10.21 Convertible Promissory Note, dated January 7, 2000, payable
to PubliGroupe S.A.(1)
10.22 Agreement of Lease, dated February 1, 1999, between
Renaissance Acquisitions, LLC and Real Media, Inc. and
Addendum thereto, dated August 13, 1999 for office space in
New York, New York(1)
10.23 English translation of Agreement, dated December 14, 1998,
between PubliGroupe, S.A. and CubicMedia GmbH and Amendment
thereto, dated September 10, 1999(1)
10.24 Assignment of Lease, dated October 18, 1999, among
Renaissance Acquisitions, LLC, as successor in interest to
260 Delphi Associates D.I.P., Corporate Concepts, Ltd. and
Real Media, Inc. and Lease dated June 4, 1997, between 260
Delphi Associate's D.I.P. and Corporate Concepts, Ltd. for
office space in New York, New York(1)
10.25 General Lease Agreement, dated March 1, 1999, between Narco
Avionics, Inc. and Real Media, Inc. for office space in Fort
Washington, Pennsylvania(1)
10.26 Office lease, dated January 5, 2000, between HUB Properties
Trust and Real Media, Inc. for office space in Fort
Washington, Pennsylvania(1)
10.27 Employment Agreement between Real Media, Inc. and
Christopher Neimeth, dated as of December 15, 1999(2)
10.28 Convertible Promissory Note, dated February 9, 2000, payable
to PubliGroupe S.A.(2)
21.4 Subsidiaries of Real Media, Inc.(2)
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of ATAG Ernst & Young AG
23.4 Consent of Hans Steiner(1)
23.5 Consent of Heinz Wagli(1)
24.1 Powers of Attorney (included on the signature pages to this
Registration Statement)
27.1 Financial Data Schedule(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Information of Real Media, Inc." and to the use of our
reports dated February 9, 2000 (except for Note 9, as to which the date is March
15, 2000) in the Registration Statement (Form S-1 No. 333-96359) and related
Prospectus of Real Media, Inc. for the registration of shares of its common
stock.
/s/ Ernst & Young LLP
New York, NY
March 21, 2000
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Combined Financial Information of Real Media Europe" and to the use of
our report dated February 21, 2000 in the Registration Statement (Form S-1
No. 333-96359) and related Prospectus of Real Media, Inc. for the registration
of shares of its common stock.
/s/ ATAG Ernst & Young AG
Zurich, Switzerland
March 20, 2000
