0000950117-01-501338.txt : 20011010
0000950117-01-501338.hdr.sgml : 20011010
ACCESSION NUMBER: 0000950117-01-501338
CONFORMED SUBMISSION TYPE: S-4/A
PUBLIC DOCUMENT COUNT: 8
FILED AS OF DATE: 20011004
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DOUBLECLICK INC
CENTRAL INDEX KEY: 0001049480
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310]
IRS NUMBER: 133870996
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: S-4/A
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-63952
FILM NUMBER: 1751749
BUSINESS ADDRESS:
STREET 1: 450 W 33RD ST
STREET 2: 16TH FL
CITY: NEW YORK
STATE: NY
ZIP: 10001
BUSINESS PHONE: 2126830001
MAIL ADDRESS:
STREET 1: 450 W 33RD ST
STREET 2: 16TH FL
CITY: NEW YORK
STATE: NY
ZIP: 10001
S-4/A
1
a29932.txt
DOUBLECLICK INC.
As filed with the Securities and Exchange Commission on October 3, 2001
Registration No. 333-63952
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
DOUBLECLICK INC.
(Exact name of Registrant as specified in its charter)
-------------------
Delaware 7319 13-3870996
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
450 West 33rd Street
New York, New York 10001
(212) 683-0001
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
-------------------
Kevin P. Ryan
Chief Executive Officer
DoubleClick Inc.
450 West 33rd Street
New York, New York 10001
(212) 683-0001
(Name, address, including zip code and telephone number
including area code, of agent for service)
-------------------
Copies to:
Scott L. Kaufman, Esq. Michael L. Platt, Esq.
David E. Rosewater, Esq. Michael F. Cyran, Esq.
Brobeck, Phleger & Harrison LLP Cooley Godward LLP
1633 Broadway 380 Interlocken Crescent
New York, New York 10019 Broomfield, Colorado 80021
Telephone: (212) 581-1600 Telephone: (720) 566-4000
Facsimile: (212) 586-7878 Facsimile: (720) 566-4099
-------------------
Approximate date of commencement of proposed sale to the public: At the
effective time of the merger of the Registrant with MessageMedia, Inc.
('MessageMedia'), which shall occur as soon as practicable after the effective
date of this Registration Statement and the satisfaction or waiver of all
conditions to the closing of such merger.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-------------------
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.
________________________________________________________________________________
[Logo]
October [ ], 2001
Dear Stockholder:
I am writing to you today about our proposed merger with DoubleClick Inc. We
believe that the merger will enhance stockholder value by resulting in a
combined company with the ability to provide a broader range of products and
services to a larger customer base.
In the merger, each outstanding share of MessageMedia common stock will be
converted into 0.0436 of a share of DoubleClick common stock. As of October [ ],
2001, MessageMedia had [68,685,381] outstanding shares. In connection with the
merger, DoubleClick will issue approximately [3.0] million shares of DoubleClick
common stock to MessageMedia stockholders, which would represent approximately
[ ]% of DoubleClick's outstanding common stock as of October [ ], 2001.
DoubleClick common stock is traded on The Nasdaq National Market under the
trading symbol 'DCLK,' and closed at $[ ] per share on October [ ], 2001. The
merger and the amended merger agreement are described more fully in this proxy
statement/prospectus.
The board of directors of MessageMedia has called a special meeting of
MessageMedia stockholders to be held on October 31, 2001 at 9:00 a.m., local
time, at the principal offices of MessageMedia, located at 371 Centennial
Parkway, Louisville, Colorado 80027, for the purpose of considering the
transaction. At the special stockholders' meeting, you will be asked to consider
and vote upon a proposal to adopt the amended merger agreement.
Adoption of the proposal requires the affirmative vote, in person or by
proxy, of a majority of the outstanding shares of MessageMedia's common stock.
To adopt the amended merger agreement, you MUST vote 'FOR' the proposal by
following the instructions stated on the enclosed proxy card. If you do not vote
at all, your non-vote will, in effect, count as a vote against the amended
merger agreement and the merger.
The close of business on September 4, 2001 is the record date for the
determination of the stockholders entitled to notice of and to vote at the
special stockholders' meeting, or any adjournment or postponement of that
meeting. Accordingly, only stockholders of record on that date are entitled to
notice of, and to vote at, the special stockholders' meeting and any
adjournments or postponements of that meeting.
All stockholders are invited to attend the special stockholders' meeting in
person. Whether or not you plan to attend, in order that your shares may be
represented at the special stockholders' meeting, please complete, sign and date
the enclosed proxy card and return it in the enclosed envelope as soon as
possible. If you attend the special stockholders' meeting in person, you may, if
you wish, vote personally on all matters brought before the special
stockholders' meeting even if you have previously returned your proxy card.
This proxy statement/prospectus provides detailed information about
DoubleClick, MessageMedia and the merger. Please give all of this information
your careful attention. In particular, you should carefully consider the
discussion in the section entitled 'Risk Factors' beginning on page 14 of this
proxy statement/prospectus.
The board of directors has retained Stephens Inc. as financial advisor.
Stephens Inc. has delivered to the board its written opinion dated as of
May 31, 2001 to the effect that, subject to assumptions and limitations set
forth in its opinion relating to the information that it relied on in issuing
the opinion, the consideration to be received in the merger by the disinterested
MessageMedia stockholders is fair to those stockholders from a financial point
of view.
The board of directors believes that the merger is in the best interests of
MessageMedia and its stockholders and has therefore unanimously adopted the
amended merger agreement and recommends that all stockholders vote 'FOR'
adoption of the amended merger agreement.
Sincerely,
A. LAURENCE JONES
A. LAURENCE JONES
President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction or the securities of
DoubleClick Inc. to be issued in the merger, or determined if this proxy
statement/prospectus is accurate or complete. Any representation to the contrary
is a criminal offense.
This proxy statement/prospectus is dated October [ ], 2001 and is first being
mailed to MessageMedia stockholders on or about October , 2001.
REFERENCE TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about DoubleClick from documents DoubleClick has filed
with the Securities and Exchange Commission that are not included in or
delivered with this proxy statement/prospectus. If you call or write,
DoubleClick will send you copies of these documents, excluding exhibits, without
charge. You may contact DoubleClick at:
DoubleClick Inc.
Investor Relations
450 West 33rd Street
New York, New York 10001
(212) 683-0001
If you call or write MessageMedia, although it is not incorporating any
documents by reference, it will send you copies of the documents that it has
filed with the Securities and Exchange Commission, excluding exhibits, without
charge. You may contact MessageMedia at:
MessageMedia, Inc.
Investor Relations
371 Centennial Parkway
Louisville, Colorado 80027
(303) 381-7500
If you would like to request documents from DoubleClick or MessageMedia,
please do so no later than October 24, 2001, which is five business days prior
to the date of MessageMedia's special stockholders' meeting.
In addition, please see 'Where You Can Find More Information' on page 100.
[Logo]
--------------------------
NOTICE OF SPECIAL STOCKHOLDERS' MEETING
TO BE HELD AT 9:00 A.M. ON OCTOBER 31, 2001
--------------------------
To the Stockholders of MessageMedia, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
MessageMedia will be held at the principal offices of MessageMedia, located at
371 Centennial Parkway, Louisville, Colorado 80027, at 9:00 a.m., local time, on
October 31, 2001 for the following purposes:
1. The Merger Proposal. To consider and vote upon a proposal to adopt
the Agreement and Plan of Merger and Reorganization, as amended, among
DoubleClick Inc., Atlas Acquisition Corp., a wholly owned subsidiary of
DoubleClick, and MessageMedia, under which each outstanding share of
MessageMedia common stock will be converted into the right to receive 0.0436
of a share of DoubleClick common stock and MessageMedia will merge with and
into DoubleClick.
2. Authority to Adjourn. To grant the board of directors of MessageMedia
discretionary authority to adjourn the special stockholders' meeting to
solicit additional votes for adoption of the amended merger agreement.
3. Other Business. To transact such other business as may properly come
before the special stockholders' meeting or any adjournment or postponement
of such meeting.
Only stockholders of record at the close of business on September 4, 2001
are entitled to receive notice of and to vote at the special stockholders'
meeting or any adjournment or postponement of such meeting. The affirmative vote
of the holders of a majority of the outstanding shares of common stock entitled
to vote at the special stockholders' meeting is required to adopt the amended
merger agreement. A list of stockholders as of the record date will be open for
examination during the ten day period prior to the special stockholders' meeting
at MessageMedia's principal offices located at the address set forth above.
The board of directors of MessageMedia unanimously recommends that you vote
'FOR' adoption of the amended merger agreement.
Your vote is important regardless of the number of shares you own. To ensure
that your shares are represented at the special stockholders' meeting, we urge
you to complete, date and sign the enclosed proxy card and mail it promptly in
the postage-paid envelope provided whether or not you plan to attend the special
stockholders' meeting in person. You may revoke your proxy in the manner
described in this proxy statement/prospectus at any time before it has been
voted at the special stockholders' meeting. You may vote in person at the
special stockholders' meeting even if you have returned a proxy.
By Order of the Board of Directors,
WILLIAM E. BUCHHOLZ
WILLIAM E. BUCHHOLZ
Senior Vice President,
Finance and Administration,
Chief Financial Officer and Secretary
Louisville, Colorado
October [ ], 2001
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... iii
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS................... 1
RISK FACTORS................................................ 14
Risks Related to the Merger............................. 14
Risks Related to DoubleClick............................ 17
Risks Related to MessageMedia........................... 30
FORWARD-LOOKING STATEMENTS IN THIS PROXY
STATEMENT/PROSPECTUS...................................... 37
THE SPECIAL STOCKHOLDERS' MEETING........................... 38
General................................................. 38
Date, Time and Place.................................... 38
Matters to be Considered at the Special Stockholders'
Meeting................................................ 38
Record Date............................................. 38
Voting of Proxies....................................... 38
Vote Required........................................... 39
Quorum; Abstentions and Broker Non-Votes................ 39
Solicitation of Proxies and Expenses.................... 39
THE MERGER.................................................. 40
Background of the Merger................................ 40
DoubleClick's Reasons for the Merger.................... 43
MessageMedia's Reasons for the Merger; Unanimous
Recommendation of MessageMedia's Board of Directors in
Favor of the Merger.................................... 44
Opinion of MessageMedia's Financial Advisor............. 46
Interests of MessageMedia's Directors and Officers in
the Merger............................................. 50
Regulatory Matters...................................... 51
Federal Income Tax Considerations....................... 51
Accounting Treatment.................................... 53
No Dissenters' Rights................................... 53
Delisting and Deregistration of MessageMedia's Common
Stock Following the Merger............................. 53
Restrictions on Sale of Shares by Affiliates............ 53
Operations Following the Merger......................... 54
THE AMENDED MERGER AGREEMENT AND RELATED AGREEMENTS......... 55
The Merger.............................................. 55
Effective Time.......................................... 55
Directors and Officers of the Combined Company After the
Merger................................................. 55
Conversion of MessageMedia Shares in the Merger......... 55
No Fractional Shares.................................... 55
MessageMedia Stock Options and Warrants................. 55
Employee Stock Purchase Plan............................ 56
The Exchange Agent...................................... 56
Exchange of MessageMedia Stock Certificates for
DoubleClick Stock Certificates......................... 56
Distributions with Respect to Unexchanged Shares........ 56
Representations and Warranties.......................... 56
MessageMedia's Conduct of Business Before Completion of
the Merger............................................. 58
No Solicitation of Transactions......................... 59
Director and Officer Indemnification and Insurance...... 61
Benefit Plans and Arrangements.......................... 61
Conditions to the Merger................................ 62
Termination of the Amended Merger Agreement............. 63
Payment of Fees and Expenses............................ 64
Extension, Waiver and Amendment of the Amended Merger
Agreement.............................................. 66
Related Agreements...................................... 66
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION......... 67
i
Page
----
COMPARATIVE PER SHARE MARKET PRICE DATA..................... 75
Market Price Information................................ 75
Recent Closing Prices................................... 76
Dividend Policy......................................... 76
BUSINESS OF MESSAGEMEDIA.................................... 77
Overview................................................ 77
Industry Background..................................... 78
MessageMedia's Key Capabilities......................... 79
MessageMedia's Services and Software Offerings.......... 80
Competition............................................. 81
Sales................................................... 82
Research, Development and Engineering................... 82
Intellectual Property................................... 82
International Operations................................ 82
Government Regulation................................... 83
Employees............................................... 83
Properties.............................................. 83
Legal Proceedings....................................... 83
SECURITY OWNERSHIP OF MESSAGEMEDIA MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS......................................... 84
SELECTED FINANCIAL DATA OF MESSAGEMEDIA..................... 88
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MESSAGEMEDIA................. 89
Overview................................................ 89
Results of Operations................................... 90
Selected Unaudited Quarterly Financial Data............. 95
Liquidity and Capital Resources......................... 95
Quantitative and Qualitative Disclosure about Market
Risk................................................... 97
COMPARISON OF STOCKHOLDERS' RIGHTS.......................... 98
Number of Directors; Election and Removal of
Directors.............................................. 98
Meeting of the Board of Directors....................... 98
Annual Meeting of Stockholders; Special Meeting of
Stockholders........................................... 98
Stockholder Proposals................................... 98
Amendment of Bylaws..................................... 99
EXPERTS..................................................... 99
LEGAL MATTERS............................................... 100
WHERE YOU CAN FIND MORE INFORMATION......................... 100
STOCKHOLDER PROPOSALS....................................... 101
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 101
INDEX TO FINANCIAL STATEMENTS OF
MESSAGEMEDIA, INC......................................... F-1
LIST OF APPENDICES
A -- Agreement and Plan of Merger and Reorganization....... A-1
A-1-- Amendment to Agreement and Plan of Merger and
Reorganization...................................... A-1-1
B -- Form of Stockholder Agreement......................... B-1
B-1-- Form of Stockholder Letter............................ B-1-1
C -- Opinion of Stephens Inc., Financial Advisor to
MessageMedia, Inc................................... C-1
ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will MessageMedia stockholders receive in the merger?
A: If the merger is completed, MessageMedia stockholders will receive 0.0436 of
a share of DoubleClick common stock for each share of MessageMedia common stock
they own.
Q: When do you expect to complete the merger?
A: We are working to complete the merger as quickly as possible. Because the
merger is subject to satisfaction of a number of conditions, we cannot predict
the exact timing. We anticipate completing the merger during October 2001.
Q: How do I vote?
A: After you have carefully read this proxy statement/prospectus, mail your
signed proxy card in the enclosed return envelope as soon as possible so that
your shares may be represented at the special stockholders' meeting. You may
also attend the meeting in person instead of submitting a proxy. If your shares
are held in 'street name' by your broker, your broker will vote your shares only
if you provide instructions on how to vote. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares.
Q: Should MessageMedia stockholders send in their stock certificates now?
A: No. After we complete the merger, DoubleClick will send instructions to
MessageMedia stockholders explaining how to exchange their MessageMedia stock
certificates for DoubleClick stock certificates.
Q: Can I change my vote after mailing my proxy?
A: Yes. You may change your vote by delivering a signed notice of revocation or
a later-dated, signed proxy card to the corporate secretary of MessageMedia
before the special stockholders' meeting, or by attending the special
stockholders' meeting and voting in person.
Q: Whom can I call with questions?
A: If you are a MessageMedia stockholder with questions about the merger, please
call MessageMedia Investor Relations at (303) 381-7500.
iii
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
The following summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read this entire proxy
statement/prospectus, including the appendices and the other documents we refer
to for a more complete understanding of the merger. In addition, we incorporate
by reference important business and financial information about DoubleClick into
this proxy statement/prospectus. You may obtain the information incorporated by
reference into this proxy statement/prospectus without charge by following the
instructions in the section entitled 'Where You Can Find More Information' on
page 98.
The Companies
DoubleClick Inc.
450 West 33rd Street
New York, New York 10001
(212) 683-0001
DoubleClick is a leading provider of products and services that enable
publishers, advertisers, direct marketers and merchants to market to consumers
in the digital world. DoubleClick offers a broad range of media, technology,
data and research products and services to its customers to allow them to
address all facets of the digital marketing process, from pre-campaign to
execution, measurement and campaign refinements. Combining media, data and
technological expertise, DoubleClick's products and services help its customers
optimize their advertising and marketing campaigns on the Internet and through
other media.
DoubleClick's patented DART (Dynamic, Advertising, Reporting and Targeting)
technology is the platform for many of DoubleClick's solutions. The DART
technology is a sophisticated targeting and reporting tool, relied upon by
DoubleClick's customers to measure campaign performance and provide dynamic ad
space inventory management.
DoubleClick derives its revenues from three business units: Technology (or
TechSolutions), Media and Data based on the types of services provided.
DoubleClick TechSolutions consists of the DART-based service bureau offering,
the AdServer family of software products and a suite of email technology
services. DoubleClick Media consists of the worldwide DoubleClick networks,
which provide fully outsourced and effective ad sales and related services to a
worldwide group of advertisers and publishers. DoubleClick Data includes its
Abacus division that utilizes the information contributed to a proprietary
database by Abacus Alliance members to make both online and offline direct
marketing more effective for Abacus Alliance members and other clients.
DoubleClick Data also includes Diameter, DoubleClick's research division, an
online research business that offers a complete suite of research tools,
providing media intelligence, audience measurement and advertising effectiveness
products.
The following is a brief description of DoubleClick's three business units:
DoubleClick TechSolutions. DoubleClick TechSolutions offers publishers,
advertisers and merchants worldwide the industry's leading technology and
service bureau solutions for their digital marketing needs. DoubleClick's
solutions enable Web sites to generate advertising revenue with a choice of
an application service provider solution, the DART for Publishers Service,
or a licensed software solution, the DoubleClick AdServer software. The
DART for Publishers Service provides seamless ad delivery and inventory
management services for Web sites, and allows Web publishers to offer their
advertisers sophisticated targeting and reporting capabilities. DoubleClick
also offers advertisers and their agencies an application service provider
solution, the DART for Advertisers Service. Using the DART technology, the
DART for Advertisers Service enables advertisers and their agencies to
increase their return on investment and to streamline the ad serving
process. Through DoubleClick's
1
Dartmail Service, DoubleClick offers email publishers and merchants an
application service provider solution for their email marketing needs.
DoubleClick Media. DoubleClick Media offers to advertisers worldwide a
broad range of media purchasing opportunities to satisfy a variety of
marketing objectives. DoubleClick enables publishers to outsource ad sales
for their Web sites worldwide to DoubleClick's ad sales force, and to
leverage the revenue generating potential of their media by joining one of
DoubleClick's Web site networks. The DoubleClick networks established the
standard for the network model of advertising on the Internet. The
DoubleClick network is a collection of highly-trafficked and branded sites
on the Web. Advertisers and direct marketers buy advertising through these
media marketing vehicles for sales, brand building and lead generation.
DoubleClick Media uses the DART and DARTmail technologies to deliver,
target and report on DoubleClick's customers' campaigns.
DoubleClick Data. DoubleClick Data is comprised of two components:
-- Abacus. Abacus is a leading provider of information products to direct
marketers, both online and offline. Abacus applies advanced statistical
modeling techniques to the Abacus Alliance database of consumer purchasing
behavior to help Abacus Alliance members acquire and retain customers.
Based on this data modeling, Abacus identifies those consumers most likely
to purchase a particular product or service, and enables its Abacus
Alliance members to reach identified consumers by direct mail and email.
Abacus performs similar statistical modeling services for its e-commerce
merchant members. In addition, by combining an expertise in database
analysis with DoubleClick's DART technology, Abacus enables e-commerce
merchants and Web publishers to use DoubleClick's online preference
marketing technology to deliver Web advertising targeted to anonymous
Internet users.
-- DoubleClick Diameter. DoubleClick Diameter offers to advertisers,
agencies and Web publishers sophisticated research about the online market
and advanced campaign measurement tools and planning systems. DoubleClick's
targeting planning systems provide advertisers with market research to
identify the Web sites visited by their target audience, and allow Web
publishers to better define their audience. DoubleClick advertising
effectiveness studies can help DoubleClick's clients to evaluate the
performance and effectiveness of their online marketing efforts, through
the use of branding-based measures. As a result of the acquisition of
@plan.inc in February 2001, DoubleClick significantly expanded its reserch
capabilities.
MessageMedia, Inc.
371 Centennial Parkway
Louisville, Colorado 80027
(303) 440-7550
MessageMedia is a leader in permission-based email marketing and messaging
solutions. MessageMedia uses advanced technology, tools and applications to help
its customers fully utilize the Internet to increase sales, improve customer
communications and develop long-term customer loyalty and customer dialogue.
MessageMedia's outsourced services provide customers with:
a comprehensive set of e-messaging solutions for businesses that seek to
increase sales, improve customer communications and develop long-term
customer loyalty;
permission-based e-messaging to create an immediate two-way dialogue with
customers;
tools to track, review and refine e-messaging campaigns by leveraging
MessageMedia's expertise and proprietary technology;
rapidly deployable, cost-effective outsourced solutions which eliminate the
need to invest in the technology, hardware and human resources necessary to
implement and manage a comprehensive set of e-messaging and e-intelligence
solutions; and
2
the ability to manage large volumes of simple or complex customer
communications and easily integrate more advanced e-messaging and e-survey
and database applications.
MessageMedia's software solutions provide customers with:
a complete solution for email marketing and communications that integrates
with relational databases such as Oracle or SQL Server;
functions such as targeted email, including both filtering and data
segmentation, personalized email, dynamic content editing and trackable
URLs and campaign sequencing; and
all standard email list server functions such as reliable high throughput
email delivery, bounce management, discussion lists, announcement lists and
easy unsubscribes.
The Merger (See page 40)
DoubleClick and MessageMedia have entered into a merger agreement, which was
subsequently amended, that provides for the merger of MessageMedia with and into
DoubleClick. We urge you to read the merger agreement, which is included as
Appendix A, and the amendment to the merger agreement, which is included as
Appendix A-1, carefully and in their entirety. Throughout this proxy
statement/prospectus, we refer to the merger agreement, as amended by the
amendment, as the amended merger agreement.
Unanimous Recommendation of MessageMedia's Board of Directors in Favor of the
Merger (See page 44)
The board of directors of MessageMedia has adopted the amended merger
agreement and determined that the terms and conditions of the merger are fair
to, and in the best interests of, MessageMedia and its stockholders.
MessageMedia's board of directors unanimously recommends that MessageMedia
stockholders vote 'FOR' adoption of the amended merger agreement.
Opinion of MessageMedia's Financial Advisor (See page 46)
In deciding to adopt the amended merger agreement, the MessageMedia board of
directors considered the opinion of its financial advisor, Stephens Inc.
On May 30, 2001, Stephens delivered its oral opinion to the board of
directors of MessageMedia, which was subsequently confirmed in writing on May
31, 2001, that, as of May 31, 2001, the consideration to be received by the
disinterested MessageMedia stockholders in the merger was fair to these
stockholders from a financial point of view. The full text of the written
opinion of Stephens is attached to this proxy statement/prospectus as
Appendix C. We encourage you to read this opinion carefully in its entirety for
a description of the procedures followed, assumptions made, matters considered
and limitations on the review undertaken.
Vote Required (See page 39)
The affirmative vote of holders of a majority of the outstanding shares of
MessageMedia common stock is required to adopt the amended merger agreement.
MessageMedia stockholders are entitled to cast one vote per share of
MessageMedia common stock owned at the close of business on September 4, 2001.
As of September 4, 2001, directors and executive officers of MessageMedia and
their affiliates beneficially owned an aggregate of 25,662,381 shares of
MessageMedia common stock, not including any shares issuable upon the exercise
of options or warrants, or approximately 37.4% of the shares of MessageMedia
common stock outstanding on such date. Pursuant to stockholder agreements and
letters in the forms attached to this proxy statement/prospectus as Appendix B
and B-1, respectively, MessageMedia stockholders have agreed to vote
approximately 37.4% of MessageMedia's common stock outstanding as of
September 4, 2001 for adoption of the amended merger agreement. As of
September 4, 2001, directors and executive officers of DoubleClick did not own
any shares of MessageMedia common stock.
3
The Special Stockholders' Meeting (See page 38)
MessageMedia's special stockholders' meeting will be held at the principal
offices of MessageMedia, located at 371 Centennial Parkway, Louisville, Colorado
80027, at 9:00 a.m., local time, on October 31, 2001.
Interests of MessageMedia's Directors and Officers in the Merger (See page 50)
When considering the recommendation of the MessageMedia board of directors,
you should be aware that some directors and officers of MessageMedia have
interests in the merger that are different from, or in addition to, yours. These
interests are discussed further in 'The Merger -- Interests of MessageMedia's
Directors and Officers in the Merger.'
Federal Income Tax Considerations (See page 51)
The merger has been structured with the intent that it qualify as a
tax-deferred 'reorganization' for United States federal income tax purposes.
Qualification of the merger as a reorganization will mean that the MessageMedia
stockholders will not recognize gain or loss for United States federal income
tax purposes upon the exchange of shares of MessageMedia common stock for
DoubleClick common stock in the merger. In the event that a MessageMedia
stockholder receives cash instead of fractional shares, the MessageMedia
stockholder will recognize gain or loss determined as though the stockholder
received the fractional share of DoubleClick common stock and sold it for the
cash received. MessageMedia and DoubleClick have received legal opinions from
their respective outside counsel that the merger will constitute a tax-deferred
reorganization. In addition, it is a condition to the merger that DoubleClick
and MessageMedia each receive an opinion from their respective counsel that the
merger will constitute a tax-deferred reorganization. The opinions of counsel
will not be binding on the Internal Revenue Service and no ruling will be
obtained from the Internal Revenue Service regarding the tax consequences of the
merger.
Restrictions on Sale of Shares by Affiliates (See page 53)
All shares of DoubleClick common stock that MessageMedia stockholders
receive in connection with the merger will be freely transferable unless the
holder is considered an 'affiliate' of either DoubleClick or MessageMedia for
purposes of the Securities Act of 1933, as amended. Shares of DoubleClick common
stock held by these affiliates may be sold only under a registration statement
or an exemption from registration under the Securities Act.
Conditions to the Merger (See page 62)
The respective obligations of the parties to complete the merger are subject
to the prior satisfaction or waiver of conditions specified in the amended
merger agreement. If either DoubleClick or MessageMedia waives any conditions,
we will consider the facts and circumstances at that time and determine whether
completion of the merger requires a resolicitation of proxies from MessageMedia
stockholders.
Termination of the Amended Merger Agreement (See page 63)
The amended merger agreement may be terminated under circumstances that are
described in 'The Amended Merger Agreement and Related Agreements -- Termination
of the Amended Merger Agreement.'
4
Termination Fee (See page 64)
MessageMedia has agreed to pay DoubleClick a fee of $1.654 million in cash
if the amended merger agreement terminates under circumstances that are
described under 'The Amended Merger Agreement and Related Agreements -- Payment
of Fees and Expenses.'
Restrictions on Alternate Transactions (See page 59)
The amended merger agreement prohibits MessageMedia from soliciting or
participating in discussions with third parties about transactions alternative
to the merger, except as discussed in 'The Amended Merger Agreement and Related
Agreements -- No Solicitation of Transactions.'
Regulatory Matters (See page 51)
Currently, neither DoubleClick nor MessageMedia is required to file any
information with the Federal Trade Commission or the Antitrust Division of the
Department of Justice under the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, in connection with the merger and the
transactions contemplated by the amended merger agreement.
DoubleClick and MessageMedia are not aware of any other governmental
approvals or actions that are required to complete the merger other than
compliance with applicable corporate law of Delaware.
Accounting Treatment (See page 53)
DoubleClick will account for the merger under the purchase method of
accounting, which means that DoubleClick will allocate the purchase price to the
fair value of net tangible and identifiable intangible assets acquired, and any
excess of the cost over that amount will be recorded as goodwill and
periodically evaluated for impairment, in accordance with generally accepted
accounting principles.
No Dissenters' Rights (See page 53)
Under Delaware law, stockholders of MessageMedia are not entitled to
dissenters' rights in the merger.
Trademarks
This document contains trademarks of DoubleClick and MessageMedia and may
contain trademarks of others.
5
UNAUDITED PRO FORMA SUMMARY FINANCIAL INFORMATION
The following unaudited pro forma summary financial information of
DoubleClick has been prepared to illustrate the estimated effects of:
the assumed acquisition by DoubleClick of all the outstanding shares of
MesssageMedia in exchange for approximately 3,000,000 shares of DoubleClick
common stock and the assumption by DoubleClick of MessageMedia options and
warrants which, under the merger, convert into options and warrants to
acquire approximately 410,000 shares of DoubleClick common stock;
the April 23, 2001 acquisition by DoubleClick of all the outstanding shares
of FloNetwork Inc. in exchange for approximately $17.1 million in cash,
approximately 2,800,000 shares of DoubleClick common stock and the
assumption by DoubleClick of FloNetwork options and warrants which, under
the merger of those two companies, converted into options and warrants to
acquire approximately 430,000 shares of DoubleClick common stock; and
the February 2, 2001 acquisition by DoubleClick of all the outstanding
shares of @plan.inc in exchange for approximately $39.1 million in cash,
approximately 3,200,000 shares of DoubleClick common stock and the
assumption by DoubleClick of @plan options and warrants which, under the
merger of those two companies, converted into options and warrants to
acquire approximately 1,200,000 shares of DoubleClick common stock.
Pro forma amounts have been derived by applying pro forma adjustments to the
historical consolidated financial information of DoubleClick, MessageMedia,
FloNetwork and @plan.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 141 'Business
Combinations' and SFAS No. 142 'Goodwill and Other Intangible Assets.' SFAS
No. 141 establishes new standards for accounting and reporting requirements for
business combinations and will require that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. SFAS No. 142 establishes new
standards for goodwill acquired in a business combination, eliminates the
amortization of goodwill and sets forth methods to periodically evaluate
goodwill for impairment. Intangible assets with a determinable useful life will
continue to be amortized over that life. SFAS 141 and SFAS 142 are effective for
business combinations completed after June 30, 2001. DoubleClick will adopt
these statements on January 1, 2002; however, as noted above, there are
provisions of these new standards that also apply to acquisitions completed
after June 30, 2001.
The Acquisition of MessageMedia
On June 1, 2001, DoubleClick announced the signing of an agreement to
acquire all the outstanding shares, options and warrants of MessageMedia in an
all-stock transaction that will be accounted for as a purchase. The value of the
approximately 3,000,000 shares of DoubleClick common stock that are expected to
be issued to MessageMedia stockholders has been preliminarily estimated based on
the average market price of DoubleClick common stock, as quoted on the Nasdaq
National Market, for the day immediately prior to, the day of, and the day
immediately after the announcement of the transaction. The MessageMedia options
and warrants that will be assumed by DoubleClick as the result of this merger
will convert into options and warrants to
6
acquire approximately 410,000 shares of DoubleClick common stock and have been
valued using the Black-Scholes option pricing model with the following
weighted-average assumptions:
Expected dividend yield..................................... 0.0%
Risk-free interest rate..................................... 4.7%
Expected life (in years).................................... 4.0
Volatility.................................................. 115%
This estimated purchase price of $44.8 million includes the effect of
approximately $100,000 in direct acquisition costs that have been incurred as of
June 30, 2001. The final cost of the acquisition will be a different amount.
A portion of the estimated purchase price has been preliminarily allocated
to MessageMedia's recorded net assets based on their book values as of June 30,
2001. DoubleClick believes that the book bases of these net assets do not differ
materially from their estimated fair values. The excess of the estimated
purchase price over the book value of net assets acquired has been preliminarily
allocated to goodwill. Pursuant to SFAS 142, this goodwill will never be subject
to amortization, but will instead be evaluated for impairment on an annual basis
or more frequently if indicators of impairment arise. The ultimate allocation of
the purchase price will depend on the results of fair value appraisals conducted
at or near the closing of the transaction. DoubleClick believes that, as a
result of these fair value appraisals, portions of the excess of the purchase
price over the fair value of net assets acquired may be allocated to intangible
assets, including customer lists. Accordingly, to the extent that a portion of
the excess of the purchase price over the fair value of net tangible assets
acquired is assigned to intangible assets subject to amortization under
SFAS 141 and SFAS 142, operating results may differ materially from those
presented in the pro forma statements.
The unaudited pro forma summary statements of operations for the year ended
December 31, 2000 and the six month period ended June 30, 2001 have been
prepared as if the MessageMedia acquisition had occurred on January 1, 2000. The
unaudited pro forma summary balance sheet as of June 30, 2001 has been prepared
as if the acquisition occurred on June 30, 2001.
The Acquisition of FloNetwork
On April 23, 2001, DoubleClick completed its acquisition of FloNetwork, a
privately-held Canadian provider of email marketing technology services. The
purchase price of FloNetwork has been calculated based on the average market
price of DoubleClick common stock, as quoted on The Nasdaq National Market, for
the day immediately prior to, the day of and the day immediately after the
number of shares and the amount of cash consideration due to FloNetwork
shareholders became irrevocably fixed pursuant to the agreement under which
FloNetwork was acquired, plus the fair value of options and warrants assumed,
which was determined using the Black-Scholes option pricing model.
Portions of the purchase price have been allocated to acquired technology,
customer lists and in-process research and development projects. The amounts
allocated to customer lists of approximately $2.2 million and acquired
technology of approximately $4.3 million are being amortized on a straight-line
basis over 2 and 3 years, respectively. The amounts attributed to in-process
research and development projects were charged to operations as they had not
reached technological feasibility as of the date of the acquisition and were
determined to have no alternative future uses. The remainder of the excess of
the purchase price over the fair value of net assets acquired of approximately
$44.9 million has been allocated to goodwill and is being amortized on a
straight-line basis over three years. In accordance with SFAS 142, DoubleClick
will cease to amortize this goodwill when this statement is applied in its
entirety in 2002.
The unaudited pro forma summary statements of operations for the year ended
December 31, 2000 and the six month period ended June 30, 2001 have been
prepared as if the FloNetwork acquisition had occurred on January 1, 2000. No
pro forma balance sheet information has been
7
provided as FloNetwork's net assets are reflected in the financial position of
DoubleClick as of June 30, 2001. The pro forma adjustments are described in the
notes appearing elsewhere in this proxy statement/prospectus.
Acquisition of @plan
On February 2, 2001, DoubleClick completed its acquisition of @plan, a
leading provider of online target market research planning systems. The purchase
price of @plan has been determined based on the average market price of
DoubleClick common stock, as quoted on The Nasdaq National Market, for the day
immediately prior to and the day of the final determination of the number of
shares and the cash consideration due @plan shareholders pursuant to the merger
agreement, plus the fair value of options assumed, which was calculated using
the Black-Scholes option pricing model. The excess of the purchase price over
the fair value of the net assets acquired of approximately $78.5 million has
been allocated to goodwill and is being amortized over three years. In
accordance with SFAS 142, DoubleClick will cease to amortize this goodwill when
this statement is applied in its entirety in 2002.
The unaudited pro forma summary statements of operations for the year ended
December 31, 2000 and the six month period ended June 30, 2001 have been
prepared as if the @plan acquisition occurred on January 1, 2000. No pro forma
balance sheet information has been provided as @plan's net assets are reflected
in the financial position of DoubleClick as of June 30, 2001. The pro forma
adjustments are described in the notes appearing elsewhere in this proxy
statement/prospectus.
Reclassifications
Some assets and liabilities in the consolidated balance sheets of
MessageMedia have been reclassified to conform to the line item presentation in
the pro forma summary balance sheet. Some costs and other deductions in the
consolidated statements of operations of MessageMedia, FloNetwork and @plan have
been reclassified to conform to the line item presentation in the pro forma
summary statements of operations.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information should not be considered
indicative of the actual results that would have been achieved had the
acquisitions described above been consummated on the dates indicated and does
not purport to indicate balance sheet data or results of operations as of any
future date or any future period. The unaudited pro forma summary financial
information should be read in conjunction with the unaudited pro forma condensed
financial information, the historical financial statements of DoubleClick and
MessageMedia, and the related notes thereto incorporated by reference into
and/or included elsewhere in this proxy statement/prospectus.
8
UNAUDITED PRO FORMA SUMMARY BALANCE SHEET AS OF JUNE 30, 2001
Pro forma Pro forma
DoubleClick MessageMedia adjustments combined
----------- ------------ ----------- --------
(In thousands)
Cash and cash equivalents................................... $ 198,091 $ 7,914 $ $ 206,005
Total assets................................................ 1,313,378 37,231 30,398 1,381,007
Total stockholders' equity.................................. 865,052 15,063 29,510 909,625
UNAUDITED PRO FORMA SUMMARY STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Pro forma Pro forma Pro forma Pro forma
DoubleClick @plan FloNetwork adjustments combined MessageMedia adjustments combined
----------- ----- ---------- ----------- -------- ------------ ----------- --------
(In thousands, except for per share amounts)
Revenues......... $216,805 $ 1,275 $ 6,920 $ $ 225,000 $ 16,236 $ 241,236
Cost of
revenues........ 96,732 788 2,349 844 100,713 9,799* 110,492
Loss from
operations...... (110,053) (1,055) (3,042) (8,017) (122,167) (35,647) 19,466 (138,348)
Net loss before
extraordinary
item............ $(98,342) $ (917) $(3,260) $(8,017) $(110,536) $(32,142) $19,466 $(123,212)
Weighted-average
number of shares
used in
calculation of
basic and
diluted loss per
share before
extraordinay
item:........... 129,154 131,535 134,528
Basic and diluted
loss per share
before
extraordinary
item:........... $ (0.76) $ (0.84) $ (0.92)
UNAUDITED PRO FORMA SUMMARY STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
Pro forma Pro forma Pro forma Pro forma
DoubleClick @plan FloNetwork adjustments combined MessageMedia adjustments combined
----------- ----- ---------- ----------- -------- ------------ ----------- --------
(In thousands, except for per share amounts)
Revenues......... $ 505,611 $13,514 $ 11,871 $ $ 530,996 $ 33,648 $ $ 564,644
Cost of
revenues........ 246,570 10,572 4,659 2,533 264,334 22,106* 286,440
Loss from
operations...... (189,117) (6,463) (11,180) (43,681) (250,441) (94,048) 50,361 (294,128)
Net loss before
cumulative
effect of change
in accounting
principle....... $(155,981) $(4,582) $(11,184) $(43,681) $(215,428) $(87,962) $50,361 $(253,029)
Weighted-average
number of shares
used in
calculation of
basic and
diluted loss per
share before
cumulative
effect of change
in accounting
principle:...... 121,278 127,255 130,248
Basic and diluted
loss per share
before
cumulative
effect of change
in accounting
principle:...... $ (1.29) $ (1.69) $ 1.94
---------
* These amounts have been adjusted from those reported by MessageMedia. See
explanations for adjustments made in Note 6 of the Notes of the Unaudited Pro
Forma Condensed Financial Statements in this proxy statement/prospectus.
9
DOUBLECLICK SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial information should
be read in conjunction with DoubleClick's consolidated financial statements and
related notes and DoubleClick's 'Management's Discussion and Analysis of
Financial Condition and Results of Operations,' which we incorporate by
reference from DoubleClick's annual and quarterly reports in this proxy
statement/prospectus. The consolidated statement of operations information for
each of the three years ended December 31, 1998, 1999 and 2000, and the
consolidated balance sheet data as of December 31, 1999 and 2000, are derived
from the consolidated financial statements of DoubleClick which have been
audited by PricewaterhouseCoopers LLP, independent accountants and are
incorporated by reference in this proxy statement/prospectus. The consolidated
statement of operations information for the years ended December 31, 1996 and
1997, and the consolidated balance sheet data as of December 31, 1996, 1997 and
1998, are derived from the consolidated financial statements of DoubleClick
which have been audited by PricewaterhouseCoopers LLP and are not incorporated
by reference in this proxy statement/prospectus. The summary financial data for
the six-month periods ended June 30, 2000 and 2001, and as of June 30, 2001,
have been derived from DoubleClick's unaudited financial statements, are
incorporated by reference in this proxy statement/prospectus and, in the opinion
of DoubleClick's management, include all adjustments, consisting only of normal
recurring adjustments, which are necessary to present fairly the results of
operations and financial position of DoubleClick for those periods in accordance
with generally accepted accounting principles. Historical results are not
necessarily indicative of the results to be expected in the future.
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(In thousands, except per share data)
Consolidated statement of operations data:
Revenues.................................. $25,985 $67,926 $138,724 $258,294 $ 505,611 $238,143 $216,805
Income (loss) from operations............. (1,419) (3,828) (14,970) (58,715) (189,117) (61,677) (110,053)
Income (loss) before income taxes......... (1,565) (3,432) (10,973) (47,234) (155,131) (38,874) (98,234)
Net income (loss)......................... $(3,954) $(7,741) $(18,039) $(55,821) $(155,981) $(40,506) $(98,342)
------- ------- -------- -------- --------- -------- --------
------- ------- -------- -------- --------- -------- --------
Basic and diluted net income (loss) per
share.................................... $ (0.07) $ (0.16) $ (0.21) $ (0.51) $ (1.29) $ (0.34) $ (0.76)
------- ------- -------- -------- --------- -------- --------
------- ------- -------- -------- --------- -------- --------
Weighted average shares used in basic net
income (loss) per share calculation...... 56,516 49,048 86,248 109,756 121,278 119,552 129,154
------- ------- -------- -------- --------- -------- --------
------- ------- -------- -------- --------- -------- --------
Weighted average shares used in diluted
net income (loss) per share
calculation.............................. 56,516 49,048 86,248 109,756 121,278 119,552 129,154
------- ------- -------- -------- --------- -------- --------
------- ------- -------- -------- --------- -------- --------
December 31,
---------------------------------------------------- June 30,
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
(Unaudited)
(In thousands)
Consolidated balance sheet data:
Working capital............................ $ 4,959 $25,861 $184,408 $309,883 $ 562,510 $ 591,449
Total assets............................... 19,749 53,641 260,361 729,407 1,298,543 1,313,378
Convertible subordinated notes and other... 711 742 2,067 255,348 265,609 266,815
Total stockholders' equity................. 7,256 31,428 206,771 361,662 817,057 865,052
10
MESSAGEMEDIA SUMMARY HISTORICAL FINANCIAL DATA
The following summary historical consolidated financial information should
be read in conjunction with MessageMedia's consolidated financial statements and
related notes and MessageMedia's 'Management's Discussion and Analysis of
Financial Condition and Results of Operations,' appearing elsewhere in this
proxy statement/prospectus. The consolidated statement of operations data for
each of the three years ended December 31, 1998, 1999 and 2000 and the
consolidated balance sheet data as of December 31, 1999 and 2000 are derived
from the consolidated financial statements of MessageMedia which have been
audited by Ernst & Young LLP, independent auditors, appearing elsewhere in this
proxy statement/prospectus. The consolidated statement of operations data for
the years ended December 31, 1996 and 1997 and the consolidated balance sheet
data as of December 31, 1996, 1997 and 1998 are derived from consolidated
financial statements of MessageMedia which have been audited by Ernst & Young
LLP and are not included or incorporated by reference in this proxy
statement/prospectus. The summary financial data for the six-month periods ended
June 30, 2000 and 2001, and as of June 30, 2001, have been derived from
MessageMedia's unaudited financial statements, appearing elsewhere in this proxy
statement/prospectus and, in the opinion of MessageMedia's management, include
all adjustments, consisting only of normal recurring adjustments, which are
necessary to present fairly the results of operations and financial position of
MessageMedia for those periods in accordance with accounting principles
generally accepted in the United States. Historical results are not necessarily
indicative of the results to be expected in the future.
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------------ -----------------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
(unaudited)
(Dollars in thousands, except share data)
Consolidated statement
of operations data:
Revenues............. $ 696 $ 1,451 $ 1,288 $ 10,021 $ 33,648 $ 15,356 $ 16,236
--------- --------- ---------- ---------- ---------- ---------- ----------
Costs and operating
expenses:
Cost of revenues... 266 271 98 4,589 17,325 6,792 6,866
Marketing and
sales............. 1,836 5,424 1,935 9,704 21,526 10,579 5,737
Research,
development and
engineering....... 4,653 6,687 4,828 4,936 6,234 2,698 2,478
General and
administrative.... 4,238 4,378 4,095 7,678 20,083 7,873 6,616
Severance.......... -- -- -- -- -- -- 600
Restructuring
expenses.......... -- -- 812 1,025 7,009 -- 6,389
Write-off of
in-process
technology........ -- -- 1,300 -- -- -- --
Depreciation
expense........... 524 1,097 1,148 1,358 5,022 1,730 3,497
Amortization
expense........... -- -- 1,038 27,565 50,497 25,942 19,700
--------- --------- ---------- ---------- ---------- ---------- ----------
Total costs and
operating
expenses........ 11,517 17,857 15,254 56,855 127,696 55,614 51,883
Loss from
operations......... (10,821) (16,406) (13,966) (46,834) (94,048) (40,258) (35,647)
Interest income
(expense).......... 131 459 134 565 977 800 (267)
Other
income/expense..... -- -- -- -- -- (70) (368)
--------- --------- ---------- ---------- ---------- ---------- ----------
Net loss before
minority interest,
extraordinary item
and cumulative
effect of
accounting
change............. (10,690) (15,947) (13,832) (46,269) (93,071) (39,528) (36,282)
Minority interest.... -- -- -- -- 5,109 1,135 4,140
--------- --------- ---------- ---------- ---------- ---------- ----------
Net loss before
extraordinary item
and cumulative
effect of change in
accounting
principle.......... (10,690) (15,947) (13,832) (46,269) (87,962) (38,393) (32,142)
Extraordinary gain on
exchange of debt... -- -- -- -- -- -- 5,161
Cumulative effect of
change in
accounting
principle.......... -- -- -- -- (192) (192) --
--------- --------- ---------- ---------- ---------- ---------- ----------
Net loss............. (10,690) (15,947) (13,832) (46,269) (88,154) (38,585) (26,981)
Dividends imputed on
preferred stock.... -- (1,250) (1,233) -- -- -- --
--------- --------- ---------- ---------- ---------- ---------- ----------
Net loss applicable
to common shares... $ (10,690) $ (17,197) $ (15,065) $ (46,269) $ (88,154) $ (38,585) $ (26,981)
--------- --------- ---------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ---------- ----------
Basic and diluted
loss per share:
Loss before
extraordinary
items............. $ (2.33) $ (1.94) $ (0.68) $ (1.00) $ (1.57) $ (0.69) $ (0.49)
Extraordinary
item.............. -- -- -- -- -- -- 0.08
--------- --------- ---------- ---------- ---------- ---------- ----------
Net loss per share,
basic and
diluted............ $ (2.33) $ (1.94) $ (0.68) $ (1.00) $ (1.57) $ (0.69) $ (0.41)
--------- --------- ---------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ---------- ----------
Shares used in per
share computation,
basic and
diluted............ 4,588,262 8,842,367 22,304,902 46,367,195 56,080,224 55,751,117 65,065,527
--------- --------- ---------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ---------- ----------
December 31,
------------------------------------------------------------ June 30,
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
(Unaudited)
(In thousands)
Consolidated balance sheet data:
Cash, cash equivalents and short term
investments.......................... $ 17,128 $ 6,331 $ 4,659 $ 37,920 $ 11,273 $ 7,914
Restricted cash........................ -- -- -- -- 4,549 4,375
Furniture, equipment, software and
information technology, net.......... 2,024 1,879 1,476 4,728 15,050 10,937
Goodwill, net.......................... -- -- 23,895 75,162 24,100 4,566
Total Assets........................... 19,693 9,048 31,221 123,191 66,255 37,231
Current Liabilities.................... 3,236 4,770 2,671 5,765 28,372 16,052
Notes and amounts payable non
current.............................. 1,913 163 54 36 2,123 6,139
Stockholders' equity (net capital
deficiency).......................... 14,944 (572) 28,484 117,390 33,614 15,063
11
COMPARATIVE PER SHARE DATA
The following tables reflect:
the historical net loss and book value per share of DoubleClick common
stock;
the historical net loss and book value per share of MessageMedia common
stock;
the unaudited pro forma net loss per DoubleClick share and the unaudited
pro forma net loss per equivalent MessageMedia share after giving effect to
the acquisitions of @plan and FloNetwork; and
the unaudited pro forma net loss and book value per DoubleClick share and
the unaudited pro forma net loss and book value per equivalent MessageMedia
share after giving effect to the proposed merger and the acquisitions of
@plan and FloNetwork.
Equivalent MessageMedia per share amounts correspond to the 0.0436 of a share of
DoubleClick common stock that will be received for each share of MessageMedia
common stock in the merger.
The information in the following tables should be read in conjunction with
the historical consolidated financial statements and related notes of
DoubleClick which are incorporated by reference in this proxy
statement/prospectus and the historical financial statements and related notes
of MessageMedia which are included elsewhere in this proxy statement/prospectus.
Six Months
Year Ended Ended
December 31, June 30,
2000 2001
---- ----
DoubleClick Historical Per Common Share
Net loss per common share -- basic and diluted.......... $(1.29) $(0.76)
Book value per share.................................... 6.61 6.45
MessageMedia Historical Per Common Share
Net loss per common share -- basic and diluted.......... $(1.57) $(0.41)
Book value per share.................................... 0.59 0.22
DoubleClick, @plan and FloNetwork Pro Forma Combined Per
Common Share
Net loss per DoubleClick share -- basic and diluted..... $(1.69) $(0.84)
Net loss per equivalent MessageMedia share -- basic and
diluted............................................... (0.07) (0.04)
DoubleClick, @plan, FloNetwork and MessageMedia Pro Forma
Combined Per Common Share
Net loss per DoubleClick share -- basic and diluted..... $(1.94) $(0.92)
Net loss per equivalent MessageMedia share -- basic and
diluted............................................... (0.08) (0.04)
Book value per DoubleClick share........................ 6.64
Book value per equivalent MessageMedia share............ 0.29
12
COMPARATIVE MARKET DATA
The following table presents trading information for DoubleClick common
stock and MessageMedia common stock on May 31, 2001 and October [ ], 2001. The
table also presents the equivalent per share price of MessageMedia common stock,
determined by multiplying the applicable price of DoubleClick common stock by
the 0.0436 exchange ratio. May 31, 2001 was the last trading day before our
initial announcement of our agreement to merge. October [ ], 2001 was the
second to last trading day before the date of this proxy statement/prospectus.
DoubleClick
MessageMedia Common Stock
DoubleClick Common Stock Common Stock Equivalent (0.0436:1)
--------------------------- ------------------------- -------------------------
High Low Closing High Low Closing High Low Closing
---- --- ------- ---- --- ------- ---- --- -------
May 31, 2001............................ $ 13.63 $ 12.30 $ 13.05 $ 0.53 $ 0.40 $ 0.43 $ 0.59 $ 0.54 $ 0.57
October [ ], 2001....................... $ [ . ] $ [ . ] $ [ . ] $ [ .] $ [ . ] $ [ . ] $ [ . ] $ [ . ] $ [ . ]
While the exchange ratio is fixed, the market prices of shares of
DoubleClick common stock and MessageMedia common stock will fluctuate before the
merger. As a result, you should obtain current market quotations.
13
RISK FACTORS
By voting in favor of the amended merger agreement, MessageMedia
stockholders will be choosing to invest in DoubleClick common stock. An
investment in DoubleClick common stock involves a high degree of risk. In
addition to the other information contained in or incorporated by reference into
this proxy statement/prospectus, you should carefully consider the following
risk factors in deciding whether to vote for the merger. If any of the following
risks actually occurs, the business and prospects of MessageMedia or DoubleClick
may be seriously harmed. In such case, the trading price of DoubleClick common
stock could decline and you may lose all or part of your investment.
RISKS RELATED TO THE MERGER
The dollar value of the consideration MessageMedia stockholders will receive in
the merger may decrease between now and the completion of the merger due to
changes in the market value of DoubleClick common stock.
Upon completion of the merger, each share of MessageMedia common stock will
be exchanged for 0.0436 of a share of DoubleClick common stock. This exchange
ratio will not be adjusted for changes in the market price of either DoubleClick
or MessageMedia common stock and neither company is permitted to terminate the
amended merger agreement solely because of changes in the market price of either
company's common stock. Consequently, the specific dollar value of the
DoubleClick common stock to be received by MessageMedia stockholders will depend
on the market value of the DoubleClick common stock at the time of completion of
the merger and may decrease from the date that MessageMedia stockholders submit
their proxies. MessageMedia stockholders are urged to obtain recent market
quotations for DoubleClick common stock and MessageMedia common stock.
DoubleClick common stock has historically experienced significant volatility and
we cannot predict or give any assurances as to the market price of the
DoubleClick common stock at any time before or after the merger.
DoubleClick's stock price may decline if the merger is required to be completed
in spite of a change that is materially adverse to the business, assets,
liabilities or financial condition of MessageMedia.
In general, either party can refuse to complete the merger if there is a
material adverse change affecting the other party before the closing of the
merger. However, there are some changes that will not prevent the merger from
going forward, even if they would have a material adverse effect on DoubleClick
or MessageMedia. Some examples of these changes are a change in general economic
conditions or changes affecting the industry generally in which DoubleClick or
MessageMedia operate, an adverse change related to any change in accounting
requirements or principles or any change in applicable laws, rules or
regulations or in the interpretation of such accounting requirements or
principles, and a decrease in the market price or trading volume of the
DoubleClick common stock or the MessageMedia common stock or litigation relating
to such decrease.
Furthermore, DoubleClick would not be able to terminate the merger solely
because of:
the delisting of the MessageMedia common stock from The Nasdaq National
Market or litigation relating to such delisting;
the fact that MessageMedia does not meet the revenue predictions in certain
of MessageMedia's internal projections;
any litigation or loss by MessageMedia of current or prospective customers,
employees, suppliers or distributors, or any reductions in its sales or
revenues, that arose from the announcement or pendency of the merger; or
any loss of MessageMedia customers to DoubleClick or DoubleClick Email
Canada Inc.
14
If adverse changes occur and DoubleClick and MessageMedia are still required
to complete the merger, DoubleClick's stock price may suffer. Any decline in
DoubleClick's stock price will reduce the value of the merger to DoubleClick
stockholders and MessageMedia stockholders.
DoubleClick and MessageMedia may not achieve the benefits they expect from the
merger.
DoubleClick and MessageMedia entered into the amended merger agreement with
the expectation that the merger will result in significant benefits to the
combined company. Achieving the benefits of the merger depends on the timely,
efficient and successful execution of a number of post-merger events. Key events
include:
integrating the operations and personnel of the two companies;
offering the existing products and services of each company to the other
company's customers; and
developing new products and services that utilize the assets of both
companies.
We will need to overcome significant issues, however, to realize any
benefits or synergies from the merger. The successful execution of these
post-merger events will involve considerable risk and may not be successful.
Operations and personnel. DoubleClick is currently formulating its plan for
the integration of the operations and personnel of MessageMedia into
DoubleClick's existing business. DoubleClick's failure to complete the
integration successfully could result in the loss of key personnel and
customers.
Products and services. DoubleClick initially intends to offer each company's
products and services to the customers of the other company. There can be no
assurance that either company's customers will have any interest in the other
company's products and services. The failure of these cross-marketing efforts
would diminish the synergies expected to be realized by the merger.
In addition, after the merger, DoubleClick intends to develop new products
and services that combine the assets of both the DoubleClick and MessageMedia
businesses. To date, the companies have not thoroughly investigated the
technological, market-driven or other obstacles in developing and marketing
these new products and services in a timely and efficient way. There can be no
assurance that DoubleClick will be able to overcome these obstacles in
developing new products and services, or that there will be a market for the new
products or services developed by DoubleClick after the merger.
In general, DoubleClick and MessageMedia cannot offer any assurances that
they can successfully integrate or realize the anticipated benefits of the
merger. Their failure to do so could have a material adverse effect on the
combined company's business, financial condition and operating results or could
result in the loss of key personnel or customers. In addition, the attention and
effort devoted to the integration of the two companies will significantly divert
management's attention from other important issues and could seriously harm the
combined company.
DoubleClick's financial results could be adversely affected if the benefits of
the merger do not outweigh its costs.
If the benefits of the merger do not exceed the costs associated with the
merger, including any dilution to DoubleClick's stockholders resulting from the
issuance of DoubleClick shares in connection with the merger, DoubleClick's
financial results, including earnings (loss) per share, could be adversely
affected.
The market price of DoubleClick common stock may decline as a result of the
merger.
The market price of DoubleClick common stock may decline as a result of the
merger if:
the integration of DoubleClick and MessageMedia is unsuccessful;
15
DoubleClick does not achieve the perceived benefits of the merger as
rapidly as, or to the extent anticipated by, financial or industry
analysts; or
the effect of the merger on DoubleClick's financial results is not
consistent with the expectations of financial or industry analysts.
MessageMedia's officers and directors have conflicts of interest that may
influence them to support or approve the amended merger agreement.
The directors and officers of MessageMedia participate in the following
arrangements, which provide them with interests in the merger that are different
from, or in addition to, those of the MessageMedia stockholders:
As of September 4, 2001, the officers and directors of MessageMedia owned
stock options to purchase an aggregate of 3,840,000 shares of MessageMedia
common stock, 2,442,630 of which were not vested. If the merger is
completed, all 1,333,880 of the stock options unvested as of September 4,
2001 owned by MessageMedia's President and Chief Executive Officer will
automatically become vested and exercisable. Pursuant to change of control
agreements between MessageMedia and several of its officers and key
employees, if the merger closes and all of these officers and key employees
are involuntarily terminated without cause or voluntary terminate their
employment for a permitted reason within one month prior to or 12 months
following the closing of the merger, the vesting of the 2,058,607 remaining
stock options held by these officers and key employees unvested as of
September 4, 2001 would be accelerated by 12 months and these persons would
also receive, in the aggregate, approximately $1.8 million in severance
benefits.
MessageMedia officers have agreements, including the change of control
agreements described above, pursuant to which, if such officers are
involuntarily terminated or if they terminate their employment for a
permitted reason, such officers would receive benefits including severance
payments.
MessageMedia may grant transaction bonuses to employees (including
MessageMedia officers) involved in effectuating the merger, in an amount
not to exceed $200,000 in the aggregate.
MessageMedia's President and Chief Executive Officer owes $200,000 to
MessageMedia, which amount the MessageMedia board of directors has agreed
to forgive if the merger is consummated.
DoubleClick has agreed to indemnify each present and former MessageMedia
officer and director against liabilities arising out of such person's
services as an officer or director of MessageMedia. In addition,
DoubleClick will maintain officers' and directors' liability insurance to
cover any such liabilities for the next six years.
Because the number of shares of DoubleClick common stock outstanding is
significantly larger than the number of shares of MessageMedia common stock
outstanding, officers, directors and affiliates of MessageMedia who receive
shares of DoubleClick common stock in the merger may be allowed to sell or
transfer a greater number of shares in a single transaction than would be
possible prior to the merger pursuant to the volume restrictions of Rule
144 of the Securities Act.
For the above reasons, the directors and officers of MessageMedia could be
more likely to vote to approve the amended merger agreement than if they did not
have these interests. MessageMedia stockholders should consider whether these
interests may have influenced these directors and officers to support or
recommend the merger.
Failure to complete the merger could negatively impact MessageMedia's stock
price and future business and operations.
If the merger is not completed for any reason, MessageMedia may be subject
to a number of material risks, including the following:
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MessageMedia may be required to pay DoubleClick a fee of $1.654 million;
the price of MessageMedia common stock may decline to the extent that the
current market price of MessageMedia common stock reflects a market
assumption that the merger will be completed; and
costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed.
In addition, MessageMedia customers and suppliers may, in response to the
announcement of the merger, delay or defer decisions concerning MessageMedia.
Any delay or deferral in those decisions by MessageMedia customers or suppliers
could have a material adverse effect on MessageMedia, regardless of whether the
merger is ultimately completed. Similarly, current and prospective MessageMedia
employees may experience uncertainty about their future roles with DoubleClick
until DoubleClick's strategies with regard to MessageMedia are announced or
executed. This may adversely affect MessageMedia's ability to attract and retain
key management, sales, marketing and technical personnel.
Further, if the merger is terminated and MessageMedia's board of directors
determines to seek another merger or business combination, there can be no
assurance that it will be able to find a partner willing to pay an equivalent or
more attractive price than the price to be paid in the merger. In addition,
while the amended merger agreement is in effect, subject to compliance with
applicable securities laws and fulfillment of the fiduciary duties of
MessageMedia's board of directors, MessageMedia is prohibited from soliciting,
initiating, encouraging or entering into extraordinary transactions, such as a
merger, sale of assets or other business combination, with any other party.
RISKS RELATED TO DOUBLECLICK
In addition to the risks relating to the merger discussed above, DoubleClick
is subject to its own specific risks relating to its business model, strategy
and the legal, regulatory and business environment, including those set forth
below.
Risks Relating to DoubleClick and its Business
DoubleClick has a limited operating history and its future financial results may
fluctuate, which may cause its stock price to decline.
DoubleClick was incorporated in January 1996 and has a limited operating
history. An investor in DoubleClick's common stock must consider the risks and
difficulties frequently encountered by companies in new and rapidly evolving
industries, including the digital marketing industry. DoubleClick's risks
include:
ability to sustain historical revenue growth rates;
ability to manage DoubleClick's operations;
competition;
attracting, retaining and motivating qualified personnel;
maintaining DoubleClick's current and developing new, strategic
relationships with Web publishers;
ability to anticipate and adapt to the changing Internet advertising and
direct marketing industries;
ability to develop and introduce new products and services, and continue to
develop and upgrade technology;
attracting and retaining a large number of advertisers from a variety of
industries; and
relying on the DoubleClick networks.
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DoubleClick also depends on the use of the Internet for advertising and as a
communications medium, the demand for advertising services in general, and on
general economic conditions. DoubleClick cannot assure you that DoubleClick's
business strategy will be successful or that DoubleClick will successfully
address these risks. If DoubleClick is unsuccessful in addressing these risks,
DoubleClick's revenues may decline or may not grow in accordance with its
business model and may fall short of expectations of market analysts and
investors, which could negatively affect the price of DoubleClick's stock.
DoubleClick has a history of losses and anticipates continued losses.
DoubleClick has incurred net losses each year since inception, including net
losses of $156.0 million and $55.8 million for the years ended December 31, 2000
and 1999, respectively. For the six months ended June 30, 2001, DoubleClick
incurred a net loss of $98.3 million and, as of June 30, 2001, DoubleClick's
accumulated deficit was $381.1 million. DoubleClick has not achieved
profitability on an annual basis and expects to incur operating losses in the
future. DoubleClick expects to continue to incur significant operating and
capital expenditures and, as a result, DoubleClick will need to generate
significant revenue to achieve and maintain profitability. DoubleClick cannot
assure you that it will generate sufficient revenue to achieve or sustain
profitability. Even if DoubleClick does achieve profitability, it cannot assure
you that it can sustain or increase profitability on a quarterly or annual basis
in the future. If revenue does not meet DoubleClick's expectations, or if
operating expenses exceed what DoubleClick anticipates or cannot be reduced
accordingly, DoubleClick's business, results of operations and financial
condition will be materially and adversely affected.
DoubleClick derives a significant portion of its revenue from advertisements and
advertising services, which revenues tend to be cyclical and dependent on the
economic prospects of advertisers and the economy in general. A continued
decrease in expenditures by advertisers or a downturn in the economy could cause
DoubleClick's revenues to decline significantly in any given period.
DoubleClick derives, and expects to continue to derive for the foreseeable
future, a large portion of its revenue from advertisements it delivers to Web
sites on its DoubleClick networks and from the technologies and services it
provides to Web publishers, advertisers and agencies. Expenditures by
advertisers tend to be cyclical, reflecting overall economic conditions as well
as budgeting and buying patterns. The overall market for advertising, including
Internet advertising, has been characterized in recent quarters by increasing
softness of demand, lower prices for advertisements, the reduction or
cancellation of advertising contracts, an increased risk of uncollectible
receivables from advertisers and the reduction of marketing and advertising
budgets, especially by Internet-related companies. As a result of these
reductions, advertising spending across traditional media, as well as the
Internet, has decreased. DoubleClick cannot assure you that further reductions
will not occur.
In an environment where the supply of advertising inventory exceeds
advertisers' demand, the price of advertising on the Internet tends to fall.
This situation adversely affects the revenue outlook for DoubleClick Media.
Under these circumstances, Web publishers tend to remove ad space from their Web
sites in an effort to correct the supply-demand imbalance; other publishers may
cut back on their Web presence or go out of business. Faced with smaller
budgets, advertisers and ad agencies purchase less advertising inventory and
tend not to experiment with newer advertising media, like the Internet. As a
consequence of both actions, the number of ad impressions delivered by
DoubleClick TechSolutions may grow more slowly or decline. Since revenues for
DoubleClick TechSolutions are generated from the number of ad impressions
delivered, a slowdown in growth or a decline would adversely affect its
revenues. Similar pressures are faced by DoubleClick Data and DoubleClick's
businesses outside of the United States.
DoubleClick cannot assure you that further reductions in advertising
spending will not occur. DoubleClick also cannot assure you that if economic
conditions improve, marketing budgets and advertising spending will increase
from current levels. A continued decline in the economic
18
prospects of advertisers or the economy in general could alter current or
prospective advertisers' spending priorities or increase the time it takes to
close a sale with a customer. As a result, DoubleClick's revenues from
advertisements and advertising services may decline significantly in any given
period.
DoubleClick does not always maintain long-term agreements with its customers and
may be unable to retain customers, attract new customers or replace departing
customers with customers that can provide comparable revenues.
Many of DoubleClick's contracts with its customers are short-term.
DoubleClick cannot assure you that its customers will remain associated with the
DoubleClick networks or continue to use DoubleClick's products and services, or
that DoubleClick will be able to replace in a timely or effective manner
departing customers with new customers that generate comparable revenues.
Further, DoubleClick cannot assure you that its customers will continue to
generate consistent amounts of revenues over time. DoubleClick's failure to
develop and sustain long-term relationships with its customers would materially
and adversely affect DoubleClick's results of operations.
DoubleClick's customers continue to experience business conditions that could
adversely affect DoubleClick's business.
DoubleClick's customers, in particular Internet-related companies, have
experienced and may continue to experience difficulty raising capital and
supporting their current operations and implementing their business plans, or
may be anticipating such difficulties and, therefore, may elect to scale back
the resources they devote to advertising in general and DoubleClick's offerings
in particular. Many other companies in the Internet industry have depleted their
available capital and could cease operations or file for bankruptcy protection.
These customers may not be able to discharge their payment and other obligations
to DoubleClick. The non-payment or late payment of amounts due to DoubleClick
from its customers could negatively impact DoubleClick's financial condition. If
the current environment for Internet advertising and for Internet-related
companies does not improve, DoubleClick's business, results of operations and
financial condition could be materially adversely affected.
The rapid expansion of DoubleClick's products and services, industry shifts and
other changes have strained its managerial, operational, financial and
information system resources.
In recent years, DoubleClick has had to respond to significant changes in
its industry. As a result, DoubleClick has experienced rapid expansion of
product and service offerings, industry shifts and other changes that have
increased the complexity of DoubleClick's business and placed considerable
demands on DoubleClick's managerial, operational and financial resources.
DoubleClick continues to increase the scope of its product and service offerings
both domestically and internationally and to deploy DoubleClick's resources in
accordance with changing business conditions and opportunities. To continue to
successfully implement DoubleClick's business plan in DoubleClick's rapidly
changing industry requires effective planning and management processes.
DoubleClick expects that it will need to continue to improve its financial and
managerial controls and reporting systems and procedures and will need to
continue to train and manage its workforce. DoubleClick cannot assure you that
management will be effective in attracting and retaining qualified personnel,
integrating acquired businesses or otherwise responding to new business
conditions. DoubleClick also cannot assure you that its information systems,
procedures or controls will be adequate to support DoubleClick's operations or
that DoubleClick's management will be able to achieve the rapid execution
necessary to offer DoubleClick's products and services and implement
DoubleClick's business plan successfully. DoubleClick's inability to effectively
respond to changing business conditions could materially and adversely affect
DoubleClick's business, financial condition and results of operations.
19
DoubleClick's business model is unproven, and DoubleClick may not be able to
generate profits from many of its products and services.
A significant part of DoubleClick's business model is to generate revenue by
providing digital marketing solutions to advertisers, ad agencies and Web
publishers. The profit potential for DoubleClick's business model has not yet
been proven, and DoubleClick has not yet achieved full-year profitability. The
profitability of DoubleClick's business model is subject to external and
internal factors. Any single factor or combination of factors could limit the
profit potential, long term and short term, of DoubleClick's business model.
Like other businesses in the advertising and marketing sector, DoubleClick's
revenue outlook is sensitive to downturns in the economy followed by declines in
advertisers' marketing budgets. The profit potential of DoubleClick's business
model is also subject to the acceptance of its products and services by
marketers, advertisers, ad agencies and publishers. Digital marketing remains a
new discipline. Intensive marketing and sales efforts may be necessary to
educate prospective customers regarding the uses and benefits of, and to
generate demand for, DoubleClick's products and services. Enterprises may be
reluctant or slow to adopt a new approach that may replace existing techniques,
or may feel that DoubleClick's offerings fall short of their needs. If these
outcomes occur, it would have an adverse effect on the profit potential of
DoubleClick's business model.
Internal factors also influence the profit potential of DoubleClick's
business model. In order to be profitable, DoubleClick's revenue must exceed the
expense incurred by DoubleClick to run its technology infrastructure, research
and development, sales and marketing, and all other operations. However,
DoubleClick cannot assure you that the expenses associated with even the most
efficient operation of its business will yield profits, or that DoubleClick will
be able to manage its business for optimal efficiency and cost containment. The
failure of DoubleClick to achieve these results would adversely affect the
profit potential of DoubleClick's business model.
Disruption of DoubleClick's services due to unanticipated problems or failures
could harm DoubleClick's business.
DoubleClick's DART technology resides in DoubleClick's data centers in New
York City, New Jersey, Virginia, California and Colorado, and in Europe, Asia
and Latin America. Continuing and uninterrupted performance of DoubleClick's
technology is critical to DoubleClick's success. Customers may become
dissatisfied by any system failure that interrupts DoubleClick's ability to
provide DoubleClick's services to them, including failures affecting
DoubleClick's ability to deliver advertisements without significant delay to the
viewer. Sustained or repeated system failures would reduce the attractiveness of
DoubleClick's solutions to its customers and result in contract terminations,
fee rebates and makegoods, thereby reducing revenue. Slower response time or
system failures may also result from straining the capacity of DoubleClick's
technology due to an increase in the volume of advertising delivered through
DoubleClick's servers. To the extent that DoubleClick does not effectively
address any capacity constraints or system failures, DoubleClick's business,
results of operations and financial condition could be materially and adversely
affected.
DoubleClick's operations are dependent on DoubleClick's ability to protect
DoubleClick's computer systems against damage from fire, power loss, water
damage, telecommunications failures, vandalism and other malicious acts, and
similar unexpected adverse events. In addition, interruptions in DoubleClick's
solutions could result from the failure of DoubleClick's telecommunications
providers to provide the necessary data communications capacity in the time
frame DoubleClick requires. Unanticipated problems affecting DoubleClick's
systems have from time to time in the past caused, and in the future could
cause, interruptions in the delivery of DoubleClick's solutions. DoubleClick's
business, results of operations and financial condition could be materially and
adversely affected by any damage or failure that interrupts, or delays or
destroys DoubleClick's operations.
20
Misappropriation of confidential information maintained by DoubleClick could
harm DoubleClick's business and results of operations.
DoubleClick currently retains highly confidential information of its
customers in a secure database server. Although DoubleClick observes security
and access measures throughout DoubleClick's operations, DoubleClick cannot
assure you that it will be able to prevent unauthorized individuals from gaining
access to this database server. Any unauthorized access to DoubleClick's
servers, or abuse by DoubleClick's employees, could result in the theft of
confidential customer information. If confidential customer information is
compromised, DoubleClick could lose customers or become subject to litigation
and its reputation could be harmed, any of which could materially and adversely
affect DoubleClick's business and results of operations.
Competition in Internet advertising, direct marketing and related products and
services is intense, and DoubleClick may not be able to compete successfully.
The market for digital marketing products and services is very competitive.
DoubleClick expects this competition to continue because there are low barriers
to entry. Also, industry consolidation may lead to stronger, better capitalized
entities against which DoubleClick must compete. DoubleClick expects that it
will encounter additional competition from new sources as DoubleClick expands
its products and services offerings.
DoubleClick believes that its ability to compete depends on many factors
both within and beyond DoubleClick's control, including the following:
the features, performance, price and reliability of products and services
offered either by DoubleClick or DoubleClick's competitors;
the launch timing and market success of products and services developed
either by DoubleClick or DoubleClick's competitors;
DoubleClick's ability to adapt and scale its products and services, and to
develop and introduce new products and services that respond to market
needs;
DoubleClick's ability to adapt to evolving technology and industry
standards;
DoubleClick's customer service and support efforts;
DoubleClick's sales and marketing efforts; and
the relative impact of general economic and industry conditions on either
DoubleClick or DoubleClick's competitors.
DoubleClick's divisions face competition from a variety of sources.
DoubleClick TechSolutions competes with providers of software and service bureau
solutions for the delivery of Web ads and email for Web publishers and
advertisers. DoubleClick Media competes with large Web publishers, Web portals,
Internet advertising networks and providers of email list services. Abacus
competes with direct mail and email list providers, and providers of information
products and marketing research services to the direct marketing industry.
Diameter competes with Web ratings companies, providers of Web advertising
management, online research and consulting services and providers of syndicated
market research in traditional publishing. DoubleClick also competes indirectly
with others, such as providers of customer relationship management services,
content aggregation companies, companies engaged in advertising sales networks,
advertising agencies and other companies that facilitate digital marketing.
Many of DoubleClick's existing competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than DoubleClick. These factors could allow them to compete
more effectively than DoubleClick, including devoting greater resources to the
development, promotion and sale of their products and services, engaging in more
extensive research and development, undertaking more far-reaching marketing
campaigns, adopting more aggressive pricing policies and making more attractive
offers to existing and potential employees,
21
strategic partners, advertisers, direct marketers and Web publishers.
DoubleClick cannot assure you that its competitors will not develop products or
services that are equal or superior to DoubleClick's solutions or that achieve
greater acceptance than DoubleClick's solutions. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of DoubleClick's prospective
advertising, ad agency and Web publisher customers. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margins and
loss of market share. DoubleClick cannot assure you that it will be able to
compete successfully or that competitive pressures will not materially and
adversely affect DoubleClick's business, results of operations or financial
condition.
DoubleClick's quarterly operating results are subject to significant
fluctuations and you should not rely on them as an indication of future
operating performance.
DoubleClick's revenue and results of operations may fluctuate significantly
in the future as a result of a variety of factors, many of which are beyond
DoubleClick's control. These factors include:
advertiser, Web publisher and direct marketer demand for DoubleClick's
solutions;
Internet user traffic levels;
number and size of ad units per page on DoubleClick's customers' Web sites;
pricing trends for advertising inventory on DoubleClick's networks, and for
the portion payable to the Web publishers in DoubleClick's networks;
the introduction of new products or services by us or DoubleClick's
competitors;
variations in the levels of capital, operating expenditures and other costs
relating to DoubleClick's operations;
general seasonal and cyclical fluctuations; and
general industry and economic conditions.
DoubleClick may not be able to adjust spending quickly enough to offset any
unexpected revenue shortfall. DoubleClick's operating expenses include upgrading
and enhancing DoubleClick's DART technology, expanding DoubleClick's product and
service offerings, marketing and supporting DoubleClick's solutions, and
supporting DoubleClick's sales and marketing operations. If DoubleClick has a
shortfall in revenue in relation to its expenses, or if its expenses exceed
revenue, then DoubleClick's business, results of operations and financial
condition could be materially and adversely affected. These results would likely
affect the market price of DoubleClick's common stock in a manner which may be
unrelated to DoubleClick's long-term operating performance.
DoubleClick's business is subject to seasonal fluctuations. Advertisers
generally place fewer advertisements during the first and third calendar
quarters of each year, which directly affects the DoubleClick Media and
DoubleClick TechSolutions businesses and the direct marketing industry generally
mails substantially more marketing materials in the third calendar quarter,
which directly affects the DoubleClick Data business. Further, Internet user
traffic typically drops during the summer months, which reduces the amount of
advertising to sell and deliver.
As a result, DoubleClick believes that period-to-period comparisons of
DoubleClick's results of operations may not be meaningful. You should not rely
on past periods as indicators of future performance. It is possible that in some
future periods DoubleClick's results of operations may be below the expectations
of public market analysts and investors. In this event, the price of
DoubleClick's common stock may fall.
22
If DoubleClick is unable to continue to grow through acquisitions of or
investments in other companies, its revenue may decline or fail to grow.
DoubleClick's business has expanded rapidly in part as a result of
acquisitions or investments in other companies, including the acquisitions of
Abacus Direct, NetGravity, @plan and FloNetwork. DoubleClick may seek to acquire
or make investments in other complementary businesses, products, services or
technologies as a means to grow its business. From time to time DoubleClick has
had discussions with other companies regarding its acquiring, or investing in,
their businesses, products, services or technologies. DoubleClick cannot assure
you that it will be able to identify other suitable acquisition or investment
candidates. Even if DoubleClick does identify suitable candidates, DoubleClick
cannot assure you that it will be able to make other acquisitions or investments
on commercially acceptable terms, if at all. Even if DoubleClick agrees to buy a
company, DoubleClick cannot assure you that it will be successful in
consummating the purchase. Reasons for failing to consummate a purchase could
include DoubleClick's refusal to increase the agreed upon purchase price to
match an offer made by a subsequent competing bidder. If DoubleClick is unable
to continue to expand through acquisitions, its revenue may decline or fail to
grow.
DoubleClick may not manage the integration of acquired companies successfully or
achieve desired results.
As a part of DoubleClick's business strategy, DoubleClick could enter into a
number of business combinations and acquisitions. Acquisitions are accompanied
by a number of risks, including:
the difficulty of assimilating the operations and personnel of the acquired
companies;
the potential disruption of the ongoing businesses and distraction of
management of DoubleClick and the acquired companies;
the difficulty of incorporating acquired technology and rights into
DoubleClick's products and services;
unanticipated expenses related to technology and other integration;
difficulties in maintaining uniform standards, controls, procedures and
policies;
the impairment of relationships with employees and customers as a result of
any integration of new management personnel;
the inability to develop new products and services that combine the
knowledge and resources of DoubleClick and its acquired businesses or the
failure for a demand to develop for the combined companies' new products
and services;
potential failure to achieve additional sales and enhance DoubleClick's
customer base through cross-marketing of the combined company's products to
new and existing customers; and
potential unknown liabilities associated with acquired businesses.
DoubleClick may not succeed in addressing these risks or other problems
encountered in connection with these business combinations and acquisitions. If
so, these risks and problems could disrupt DoubleClick's ongoing business,
distract DoubleClick's management and employees, increase DoubleClick's expenses
and adversely affect DoubleClick's results of operations due to accounting
requirements such as amortization of goodwill. Furthermore, DoubleClick may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to DoubleClick's existing
stockholders.
23
DoubleClick depends on third-party Internet and telecommunications providers,
over whom DoubleClick has no control, to operate DoubleClick's services.
Interruptions in DoubleClick's services caused by one of these providers could
have an adverse effect on revenue and securing alternate sources of these
services could significantly increase expenses.
DoubleClick depends heavily on several third-party providers of Internet and
related telecommunication services, including hosting and co-location
facilities, in operating DoubleClick's products and services. These companies
may not continue to provide services to DoubleClick without disruptions in
service, at the current cost or at all. The costs associated with any transition
to a new service provider would be substantial, requiring DoubleClick to
reengineer its computer systems and telecommunications infrastructure to
accommodate a new service provider. This process would be both expensive and
time-consuming. In addition, failure of DoubleClick's Internet and related
telecommunications providers to provide the data communications capacity in the
time frame required by DoubleClick could cause interruptions in the services
DoubleClick provides. Unanticipated problems affecting DoubleClick's computer
and telecommunications systems in the future could cause interruptions in the
delivery of DoubleClick's services, causing a loss of revenue and potential loss
of customers.
DoubleClick is dependent on key personnel and on key employee retention and
recruiting for DoubleClick's future success.
DoubleClick's future success depends to a significant extent on the
continued service of DoubleClick's key technical, sales and senior management
personnel. DoubleClick does not have employment agreements with most of these
executives and does not maintain key person life insurance on any of these
executives. The loss of the services of one or more of DoubleClick's key
employees could significantly delay or prevent the achievement of DoubleClick's
product development and other business objectives, including acquisitions, and
could harm DoubleClick's business. DoubleClick's future success also depends on
DoubleClick's continuing ability to attract, retain and motivate highly skilled
employees for key positions. There is competition for qualified employees in
DoubleClick's industry. DoubleClick may be unable to retain DoubleClick's key
employees or attract, assimilate or retain other highly qualified employees in
the future. DoubleClick has from time to time in the past experienced, and
DoubleClick expects to continue to experience in the future, difficulty in
hiring and retaining highly skilled employees with appropriate qualifications.
If DoubleClick fails to adequately protect its intellectual property,
DoubleClick could lose its intellectual property rights.
DoubleClick's success and ability to effectively compete are substantially
dependent on the protection of DoubleClick's proprietary technologies and
DoubleClick's trademarks, which DoubleClick protects through a combination of
patent, trademark, copyright, trade secret, unfair competition and contract law.
DoubleClick cannot assure you that any of DoubleClick's proprietary rights will
be viable or of value in the future.
In September 1999, the U.S. Patent and Trademark Office issued to
DoubleClick a patent that covers DoubleClick's DART technology. DoubleClick owns
other patents, and has patent applications pending, for its technology.
DoubleClick cannot assure you that patents applied for will be issued or that
patents issued or acquired by DoubleClick now or in the future will be valid and
enforceable, or provide DoubleClick with any meaningful protection.
DoubleClick also has rights in the trademarks that it uses to market
DoubleClick's solutions. These trademarks include DOUBLECLICK'r', DART'r',
DARTMAIL'r' and ABACUS'r'. DoubleClick has applied to register DoubleClick's
trademarks in the United States and internationally. DoubleClick cannot assure
you that any of DoubleClick's current or future trademark applications will be
approved. Even if they are approved, these trademarks may be successfully
challenged by others or invalidated. If DoubleClick's trademark registrations
are not approved because third parties own these trademarks, DoubleClick's use
of these trademarks will
24
be restricted unless DoubleClick enters into arrangements with these parties
which may be unavailable on commercially reasonable terms, if at all.
DoubleClick also enters into confidentiality, proprietary rights and license
agreements, as appropriate, with DoubleClick's employees, consultants and
business partners, and generally controls access to and distribution of
DoubleClick's technologies, documentation and other proprietary information.
Despite these efforts, DoubleClick cannot be certain that the steps DoubleClick
takes to prevent unauthorized use of DoubleClick's proprietary rights are
sufficient to prevent misappropriation of DoubleClick's solutions or
technologies, particularly in foreign countries where laws or law enforcement
practices may not protect DoubleClick's proprietary rights as fully as in the
United States. In addition, DoubleClick cannot assure you that DoubleClick will
be able to adequately enforce the contractual arrangements that it has entered
into to protect DoubleClick's proprietary technologies. If DoubleClick loses its
intellectual property rights, this could have a material and adverse impact on
its business, financial condition and results of operations.
If DoubleClick faces a claim of intellectual property infringement by a third
party, DoubleClick may be liable for damages and be required to make changes to
its technology or business.
Third parties may assert infringement claims against DoubleClick, which
could adversely affect DoubleClick's reputation and the value of DoubleClick's
proprietary rights. From time to time DoubleClick has been, and DoubleClick
expects to continue to be, subject to claims in the ordinary course of
DoubleClick's business, including claims of alleged infringement of the patents,
trademarks and other intellectual property rights of third parties by
DoubleClick or DoubleClick's customers. In particular, DoubleClick does not
conduct exhaustive patent searches to determine whether DoubleClick's technology
infringes patents held by others. In addition, the protection of proprietary
rights in Internet-related industries is inherently uncertain due to the rapidly
evolving technological environment. As such, there may be numerous patent
applications pending, many of which are confidential when filed, that provide
for technologies similar to DoubleClick's.
Third party infringement claims and any resultant litigation, should it
occur, could subject DoubleClick to significant liability for damages, restrict
DoubleClick from using DoubleClick's technology or operating its business
generally, or require changes to be made to DoubleClick's technology. Even if
DoubleClick prevails, litigation is time-consuming and expensive to defend and
would result in the diversion of management's time and attention. Any claims
from third parties may also result in limitations on DoubleClick's ability to
use the intellectual property subject to these claims unless DoubleClick is able
to enter into royalty, licensing or other similar agreements with the third
parties asserting these claims. Such agreements, if required, may be unavailable
on terms acceptable to DoubleClick, or at all. If DoubleClick is unable to enter
into these types of agreements, DoubleClick would be required to either cease
offering the subject product or change the technology underlying the applicable
product. If a successful claim of infringement is brought against DoubleClick
and DoubleClick fails to develop non-infringing technology or to license the
infringed or similar technology on a timely basis, it could materially adversely
affect DoubleClick's business, financial condition and results of operations.
DoubleClick's business may be materially adversely affected by lawsuits related
to privacy and DoubleClick's business practices.
DoubleClick is a defendant in several pending lawsuits alleging, among other
things, that DoubleClick unlawfully obtains and uses Internet users' personal
information and that DoubleClick's use of cookies violates various laws.
DoubleClick is the subject of an inquiry involving the attorneys general of
several states relating to DoubleClick's practices in the collection,
maintenance and use of information about, and DoubleClick's disclosure of these
information practices to, Internet users. DoubleClick may in the future receive
additional regulatory inquiries and DoubleClick intends to cooperate fully.
Class action litigation and regulatory inquiries of these types are often
expensive and time consuming and their outcome is uncertain.
25
DoubleClick cannot quantify the amount of monetary or human resources that
DoubleClick will be required to use to defend itself in these proceedings.
DoubleClick may need to spend significant amounts on its legal defense, senior
management may be required to divert their attention from other portions of
DoubleClick's business, new product launches may be deferred or canceled as a
result of these proceedings, and DoubleClick may be required to make changes to
DoubleClick's present and planned products or services, any of which could
materially and adversely affect DoubleClick's business, financial condition and
results of operations. If, as a result of any of these proceedings, a judgment
is rendered or a decree is entered against DoubleClick, it may materially and
adversely affect DoubleClick's business, financial condition and results of
operations.
DoubleClick's business depends in part on successful adaptation of its business
to international markets, in which DoubleClick has limited experience. Failure
to successfully manage the risks of international operations and sales and
marketing efforts would harm DoubleClick's results of operations and financial
condition.
DoubleClick has operations in a number of countries. DoubleClick has limited
experience in developing localized versions of DoubleClick's solutions and in
marketing, selling and distributing DoubleClick's solutions internationally.
DoubleClick sells its products and services through DoubleClick's directly and
indirectly owned subsidiaries in Australia, the Benelux countries, Canada,
France, Germany, Spain, Ireland, Italy, Scandinavia and the United Kingdom.
DoubleClick also operates its media business through business partners in Japan
and Asia (Hong Kong, Taiwan, Korea, China and Singapore) and generally operates
its technology business through its directly or indirectly owned subsidiaries in
these jurisdictions. A great deal of DoubleClick's success in these markets is
directly dependent on the success of DoubleClick's business partners and their
dedication of sufficient resources to DoubleClick's relationship.
DoubleClick's international operations are subject to other inherent risks,
including:
the high cost of maintaining international operations;
uncertain demand for DoubleClick's products and services;
the impact of recessions in economies outside the United States;
changes in regulatory requirements;
more restrictive data protection regulation;
reduced protection for intellectual property rights in some countries;
potentially adverse tax consequences;
difficulties and costs of staffing and managing foreign operations;
political and economic instability;
fluctuations in currency exchange rates; and
seasonal fluctuations in Internet usage.
These risks may have a material and adverse impact on the business, results
of operations and financial condition of DoubleClick's operations in a
particular country and could result in a decision by DoubleClick to reduce or
discontinue operations in that country. The combined impact of these risks in
each country may also materially and adversely affect the business, results of
operations and financial condition of DoubleClick as a whole.
Anti-takeover provisions in DoubleClick's charter documents and Delaware law may
make it difficult for a third party to acquire DoubleClick, which could
negatively impact the share price for DoubleClick's common stock.
Some of the provisions of DoubleClick's certificate of incorporation,
DoubleClick's bylaws and Delaware law could, together or separately:
discourage potential acquisition proposals;
26
delay or prevent a change in control; or
impede the ability of DoubleClick's stockholders to change the composition
of DoubleClick's board of directors in any one year.
As a result, it could be more difficult to acquire DoubleClick, even if
doing so might be beneficial to DoubleClick's stockholders. Difficulty in
acquiring DoubleClick could, in turn, limit the price that investors might be
willing to pay in the future for shares of DoubleClick's common stock.
DoubleClick's stock price may experience extreme price and volume fluctuations,
and this volatility could result in DoubleClick becoming subject to securities
litigation, which is expensive and could result in a diversion of resources.
The market price of DoubleClick's common stock has fluctuated in the past
and is likely to continue to be highly volatile and subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. Investors may be unable to resell their shares of
DoubleClick's common stock at or above their purchase price.
Additionally, in the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against that company. Many companies in DoubleClick's
industry have been subject to this type of litigation in the past. DoubleClick
may also become involved in this type of litigation. Litigation is often
expensive and diverts management's attention and resources, which could
materially and adversely affect DoubleClick's business, financial condition and
results of operations.
Future sales of DoubleClick's common stock may affect the market price of
DoubleClick's common stock.
As of June 30, 2001, DoubleClick had 134,078,768 shares of common stock
outstanding, excluding 23,345,903 shares subject to options outstanding as of
such date under DoubleClick's stock option plans that are exercisable at prices
ranging from $0.03 to $124.56 per share. DoubleClick cannot predict the effect,
if any, that future sales of common stock or the availability of shares of
common stock for future sale, will have on the market price of DoubleClick's
common stock prevailing from time to time. Sales of substantial amounts of
common stock (including shares included in such registration statements issued
upon the exercise of stock options), or the perception that such sales could
occur, may materially reduce prevailing market prices for DoubleClick's common
stock.
Risks Related to DoubleClick's Industry
Advertisers may be reluctant to devote a portion of their budgets to Internet
advertising and digital marketing solutions.
Companies doing business on the Internet, including DoubleClick, must
compete with traditional advertising media, including television, radio, cable
and print, for a share of advertisers' total marketing budgets. Potential
customers may be reluctant to devote a significant portion of their marketing
budget to Internet advertising or digital marketing solutions if they perceive
the Internet to be a limited or ineffective marketing medium. Any shift in
marketing budgets away from Internet advertising spending or digital marketing
solutions could materially and adversely affect DoubleClick's business, results
of operations or financial condition.
The lack of appropriate advertising measurement standards or tools may cause
DoubleClick to lose customers or prevent DoubleClick from charging a sufficient
amount for its products and services.
Because digital marketing remains a new discipline, there are currently no
generally accepted methods or tools for measuring the efficacy of digital
marketing, as there are for advertising in television, radio, cable and print.
Many traditional advertisers may be reluctant to spend sizable
27
portions of their budget on digital marketing until there exist widely accepted
methods and tools that measure the efficacy of their campaigns.
DoubleClick's customers may also challenge or refuse to accept DoubleClick's
research and reporting offerings. A competitor's research and reporting
offerings may gain broader acceptance. DoubleClick could lose customers or fail
to gain customers if its products and services do not utilize the generally
accepted measuring methods and tools. Further, new measurement standards and
tools could require DoubleClick to change its business and the means used to
charge its customers, which could result in a loss of customer revenues. Even if
DoubleClick's products and services become widely accepted, DoubleClick may find
that the profit potential of its research and reporting offerings is limited,
and that spending by traditional advertisers does not appreciably increase as a
result.
New laws in the United States and internationally could harm DoubleClick's
business.
Laws applicable to Internet communications, e-commerce, Internet
advertising, data protection and direct marketing are becoming more prevalent in
the United States and worldwide. For example, various U.S. state and foreign
governments may attempt to regulate DoubleClick's ad delivery or levy sales or
other taxes on DoubleClick's activities.
In addition, the laws governing the Internet remain largely unsettled, even
in areas where there has been some legislative action. It is difficult to
determine whether and how existing laws such as those governing intellectual
property, data protection, libel and taxation apply to the Internet, Internet
advertising and DoubleClick's business.
The growth and development of Internet commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad. These
proposals may seek to impose additional burdens on companies conducting business
over the Internet. In particular, new limitations on the collection and use of
information relating to Internet users are currently being considered by
legislatures and regulatory agencies in the United States and internationally.
DoubleClick is unable to predict whether any particular proposal will pass, or
the nature of the limitations in those proposals. Since many of the proposals
are in their development stage, DoubleClick cannot yet determine the impact
these may have on DoubleClick's business. In addition, it is possible that
changes to existing law, including both amendments to existing law and new
interpretations of existing law, could have a material and adverse impact on
DoubleClick's business, financial condition and results of operations.
The following are examples of proposals currently being considered in the
United States and internationally:
Legislation has been proposed in some jurisdictions to regulate the use of
cookie technology. DoubleClick's technology uses cookies for ad targeting
and reporting, among other things. It is possible that the changes required
for compliance are commercially unfeasible, or that DoubleClick is simply
unable to comply and, therefore, may be required to discontinue the
relevant business practice.
Data protection officials in certain European countries have voiced the
opinion that a Internet protocol address is personally-identifiable
information. In those countries in which this opinion prevails, the
applicable national data protection law could be interpreted to subject
DoubleClick to a more restrictive regulatory regime. DoubleClick cannot
assure you that its current policies and procedures would meet more
restrictive standards. The cost of such compliance could be material and
DoubleClick may not be able to comply with the applicable national
regulations in a timely or cost-effective manner.
Legislation has been proposed to prohibit the sending of 'unsolicited
commercial email' or 'spam.' It is possible that legislation will be passed
that requires DoubleClick to change its current practices, or subject
DoubleClick to increased legal liability for its consent-based email
delivery and list services business.
28
Legislation is under consideration that would regulate the practice of
online preference marketing, as practiced by DoubleClick and other Network
Advertising Initiative member companies. Such legislation, if passed, could
require DoubleClick to change or discontinue its plans for online
preference marketing services. The changes DoubleClick may be required to
make could diminish the market acceptance of DoubleClick's offerings.
The Federal Trade Commission is currently reviewing the need to regulate
the manner in which offline information about consumers is collected and
used by businesses. The value of the Abacus database, and the future
viability of the DoubleClick business, could be adversely affected by
legislation or regulation that limits the manner in which offline
information about consumers is collected and used.
Any legislation enacted or regulation issued could dampen the growth and
acceptance of the digital marketing industry in general and of DoubleClick's
offering in particular. In response to evolving legal requirements, DoubleClick
may be compelled to change or discontinue an existing offering, business, or
business model, or to cancel a proposed offering or new business. Any of these
circumstances could have a material and adverse impact on DoubleClick's
business, financial condition and results of operations. These changes could
also require DoubleClick to incur significant expenses, and DoubleClick may not
find itself able to replace the revenue lost as a consequence of the changes.
DoubleClick is a member of the Network Advertising Initiative and the Direct
Marketing Association, both industry self-regulatory organizations. DoubleClick
cannot assure you that these organizations will not adopt additional, more
burdensome guidelines, which could materially and adversely affect the business,
financial condition and results of operations of DoubleClick.
Demand for DoubleClick's products and services may decline due to the
proliferation of software designed to prevent the delivery of Internet
advertising or block the use of cookies.
DoubleClick's business may be adversely affected by the adoption by computer
users of technologies that harm the performance of DoubleClick's products and
services. For example, computer users may use software designed to filter or
prevent the delivery of Internet advertising, or Internet browsers set to block
the use of cookies. DoubleClick cannot assure you that the number of computer
users who employ these or other similar technologies will not increase, thereby
diminishing the efficacy of DoubleClick's products and services. In the case
that one or more of these technologies are widely adopted, demand for
DoubleClick's products and services would decline.
DoubleClick's business may suffer if the Web infrastructure is unable to
effectively support the growth in demand placed on it.
DoubleClick's success will depend, in large part, upon the maintenance of
the Web infrastructure, such as a reliable network backbone with the necessary
speed, data capacity and security and timely development of enabling products
such as high speed modems, for providing reliable Web access and services and
improved content. DoubleClick cannot assure you that the Web infrastructure will
continue to effectively support the demands placed on it as the Web continues to
experience increased numbers of users, frequency of use or increased bandwidth
requirements of users. Even if the necessary infrastructure or technologies are
developed, DoubleClick may have to spend considerable amounts to adapt
DoubleClick's solutions accordingly. Furthermore, the Web has experienced a
variety of outages and other delays due to damage to portions of its
infrastructure. These outages and delays could impact the Web sites of Web
publishers using DoubleClick's solutions and the level of user traffic on Web
sites on DoubleClick's DoubleClick networks.
29
The occurrence of extraordinary events, such as the attack on the World Trade
Center and the Pentagon, may substantially decrease the use of and demand for
advertising over the Internet, which may significantly decrease DoubleClick's
revenues.
The occurrence of an extraordinary event may prompt Web publishers to remove
third-party advertisements from their Web sites for an unknown length of time as
a result of the event. For example, immediately after the attack on the World
Trade Center and the Pentagon, many Web publishers pulled advertisements to
protect the integrity of the presentation of the news. In some cases,
advertisers cancelled purchases. In addition, some Web publishers donated
advertising space to charity organizations appealing for aid for the victims of
the attacks. Any additional occurrences of terrorist attacks or other
extraordinary events that capture significant attention worldwide may result in
similar reductions in the use of and demand for advertising on the Internet and
may significantly decrease DoubleClick's revenue for an indefinite period of
time.
DoubleClick Data is dependent on the success of the direct marketing industry
for its future success.
The future success of DoubleClick Data is dependent in large part on the
continued demand for DoubleClick's services from the direct marketing industry,
including the catalog industry, as well as the continued willingness of catalog
operators to contribute their data to DoubleClick. Most of DoubleClick's Abacus
customers are large consumer merchandise catalog operators in the United States.
A significant downturn in the direct marketing industry generally, including the
catalog industry, or withdrawal by a substantial number of catalog operators
from the Abacus Alliance, would have a material adverse effect on DoubleClick's
business, financial condition and results of operations. Many industry experts
predict that electronic commerce, including the purchase of merchandise and the
exchange of information via the Internet or other media, will increase
significantly in the future. To the extent this increase occurs, companies that
now rely on catalogs or other direct marketing avenues to market their products
may reallocate resources toward these new direct marketing channels and away
from catalog-related marketing or other direct marketing avenues, which could
adversely affect demand for some DoubleClick Data services. In addition, the
effectiveness of direct mail as a marketing tool may decrease as a result of
consumer saturation and increased consumer resistance to direct mail in general.
Increases in postal rates and paper prices could harm DoubleClick Data.
The direct marketing activities of DoubleClick's Abacus Alliance customers
are adversely affected by postal rate increases, especially increases that are
imposed without sufficient advance notice to allow adjustments to be made to
marketing budgets. Higher postal rates may result in fewer mailings of direct
marketing materials, with a corresponding decline in the need for some of the
direct marketing services offered by DoubleClick. Increased postal rates can
also lead to pressure from DoubleClick's customers to reduce DoubleClick's
prices for its services in order to offset any postal rate increase. Higher
paper prices may also cause catalog companies to conduct fewer or smaller
mailings which could cause a corresponding decline in the need for DoubleClick's
services. DoubleClick's customers may aggressively seek price reductions for
DoubleClick's services to offset any increased materials cost. Any of these
occurrences could materially and adversely affect the business, financial
condition and results of operations of DoubleClick's Abacus business.
RISKS RELATED TO MESSAGEMEDIA
In addition to the risks relating to the merger and DoubleClick discussed
above, MessageMedia is subject to its own specific risks relating to its
business model, strategy and the legal, regulatory and business environment,
including those set forth below.
MessageMedia has a history of operating losses and future losses are likely.
MessageMedia had an accumulated deficit of approximately $205 million as of
June 30, 2001. MessageMedia has not achieved profitability and expects to
continue to incur operating losses at least through the end of 2001.
MessageMedia intends to continue to invest in research and development and
strategic marketing activities. Accordingly, MessageMedia expects to continue to
30
incur significant operating expenditures and, as a result, will need to generate
significant revenues to achieve and maintain profitability. MessageMedia cannot
assure you that it will achieve sufficient revenues for profitability. Even if
MessageMedia does achieve profitability, it cannot assure you that it can
sustain or increase profitability on a quarterly or annual basis in the future.
If revenues grow slower than MessageMedia anticipates, or if operating expenses
exceed its expectations or cannot be adjusted accordingly, MessageMedia likely
will incur future operating losses.
MessageMedia anticipates fluctuations in its future operating results, which
could cause its stock price to fall.
MessageMedia expects that its future operating results will fluctuate
significantly, both in absolute terms and relative to analyst and investor
expectations, which could cause its stock price to fall. These fluctuations may
be due to a number of factors, many of which are beyond MessageMedia's control.
Some of the factors that may cause fluctuations include the following:
fluctuating market demand for MessageMedia's e-messaging solutions;
difficulties in the integration of existing technologies and the
development or deployment of new products or services;
seasonal and cyclical spending patterns in MessageMedia's industry;
the mix of the products and services provided by MessageMedia; and
the cost of compliance with applicable government regulations, including
privacy legislation.
MessageMedia's revenue for the foreseeable future will remain dependent on
sales of e-messaging solutions, the fees that MessageMedia charges for its
services and license fees for software products. These future revenues may
fluctuate due to the factors listed above and therefore are difficult to
forecast. As a result, MessageMedia may be unable to adjust its internal
operating expenses quickly enough to offset any unexpected revenue shortfall. If
MessageMedia has a shortfall in revenue in relation to its expenses, or if its
expenses precede increased revenue, MessageMedia's financial condition would be
materially and adversely affected. This could affect the market price of
MessageMedia's common stock in a manner that may be unrelated to MessageMedia's
long-term operating performance.
Due to these risks, MessageMedia believes that period-to-period comparisons
of its operating results are not meaningful and should not be relied upon as an
indication of its future performance.
MessageMedia's stock price has been volatile in the past and may be volatile in
the future due to reasons other than its operating results.
MessageMedia's common stock has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to
MessageMedia's operating performance. The trading price of MessageMedia's common
stock has in the past and could in the future fluctuate in response to factors
such as:
changes in recommendations of securities analysts;
announcements of technological innovations or of new services or products
by MessageMedia or its competitors;
publicity regarding actual or potential results with respect to
technologies, services or products under development by MessageMedia or its
competitors; and
limited investment analyst coverage.
In addition, the stock market has experienced extreme price and volume
fluctuations. The market prices of securities of Internet-related companies have
been especially volatile. If such volatility continues, MessageMedia's stock
price may fluctuate greatly regardless of MessageMedia's operating results.
MessageMedia is at risk of securities class action litigation due to its
expected stock price volatility, which could negatively impact its business.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market prices of their
securities. MessageMedia may in the
31
future be the target of similar litigation. Securities litigation could harm
MessageMedia's reputation, result in substantial costs and divert MessageMedia's
management's attention and resources, regardless of the merits or outcome of the
case.
MessageMedia's common stock will be delisted from The Nasdaq National Market,
resulting in a limited public market for its common stock.
MessageMedia's common stock is currently listed on The Nasdaq National
Market under the symbol `MESG.' On March 6, 2001, MessageMedia received a notice
from The Nasdaq National Market indicating that MessageMedia's common stock had
failed to maintain a minimum bid price of $1.00 over the last 30 consecutive
trading days. Under the rules of the National Association of Securities Dealers,
Inc., in order to avoid delisting, MessageMedia had until June 4, 2001 to comply
with the continued listing requirements.
MessageMedia was not able to demonstrate compliance with the continued
listing requirements of The Nasdaq National Market on or before June 4, 2001.
Consequently, pursuant to an arrangement between MessageMedia and Nasdaq,
MessageMedia's common stock will continue to be listed on The Nasdaq National
Market until the earlier of the closing of the merger or October 31, 2001, at
which time it will be delisted. A condition to this arrangement is that this
registration statement be declared effective by the SEC on or before
September 26, 2001. MessageMedia requested that Nasdaq extend the September 26,
2001 deadline for effectiveness of this registration statement until
October 11, 2001. At this time, however, Nasdaq has not advised MessageMedia
whether this extension will be granted. In addition, MessageMedia is aware that
Nasdaq has suspended the minimum bid price requirement until January 2, 2002,
but has yet to be advised by Nasdaq whether this moratorium applies to
MessageMedia's securities.
After MessageMedia's common stock is delisted from The Nasdaq National
Market, trading, if any, will be conducted in the over-the-counter market in the
so-called 'pink sheets' or the OTC Bulletin Board, which was established for
securities that do not meet the listing requirements of The Nasdaq National
Market. Consequently, selling MessageMedia's common stock will be more difficult
because smaller quantities of shares can be bought and sold, transactions can be
delayed and security analysts' and news media's coverage of MessageMedia may be
reduced. These factors could result in lower prices and larger spreads in the
bid and ask prices for shares of MessageMedia's common stock.
In addition, after MessageMedia's common stock is delisted from The Nasdaq
National Market, MessageMedia's common stock may become subject to the 'penny
stock' regulations, including Rule 15g-9 under the Securities Exchange Act of
1934. That rule imposes additional sales practice requirements on broker-dealers
that sell low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may affect the ability of broker-dealers to sell
MessageMedia's common stock and affect the ability of holders to sell their
shares of MessageMedia's common stock in the secondary market. In the event that
MessageMedia's common stock becomes subject to the penny stock rules, the market
liquidity for the shares would be adversely affected.
If the merger does not occur, MessageMedia currently forecasts that it will not
have sufficient unrestricted cash to satisfy the terms of a $3.0 million bank
loan, entitling the lender to require its immediate repayment, which could lead
to MessageMedia's insolvency.
If this merger does not occur, MessageMedia currently forecasts that it will
not have sufficient unrestricted cash throughout November 2001 to satisfy the
terms of its $3.0 million bank loan from Wells Fargo Equipment Finance, or Wells
Fargo. Specifically, a financial covenant of the loan agreement requires that
MessageMedia maintain an unrestricted cash balance of at least $2.0 million. A
breach of this covenant would constitute a default under the loan and entitle
Wells Fargo to require its immediate repayment. If Wells Fargo exercises this
right, unless MessageMedia could secure alternative sources of funding, it would
have insufficient working capital to maintain its operations through
December 31, 2001. In addition, any default under the Wells Fargo loan
32
agreement could lead to cross-defaults under other credit arrangements to which
MessageMedia is a party and cause MessageMedia's insolvency.
MessageMedia may not be able to secure additional financing to support its
capital needs, which could adversely affect its business.
It may be necessary for MessageMedia to raise additional capital in the
future in order to execute its business plan, develop or enhance its products
and services, take advantage of business opportunities or respond to competitive
pressures. Any required additional financing might not be available on terms
acceptable to MessageMedia, or at all. After MessageMedia's common stock is
delisted from The Nasdaq National Market, MessageMedia's ability to raise
capital through debt or equity financing could be greatly impaired. If
additional financing is not available when required or is not available on
acceptable terms, MessageMedia may be unable to fund its operations or repay its
outstanding obligations.
MessageMedia may not be able to secure additional financing on favorable terms,
which could adversely affect your ownership interest and rights.
MessageMedia may not be able to secure additional financing on favorable
terms due to current market conditions or its future delisting from The Nasdaq
National Market. In addition, the terms of the amended merger agreement prohibit
MessageMedia from raising additional funds by issuing debt or equity securities
unless DoubleClick agrees. If MessageMedia delays its efforts to obtain
additional financing and the merger does not close, MessageMedia may need to
raise additional funds quickly. These funds may not be available on terms that
are favorable to MessageMedia or its current equity holders. As a result of any
of the factors listed above, you may experience significant dilution of your
ownership interest and securities may be issued with rights senior to your
rights.
Substantial sales of MessageMedia's common stock by its large stockholders could
cause MessageMedia's stock price to fall.
A small number of stockholders hold a large portion of MessageMedia's common
stock. To the extent MessageMedia's large stockholders sell substantial amounts
of MessageMedia's common stock in the public market, the market price of
MessageMedia's common stock could fall. A private placement transaction
completed by MessageMedia in February 2001 increased both the number of its
securities that will become available for resale to the public and the number of
its securities held by several of MessageMedia's larger stockholders. In this
instance, MessageMedia issued 7,746,479 shares of its common stock to affiliates
of SOFTBANK Venture Capital, who together constitute MessageMedia's largest
stockholder, 704,225 shares to affiliates of Pequot Capital Management, Inc.,
and 2,816,902 shares to Rebar LLC. If the merger is not consummated, these
investors may demand that MessageMedia effect the registration of these shares,
after which they may be sold in the public markets without restriction.
MessageMedia's failure to enhance its existing products and services or
introduce new products and services on a timely basis could cause its revenues
to fall.
MessageMedia continually strives to develop significant enhancements to its
products and services and introduce new products and services. MessageMedia may
not be able to develop the underlying core technologies necessary to create new
enhancements or new products and services and may not be able to license those
technologies from third parties, on a timely basis or at all. Any delay or
difficulty associated with the introduction of these enhancements, new products
or new services by MessageMedia could cause its customers to use the products
and services of its competitors. This could cause MessageMedia's revenues to
decline.
If MessageMedia fails to effectively manage changes to its operations, its
business could suffer.
MessageMedia continues to adjust the scope of its operations and manage
adjustments to the size of its workforce. Rapid changes to its business have
placed and may continue to place a significant strain on MessageMedia's
management systems and resources. MessageMedia expects
33
that it will need to continue to improve its financial and managerial controls
and reporting systems and procedures. MessageMedia's business, results of
operations and financial condition will be harmed if MessageMedia is unable to
effectively manage these changes to its operations.
MessageMedia depends on third-party Internet and telecommunications providers to
operate its business. Interruptions in the services these companies provide
could have an adverse effect on MessageMedia's revenue.
MessageMedia depends heavily on several third-party providers of Internet
and related telecommunication services, including hosting and co-location
companies, in operating its business. These companies may not continue to
provide services to MessageMedia without disruptions in service or within the
time frame required by MessageMedia, at the current cost or at all. These
disruptions in or loss of services could cause a loss of revenue and customers.
The costs associated with any transition to a new service provider would be
substantial, requiring MessageMedia to reengineer its computer systems and
telecommunications infrastructure to accommodate a new service provider. This
process would be both expensive and time-consuming.
Competition in MessageMedia's industry is intense and likely will continue to
intensify, which could cause a loss of market share and revenue.
The market for MessageMedia's products and services is intensely
competitive. MessageMedia's principal competitors are in the e-messaging
services arena, but MessageMedia also competes for a share of advertisers' total
advertising budgets with traditional advertising media such as television,
radio, cable and print. Consequently, MessageMedia competes with advertising and
direct marketing agencies. There are no substantial barriers to entry into
MessageMedia's business and MessageMedia expects that established and new
entities, such as Internet service providers, will enter the market for
e-messaging solutions.
MessageMedia also expects that competition within its market may increase as
a result of industry consolidation. Potential competitors may choose to enter
the market for e-messaging solutions by acquiring one or more of MessageMedia's
existing competitors or by forming strategic alliances with such competitors. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services to address the needs of MessageMedia's
potential customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share.
Many of MessageMedia's current and potential competitors have longer
operating histories, greater name recognition, larger customer bases, more
diversified lines of products and services and significantly greater resources
than MessageMedia does. These competitors may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and make
more attractive offers to potential customers. In addition, many of
MessageMedia's current or potential competitors have broad distribution channels
that may result in better access to end-users or purchasers. Increased
competition as a result of any of the above factors may result in price
reductions, reduced revenues and loss of market share, any of which would harm
MessageMedia's business, results of operations and financial condition.
Technical standards upon which MessageMedia's products and services are based
are rapidly changing, which could cause revenues to decline.
The e-messaging market is characterized by rapidly changing technical
standards. MessageMedia's products and services are designed around current
technical standards and its revenue depends on continued industry acceptance of
these standards. While MessageMedia intends to provide compatibility with the
most popular industry standards, widespread adoption of a proprietary or closed
standard could prevent MessageMedia from doing so. The standards on which
MessageMedia's products and services are or will be based may not be accepted by
the industry, which would make it more difficult for MessageMedia to generate
future revenues.
34
MessageMedia's competitors may develop products or services that render
MessageMedia's products and services uncompetitive, which could cause a decrease
in revenues.
New market entrants have introduced or are developing products and services
for use on the Internet that compete with MessageMedia's products. The products,
services or technologies developed by others may render MessageMedia's products
and services uncompetitive or obsolete. Accordingly, MessageMedia's future
success will depend on its ability to adapt to rapidly changing technologies,
enhance existing solutions, and develop and introduce a variety of new solutions
to address its customers' changing demands. MessageMedia may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of its solutions. In addition, MessageMedia's new
solutions or enhancements to new or existing solutions must meet the
requirements of its current and prospective customers. Material delays in
introducing new solutions and enhancements may cause customers to forego
purchases of MessageMedia's solutions and purchase those of its competitors,
which would negatively impact MessageMedia's revenues.
Email marketing may not gain market acceptance, which could have a material
adverse effect on MessageMedia's business.
The degree to which MessageMedia's e-messaging platform is accepted and used
in the marketplace depends on market acceptance of email as a method for
targeted marketing of products and services. MessageMedia's ability to
successfully differentiate its services from random mass emailing products and
services, which have encountered substantial resistance from consumers, also
will be important. Businesses that already have invested substantial resources
in traditional or other methods of marketing may be reluctant to adopt new
commercial methods or strategies, such as email marketing. In addition,
individuals with established patterns of purchasing goods and services based on
traditional marketing methods may be reluctant to alter those patterns. As a
result of the factors listed above, email marketing may not be accepted by the
marketplace, which would have a material adverse effect on MessageMedia's
business.
MessageMedia faces risks of defects and development delays in its products and
services, which could harm its reputation and revenue growth.
Products and services based on sophisticated software and computing systems
often encounter defects and development delays. MessageMedia's underlying
software may contain hidden errors and failures when introduced or when usage
increases. MessageMedia may experience delays in the development of the software
and computing systems underlying its services. MessageMedia may not locate these
errors if they occur. These occurrences could harm MessageMedia's reputation and
revenue growth.
Any system failure may harm MessageMedia's business or reputation.
The continuing and uninterrupted performance of MessageMedia's computer
systems and MessageMedia's customers' computer systems is critical to
MessageMedia's ability to provide outsourced services. Sustained or repeated
system failures would reduce the attractiveness of MessageMedia's solutions to
its customers and could harm MessageMedia's business reputation. MessageMedia's
systems are dependent in part upon its ability to protect its operating systems
against physical damage from fire, floods, earthquakes, power loss,
telecommunications failures and similar events. MessageMedia does not currently
have redundant, multiple site capacity in the event of any such occurrence.
MessageMedia's systems also are potentially vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering with its computer
systems. To the extent that MessageMedia does not effectively address any system
failures, MessageMedia's business, results of operations and financial condition
would be materially and adversely affected.
MessageMedia faces security risks and potential liability associated with
misappropriation of confidential information, which could harm MessageMedia's
business.
MessageMedia currently retains highly confidential customer information in a
secure database server. MessageMedia cannot assure you, however, that it will be
able to prevent unauthorized access to and use of this database server. Any
unauthorized access to or use of MessageMedia's
35
servers could result in the theft of confidential customer information such as
email addresses. It also is possible that one of MessageMedia's employees could
attempt to misuse confidential customer information, exposing MessageMedia to
liability. MessageMedia's use of disclaimers and limitation of warranty
provisions in its customer agreements in an attempt to limit its liability to
its customers may not be effective in limiting its exposure to damage claims.
If MessageMedia is unable to effectively protect its proprietary rights, its
competitors may gain access to its technology, which could impair its
competitiveness or cause its existing products and services to become obsolete.
MessageMedia relies on a combination of trade secret, copyright and
trademark laws, nondisclosure agreements and other contractual provisions and
technical measures to protect its proprietary rights. These legal protections,
however, may be inadequate to safeguard the proprietary software underlying
MessageMedia's products and services, and MessageMedia may not have adequate
remedies for any breach. In addition, MessageMedia has applied for various
patents and trademarks, including trademarks for 'MessageMedia' and 'UnityMail,'
and cannot assure you that any of these applications will be approved.
MessageMedia's competitors also may be able to develop e-messaging technologies
that are functionally equivalent to MessageMedia's without infringing any of
MessageMedia's proprietary rights.
Parties may also attempt to disclose, obtain or use MessageMedia's solutions
or technologies. MessageMedia cannot assure you that the steps it has taken will
prevent misappropriation of its solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect
MessageMedia's proprietary rights as fully as in the United States.
Any failure by MessageMedia to adequately protect its proprietary rights may
allow MessageMedia's competitors to gain access to MessageMedia's technology.
This may result in MessageMedia's competitors developing functionally equivalent
or superior e-messaging technologies, which may impair MessageMedia's
competitiveness or render its existing products and services obsolete.
MessageMedia may become subject to increased government regulation, which could
make its business more costly to operate or decrease the demand for its products
and services.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. MessageMedia believes that
it currently is not subject to direct regulation by any governmental agency in
the United States, other than regulations that are generally applicable to all
businesses, newly enacted laws prohibiting the sending of 'spam' and laws
intended to protect minors. A number of legislative and regulatory proposals are
under consideration by federal and state lawmakers and regulatory bodies and may
be adopted with respect to the Internet. Some of the issues that such laws or
regulations may cover include user privacy, obscenity, fraud, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may hinder the growth of the Internet, which could in turn
decrease the projected demand for MessageMedia's products and services or
increase its cost of doing business. Moreover, the applicability to the Internet
of existing U.S. and international laws governing issues such as property
ownership, copyright, trade secret, libel, taxation and personal privacy is
uncertain and developing. Any new application or interpretation of existing laws
could have a material adverse effect on MessageMedia's business.
36
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus and the documents incorporated by reference
into this proxy statement/prospectus contain forward-looking statements within
the 'safe harbor' provisions of the Private Securities Litigation Reform Act of
1995 with respect to DoubleClick's and MessageMedia's financial conditions,
results of operations and businesses and the expected impact of the merger on
DoubleClick and MessageMedia. Words such as 'anticipates,' 'expects,' 'intends,'
'plans,' 'believes,' 'seeks,' 'estimates,' and similar expressions indicate
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the merger, you should carefully
consider the discussion of risks and uncertainties in the immediately preceding
section entitled 'Risk Factors,' those set forth under 'The Merger -- Background
of the Merger,' 'The Merger -- MessageMedia's Reasons for the Merger; Unanimous
Recommendation of MessageMedia's Board of Directors in Favor of the Merger' and
'The Merger -- Opinion of MessageMedia's Financial Advisor,' and in the
information incorporated by reference into this proxy statement/prospectus and
included elsewhere in this proxy statement/prospectus.
Accordingly, you should not place undue reliance on forward-looking
statements, which speak only as of the date of this proxy statement/prospectus,
or, in the case of documents incorporated by reference, the date of those
documents.
All subsequent written and oral forward-looking statements attributable to
DoubleClick or MessageMedia or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Neither DoubleClick nor MessageMedia assumes any obligation
to update any such forward-looking statements to reflect events or circumstances
occurring after the date of this proxy statement/prospectus.
37
THE SPECIAL STOCKHOLDERS' MEETING
General
We are furnishing this proxy statement/prospectus to holders of MessageMedia
common stock in connection with the solicitation of proxies by MessageMedia's
board of directors for use at MessageMedia's special stockholders' meeting to be
held on October 31, 2001, and any adjournment or postponement of that meeting.
This proxy statement/prospectus is first being mailed to MessageMedia
stockholders on or about October [ ], 2001. This proxy statement/prospectus is
also being furnished to MessageMedia's stockholders as a prospectus in
connection with the issuance by DoubleClick of shares of DoubleClick common
stock as contemplated by the amended merger agreement.
Date, Time and Place
MessageMedia's special stockholders' meeting will be held on October 31,
2001 at 9:00 a.m., local time, at MessageMedia's principal offices, located at
371 Centennial Parkway, Louisville, Colorado 80027.
Matters to be Considered at the Special Stockholders' Meeting
At the MessageMedia special stockholders' meeting, and any adjournment or
postponement of the special stockholders' meeting, MessageMedia stockholders
will be asked to:
consider and vote upon the adoption of the amended merger agreement;
grant MessageMedia's board of directors discretionary authority to adjourn
the special stockholders' meeting to solicit additional votes for adoption
of the agreement; and
transact such other business as may properly come before the special
stockholders' meeting.
Record Date
MessageMedia's board of directors has fixed the close of business on
September 4, 2001 as the record date for determination of MessageMedia's
stockholders entitled to notice of and to vote at the special stockholders'
meeting.
Voting of Proxies
MessageMedia requests that its stockholders complete, date and sign the
accompanying proxy and promptly return it in the accompanying envelope or
otherwise mail it to MessageMedia. Brokers holding shares in 'street name' may
vote the shares only if the stockholder provides instructions on how to vote.
Brokers will provide instructions to beneficial owners on how to direct the
broker to vote the shares. All properly executed proxies that MessageMedia
receives prior to the vote at the special stockholders' meeting and that are not
revoked will be voted in accordance with the instructions indicated on the
proxies or, if no direction is indicated, to adopt the amended merger agreement.
MessageMedia's board of directors does not currently intend to bring any other
business before the special stockholders' meeting and MessageMedia's board of
directors currently is not aware of any other matters to be brought before the
special stockholders' meeting. If other business that MessageMedia's board of
directors did not know, a reasonable time before the solicitation, was to be
presented at the meeting properly comes before the special stockholders'
meeting, the proxies will be voted in accordance with the judgment of the
proxyholders.
A stockholder may revoke his or her proxy at any time prior to its use:
by delivering to the Secretary of MessageMedia a signed notice of
revocation or a later-dated, signed proxy; or
by attending the special stockholders' meeting and voting in person.
38
Attendance at the special stockholders' meeting does not in itself
constitute the revocation of a proxy.
Vote Required
As of the close of business on September 4, 2001, there were 68,685,381
shares of MessageMedia common stock outstanding and entitled to vote. The
approval of the holders of a majority of the outstanding shares of MessageMedia
common stock outstanding as of this date is required to adopt the amended merger
agreement. MessageMedia stockholders have one vote per share of MessageMedia
common stock owned on the record date.
As of September 4, 2001, directors and executive officers of MessageMedia
and their affiliates beneficially owned an aggregate of 25,662,381 shares of
MessageMedia common stock, exclusive of any shares issuable upon the exercise of
options or warrants, or approximately 37.4% of the shares of MessageMedia common
stock outstanding on such date. Pursuant to stockholder agreements and letters
in the forms attached to this proxy statement/prospectus as Appendix B and B-1,
respectively, MessageMedia stockholders have agreed to vote 25,661,381 shares of
MessageMedia common stock, or approximately 37.4% of MessageMedia's common stock
outstanding as of September 4, 2001, for adoption of the amended merger
agreement. As of September 4, 2001, directors and executive officers of
DoubleClick did not own any shares of MessageMedia common stock. See 'The
Merger -- Interests of MessageMedia's Directors and Officers in the Merger.'
Quorum; Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the MessageMedia
special stockholders' meeting is a majority of the shares of MessageMedia common
stock issued and outstanding on the record date. Abstentions and broker
non-votes each will be included in determining the number of shares present at
the meeting for the purpose of determining the presence of a quorum. Because
adoption of the amended merger agreement requires the affirmative vote of a
majority of the outstanding shares of MessageMedia common stock entitled to
vote, abstentions and broker non-votes will have the same effect as votes
against adoption of the amended merger agreement. In addition, the failure of a
MessageMedia stockholder to return a proxy or otherwise vote will have the
effect of a vote against adoption of the amended merger agreement. Brokers
holding shares for beneficial owners cannot vote on the actions proposed in this
proxy statement/prospectus without the owners' specific instructions.
Accordingly, MessageMedia stockholders are urged to return the enclosed proxy
card marked to indicate their vote.
Solicitation of Proxies and Expenses
In addition to solicitation by mail, the directors, officers and employees
of MessageMedia may solicit proxies from MessageMedia's stockholders by
telephone, facsimile or in person. No additional compensation will be paid to
directors, officers or employees of MessageMedia for any solicitations.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in sending proxy materials to beneficial
owners. The expenses of soliciting proxies, including expenses related to the
printing and mailing of this proxy statement/prospectus, are being shared
equally by DoubleClick and MessageMedia.
39
THE MERGER
This section of the proxy statement/prospectus describes material aspects of
the proposed merger. While we believe that the description covers the material
terms of the merger and the related transactions, this summary may not contain
all of the information that is important to you. MessageMedia stockholders
should read the entire amended merger agreement and the other documents we refer
to carefully and in their entirety for a more complete understanding of the
merger.
Background of the Merger
During the first week of January 2001, Court Cunningham, DoubleClick's Vice
President and General Manager of DARTMail Technology, called A. Laurence Jones,
MessageMedia's President and Chief Executive Officer, and Mary Beth Loesch,
MessageMedia's Senior Vice President Corporate Development, to set up a meeting
on January 8, 2001 to discuss ways in which DoubleClick and MessageMedia could
potentially work together. At this meeting, Mr. Cunningham provided a high level
overview of DoubleClick's strategy in email marketing.
On January 18, 2001, Mr. Cunningham and David Rosenblatt, DoubleClick's
President of Technology, Data and Research, called Mr. Jones and Ms. Loesch to
express DoubleClick's interest in continuing discussions with MessageMedia.
On February 6, 2001, during a regularly scheduled meeting of the
MessageMedia board of directors, the board discussed strategic options for
MessageMedia. The discussions focused on potential business combinations with
companies in the traditional and Internet marketing services industry, including
DoubleClick. Due to DoubleClick's interest in MessageMedia, MessageMedia's board
of directors' assessment of MessageMedia's strategic fit with DoubleClick, and
DoubleClick's financial strength and ability to consummate a business
combination with MessageMedia, a decision was made by MessageMedia's board of
directors to contact DoubleClick and have further discussions. After the
meeting, Gerald Poch, Co-Chairman of the MessageMedia board of directors, called
Kevin Ryan, DoubleClick's Chief Executive Officer, and Mr. Jones called Mr.
Cunningham. The parties agreed to schedule a subsequent meeting with several
senior executives of each company.
On February 21, 2001, Messrs. Ryan, Rosenblatt and Cunningham, Jeffrey
Epstein, Executive Vice President of DoubleClick, Jonathan Shapiro,
DoubleClick's Senior Vice President of Strategy, Jennifer Haggerty, Director of
Corporate Development at DoubleClick and Steven Cohn, an analyst in the
Corporate Development group of DoubleClick, met at DoubleClick's New York
offices with Messrs. Poch and Jones and Ms. Loesch to discuss the operations and
business strategies of MessageMedia and DoubleClick.
Based on the previous day's discussions, on February 22, 2001, Mses.
Haggerty and Loesch executed a mutual confidentiality agreement on behalf of
DoubleClick and MessageMedia.
On March 16, 2001, Ms. Haggerty discussed the preliminary terms of a
potential acquisition of MessageMedia with Mr. Poch and separately with Ms.
Loesch.
On March 20, 2001, Mr. Cunningham and Scott Knoll, DoubleClick's Vice
President of Operations, Global TechSolutions, met at MessageMedia's offices in
Louisville, Colorado with Mr. Jones, Ms. Loesch and Prabhuling Patel,
MessageMedia's Senior Vice President and General Manager of Online Marketing and
Communications. At this meeting, Mr. Cunningham and Mr. Knoll learned more about
MessageMedia's products and services.
On March 23, 2001, Jeremy Palley, an associate in the Corporate Development
group of DoubleClick, called Ms. Loesch and made a verbal non-binding offer for
DoubleClick to acquire MessageMedia in a stock-for-stock exchange. Following
this discussion, Ms. Haggerty submitted a non-binding indication of interest and
term sheet to Ms. Loesch.
On March 27, 2001, the MessageMedia board of directors met to discuss a
potential combination with DoubleClick. Between March 27 and March 30, 2001, a
series of telephone conversations took place between senior representatives of
DoubleClick and MessageMedia to discuss the terms of a potential business
combination. On March 30, 2001, MessageMedia and
40
DoubleClick determined that the stage of their discussions justified commencing
mutual due diligence and the negotiation of definitive documentation, all
subject to the approval of each company's board of directors. On March 30, 2001,
MessageMedia entered into a limited duration exclusivity agreement with
DoubleClick.
On April 2 and April 3, 2001, a team from DoubleClick and attorneys from
Brobeck, Phleger & Harrison LLP, DoubleClick's legal counsel, met with
representatives from MessageMedia and with attorneys from Cooley Godward LLP,
MessageMedia's legal counsel, at the offices of Cooley Godward in Broomfield,
Colorado. The purpose of these meetings was to conduct business, financial and
legal due diligence.
On April 5, 2001, Mr. Ryan telephoned Mr. Jones, and Ms. Haggerty telephoned
Ms. Loesch, to inform them that DoubleClick was not interested in pursuing a
business combination with MessageMedia based on then current MessageMedia
business conditions, including the uncertainty of the liabilities associated
with MessageMedia Europe, B.V., and the parties terminated the exclusivity
agreement. On April 11, 2001, Ms. Haggerty confirmed with Ms. Loesch that
DoubleClick was not interested in pursuing a transaction with MessageMedia.
On April 12, 2001, the MessageMedia board of directors met during a
regularly scheduled meeting and discussed the competitive situation in the email
services industry and recent acquisitions of email companies. Based on the
changing competitive environment of the email services industry, a decision was
made to engage Stephens Inc. to assist MessageMedia in identifying potential
acquirors and negotiating for the sale of the company. In late April 2001,
Stephens solicited indications of interest for the acquisition of MessageMedia
from ten companies, and six of them indicated an interest. Stephens sent
information memorandums to the six interested parties and had subsequent
conversations regarding the operations of MessageMedia with them. Stephens did
not discuss valuation with any of the six interested parties, and neither
MessageMedia nor any of the six parties subsequently initiated negotiations for
the acquisition of MessageMedia. On May 2, 2001, MessageMedia received a call
from an enterprise web solutions company's financial advisor expressing such
company's interest in acquiring MessageMedia. MessageMedia executives and their
financial advisors met with this company and its financial advisors on May 11,
2001 at MessageMedia's offices in Louisville, Colorado. On May 15, 2001,
MessageMedia executives and their financial advisors again met with this company
to discuss terms of a potential business combination, including valuation.
On May 16, 2001, the MessageMedia board of directors met to discuss the
proposed transaction with the enterprise web solutions company, the possibility
of resuming discussions with DoubleClick and the status of other firms that had
expressed an interest in acquiring MessageMedia to Stephens during its marketing
process. The discussion focused on the strategic fit of the potential acquirers,
such as cross-selling opportunities, the strength of the potential acquirers'
financial condition, the ability to increase the scale and scope of the
operations of the combined entity and efficiencies that could be achieved
through a combination. Based on this discussion and an assessment of the
potential acquirers' ability to complete a transaction, the board of directors
determined that the enterprise web solutions company and DoubleClick, if it was
still interested, represented MessageMedia's best opportunity to complete a
transaction with a suitable acquiror within an acceptable time frame.
Consequently, the board of directors instructed Mr. Jones to continue
discussions with the enterprise web solutions company and also to contact
DoubleClick before entering into an exclusive arrangement with the enterprise
web solutions company. Negotiations with the six interested parties identified
by Stephens in late April 2001 were not actively pursued after this time due to
the board of directors' assessment that those parties did not have the ability
to complete their due diligence examination of MessageMedia and any potential
acquisition of MessageMedia within an acceptable time frame.
Following the May 16, 2001 MessageMedia board meeting, Mr. Jones placed
calls to Messrs. Ryan and Epstein at DoubleClick to determine whether
DoubleClick would be interested in resuming discussions concerning acquiring
MessageMedia. On May 17, 2001, Mr. Jones, Ms. Loesch, William Buchholz,
MessageMedia's Senior Vice President, Finance and Administration, Chief
Financial Officer and Secretary, and Pat Hayes, MessageMedia's Director
Financial Planning,
41
had a telephone conference call with Mr. Cunningham and William Mills,
DoubleClick's Vice President of Corporate Development, to provide an update on
the MessageMedia business. DoubleClick and its attorneys then engaged in
additional financial and legal due diligence regarding MessageMedia and its
business, including a review of the terms and conditions for the orderly
liquidation of MessageMedia B.V., and the scope of the liabilities associated
with this liquidation and MessageMedia's other business activities that occurred
during the previous month. Following DoubleClick's completion of this review,
DoubleClick decided to resume its negotiations with MessageMedia. MessageMedia
continued to negotiate with both DoubleClick and the enterprise web solutions
company.
On May 18, 2001, Ms. Haggerty and Mr. Cunningham called Ms. Loesch to
further discuss the update on the MessageMedia business and the potential terms
of a business combination. Ms. Haggerty then delivered a non-binding term sheet
to Ms. Loesch which reflected the terms discussed. Over the next few days,
representatives from DoubleClick and MessageMedia held a series of telephone
conversations to discuss the potential terms of a business combination. In
addition, during this time, MessageMedia continued negotiating potential terms
of a business combination with the enterprise web solutions company.
On May 21, 2001, Brobeck, Phleger & Harrison delivered an initial draft of
the merger agreement to MessageMedia and Cooley Godward. That same day,
representatives of DoubleClick, Brobeck, Phleger & Harrison, Cooley Godward and
MessageMedia resumed business, financial and legal due diligence of MessageMedia
and DoubleClick at the Broomfield, Colorado offices of Cooley Godward. The due
diligence inspections included numerous discussions between senior management of
both companies regarding various business, financial, operational and technical
issues involved in combining the companies.
On May 24, 2001, Messrs. Ryan, Epstein, Rosenblatt and Cunningham, Ms.
Haggerty, Elizabeth Wang, Vice President and General Counsel of DoubleClick,
Bruce Dalziel, Vice President of Finance and Operations, Tech, Data and Research
at DoubleClick and Benjamin Naftalis, an analyst in the Corporate Development
group of DoubleClick, discussed the proposed transaction at a meeting of
DoubleClick's board of directors. DoubleClick's board engaged in a full
discussion of the terms of the proposed merger, including the strategic benefits
of the combination, financial and legal analyses, the terms and conditions of
the proposed merger agreement and the analyses and opinion of DoubleClick's
management. Following the discussion, the DoubleClick board of directors
approved the terms of the merger, including the issuance of DoubleClick common
stock in the merger, and authorized management to continue to negotiate the
final terms of the merger agreement and related agreements. That same day,
MessageMedia's management determined that a combination with DoubleClick
represented the most attractive strategic alternative then available to
MessageMedia, based on DoubleClick's strategic fit with MessageMedia, an
assessment of the potential value of DoubleClick's common stock, DoubleClick's
ability to execute a business combination and the fact that the bid received
from DoubleClick was higher than the bid received from the enterprise web
solutions company, the only other bid made to MessageMedia. DoubleClick and
MessageMedia entered into a second limited duration exclusivity agreement. For
these reasons, MessageMedia terminated all negotiations and discussions with the
enterprise web solutions company at this time. Representatives of DoubleClick
and MessageMedia then began to negotiate the merger agreement. These discussions
continued that week and throughout the next week.
Beginning May 30, 2001, the parties convened at the Broomfield, Colorado
offices of Brobeck, Phleger & Harrison to finalize the documentation of the
merger. The exchange ratio was determined based on arms-length bargaining.
On May 30, 2001, the MessageMedia board of directors held a special meeting
to discuss the proposed business combination. Attorneys from Cooley Godward
reviewed the principal terms of the merger agreement and the related agreements
with the board. MessageMedia's management, legal counsel and financial advisors
reported on the results of their due diligence reviews of DoubleClick. Stephens
then made a presentation to the MessageMedia board of directors regarding the
financial analyses it performed in connection with its opinion and stated orally
that Stephens
42
was prepared to render a written opinion to the effect that, based on the
assumptions made, matters considered and limits of its review set forth in its
opinion, the share exchange ratio negotiated between DoubleClick and
MessageMedia was fair to MessageMedia's disinterested stockholders from a
financial point of view. Following a discussion, the MessageMedia board of
directors stated that it was prepared to approve the final terms of the merger
agreement and related agreements, subject to the resolution of several
transaction issues. The meeting was adjourned until May 31, 2001.
On May 31, 2001, the MessageMedia board of directors, with Messrs. Diamond
and Duryea absent, reconvened the special meeting begun on May 30, 2001, and
MessageMedia's management, legal counsel and financial advisors updated the
MessageMedia board of directors on negotiations and related transaction issues.
Following the discussion, all members of the MessageMedia board of directors who
were present at the special meeting approved the terms of the merger agreement
and related agreements. All of MessageMedia's directors subsequently approved
the terms of the merger agreement in a unanimous written consent.
On June 1, 2001, the merger agreement was signed and DoubleClick and
MessageMedia jointly announced the agreement to merge.
DoubleClick subsequently decided to exercise its right, contained in the
merger agreement, to change the method of effecting the business combination
between DoubleClick and MessageMedia in order to minimize the risk of the merger
not qualifying as a tax-deferred 'reorganization' for United States federal
income tax purposes, as the parties originally intended. After discussions,
DoubleClick and MessageMedia determined that it would be advisable and in the
best interests of their respective companies and stockholders to merge
MessageMedia with and into DoubleClick, instead of merging Atlas Acquisition
Corp., a wholly owned subsidiary of DoubleClick, with and into MessageMedia. On
June 26, 2001, DoubleClick, MessageMedia and Atlas Acquisition Corp. signed an
amendment to the merger agreement to reflect the change in structure.
DoubleClick's Reasons for the Merger
The DoubleClick board of directors unanimously determined that the merger is
fair to, and in the best interest of, DoubleClick and its stockholders.
This determination was based on several potential benefits of the merger
that the DoubleClick board believes will contribute to DoubleClick's success,
including:
the ability to enhance DoubleClick's email technology business by making
more innovative products available to more customers;
the ability of DoubleClick to sell MessageMedia's products and services
through DoubleClick's substantially larger sales network and large customer
base, and to sell its own products and services to MessageMedia's
customers;
the quality and loyalty of MessageMedia's customer base;
the perceived value of MessageMedia's business relative to the value of the
merger consideration;
MessageMedia's skilled workforce; and
the ability of DoubleClick to enhance MessageMedia's products and services
with added features and better meet the needs of MessageMedia's existing
and future customer base.
The DoubleClick board of directors reviewed a number of factors in
evaluating the merger, including, but not limited to, the following:
information concerning DoubleClick's and MessageMedia's respective
businesses, customers, prospects, strategic business plans, financial
performance and condition, results of operations, technology positions,
management and competitive positions;
the due diligence investigation of MessageMedia conducted by DoubleClick's
management and legal advisors;
43
DoubleClick management's view of the positive results of combining the
operations and businesses of DoubleClick and MessageMedia;
the current financial market conditions and historical stock market prices,
volatility and trading information of MessageMedia and DoubleClick; and
the impact of the merger on DoubleClick's customers and employees.
During the course of its deliberations concerning the merger, the
DoubleClick board also identified and considered a variety of potentially
negative factors that could materialize as a result of the merger, including the
following:
the risk that the potential benefits sought in the merger might not be
realized;
the possibility that the merger might not be completed;
risks related to retaining key MessageMedia employees;
risks related to retaining key MessageMedia customers; and
the effect of the public announcement of the merger on MessageMedia's
business, including its employees and customers.
The DoubleClick board of directors concluded that these factors were
outweighed by the potential benefits to be gained by the merger. In view of the
wide variety of factors, both positive and negative, considered by the
DoubleClick board of directors, the directors did not find it practical to, and
did not, quantify or otherwise assign relative weights to the specific factors
discussed above.
MessageMedia's Reasons for the Merger; Unanimous Recommendation of
MessageMedia's Board of Directors in Favor of the Merger
The MessageMedia board of directors determined to enter into the merger
agreement and to recommend that MessageMedia stockholders approve the merger
agreement in pursuit of MessageMedia's strategy to join with a company with a
strong commitment to the email marketing business.
The decision of the MessageMedia board of directors was the result of its
careful consideration of a range of strategic alternatives, including potential
business combinations with DoubleClick and other companies, in the pursuit of
its long-term business strategy.
The MessageMedia board of directors' primary consideration was to identify
and secure the alternative that would provide the best strategic fit for
MessageMedia and to provide long-term stockholder value to MessageMedia
stockholders. In this regard, the MessageMedia board of directors concluded that
a combination with DoubleClick represents the best transaction among other
alternatives considered by the MessageMedia board of directors. In reaching this
determination, the MessageMedia board of directors considered the following
factors:
the price per share implied by the exchange ratio in the merger, based on
DoubleClick's 10-day average closing stock price ending May 31, 2001, which
the MessageMedia board of directors determined represents: (A) a premium of
40% over the closing price of MessageMedia common stock as of the last
trading day prior to the announcement of the merger and (B) a premium of
42% over the average closing price of MessageMedia common stock in the 10
trading days prior to the announcement of the merger;
the exchange ratio in the merger and the implied per share price, which
compares favorably according to a number of applicable valuation
methodologies, including the analysis of companies comparable to
MessageMedia and transactions comparable to the merger used by Stephens in
connection with providing its fairness opinion to the MessageMedia board of
directors; and
the opinion of Stephens delivered in writing on May 31, 2001, that as of
May 31, 2001, and subject to assumptions made, matters considered and
limitations on the review set forth in its opinion, the share exchange
ratio in the merger is fair to MessageMedia's disinterested
44
stockholders from a financial point of view. Please see ' -- Opinion of
MessageMedia's Financial Advisor.'
The MessageMedia board of directors also believes that the merger will
provide the opportunity for the combined company to:
sell MessageMedia's products and services through DoubleClick's
substantially larger sales network and large customer base, and sell
DoubleClick's products and services to MessageMedia's customers;
increase the scale and scope of the messaging business of the combined
company; and
achieve cost synergies and economies of scope and scale associated with a
business consolidation by eliminating duplicative costs.
In reviewing its alternatives and making its determination to approve the
merger, the MessageMedia board of directors reviewed:
the results of the due diligence review by MessageMedia's management, legal
advisors and financial advisors regarding DoubleClick's business,
operations, technology and financial and competitive position;
the financial strength of DoubleClick;
the expected notice from The Nasdaq National Market as to the delisting of
MessageMedia's common stock;
possible expansion opportunities for the combined company and the ability
for the combined company to realize cost-reduction opportunities;
the current and prospective business environment in which MessageMedia
operates; and
the competitive environment.
The MessageMedia board of directors also reviewed with its legal advisors:
the terms and conditions of the merger agreement;
the terms and conditions of the stockholder agreements;
the events triggering payment of the termination fee; and
the terms of a non-solicitation agreement entered into by MessageMedia and
DoubleClick that restricts MessageMedia's ability to solicit or encourage
offers regarding the sale of MessageMedia to a third party and to discuss
or negotiate a sale, but which, prior to the approval of the merger by
MessageMedia's stockholders, permits MessageMedia to negotiate with a third
party that makes an unsolicited proposal to buy MessageMedia that is
determined to be superior to the merger with DoubleClick.
The MessageMedia board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger, including:
the risk that, because the exchange ratio will not be adjusted for changes
in the market price of either DoubleClick common stock or MessageMedia
common stock, the per share value of the consideration to be received by
MessageMedia stockholders might be significantly less than the price per
share implied by the exchange ratio immediately prior to the announcement
of the merger;
the risk that the merger might not be consummated;
the potential loss of revenues and business opportunities by MessageMedia
caused by the announcement of the merger;
the possibility of management disruption associated with the merger and
integrating the operations of the companies and the risk that, despite the
efforts of the combined company, the services of key management and
technical personnel of MessageMedia might not continue with the combined
company;
the risk that the benefits sought to be achieved by the merger will not be
realized; and
45
other applicable risks described in this proxy statement/prospectus under
'Risk Factors.'
The MessageMedia board of directors did not quantify or otherwise assign
relative weights to the specific factors discussed above. After carefully
evaluating these factors, both positive and negative, the MessageMedia board of
directors determined that the merger is in the best interests of MessageMedia
and its stockholders and unanimously recommends that MessageMedia stockholders
vote for approval and adoption of the merger agreement and approval of the
merger.
In considering the recommendation of the MessageMedia board of directors
with respect to the amended merger agreement, MessageMedia stockholders should
be aware that MessageMedia's directors and officers have interests in the merger
that are different from, or are in addition to, the interests of MessageMedia
stockholders generally. Please see ' -- Interests of MessageMedia's Directors
and Officers in the Merger.'
Opinion of MessageMedia's Financial Advisor
The MessageMedia board of directors retained Stephens Inc. to advise it with
respect to financial and strategic alternatives. The management of MessageMedia
recommended Stephens to its board of directors after interviewing three
candidates to be its financial advisor. Stephens was selected based on its
in-depth knowledge of the industry in which MessageMedia operates and
relationship with potential buyers.
Stephens delivered a written opinion, dated May 31, 2001, to the
MessageMedia board of directors to the effect that, as of such date and subject
to the qualifications set forth therein, the consideration to be received by
disinterested MessageMedia stockholders in the merger was fair from a financial
point of view to them. A 'disinterested stockholder' is a holder of
MessageMedia's common stock other than a director, officer or employee of
MessageMedia, or any holder of ten percent or more of the outstanding shares of
MessageMedia common stock calculated by assuming the exercise of convertible
securities beneficially owned by the holder.
No limitations were imposed by MessageMedia's board of directors on Stephens
with respect to the investigations made or procedures followed by it in
furnishing its opinion. The exchange ratio was determined through negotiations
between the management of DoubleClick and MessageMedia. Although Stephens did
assist the management of MessageMedia in these negotiations, it was not asked by
MessageMedia to propose or recommend, and did not propose or recommend, any
specific exchange ratio as the appropriate exchange ratio for the merger.
The full text of the fairness opinion of Stephens, dated May 31, 2001, which
sets forth the assumptions made, general procedures followed, factors considered
and limitations on the review undertaken by Stephens in rendering its opinion,
is attached as Appendix C to this proxy statement/prospectus and is incorporated
herein by reference. You should read this opinion in its entirety.
Stephens has consented to the use of its fairness opinion as an appendix to
this proxy statement/prospectus. Stephens provided the fairness opinion to the
board of directors of MessageMedia for its information and the fairness opinion
is directed only to the fairness from a financial point of view of the offer
price and does not constitute a recommendation to any stockholder of
MessageMedia as to how any stockholder should vote on the merger or any matter
related thereto. The summary of the fairness opinion set forth in this proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the fairness opinion.
In arriving at the fairness opinion, Stephens:
analyzed certain publicly available financial statements and reports
regarding MessageMedia;
analyzed certain internal financial statements and other financial and
operating data, including financial projections for the year ended
December 31, 2001, concerning MessageMedia prepared by management of
MessageMedia;
analyzed, on a pro forma basis, the effect of the merger;
46
reviewed the reported prices and trading activity for shares of common
stock of MessageMedia and DoubleClick;
compared the financial performance of MessageMedia and DoubleClick and the
prices and trading activity of shares of common stock of MessageMedia and
DoubleClick with that of certain other comparable publicly-traded companies
and their securities;
reviewed the financial terms, to the extent publicly available, of other
mergers that Stephens deemed to be relevant;
reviewed the merger agreement and related documents;
discussed with management of MessageMedia the operations of, and future
business prospects for, MessageMedia and the anticipated financial
consequences of the merger to MessageMedia;
assisted in deliberations regarding the material terms of the merger and
the negotiations with DoubleClick; and
performed other analyses and investigations and took into account other
matters that Stephens deemed appropriate.
In preparing the fairness opinion, Stephens assumed and relied on the
accuracy and completeness of all information supplied or reviewed by it in
connection with its analysis of the merger and has further relied on the
assurances of management of MessageMedia that they are not aware of any facts
that would make this information inaccurate or misleading. Stephens has not
assumed any responsibility for independently verifying this information and has
not undertaken an independent evaluation or appraisal of any of the assets or
liabilities of MessageMedia or DoubleClick or been furnished with any evaluation
or appraisal, nor conducted a physical inspection of the properties or
facilities of MessageMedia or DoubleClick. With respect to the financial
projections furnished to, or discussed with, Stephens by MessageMedia, Stephens
assumed that the financial projections were reasonably prepared and reflected
the best currently available estimates and judgment as to the expected future
financial performance of MessageMedia. Stephens expressed no opinion as to these
financial projections or the assumptions on which they were based.
For purposes of rendering the fairness opinion, Stephens assumed, in all
respects material to its analysis, that the representations and warranties of
each party to the merger agreement and all related documents and instruments
contained therein were true and correct, that each party to these documents
would perform all of the covenants and agreements required to be performed by
each party under these documents and that all conditions to the consummation of
the merger would be satisfied without waiver thereof. Stephens assumed that in
the course of obtaining the necessary regulatory or other consents or approvals
for the merger, no restrictions, including any divestiture requirements or
amendments or modification, would be imposed that would have a material adverse
effect on the contemplated benefits of the merger.
Stephens was not asked to consider, and the fairness opinion does not in any
manner address, the price at which MessageMedia or DoubleClick would trade
following either the announcement or consummation of the merger. The fairness
opinion is necessarily based upon market, economic and other conditions as they
existed on, and could be evaluated as of, the date of the opinion.
When Stephens delivered its written fairness opinion, it took into account
that the number of shares of DoubleClick common stock to be received in exchange
for each outstanding share of MessageMedia common stock, plus the amount of
assumed debt of MessageMedia less the amount of assumed cash of MessageMedia is
approximately $42.4 million, representing 1.3x and 1.2x MessageMedia's revenues
for the calendar year 2000 and projected calendar year 2001, respectively. In
its analysis, Stephens assumed that $42.4 million was the enterprise value of
MessageMedia.
The following is a summary of the material financial analyses used by
Stephens in connection with the preparation of its fairness opinion dated May
31, 2001.
47
Stock Price History. To provide contextual data and comparative market data,
Stephens examined the history of the trading prices for both MessageMedia common
stock and DoubleClick common stock for the one-year period ending May 25, 2001.
Stephens reviewed the daily closing prices of MessageMedia common stock and
compared the performance of the price of MessageMedia common stock to that of
the NASDAQ Composite Index and an index of the share prices of five selected
publicly traded companies that Stephens believed to be appropriate for
comparison to corresponding financial information and operating data of
MessageMedia, specifically, ClickAction, Inc., Digital Impact, Inc., DoubleClick
Inc., Engage Inc. and Kana Communications, Inc. (collectively, the 'Public
Comparables'). Stephens also reviewed the daily closing prices of DoubleClick
common stock and compared the performance of the price of DoubleClick common
stock to that of the NASDAQ Composite Index and an index of the share prices of
six publicly traded comparable companies, specifically, AvenueA, Inc., Engage
Inc., L90 Inc., Mediaplex, 24/7 Media, Inc. and ValueClick, Inc. This
information was presented solely to provide the board of directors of
MessageMedia with background information regarding the prices of MessageMedia
common stock and DoubleClick common stock over the periods indicated.
Publicly Traded Company Analysis. Stephens analyzed publicly available
financial information, operating data and projected financial performance (per
research analyst estimates) of the Public Comparables. Stephens' analysis
yielded ratios of market value of common equity plus total outstanding debt less
total outstanding cash ('Enterprise Value') to the calendar 2000 revenues
ranging from 0.3x to 2.9x, with a median of 1.0x, and Enterprise Value to
projected calendar 2001 revenues ranging from 0.1x to 3.2x, with a median of
0.6x.
Enterprise Value to: Range of Ratios Median
-------------------- --------------- ------
Calendar 2000 Revenues............................... 0.3x - 2.9x 1.0x
Projected Calendar 2001 Revenues..................... 0.1x - 3.2x 0.6x
Stephens derived a range of implied trading values of MessageMedia common
stock of $0.30 to $0.60 based on a ratio of Enterprise Value to 2000 calendar
revenues, which implies an exchange ratio range of .0212 to .0424 and a range of
$0.25 to $0.51 per share based on a ratio of Enterprise Value to projected 2001
calendar revenues, which implies an exchange ratio range of .0177 to .0360.
Implied Trading Implied Exchange
Enterprise Value to: Value Range Ratio Range
-------------------- ----------- -----------
Calendar 2000 Revenues........................ $0.30 - $0.60 0.0212 - 0.0424
Projected Calendar 2001 Revenues.............. $0.25 - $0.51 0.0177 - 0.0360
Precedent Transaction Analysis. Stephens analyzed the financial terms, to
the extent publicly available, of two transactions comparable to that of the
proposed DoubleClick and MessageMedia combination, which were announced since
December 26, 2000. The selected transactions were Chordiant Software, Inc.'s
acquisition of Prime Response, Inc. and SEAT Pagine Gialle SpA's acquisition of
NetCreations, Inc. (collectively, the 'Transaction Comparables'). Stephens'
analysis of the Transaction Comparables yielded ratios of Enterprise Value to
the latest twelve month ('LTM') revenues of 0.4x and 1.4x and Enterprise Value
to projected next twelve month ('NTM') revenues of 0.2x.
Enterprise Value to: Range of Ratios
-------------------- ---------------
LTM Revenues......................................... 0.4x - 1.4x
NTM Revenues......................................... 0.2x
Stephens derived a range of implied value of MessageMedia common stock of
$0.22 to $0.88 based on a ratio of Enterprise Value to LTM revenues, which
implies an exchange ratio range of .0155 to .0622, and a range of $0.10 to $0.65
per share based on a ratio of Enterprise Value to NTM revenues, which implies an
exchange ratio range of .0071 to .0459.
48
Implied Stock Implied Stock
Enterprise Value to: Value Range Ratio Range
-------------------- ----------- -----------
LTM Revenues.................................... $0.22 - $0.88 0.0155 - 0.0622
NTM Revenues.................................... $0.10 - $0.65 0.0071 - 0.0459
Offer Premium Analysis. Stephens compared the offer prices, to the extent
publicly available, of transactions publicly announced from May 22, 2000 to May
22, 2001, with a transaction size ranging from $25 million to $100 million to
the closing prices one-day, one-week and one-month prior to the announcement of
the respective transaction. Stephens' analysis of the offer premiums yielded a
mean range of 28% to 36%. Stephens derived a range of implied value of
MessageMedia common stock of $.50 to $0.57 using an offer premium range of 20%
to 35%, which implies an exchange ratio range of .0353 to .0403.
Offer Premium Implied Stock Implied Exchange
Transaction Size Range: Mean Range Value Range Ratio Range
----------------------- ---------- ----------- -----------
$25 million to $100 million....... 28% - 36% $0.50 - $0.57 0.0353 - 0.0403
In addition, Stephens analyzed a subset of these transactions comprised of
transactions involving companies in the direct mail advertising and pre-packaged
software markets (SIC codes 7331 and 7372). Stephens' analysis of the offer
premiums for this subset of transactions yielded a mean range of 25% to 34%.
Stephens derived a range of implied value of MessageMedia common stock of $.50
to $.59 using an offer premium range of 20% to 40%, which implies an exchange
ratio range of .0353 to .0417.
Transaction Size Range Offer Premium Implied Stock Implied Exchange
SIC codes 7331 and 7372: Mean Range Value Range Ratio Range
------------------------ ---------- ----------- -----------
$25 million to $100 million....... 25% - 34% $0.50 - $0.59 0.0353 - 0.0417
The summary set forth above does not purport to be a complete description of
the analyses performed by Stephens but describes, in summary form, the principal
elements of the presentation made by Stephens to the MessageMedia board of
directors on May 30, 2001. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by Stephens
was carried out in order to provide a different perspective on the transaction
and to add to the total mix of information available. Stephens did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to the fairness of the merger from
a financial point of view. Rather, in reaching its conclusion, Stephens
considered the results of the analyses in light of each other and ultimately
reached its opinion based on the analyses taken as a whole. Accordingly,
notwithstanding the separate factors summarized above, Stephens has indicated to
MessageMedia that it believes that consideration of some of the analyses and
factors considered, without considering all analyses and factors, could create
an incomplete or inaccurate view of the evaluation process underlying the
opinion. The analyses performed by Stephens are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.
Fees. Stephens will receive a fee for its services to MessageMedia. Pursuant
to a letter agreement between MessageMedia and Stephens, MessageMedia agreed to
pay Stephens, upon the rendering of a fairness opinion, a fee of $150,000 for
such services. In addition, MessageMedia engaged Stephens as its financial
advisor in connection with the proposed transaction and has agreed, if the
merger is consummated, to pay Stephens additional compensation (reduced by the
$150,000 fee paid for the fairness opinion) for such services to be calculated
based on the transaction value of the proposed merger. It is estimated that the
aggregate fee will be no more than $750,000. Stephens will also be reimbursed
for its out-of-pocket expenses, including reasonable fees and expenses for its
legal counsel up to $25,000 in the aggregate. In addition, MessageMedia has
agreed to indemnify Stephens for liabilities related to or arising out of the
engagement.
As part of Stephens' investment banking business, it regularly issues
fairness opinions and is continually engaged in the valuation of companies and
their securities in connection with business
49
reorganizations, private placements, negotiated underwritings, mergers and
acquisitions and valuations for estate, corporate and other purposes. In the
ordinary course of business, Stephens and its affiliates at any time may hold
long or short positions and may trade or otherwise effect transactions as
principal or for the accounts of customers, in debt or equity securities or
options on securities of MessageMedia and DoubleClick.
Interests of MessageMedia's Directors and Officers in the Merger
In considering the recommendation of the MessageMedia board of directors,
MessageMedia stockholders should be aware that a number of officers and
directors of MessageMedia have interests in the merger that differ from, or are
in addition to, those of MessageMedia stockholders generally. The MessageMedia
board was aware of these potential conflicts and considered them.
As of September 4, 2001, the officers and directors of MessageMedia owned
stock options to purchase an aggregate of 3,840,000 shares of MessageMedia
common stock, at exercise prices ranging from $10.25 to $0.4375 per share,
2,442,630 of which were not vested. If the merger is completed, all 1,333,880 of
the stock options unvested as of September 4, 2001 owned by MessageMedia's
President and Chief Executive Officer will automatically become vested and
exercisable. The vesting schedules for the remaining unvested options do not
accelerate upon consummation of the merger because they will be assumed by
DoubleClick. However, pursuant to change of control agreements between
MessageMedia and several of its officers and key employees, if the merger closes
and all of these officers and key employees are involuntarily terminated without
cause or voluntary terminate their employment for a permitted reason within one
month prior to or 12 months following the closing of the merger, the vesting of
the 2,058,607 remaining stock options held by these officers and key employees
unvested as of September 4, 2001 would be accelerated by 12 months and these
persons would also receive, in the aggregate, approximately $1.8 million in
severence benefits.
MessageMedia officers have agreements, including the change of control
agreements described above, pursuant to which, if such officers are
involuntarily terminated or if they terminate their employment for a permitted
reason, such officers would receive benefits including severance payments.
MessageMedia may grant transaction bonuses to certain employees, including
MessageMedia officers, involved in effectuating the merger, in an amount not to
exceed $200,000 in the aggregate.
MessageMedia's President and Chief Executive Officer owes $200,000 to
MessageMedia, which amount the MessageMedia board of directors has agreed to
forgive if the merger is consummated.
Because the number of shares of DoubleClick common stock outstanding is
significantly larger than the number of shares of MessageMedia common stock
outstanding, affiliates of MessageMedia, including its officers and directors,
who receive shares of DoubleClick common stock in the merger may be allowed to
sell or transfer a greater number of shares in a single transaction than would
be possible prior to the merger pursuant to the volume restrictions of Rule 144
of the Securities Act.
The amended merger agreement provides that, from and after the effective
time, DoubleClick will indemnify and provide advancement of expenses to each
person who is or was a director or officer of MessageMedia or any of its
subsidiaries at or at any time prior to the effective time of the merger, to the
same extent such persons are indemnified or have the right to the advancement of
expenses as of the date of the merger agreement by MessageMedia pursuant to
MessageMedia's certificate of incorporation and bylaws as in effect on the date
of the merger agreement. DoubleClick will also fulfill the obligations of
MessageMedia pursuant to any indemnification agreements between MessageMedia and
any of the indemnified parties in effect immediately prior to the date of the
merger agreement. In addition, the amended merger agreement provides that for a
period of six years after the effective time, DoubleClick will pay up to 150% of
the $310,000 annual premium currently paid by MessageMedia to maintain
directors' and officers' liability insurance covering persons who are covered by
MessageMedia's directors' and officers' insurance
50
policy. See 'The Amended Merger Agreement and Related Agreements -- Director and
Officer Indemnification and Insurance.'
Regulatory Matters
Currently, neither DoubleClick nor MessageMedia is required to file any
information with the Federal Trade Commission or the Antitrust Division of the
Department of Justice under the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, in connection with the merger and the
transactions contemplated by the amended merger agreement.
DoubleClick and MessageMedia are not aware of any other governmental
approvals or actions that are required to complete the merger other than
compliance with applicable corporate law of Delaware. Should any approval or
action be required, DoubleClick and MessageMedia currently plan to seek the
approval or take any necessary action. Failure to obtain the approval or take
any necessary action is not anticipated to have a material effect on the merger.
Federal Income Tax Considerations
The following discussion describes the material federal income tax
considerations generally applicable to MessageMedia stockholders in connection
with the exchange of shares of MessageMedia common stock for DoubleClick common
stock pursuant to the amended merger agreement. All statements of law and legal
conclusions in this discussion constitute the opinion of Cooley Godward, counsel
to MessageMedia, and Brobeck, Phleger & Harrison, counsel to DoubleClick. This
discussion is based on currently existing provisions of the Internal Revenue
Code, existing and proposed United States Treasury Regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change, possibly with retroactive effect. Any such change could alter the tax
consequences to MessageMedia stockholders as described herein.
MessageMedia stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
MessageMedia stockholders in light of their particular circumstances, such as
stockholders who:
are financial institutions, dealers in securities, tax-exempt organizations
or insurance companies;
are foreign persons;
hold MessageMedia common stock which constitutes qualified small business
stock for purposes of Section 1202 of the Internal Revenue Code;
do not hold their MessageMedia common stock as capital assets;
acquired their shares in connection with stock option or stock purchase
plans or in other compensatory transactions; or
acquired their shares as part of an integrated investment such as a hedge,
straddle, constructive sale, conversion transaction or other risk reduction
transaction.
In addition, the following discussion does not address the tax consequences
of the merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
merger, whether or not any such transactions are undertaken in connection with
the merger, including any transaction in which shares of MessageMedia common
stock are acquired or shares of DoubleClick common stock are disposed of, or the
tax consequences of the assumption by DoubleClick of MessageMedia stock options.
Accordingly, MessageMedia stockholders are urged to consult their own tax
advisors as to the specific tax consequences to them of the merger, including
the applicable federal, state, local and foreign tax consequences.
Based upon the assumptions and representations described in this discussion,
Cooley Godward, counsel to MessageMedia, has rendered an opinion to MessageMedia
and Brobeck, Phleger & Harrison, counsel to DoubleClick, has rendered an opinion
to DoubleClick, that the merger will
51
constitute a 'reorganization' within the meaning of Section 368(a) of the
Internal Revenue Code. In addition, it is a condition to the merger that
DoubleClick and MessageMedia each receive an opinion from their respective
counsel confirming their opinions that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. In the event that either DoubleClick or MessageMedia waives this condition
to the merger or there is a material change in the anticipated tax consequences
of the merger prior to the closing, the parties will recirculate this proxy
statement/prospectus and resolicit the vote of the MessageMedia stockholders.
The tax opinions referred to herein are conditioned upon the following:
the truth and accuracy of the statements, covenants, representations and
warranties contained in the amended merger agreement and related
certificates received from DoubleClick and MessageMedia;
that all covenants contained in the amended merger agreement will be
performed without waiver or breach of any material provision; and
that the merger will be duly effected under applicable state law.
Subject to the assumptions, representations and conditions described in this
discussion, Cooley Godward and Brobeck, Phleger & Harrison are of the opinion
that the merger will result in the following federal income tax consequences to
MessageMedia stockholders:
a holder of MessageMedia common stock will not recognize gain or loss to
the extent the holder receives DoubleClick common stock in exchange for
their MessageMedia common stock (except to the extent of any cash received
in lieu of fractional shares of DoubleClick common stock);
a holder of MessageMedia common stock who receives cash in lieu of a
fractional share of DoubleClick common stock will recognize capital gain or
loss in an amount equal to the difference between the amount of cash
received and the holder's tax basis allocable to the fractional share;
the aggregate tax basis of the DoubleClick common stock received in the
merger by a MessageMedia stockholder will be the same as the aggregate tax
basis of the MessageMedia common stock surrendered in exchange for that
DoubleClick common stock reduced by any tax basis allocable to any
fractional share interest for which cash is received; and
the holding period of the DoubleClick common stock received in the merger
by a MessageMedia stockholder will include the period during which the
stockholder held the MessageMedia common stock surrendered in exchange for
that DoubleClick common stock.
The opinions of counsel referred to in this proxy statement/prospectus will
neither bind the Internal Revenue Service or the courts nor preclude the
Internal Revenue Service from successfully arguing a contrary position in court.
No ruling has been, or will be, sought from the Internal Revenue Service as to
the United States federal income tax consequences of the merger. A successful
Internal Revenue Service challenge to the reorganization status of the merger
would result in MessageMedia stockholders recognizing taxable gain or loss with
respect to each share of MessageMedia common stock surrendered equal to the
difference between each stockholder's basis in such share and the fair market
value, as of the effective time of the merger, of the DoubleClick common stock
received in exchange therefor. In such event, a stockholder's aggregate basis in
the DoubleClick common stock so received would equal such fair market value and
the stockholder's holding period for such stock would begin the day after the
merger.
There are other tax-related issues that you should be aware of such as:
Reporting Requirements. Each MessageMedia stockholder that receives
DoubleClick common stock in the merger will be required to file a statement
with his or her federal income tax return providing his or her basis in the
MessageMedia stock surrendered and the fair market value of the DoubleClick
common stock and any cash received in the merger and to retain permanent
records of these-facts relating to the merger.
52
Backup Withholding. Unless an exemption applies under applicable law and
regulations, the exchange agent is required to withhold, and will withhold,
30.5% of any cash payments to a MessageMedia stockholder in the merger
unless the stockholder provides the appropriate form as described below.
Therefore, each MessageMedia stockholder should complete and sign the
Substitute Form W-9 included as part of the letter of transmittal to be
sent to each MessageMedia stockholder, so as to provide the information,
including the stockholder's taxpayer identification number and
certification necessary to avoid backup withholding, unless an applicable
exemption exists and is proved in a manner satisfactory to DoubleClick and
the exchange agent.
Accounting Treatment
DoubleClick will account for the merger under the purchase method of
accounting, which means that DoubleClick will allocate the purchase price to the
fair value of net tangible and identifiable intangible assets acquired, and any
excess of the cost over that amount will be recorded as goodwill. Based on a
preliminary allocation of the purchase price, DoubleClick expects to allocate
approximately 22% of the purchase price to the fair value of net tangible assets
acquired and approximately 78% to the fair value of intangible assets and
goodwill. The ultimate allocation of the purchase price will depend on the
results of fair value appraisals conducted at or near the closing of the
transaction.
Pursuant to Statement of Financial Accounting Standards, or SFAS, No. 141,
'Business Combinations,' and SFAS No. 142, 'Goodwill and Other Intangible
Assets,' goodwill arising from business combinations consummated subsequent to
June 30, 2001 will not be amortized, but instead be evaluated periodically for
impairment. Intangible assets with a determinable useful life will continue to
be amortized over that life. Accordingly, DoubleClick's operating results will
not reflect any goodwill amortization related to the merger, which is expected
to be completed in October 2001.
No Dissenters' Rights
Stockholders of MessageMedia are not entitled to exercise dissenters' or
appraisal rights as a result of the merger or to demand cash payment for their
shares under Delaware law.
Delisting and Deregistration of MessageMedia's Common Stock Following the Merger
If the merger is completed, MessageMedia's common stock will be delisted
from The Nasdaq National Market, assuming MessageMedia's common stock is then
listed on such market, and will be deregistered under the Securities Exchange
Act of 1934.
Restrictions on Sale of Shares by Affiliates
The shares of DoubleClick common stock to be issued in connection with the
merger will be registered under the Securities Act. These shares will be freely
transferable under the Securities Act except for shares of DoubleClick common
stock issued to any person who is deemed to be an affiliate of DoubleClick or
MessageMedia under the Securities Act. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by or
are under common control of DoubleClick or MessageMedia, as the case may be, and
may include some of the officers, directors or principal stockholders of
DoubleClick or MessageMedia. Affiliates may not sell their shares of DoubleClick
common stock acquired in connection with the merger except pursuant to:
an effective registration statement under the Securities Act covering the
resale of those shares;
an exemption under paragraph (d) of Rule 145 under the Securities Act; or
another applicable exemption from registration under the Securities Act.
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DoubleClick's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of shares of
DoubleClick common stock to be received by affiliates in the merger.
Operations Following the Merger
DoubleClick is currently formulating its plan for the integration of the
operations and personnel of MessageMedia into DoubleClick's existing business.
The current DoubleClick officers and directors will continue to be the officers
and directors of the combined company.
The stockholders of MessageMedia will become stockholders of DoubleClick and
their rights as stockholders will be governed by DoubleClick's amended and
restated certificate of incorporation, as amended, DoubleClick's amended and
restated bylaws and the laws of the State of Delaware.
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THE AMENDED MERGER AGREEMENT AND RELATED AGREEMENTS
The following is a brief summary of the material provisions of the merger
agreement, as amended by the amendment to the merger agreement, copies of which
are attached as Appendix A and Appendix A-1 to this proxy statement/prospectus
and incorporated herein by reference. We urge you to read the amended merger
agreement in its entirety for a more complete description of the merger. In the
event of any discrepancy between the terms of the amended merger agreement or
other agreements and the following summary, the amended merger agreement and
other agreements will control.
The Merger
MessageMedia will merge with and into DoubleClick, following the adoption of
the amended merger agreement by the MessageMedia stockholders and the
satisfaction or waiver of the other conditions to the merger.
Effective Time
At the time of the closing of the merger, the parties will cause the merger
to become effective by filing a certificate of merger with the Delaware
Secretary of State. DoubleClick and MessageMedia are working toward completing
the merger as soon as possible and expect to complete the merger during October
2001.
Directors and Officers of the Combined Company After the Merger
The directors and officers of the combined company will be the current
directors and officers, respectively, of DoubleClick.
Conversion of MessageMedia Shares in the Merger
At the effective time, each outstanding share of MessageMedia common stock
will automatically be converted into the right to receive 0.0436 of a share of
DoubleClick common stock.
The number of shares of DoubleClick common stock issuable in the merger will
be proportionately adjusted as appropriate for any stock split, stock dividend
or similar event with respect to MessageMedia common stock or DoubleClick common
stock effected between the date of the merger agreement and the completion of
the merger. The exchange ratio will also be proportionately adjusted if the
number of fully diluted outstanding shares of MessageMedia common stock is
greater than the number set forth in the merger agreement, except as otherwise
permitted in the amended merger agreement, in order to provide to DoubleClick
and MessageMedia the same economic effect as contemplated by the amended merger
agreement prior to such increase.
No Fractional Shares
No fractional shares of DoubleClick common stock will be issued in
connection with the merger. In lieu of a fraction of a share of DoubleClick
common stock, you will receive an amount of cash equal to the product of the
fractional share you would otherwise receive, after taking into account all
shares that you hold as of the effective time of the merger, multiplied by the
closing price of a share of DoubleClick common stock on The Nasdaq National
Market on the business day immediately prior to the effective time of the
merger, rounded to the nearest whole cent.
MessageMedia Stock Options and Warrants
At the effective time of the merger, each outstanding option to purchase
shares of MessageMedia common stock and each outstanding warrant to purchase
shares of MessageMedia common stock will be assumed by DoubleClick. Each
MessageMedia stock option or warrant
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assumed by DoubleClick will continue to have the same terms, and be subject to
the same conditions, that were applicable to the option or warrant immediately
prior to the effective time, except that:
each MessageMedia stock option or warrant will be exercisable for shares of
DoubleClick common stock, and the number of shares of DoubleClick common
stock issuable upon exercise of any given option or warrant will be
determined by multiplying the number of shares of MessageMedia common stock
underlying such option or warrant by 0.0436, rounded down, if necessary, to
the nearest whole share; and
the per share exercise price of any given option or warrant will be
determined by dividing the exercise price of the option or warrant
immediately prior to the effective time by 0.0436, rounded up, if
necessary, to the nearest whole cent.
Adjustments with respect to any options that are 'incentive stock options',
as defined in the Internal Revenue Code, will be effected in a manner consistent
with the requirements of that code.
Employee Stock Purchase Plan
Immediately prior to the effective time of the merger, each outstanding
purchase right pursuant to MessageMedia's employee stock purchase plan will be
exercised to purchase MessageMedia common stock at the price per share and in
accordance with the terms set forth in the employee stock purchase plan, and
each share of MessageMedia common stock so purchased will be considered issued
and outstanding and will be converted into the right to receive 0.0436 of a
share of DoubleClick common stock. The employee stock purchase plan will
terminate at the effective time of the merger and no further purchase rights
will be granted thereafter.
The Exchange Agent
As of the effective time, DoubleClick is required to deposit with American
Stock Transfer & Trust Company or another bank or trust company certificates
representing the shares of DoubleClick common stock to be exchanged for shares
of MessageMedia common stock and cash to be paid in lieu of issuing fractional
shares.
Exchange of MessageMedia Stock Certificates for DoubleClick Stock Certificates
Promptly after the effective time, the exchange agent will mail to
MessageMedia stockholders a letter of transmittal and instructions for
surrendering MessageMedia stock certificates in exchange for DoubleClick stock
certificates and cash in lieu of fractional shares. MessageMedia stockholders
should not submit stock certificates for exchange until receipt of the letter of
transmittal and instructions.
Distributions with Respect to Unexchanged Shares
MessageMedia stockholders are not entitled to receive any dividends or other
distributions on DoubleClick common stock with a record date after the merger is
completed until surrender of MessageMedia stock certificates.
Representations and Warranties
DoubleClick and MessageMedia each made a number of representations and
warranties in the merger agreement.
MessageMedia made representations about the following topics:
MessageMedia's organization, qualification to do business and good standing
and existence of subsidiaries;
MessageMedia's certificate of incorporation and bylaws;
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MessageMedia's capitalization;
MessageMedia's corporate power to enter into, and its authorization of, the
merger agreement and the transactions contemplated by the merger agreement;
the merger and the merger agreement's non-violation of the certificate of
incorporation or bylaws of MessageMedia, laws or material agreements or
permits of MessageMedia;
required approvals of governmental authorities relating to the merger
agreement;
possession of, and compliance with, permits required to conduct
MessageMedia's business and compliance with laws applicable to
MessageMedia;
MessageMedia's filings and reports with the Securities and Exchange
Commission;
MessageMedia's financial statements;
absence of a material adverse effect and other changes in MessageMedia's
business since December 31, 2000;
MessageMedia's employee benefit plans and matters relating to
MessageMedia's employees;
MessageMedia's customers;
the treatment of the merger as a tax-deferred 'reorganization' under the
Internal Revenue Code;
MessageMedia's material contracts and obligations;
litigation involving MessageMedia;
MessageMedia's compliance with applicable environmental laws;
intellectual property used or owned by MessageMedia;
MessageMedia's privacy policy;
MessageMedia's taxes;
MessageMedia's insurance;
MessageMedia's properties and bank accounts;
MessageMedia's affiliates;
the opinion of MessageMedia's financial advisor;
brokers' and finders' fees in connection with the merger on behalf of
MessageMedia;
the absence of unlawful business practices by MessageMedia;
restrictions on MessageMedia's business; and
the inapplicability of state anti-takeover statutes to the merger.
DoubleClick made representations about the following topics:
DoubleClick's organization, qualification to do business and good standing;
DoubleClick's certificate of incorporation and bylaws;
DoubleClick's capitalization;
DoubleClick's corporate power to enter into, and its authorization of, the
merger agreement and the transactions contemplated by the merger agreement;
the merger and the merger agreement's non-violation of the certificate of
incorporation or bylaws of DoubleClick, laws or material agreements or
permits of DoubleClick;
DoubleClick's filings and reports with the Securities and Exchange
Commission;
DoubleClick's financial statements;
the treatment of the merger as a tax-deferred 'reorganization' under the
Internal Revenue Code;
the absence of brokers' or finders' fees in connection with the merger on
behalf of DoubleClick; and
absence of a material adverse effect and other changes in DoubleClick's
business since December 31, 2000.
The representations and warranties in the amended merger agreement are
complicated and not easily summarized. We urge you to read carefully the
provisions in the amended merger agreement
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captioned 'Representations and Warranties of Company' and 'Representations and
Warranties of Parent.'
MessageMedia's Conduct of Business Before Completion of the Merger
MessageMedia has agreed that, until the completion of the merger or unless
DoubleClick consents in writing, MessageMedia and its subsidiaries will conduct
their businesses in the ordinary course of business consistent with past
practice, and MessageMedia will use reasonable efforts:
to keep available the services of its present officers, significant
employees and significant consultants; and
to preserve the present relationships of MessageMedia and its subsidiaries
with corporate partners, customers, suppliers and other persons with which
it or its subsidiaries have significant business relations in order to
preserve substantially intact its business organization.
MessageMedia has also agreed that, until the completion of the merger or
unless DoubleClick consents in writing, MessageMedia will, and will cause its
subsidiaries to, conduct their businesses in compliance with the specific
restrictions set forth in the amended merger agreement, including not
permitting:
the modification of MessageMedia's certificate of incorporation or bylaws
or the equivalent organizational documents of its subsidiaries;
the issuance, delivery, sale, pledge, disposition of, grant, transfer,
lease, license, guarantee or encumbrance of MessageMedia's or its
subsidiaries' material property or assets except pursuant to existing
contracts or the issuance of nonexclusive software licenses by MessageMedia
in the ordinary course of business consistent with past practice;
the issuance, delivery, sale, pledge, disposition of, grant, transfer,
lease, license, guarantee or encumbrance of shares of MessageMedia or its
subsidiaries' capital stock or securities convertible into MessageMedia
capital stock or that of its subsidiaries, other than limited issuances of
securities in connection with grants and exercises of stock options;
the acquisition of any interest in any entities;
the incurrence of any indebtedness other than de minimis amounts or
issuance of any debt securities, the guarantee of any indebtedness of
another person or the making of any loans material to the business, assets,
liabilities, financial condition or results of operations of MessageMedia
and its subsidiaries;
the termination, cancellation or material amendment of any material
contract, other than in the ordinary course of business consistent with
past practice;
the making or authorization of any capital expenditures, except for limited
expenditures specified in the amended merger agreement;
the declaration or payment of dividends or other distributions on its
capital stock, except that any subsidiary of MessageMedia may pay dividends
or make other distributions to MessageMedia;
any reclassification, combination, split, subdivision or redemption,
purchase or other acquisition of any of its capital stock, except in
certain instances;
the modification or acceleration of the exercisability of any stock options
or authorization of cash payments in exchange for stock options;
the amendment of the terms of, repurchase or redemption of any of its
securities, except in certain instances;
the increase of compensation payable to directors, officers, consultants or
employees, except in limited instances specified in the amended merger
agreement;
the granting of any retention or severance arrangements or termination pay
to any person or entering into any employment, retention or severance
agreement with any person, except in limited instances specified in the
amended merger agreement;
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the adoption, entering into or amendment of any plan, agreement, policy or
arrangement for the benefit of any director, officer, consultant or
employee of MessageMedia or any of its subsidiaries, except to the extent
required by law or the terms of a collective bargaining agreement and
except in limited instances specified the amended merger agreement;
the entering into or amendment of any contract, agreement, commitment or
arrangement between MessageMedia or any of its subsidiaries, on the one
hand, and any of MessageMedia's or any of its subsidiaries' directors,
officers, consultants or employees, on the other hand, except in limited
instances specified in the amended merger agreement;
the payment, discharge or satisfaction of any claims, liabilities or
obligations, other than in the ordinary course of business or as reflected
or reserved against on the latest balance sheet included in MessageMedia's
filings with the Securities and Exchange Commission or in limited instances
specified in the amended merger agreement;
the making of any changes with respect to MessageMedia's or any of its
subsidiaries' accounting policies or methods, except as required by
generally accepted accounting principles;
the making of any tax election or settlement or compromise of any tax
liability, other than to comply with those covenants relating to taxes
contained in the amended merger agreement; or
the agreement in writing or otherwise to do any of the above or to take any
action which would make MessageMedia's representations and warranties
untrue or prevent MessageMedia from performing its covenants under the
amended merger agreement or result in any of the conditions to the merger
not being satisfied.
The agreements related to the conduct of MessageMedia's business contained
in the amended merger agreement are complicated and not easily summarized. We
urge you to carefully read the provision of the amended merger agreement
captioned 'Conduct of Business Pending the Closing.'
Each of MessageMedia and DoubleClick has also agreed to perform, and refrain
from performing, specified actions as set out in greater detail in the amended
merger agreement, including:
notify the other promptly of specified events and changes, including
changes that could reasonably be expected to have a material adverse effect
on either party, or to affect its ability to perform its obligations
pursuant to the amended merger agreement; and
provide access at reasonable times to its offices, employees and books to
the other party and to furnish such information as the other party may
reasonably request.
No Solicitation of Transactions
Until the amended merger agreement is terminated, MessageMedia has agreed
not to, directly or indirectly:
solicit, initiate or encourage any inquiries or the making of any proposal
or offer that constitutes or could lead to a company competing transaction;
enter into or maintain or continue discussions or negotiate with any person
in furtherance of such inquiries or obtain a company competing transaction;
or
agree to or endorse any company competing transaction, or authorize or
permit any of its representatives to take any such action.
However, MessageMedia may comply with the securities laws with regard to a
tender or exchange offer not made in violation of these prohibitions or, if
presented with a company superior proposal, may provide information in
connection with and negotiate the company superior proposal in accordance with
the fiduciary duties of MessageMedia's board of directors.
Further, MessageMedia is required to notify DoubleClick orally and in
writing within 24 hours after any of MessageMedia's Chief Executive Officer,
Chief Financial Officer or Senior Vice President, Corporate Development receives
any proposal or offer, or promptly after any inquiry or
59
contact with any person with respect thereto, regarding a company competing
transaction, including the identity of the person making the proposal, offer,
inquiry or contact and the terms of the company competing transaction.
MessageMedia must keep DoubleClick apprised, on a current basis, of the status
of the company competing transaction and of any modifications to the terms. In
addition, MessageMedia must notify DoubleClick promptly orally and in writing if
at any time MessageMedia's board of directors determines that it believes such
proposal is a company superior proposal. In connection with any potential
company competing transaction, prior to furnishing any information or entering
into any discussions or negotiations with any person making a proposal,
MessageMedia will provide to DoubleClick prompt oral and written notice to the
effect that MessageMedia is furnishing information to, or entering into
discussions or negotiations with, such person and MessageMedia will keep
DoubleClick promptly informed of the status of the terms and conditions of any
such discussions or negotiations. Prior to accepting a company competing
proposal, MessageMedia must provide DoubleClick with 24 hours' oral and written
notice of such intention.
MessageMedia has agreed to immediately cease and cause to be terminated all
existing discussions or negotiations with any parties with respect to a company
competing transaction and will not release any person from or waive any
provision of any confidentiality or standstill agreement to which it is a party.
A 'company competing transaction' is defined in the amended merger agreement
as any of the following involving MessageMedia, other than the merger with
DoubleClick:
any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or other similar transaction
other than, for purposes of determining whether or not a termination fee is
payable by MessageMedia in the event either MessageMedia or DoubleClick
terminates the amended merger agreement because the merger has not been
consummated before October 31, 2001 or the amended merger agreement and the
merger failed to receive the requisite votes for approval at MessageMedia's
special stockholders' meeting, and within twelve months after such
termination, MessageMedia enters into a definitive agreement relating to a
company competing transaction or consummates a company competing
transaction, if MessageMedia acquires another person and the shares of
MessageMedia common stock issued to the equityholders of such other person
constitute less than 50% of the capital stock of the successor company in
such transaction;
any sale, lease, exchange, transfer or other disposition of 20% or more of
the assets of MessageMedia and its subsidiaries in a single transaction or
series of related transactions;
any tender offer or exchange offer for 20% or more of the outstanding
voting securities of MessageMedia or the filing of a registration statement
under the Securities Act in connection therewith;
any person having acquired beneficial ownership or the right to acquire
beneficial ownership of, or any group having been formed which beneficially
owns, or has the right to acquire beneficial ownership of, 20% or more of
the outstanding voting securities of MessageMedia;
any solicitation in opposition to the approval of the amended merger
agreement by the stockholders of MessageMedia; or
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
A 'company superior proposal' is defined in the amended merger agreement as
a company competing transaction that:
MessageMedia's board of directors shall have concluded in good faith, after
consultation with independent outside counsel of nationally recognized
reputation, that taking such action is necessary to prevent MessageMedia's
board of directors from violating its fiduciary duties;
if any cash consideration is involved, shall not be subject to any
financing contingency and with respect to which MessageMedia's board of
directors shall have determined in the
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proper exercise of its fiduciary duties that the acquiring party is capable
of consummating such company competing transaction on the terms proposed;
and
MessageMedia's board of directors shall have determined, based on the
advice of MessageMedia's independent financial advisors of nationally
recognized reputation in the proper exercise of its fiduciary duties that
such company competing transaction provides greater value to MessageMedia's
stockholders than the merger, and MessageMedia's independent financial
advisors opine in writing that such company competing transaction is
superior from a financial point of view.
The agreements related to MessageMedia's non-solicitation of transactions
contained in the amended merger agreement are complicated and not easily
summarized. We urge you to carefully read the provisions of the amended merger
agreement captioned 'No Solicitation of Transactions.'
Director and Officer Indemnification and Insurance
The amended merger agreement provides that:
DoubleClick will indemnify and hold harmless, and will provide advancement
of expenses to, each person who is or was a director or officer of
MessageMedia or any of its subsidiaries at or at any time prior to the
effective time of the merger to the same extent such persons are
indemnified or have the right to the advancement of expenses as of the date
of the merger agreement by MessageMedia pursuant to MessageMedia's
certificate of incorporation and bylaws as in effect on the date of the
merger agreement. DoubleClick will also fulfill the obligations of
MessageMedia pursuant to any indemnification agreements, including
MessageMedia's certificate of incorporation and bylaws, between
MessageMedia and any of the indemnified persons in effect immediately prior
to the date of the merger agreement;
in the event that DoubleClick or any of its successors or assigns
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or transfers a material amount of its properties and assets to any
person in a single transaction or a series of transactions, then and in
each such case, DoubleClick will make or cause to be made proper provision
so that the successors and assigns of DoubleClick assume the
indemnification obligations described above for the benefit of the
indemnified parties and have at least substantially equal financial ability
as MessageMedia to satisfy the obligations of the parties pursuant to the
amended merger agreement as a condition to any such future merger,
consolidation or transfer becoming effective; and
for six years after the effective time of the merger, DoubleClick will
maintain in effect the directors' and officers' liability insurance
policies maintained by MessageMedia. DoubleClick is not required to pay
premiums in excess of 150% of the annual premium currently paid by
MessageMedia for such coverage, which annual premium is $310,000. If the
premium for such coverage exceeds $465,000, DoubleClick will purchase a
policy with the greatest coverage available for $465,000.
Benefit Plans and Arrangements
After the effective time of the merger, DoubleClick will honor and satisfy
all obligations and liabilities with respect to MessageMedia's benefit plans
other than its employee stock purchase plan. However, DoubleClick will not be
required to continue any particular MessageMedia benefit plan after the
effective time and any MessageMedia benefit plan may be amended or terminated or
may be merged with any DoubleClick benefit plans in accordance with its terms
and applicable law so long as employees of MessageMedia who are employed by
DoubleClick are provided benefits and coverage that are the same or
substantially the same as that provided by DoubleClick to similarly situated
employees. To the extent permitted under the law, each employee of MessageMedia
or its subsidiaries will be given credit for all service with MessageMedia or
its subsidiaries or service credited by MessageMedia or its subsidiaries under
all employee benefit plans, programs, policies and arrangements maintained by
DoubleClick, other than sabbatical
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benefits for which employees of MessageMedia or its subsidiaries will not
receive any past service credit, in which they participate or in which they
become participants for purposes of eligibility and vesting. All benefits and
service credits are subject to insurance carriers, outsider providers or the
like being able to provide the benefits on terms reasonably acceptable to
DoubleClick and there shall be no duplication of benefits. Furthermore,
DoubleClick or any of its subsidiaries is entitled to make any change required
by law.
As requested by DoubleClick, MessageMedia will take all actions necessary
and appropriate to terminate any MessageMedia benefit plan that is a 401(k) plan
as of the last day of the payroll period immediately preceding the closing date
of the merger and will make no further contribution to any 401(k) plan.
After the effective time of the merger, DoubleClick will also honor in
accordance with their terms all existing employment, severance, consulting and
salary continuation agreements between MessageMedia or any of its subsidiaries
and any current or former executive officer or director of MessageMedia or any
of its subsidiaries, subject to any modifications to such agreements agreed to
by such executive officers or directors and DoubleClick.
Conditions to the Merger
DoubleClick's and MessageMedia's respective obligations to complete the
merger and the related transactions are subject to the satisfaction or waiver by
joint action of the parties, if permitted by law, of each of the following
conditions:
the registration statement of which this proxy statement/prospectus is a
part relating to the issuance of shares of DoubleClick common stock as
contemplated by the amended merger agreement must have been declared
effective by the Securities and Exchange Commission;
the amended merger agreement must have been duly approved and adopted by
the requisite vote of MessageMedia stockholders in accordance with the
Delaware General Corporation Law;
no order, statute, rule, regulation, executive order, stay, decree, writ,
judgment or injunction shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental entity
which prohibits or prevents the consummation of the merger which has not
been vacated, dismissed or withdrawn prior to the effective time of the
merger;
any waiting period applicable to the consummation of the merger under U.S.
antitrust laws must have expired or been terminated;
all consents, approvals and authorizations legally required to be obtained
to consummate the merger must have been obtained from all governmental
entities, except where the failure to obtain any such consent, approval or
authorization could not reasonably be expected to result in a material
adverse effect on DoubleClick or MessageMedia; and
the shares of DoubleClick common stock to be issued in the merger shall
have been authorized for listing on The Nasdaq National Market.
MessageMedia's obligations to consummate the merger are subject to the
satisfaction or waiver, if permitted by law, of each of the following additional
conditions:
each of the representations and warranties of DoubleClick contained in the
merger agreement must be true, complete and correct in all respects, except
in each case for any failures to be true, complete and correct which do
not, in the aggregate, have a material adverse effect on DoubleClick;
DoubleClick must have performed or complied in all material respects with
all obligations required by the amended merger agreement, except where the
failure to so comply has not resulted in a material adverse effect on
DoubleClick;
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MessageMedia shall have received a certificate signed by the Chief
Executive Officer and Chief Financial Officer of DoubleClick to the effect
that the two conditions immediately above have been satisfied; and
MessageMedia must have received the opinion of its tax counsel, Cooley
Godward, to the effect that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code.
DoubleClick's obligations to consummate the merger are subject to the
satisfaction or waiver, if permitted by law, of each of the following additional
conditions:
each of the representations and warranties of MessageMedia contained in the
merger agreement must be true, complete and correct in all respects, except
in each case for any failures to be true, complete and correct which do
not, in the aggregate, have a material adverse effect on MessageMedia,
provided that MessageMedia will not be deemed to have breached any of its
representations or warranties solely by reason of the election by
DoubleClick to change the structure of the merger to a direct merger of
MessageMedia with and into DoubleClick;
MessageMedia must have performed or complied in all material respects with
all obligations required by the amended merger agreement, except where the
failure to so comply has not resulted in a material adverse effect on
MessageMedia;
DoubleClick shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of MessageMedia to the effect that the
two conditions immediately above have been satisfied;
MessageMedia must have received consents and waivers from those third
parties specified in the disclosure schedules to the amended merger
agreement;
there must not have been any material adverse effect relating to
MessageMedia since the date of the merger agreement;
DoubleClick must have received an opinion of its tax counsel, Brobeck,
Phleger & Harrison, to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code; and
MessageMedia must have properly completed and filed tax returns for all
periods ending prior to the effective time of the merger and paid in full
all taxes shown as due thereon.
Termination of the Amended Merger Agreement
The amended merger agreement may be terminated and the merger may be
abandoned at any time before the completion of the merger, notwithstanding the
approval and adoption of the amended merger agreement by MessageMedia's
stockholders, as summarized below:
by mutual written consent of the boards of directors of each of
MessageMedia and DoubleClick;
by either MessageMedia or DoubleClick, if, without the fault of the
terminating party, the merger has not been consummated on or before October
31, 2001;
by either MessageMedia or DoubleClick, if any governmental order, writ,
injunction or decree preventing the consummation of the merger has been
entered by any court of competent jurisdiction and has become final and
nonappealable; or
by MessageMedia or DoubleClick, if the amended merger agreement and the
merger fail to receive the requisite votes for approval at the MessageMedia
special stockholders' meeting.
Furthermore, the amended merger agreement may be terminated by DoubleClick
if any of the following occur:
the board of directors of MessageMedia withdraws, modifies or changes its
recommendation of the amended merger agreement or the merger in a manner
adverse to DoubleClick or its stockholders or resolves to do so;
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the board of directors of MessageMedia recommends a company competing
transaction to the stockholders of MessageMedia;
MessageMedia fails to comply in all material respects with provisions in
the amended merger agreement dealing with non-solicitation of transactions
or the MessageMedia stockholders' meeting;
a party to a stockholder agreement and a stockholder letter described
below, other than DoubleClick, fails to vote in favor of the merger in
accordance with the stockholder agreement and the stockholder letter or
fails to comply with the provisions of the stockholder agreements relating
to company competing transactions;
a company competing transaction is announced or publicly known and the
board of directors of MessageMedia:
-- fails to recommend against acceptance of such company competing
transaction by its stockholders, including by taking no position,
or indicating its inability to take a position, with respect to the
acceptance of a company competing transaction involving a tender
offer or exchange offer by its stockholders, within five business
days of delivery of a DoubleClick written request for such action,
or
-- fails to reconfirm its approval and recommendation of the amended
merger agreement and the transactions contemplated thereby within
five business days of the first announcement or other public
knowledge of such proposal for a company competing transaction;
the board of directors of MessageMedia determines that a company competing
transaction is a company superior proposal, determines to provide
information in connection with, and/or to negotiate, such company superior
proposal, and does not reconfirm its approval and recommendation of the
amended merger agreement and does not recommend against acceptance of such
company superior proposal by its stockholders;
the board of directors of MessageMedia resolves to do any of the foregoing;
or
MessageMedia has breached any of its representations, warranties, covenants
or agreements set forth in the amended merger agreement, or a
representation or warranty of MessageMedia becomes untrue, incomplete or
incorrect, in either case such that the conditions to the obligation of
DoubleClick to close set forth in the amended merger agreement would not be
satisfied, and MessageMedia fails to cure such breach within 20 days after
receipt by MessageMedia of a written notice from DoubleClick of such
breach.
Furthermore, the amended merger agreement may be terminated by MessageMedia
if DoubleClick has breached any of its representations, warranties, covenants or
agreements set forth in the amended merger agreement, or a representation or
warranty of DoubleClick becomes untrue, incomplete or incorrect, in either case
such that the conditions to the obligation of MessageMedia to close set forth in
the amended merger agreement would not be satisfied, and DoubleClick fails to
cure such breach within 20 days after receipt by DoubleClick of a written notice
from MessageMedia of such breach.
Payment of Fees and Expenses
Except as described below, all expenses incurred in connection with the
amended merger agreement and the merger will be paid by the party incurring such
expenses, whether or not the merger is consummated, except that DoubleClick and
MessageMedia each will pay one-half of all expenses incurred in connection with
printing, filing and mailing the registration statement, of which this proxy
statement/prospectus is a part, and all Securities and Exchange Commission and
other regulatory filing fees incurred in connection with such documents and any
fees required to be paid under U.S. antitrust laws.
MessageMedia will pay DoubleClick an amount equal to $1.654 million in the
event that:
64
DoubleClick terminates the amended merger agreement because MessageMedia
has breached any of its representations, warranties, covenants or
agreements set forth in the amended merger agreement, or a representation
or warranty of MessageMedia becomes untrue, incomplete or incorrect, in
either case such that the conditions to the obligation of DoubleClick to
close set forth in the amended merger agreement would not be satisfied, and
MessageMedia fails to cure such breach within 20 days after receipt by
MessageMedia of a written notice from DoubleClick of such breach;
DoubleClick terminates the amended merger agreement following the
occurrence of any of the following events:
-- the board of directors of MessageMedia withdraws, modifies or
changes its recommendation of the amended merger agreement or the
merger in a manner adverse to DoubleClick or its stockholders or
resolves to do so;
-- the board of directors of MessageMedia recommends a company
competing transaction to the stockholders of MessageMedia;
-- MessageMedia fails to comply in all material respects with
provisions in the amended merger agreement dealing with
non-solicitation of transactions and the MessageMedia stockholders'
meeting;
-- a party to a stockholder agreement and a stockholder letter
described below, other than DoubleClick, fails to vote in favor of
the merger in accordance with the stockholder agreement and the
stockholder letter or fails to comply with the provisions of the
stockholder agreements relating to company competing transactions;
-- a company competing transaction is announced or publicly known and
the board of directors of MessageMedia:
fails to recommend against acceptance of such company competing
transaction by its stockholders, including by taking no position,
or indicating its inability to take a position, with respect to
the acceptance of a company competing transaction involving a
tender offer or exchange offer by its stockholders, within five
business days of delivery of DoubleClick's written request for
such action, or
fails to reconfirm its approval and recommendation of the amended
merger agreement and the transactions contemplated thereby within
five business days of the first announcement or other public
knowledge of such proposal for a company competing transaction;
-- the board of directors of MessageMedia determines that a company
competing transaction is a company superior proposal, determines to
provide information in connection with, and/or to negotiate, such
company superior proposal, and does not reconfirm its approval and
recommendation of the amended merger agreement and does not
recommend against acceptance of such company superior proposal by
its stockholders; or
-- the board of directors of MessageMedia resolves to take any of the
foregoing actions;
either MessageMedia or DoubleClick terminates the amended merger agreement,
without the fault of the terminating party, because the merger has not been
consummated on or before October 31, 2001 and at or prior to the time of
such termination, either there shall have been proposed or publicly
announced (A) a company competing transaction or (B) within twelve months
after such termination, MessageMedia shall enter into a definitive
agreement with respect to any company competing transaction or any company
competing transaction involving MessageMedia shall be consummated; or
either MessageMedia or DoubleClick terminates the amended merger agreement
because the amended merger agreement and the merger fail to receive the
requisite votes for approval at the MessageMedia special stockholders'
meeting or any adjournment or postponement thereof and at or prior to the
time of such termination, either there shall have been proposed or publicly
announced (A) a company competing transaction or (B) within twelve
65
months after such termination, MessageMedia shall enter into a definitive
agreement with respect to any company competing transaction or any company
competing transaction involving MessageMedia shall be consummated.
Extension, Waiver and Amendment of the Amended Merger Agreement
At any time prior to the completion of the merger, either DoubleClick or
MessageMedia may extend the time for or waive compliance with the performance of
any obligation or other act of the other party, waive any inaccuracy in the
representations and warranties contained in the amended merger agreement or in
any document delivered pursuant to the amended merger agreement and waive
compliance by the other party with any of the agreements or conditions contained
in the amended merger agreement.
The amended merger agreement may be amended by DoubleClick and MessageMedia
at any time prior to the completion of the merger. However, after the approval
of the amended merger agreement by MessageMedia's stockholders, no amendment may
be made that changes the amount or type of consideration into which MessageMedia
common stock will be converted pursuant to the amended merger agreement.
Related Agreements
In connection with the execution of the merger agreement on June 1, 2001,
Rebar LLC, Softbank Technology Ventures VI L.P., Softbank U.S. Ventures VI L.P.,
Softbank Technology Ventures Advisors Fund VI L.P., Softbank Technology Ventures
Side Fund VI L.P., Softbank Technology Advisors Fund L.P., Softbank Technology
Ventures IV L.P., Pequot Private Equity Fund, L.P., Pequot Offshore Private
Equity Fund, Inc., A. Laurence Jones, Bradley A. Feld, Dennis J. Cagan, Howard
S. Diamond, Gerald A. Poch and R. Terry Duryea, as stockholders of MessageMedia,
entered into stockholder agreements and irrevocable proxies with DoubleClick. In
connection with the execution of the amendment to the merger agreement, each of
these MessageMedia stockholders entered into stockholder letters pursuant to
which each reaffirmed all of its obligations under the stockholder agreements,
and each granted DoubleClick irrevocable proxies that superceded the original
proxies. The stockholder agreements, as affirmed by the stockholder letters and
irrevocable proxies, provide that these stockholders will vote their 25,661,381
shares of MessageMedia common stock representing, in the aggregate,
approximately 37.4% of MessageMedia's outstanding common stock as of
September 4, 2001, at every meeting of the stockholders of MessageMedia at which
the merger is considered or voted upon and at every adjournment of such meetings
and on every action or approval by written resolution of the stockholders of
MessageMedia with respect to the merger, in favor of approval and adoption of
the amended merger agreement and of the merger. In addition, each such
stockholder agreed not to violate the provisions of the amended merger agreement
that relate to soliciting a competing transaction. The MessageMedia stockholders
who are parties to the stockholder agreements, as affirmed by the stockholder
letters, and irrevocable proxies retained the right to vote their shares of
MessageMedia common stock on all matters other than those identified in the
stockholder agreements. None of the stockholders who are parties to the
stockholder agreements and stockholder letters with DoubleClick was paid
additional consideration in connection with the execution of such documents.
These agreements terminate upon the earlier to occur of the termination of the
amended merger agreement or the effective time of the merger. The form of
stockholder agreement and stockholder letter are attached as Appendix B and
Appendix B-1 to this proxy statement/prospectus and we urge you to read them for
a more complete description of the agreements.
66
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements of
DoubleClick Inc. have been prepared to illustrate the estimated effects of:
the assumed acquisition by DoubleClick of all the outstanding shares of
MesssageMedia, Inc. in exchange for approximately 3,000,000 shares of
DoubleClick common stock and the assumption by DoubleClick of MessageMedia
options and warrants which, under the merger, convert into options and
warrants to acquire approximately 410,000 shares of DoubleClick common
stock.
the April 23, 2001 acquisition by DoubleClick of all the outstanding shares
of FloNetwork Inc., or FloNetwork, in exchange for approximately $17.1
million in cash, approximately 2,800,000 shares of DoubleClick common stock
and the assumption by DoubleClick of FloNetwork options and warrants which,
under the merger of those two companies, converted into options and
warrants to acquire approximately 430,000 shares of DoubleClick common
stock; and
the February 2, 2001 acquisition by DoubleClick of all the outstanding
shares of @plan.inc, or @plan, in exchange for approximately $39.1 million
in cash, approximately 3,200,000 shares of DoubleClick common stock and the
assumption by DoubleClick of @plan options and warrants which, under the
merger, converted into options and warrants to acquire approximately
1,200,000 shares of DoubleClick common stock.
Pro forma amounts have been derived by applying pro forma adjustments to
the historical consolidated financial information of DoubleClick,
MessageMedia, FloNetwork and @plan.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 141 'Business Combinations' and SFAS No. 142 'Goodwill and Other Intangible
Assets.' SFAS No. 141 establishes new standards for accounting and reporting
requirements for business combinations and will require that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. SFAS No. 142
establishes new standards for goodwill acquired in a business combination,
eliminates the amortization of goodwill and sets forth methods to periodically
evaluate goodwill for impairment. Intangible assets with a determinable useful
life will continue to be amortized over that life. SFAS 141 and SFAS 142 are
effective for business combinations completed after June 30, 2001. DoubleClick
will adopt these statements on January 1, 2002; however, as noted above, there
are provisions of these new standards that also apply to acquisitions completed
after June 30, 2001.
The Acquisition of MessageMedia
On June 1, 2001, DoubleClick announced the signing of an agreement to
acquire all the outstanding shares, options and warrants of MessageMedia in an
all-stock transaction that will be accounted for as a purchase. The value of the
approximately 3,000,000 shares of common stock that are expected to be issued to
MessageMedia stockholders has been preliminarily estimated based on the average
market price of DoubleClick common stock, as quoted on the Nasdaq National
Market, for the day immediately prior to, the day of, and the day immediately
after the announcement of the transaction. The MessageMedia options and warrants
that will be assumed by DoubleClick as the result of this merger will convert
into options and warrants to acquire approximately 410,000 shares of DoubleClick
common stock and have been valued using the Black-Scholes option pricing model
with the following weighted-average assumptions:
Expected dividend yield..................................... 0.0%
Risk-free interest rate..................................... 4.7%
Expected life (in years).................................... 4.0
Volatility.................................................. 115%
67
This estimated purchase price of $44.8 million includes the effect of
approximately $100,000 in direct acquisition costs that have been incurred as of
June 30, 2001. The final cost of the acquisition will be a different amount.
A portion of the estimated purchase price has been preliminarily allocated
to MessageMedia's recorded net assets based on their book values as of June 30,
2001. DoubleClick believes that the book bases of these net assets do not differ
materially from their estimated fair values. The excess of the estimated
purchase price over the book value of net assets acquired has been preliminarily
allocated to goodwill. Pursuant to SFAS 142, this goodwill will never be subject
to amortization, but will instead be evaluated for impairment on an annual basis
or more frequently if indicators of impairment arise. The ultimate allocation of
the purchase price will depend on the results of fair value appraisals conducted
at or near the closing of the transaction. DoubleClick believes that, as a
result of these fair value appraisals, portions of the excess of the purchase
price over the fair value of net assets acquired may be allocated to intangible
assets, including customer lists. Accordingly, to the extent that a portion of
the excess of the purchase price over the fair value of net tangible assets
acquired is assigned to intangible assets subject to amortization under SFAS 141
and SFAS 142, operating results may differ materially from those presented in
the pro forma statements.
The unaudited pro forma condensed statements of operations for the year
ended December 31, 2000 and the six month period ended June 30, 2001 have been
prepared as if the MessageMedia acquisition had occurred on January 1, 2000. The
unaudited pro forma condensed balance sheet as of June 30, 2001 has been
prepared as if the acquisition occurred on June 30, 2001. The pro forma
adjustments are described in the accompanying notes.
The Acquisition of FloNetwork
On April 23, 2001 DoubleClick completed its acquisition of FloNetwork, a
privately-held Canadian provider of email marketing technology services. The
purchase price of FloNetwork has been calculated based on the average market
price of DoubleClick common stock, as quoted on the Nasdaq National Market, for
the day immediately prior to, the day of and the day immediately after the
number of shares and the amount of cash consideration due to FloNetwork
shareholders became irrevocably fixed pursuant to the agreement under which
FloNetwork was acquired, plus the fair value of options and warrants assumed,
which was determined using the Black-Scholes option pricing model.
Portions of the purchase price have been allocated to acquired technology,
customer lists and in-process research and development projects. The amounts
allocated to customer lists of approximately $2.2 million and acquired
technology of approximately $4.3 million are being amortized on a straight-line
basis over 2 and 3 years, respectively. The amounts attributed to in-process
research and development projects were charged to operations as they had not
reached technological feasibility as of the date of the acquisition and were
determined to have no alternative future uses. The remainder of the excess of
the purchase price over the fair value of net assets acquired of approximately
$44.9 million has been allocated to goodwill and is being amortized on a
straight-line basis over three years. In accordance with SFAS 142, DoubleClick
will cease to amortize this goodwill when this statement is applied in its
entirety in 2002.
The unaudited pro forma condensed statements of operations for the year
ended December 31, 2000 and the six month period ended June 30, 2001 have been
prepared as if the FloNetwork acquisition had occurred on January 1, 2000. No
pro forma balance sheet information has been provided as FloNetwork's net assets
are reflected in the financial position of DoubleClick as of June 30, 2001. The
pro forma adjustments are described in the accompanying notes.
The Acquisition of @plan
On February 2, 2001 DoubleClick completed its acquisition of @plan, a
leading provider of online target market research planning systems. The purchase
price of @plan has been determined based on the average market price of
DoubleClick common stock, as quoted on the Nasdaq
68
National Market, for the day immediately prior to and the day of the final
determination of the number of shares and cash consideration due @plan
shareholders pursuant to the merger agreement, plus the fair value of options
assumed, which was calculated using the Black-Scholes option pricing model. The
excess of the purchase price over the fair value of the net assets acquired of
approximately $78.5 million has been allocated to goodwill and is being
amortized over three years. In accordance with SFAS 142, DoubleClick will cease
to amortize this goodwill when this statement is applied in its entirety in
2002.
The unaudited pro forma condensed statements of operations for the year
ended December 31, 2000 and the six month period ended June 30, 2001 have been
prepared as if the @plan acquisition occurred on January 1, 2000. No pro forma
balance sheet information has been provided as @plan's net assets are reflected
in the financial position of DoubleClick as of June 30, 2001. The pro forma
adjustments are described in the accompanying notes.
Reclassifications
Some assets and liabilities in the consolidated balance sheet of
MessageMedia have been reclassified to conform to the line item presentation in
the pro forma condensed balance sheet. Some costs and other deductions in the
consolidated statements of operations of MessageMedia, FloNetwork and @plan have
been reclassified to conform to the line item presentation in the pro forma
condensed statements of operations.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information should not be considered
indicative of the actual results that would have been achieved had the
acquisitions described above been consummated on the dates indicated and does
not purport to indicate balance sheet data or results of operations as of any
future date or any future period. The unaudited pro forma financial information
should be read in conjuction with the historical financial statements of
DoubleClick and MessageMedia, and the related notes thereto incorporated by
reference into and included elsewhere in this proxy statement/prospectus.
69
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET AS OF JUNE 30, 2001
Pro forma Pro forma
DoubleClick MessageMedia adjustments combined
----------- ------------ ----------- --------
(dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents................. $ 198,091 $ 7,914 $ $ 206,005
Restricted cash........................... -- 4,375 4,375
Investments in marketable securities...... 423,189 -- 423,189
Accounts receivable, net.................. 89,668 6,591 96,259
Prepaid expenses and other................ 41,852 2,295 44,147
---------- --------- --------- ----------
Total current assets.................... 752,800 21,175 773,975
Investments in marketable securities........ 192,536 -- 192,536
Property and equipment, net................. 169,896 10,937 180,833
Goodwill, net............................... 140,035 4,566 (4,566)(1) 175,199
35,164 (1)
Intangible assets, net...................... 19,545 -- 19,545
Investments in affiliates................... 28,719 -- 28,719
Other assets................................ 9,847 553 (200)(1) 10,200
---------- --------- --------- ----------
Total assets............................ $1,313,378 $ 37,231 $ 30,398 $1,381,007
---------- --------- --------- ----------
---------- --------- --------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payables and accrued expenses.... $ 136,099 $ 3,534 $ 888 (1) $ 140,521
Current portion of notes payable and
capital leases.......................... -- 1,226 1,226
Restructuring reserve..................... -- 5,371 5,371
Payable to joint venture partner.......... -- 1,047 4,564 (2) 5,611
Other accrued liabilities................. -- 4,072 4,072
Deferred revenue.......................... 25,252 802 26,054
---------- --------- --------- ----------
Total current liabilities............... 161,351 16,052 5,452 182,855
Long-term obligations and notes............. 16,815 1,575 18,390
Notes payable to joint venture partner...... -- 4,564 (4,564)(2) --
Convertible subordinated notes.............. 250,000 -- -- 250,000
Minority interest........................... 20,160 (23) -- 20,137
Stockholders equity:
Common stock.............................. 134 69 (69)(3) 137
3 (1)
Additional paid-in capital................ 1,261,360 220,155 (220,155)(3) 1,306,201
44,841 (1)
Warrants.................................. -- 158 (158)(3) --
Deferred compensation..................... -- (18) 18 (3) (271)
(271)(1)
Accumulated deficit....................... (381,066) (205,132) 205,132 (3) (381,066)
Other comprehensive loss.................. (15,376) (169) 169 (3) (15,376)
---------- --------- --------- ----------
Total stockholders' equity.............. 865,052 15,063 29,510 909,625
---------- --------- --------- ----------
Total liabilities and stockholders'
equity................................ $1,313,378 $ 37,231 $ 30,398 $1,381,007
---------- --------- --------- ----------
---------- --------- --------- ----------
70
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Pro forma Pro forma Pro forma Pro forma
DoubleClick @plan FloNetwork adjustments combined MessageMedia adjustments combined
----------- ----- ---------- ----------- -------- ------------ ----------- ---------
(In thousands, except for per share amounts)
Revenues................ $216,805 $ 1,275 $ 6,920 $ $225,000 $ 16,236 $ $ 241,236
Cost of revenues........ 96,732 788 2,349 844 (4) 100,713 9,779 (6) 110,492
-------- ------- ------- -------- --------- -------- -------- ---------
Gross profit............ 120,073 487 4,571 (844) 124,287 6,457 130,744
Operating expenses:
Sales and marketing.... 107,386 766 4,452 112,604 6,879 (6) 68 (7) 119,551
General and
administrative....... 36,415 776 1,199 38,390 5,826 (6) 44,216
Product development.... 28,436 -- 1,962 30,398 2,876 (6) 33,274
Amortization of
intangible assets.... 25,909 -- -- 7,173 (5) 33,082 19,534 (6) (19,534)(8) 33,082
Restructuring and
in-process research and
development charges.. 31,980 -- -- 31,980 6,989 38,969
-------- ------- ------- -------- --------- -------- -------- ---------
Total operating
expense............. 230,126 1,542 7,613 7,173 246,454 42,104 (19,466) 269,092
Loss from operations.... (110,053) (1,055) (3,042) (8,017) (122,167) (35,647) 19,466 (138,348)
Equity in losses of
affiliates............. (2,042) -- -- (2,042) -- (2,042)
Gain on issuance of
affiliate stock........ 1,924 -- -- 1,924 -- 1,924
Interest and other, net. 11,937 146 (132) 11,951 (635) 11,316
-------- ------- ------- -------- --------- -------- -------- ---------
Loss before income
taxes.................. (98,234) (909) (3,174) (8,017) (110,334) (36,282) 19,466 (127,150)
Provision for income
tax.................... 1,752 8 86 1,846 -- 1,846
-------- ------- ------- -------- --------- -------- -------- ---------
Loss before minority
interest............... (99,986) (917) (3,260) (8,017) (112,180) (36,282) 19,466 (128,996)
Minority interest....... 1,644 -- -- 1,644 4,140 5,784
-------- ------- ------- -------- --------- -------- -------- ---------
Net loss before
extraordinary item..... $(98,342) $ (917) $(3,260) $ (8,017) $(110,536) $(32,142) $ 19,466 $(123,212)
-------- ------- ------- -------- --------- -------- -------- ---------
-------- ------- ------- -------- --------- -------- -------- ---------
Weighted-average number of
shares used in
calculation of basic and
diluted loss per share
before extraordinary
item:.................... 129,154 131,535 134,528
Basic and diluted loss per
share before
extraordinary item:...... $ (0.76) $ (0.84) $ (0.92)
71
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
Pro forma Pro forma Pro forma Pro forma
DoubleClick @plan FloNetwork adjustments combined MessageMedia adjustments combined
----------- ----- ---------- ----------- -------- ------------ ----------- --------
(In thousands, except for per share amounts)
Revenues................. $ 505,611 $13,514 $ 11,871 $ $530,996 $ 33,648 $ $ 564,644
Cost of revenues......... 228,083 10,572 4,659 2,533 (4) 245,847 22,106(6) 267,953
Write-off of advance to
publisher............... 18,487 -- -- 18,487 18,487
--------- ------- -------- -------- --------- -------- -------- ---------
Total cost of
revenue.............. 246,570 10,572 4,659 2,533 264,334 22,106 286,440
Gross profit............. 259,041 2,942 7,212 (2,533) 266,662 11,542 282,985
Operating expenses
Sales and marketing..... 227,229 6,407 10,270 243,906 24,197 (6) 136 (7) 268,239
General and
administrative........ 83,227 2,998 2,488 88,713 17,243 (6) 105,956
Product development..... 44,789 -- 4,231 49,020 6,644 (6) 55,664
Amortization of
intangible assets..... 41,153 -- -- 41,148 (5) 82,301 50,497 (6) (50,497)(8) 82,301
Goodwill impairment,
restructuring and
deal-related charges.. 51,760 -- 1,403 53,163 7,009 -- 60,172
--------- ------- -------- -------- --------- -------- -------- ---------
Total operating
expense.............. 448,158 9,405 18,392 41,148 517,103 105,590 (50,361) 572,332
Loss from operations..... (189,117) (6,463) (11,180) (43,681) (250,441) (94,048) 50,361 (294,128)
Equity in losses of
affiliates.............. (6,789) -- -- (6,789) -- (6,789)
Impairment of equity
investment.............. (24,052) -- -- (24,052) -- (24,052)
Gain on affiliate stock.. 11,026 -- -- 11,026 -- 11,026
Interest and other, net.. 53,801 1,982 160 55,943 977 56,920
--------- ------- -------- -------- --------- -------- -------- ---------
Loss before income
taxes.................. (155,131) (4,481) (11,020) (43,681) (214,343) (93,071) 50,361 (257,023)
Provision for income
tax.................... 1,497 101 164 1,762 -- 1,762
--------- ------- -------- -------- --------- -------- -------- ---------
Loss before minority
interest............... (156,628) (4,582) (11,184) (43,681) (216,075) (93,071) 50,361 (258,785)
Minority interest....... 647 -- -- 647 5,109 5,756
--------- ------- -------- -------- --------- -------- -------- ---------
Net loss before cumulative
effect of change in
accounting principle... $(155,981) $(4,582) $(11,184) $(43,681) $(215,428) $(87,962) $ 50,361 $(253,029)
--------- ------- -------- -------- --------- -------- -------- ---------
--------- ------- -------- -------- --------- -------- -------- ---------
Weighted-average number of
shares used in
calculation of basic and
diluted loss per share
before cumulative effect
of change in accounting
principle:............. 121,278 127,255 130,248
Basic and diluted loss per
share before cumulative
effect of change in
accounting principle:.. $ (1.29) $ (1.69) $ (1.94)
72
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
1. The total acquisition cost of MessageMedia was calculated as follows:
2,993,055 shares issued at $13.9267(i) per share............ $ 41,683
Estimated fair value of options and warrants assumed........ 3,061
Direct acquisition costs as of June 30, 2001................ 100
--------
Total purchase price:....................................... $ 44,844
--------
--------
Purchase price.............................................. $ 44,844
Plus:
Severance and change in control liabilities............. 888
Less:
Deferred compensation-FIN 44............................ (271)
Book value of net assets acquired....................... (10,297)
--------
Goodwill:................................................... $ 35,164
--------
--------
---------
(i) The average market price of DoubleClick common stock, as quoted on the
Nasdaq National Market, for the day immediately prior to, the day of, and
the day immediately after, the announcement of the transaction.
The adjustment to deferred compensation reflects the unearned compensation
cost associated with the unvested options of MessageMedia assumed by
DoubleClick. Pursuant to the guidance of FIN 44, this unearned compensation
cost is calculated as the intrinsic value of an assumed option multiplied by
the ratio of the option's remaining vesting period to its total vesting
period. This cost is then subsequently recognized over the award's remaining
vesting period.
The book value of the net assets acquired reflects: (1) the forgiveness of a
$200 thousand loan receivable from MessageMedia's Chief Executive Officer as
part of the merger agreement and (2) the elimination of MessageMedia's
historical goodwill balance as the result of the purchase business
combination.
Book value of net assets as recorded:....................... $15,063
Less:
Loan forgiveness........................................ (200)
MessageMedia goodwill................................... (4,566)
-------
Book value of net assets acquired........................... $10,297
-------
-------
2. This adjustment reclassifies as current liabilities the long-term notes
payable by MessageMedia to its joint venture partner that become immediately
payable upon a change in control.
3. These amounts reflect the elimination on consolidation of DoubleClick's
investment in MessageMedia against the net equity of MessageMedia.
4. This represents the amortization of customer lists and technology acquired in
connection with the purchase of FloNetwork. Such amortization is classified
as a cost of revenue.
73
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS -- (Continued)
5. This represents the amortization of goodwill generated on the acquisitions of
@plan and FloNetwork for the period reported. The amount of pro forma
amortization expense attributable to each acquisition is broken out as
follows:
For the six months ended June 30, 2001:
@plan................................................... $ 2,180
FloNetwork.............................................. 4,993
-------
Total....................................................... $ 7,173
-------
-------
For the year ended December 31, 2000:
@plan................................................... $26,170
FloNetwork.............................................. 14,978
-------
Total....................................................... $41,148
-------
-------
In accordance with SFAS 142, DoubleClick will cease to amortize this and
all other goodwill when the statement is applied in its entirety in 2002.
On a pro forma basis, DoubleClick estimates that the adoption of SFAS 142
would have reduced its amortization expense by approximately $29 million
for the six months ended June 30, 2001, and approximately $78 million for
the year ended December 31, 2000.
6. The following tables illustrate the reclassifications that were made to
certain MessageMedia historical costs and operating expenses in order to
conform them to the line item presentation and allocation basis used by
DoubleClick in its statement of operations. DoubleClick's cost of revenue
includes the depreciation expense associated with revenue-generating assets.
DoubleClick also allocates certain facility-related expenses on the basis of
headcount.
For the six months ended June 30, 2001:
Pro
As reported Reclassifications forma
----------- ----------------- -----
Cost of revenue..................... $ 6,866 $ 2,913 $ 9,779
Sales and marketing................. 5,737 1,142 6,879
General and administrative.......... 6,616 (790) 5,826
Research, development and
engineering....................... 2,478 398 2,876
Depreciation and amortization....... 23,197 (3,663) 19,534
Restructuring charge................ 6,389 600 6,989
Severance costs..................... 600 (600)
------- ------- --------
Total costs and operating
expenses.......................... $51,883 $ -- $ 51,883
------- ------- --------
------- ------- --------
For the year ended December 31, 2000:
Pro
As reported Reclassifications forma
----------- ----------------- -----
Cost of revenue..................... $ 17,325 $ 4,781 $ 22,106
Sales and marketing................. 21,526 2,671 24,197
General and administrative.......... 20,083 (2,840) 17,243
Research, development and
engineering....................... 6,234 410 6,644
Amortization of intangible assets... 50,497 -- 50,497
Depreciation........................ 5,022 (5,022) --
Restructuring expenses.............. 7,009 -- 7,009
-------- ------- --------
Total operating expenses............ $127,696 $ -- $127,696
-------- ------- --------
-------- ------- --------
7. This adjustment reflects the recognition of the compensation cost associated
with the assumption by DoubleClick of MessageMedia's unvested in-the-money
options for the period reported.
8. This adjustment reflects the elimination of MessageMedia's historical
goodwill amortization expense as the result of the purchase business
combination.
74
COMPARATIVE PER SHARE MARKET PRICE DATA
Market Price Information
DoubleClick Market Price Data
DoubleClick common stock has traded on The Nasdaq National Market under the
symbol 'DCLK' since February 20, 1998. The following table sets forth the range
of high and low sales prices reported on The Nasdaq National Market for
DoubleClick common stock for the periods indicated, adjusted to reflect (1) a
two-for-one stock split effected in the form of a dividend which became
effective on April 5, 1999 and (2) a two-for-one stock split effected in the
form of a dividend which became effective on January 11, 2000.
High Low
---- ---
Fiscal 1999
First Quarter.......................................... $ 50.00 $11.00
Second Quarter......................................... 88.00 33.75
Third Quarter.......................................... 62.63 30.25
Fourth Quarter......................................... 127.72 54.88
Fiscal 2000
First Quarter.......................................... $135.25 $74.00
Second Quarter......................................... 93.88 32.88
Third Quarter.......................................... 45.52 27.56
Fourth Quarter......................................... 33.75 8.00
Fiscal 2001
First Quarter.......................................... $ 17.31 $ 9.63
Second Quarter......................................... $ 16.30 $ 9.94
Third Quarter.......................................... $ 14.23 $ 5.23
Fourth Quarter (through October [ ], 2001)............ $ [ ] $[ ]
MessageMedia Market Price Data
MessageMedia's common stock has traded on The Nasdaq National Market under
the symbol 'FVHI' from December 13, 1996 through December 14, 1998, 'MAIL' from
December 15, 1998 through March 29, 1999 and 'MESG' since March 30, 1999. The
following table sets forth the range of high and low sales prices reported on
The Nasdaq National Market for MessageMedia common stock for the periods
indicated.
High Low
---- ---
Fiscal 1999
First Quarter........................................... $ 9.56 $ 4.88
Second Quarter.......................................... 26.75 7.00
Third Quarter........................................... 22.75 9.75
Fourth Quarter.......................................... 20.00 9.94
Fiscal 2000
First Quarter........................................... $21.88 $10.25
Second Quarter.......................................... 12.63 2.19
Third Quarter........................................... 5.50 2.50
Fourth Quarter.......................................... 3.22 0.33
Fiscal 2001
First Quarter........................................... $ 1.13 $ 0.41
Second Quarter.......................................... $ 0.60 $ 0.25
Third Quarter........................................... $ 0.58 $ 0.16
Fourth Quarter (through October [ ], 2001)............. $ [ ] $ [ ]
75
Recent Closing Prices
As of May 31, 2001, the last trading day before announcement of the merger,
the actual closing prices per share of DoubleClick common stock and MessageMedia
common stock on The Nasdaq National Market were $13.05 and $0.43, respectively.
On October [ ], 2001, the closing prices per share of DoubleClick common stock
and MessageMedia common stock on The Nasdaq National Market were $[ ] and
$[ ], respectively.
Because the market price of DoubleClick common stock is subject to
fluctuation, the market value of the shares of DoubleClick common stock that
holders of MessageMedia common stock will receive in the merger may increase or
decrease prior to and following the merger. We urge MessageMedia stockholders to
obtain current market quotations for DoubleClick common stock and MessageMedia
common stock. We cannot give you any assurance as to the future prices or market
value for DoubleClick common stock or MessageMedia common stock.
Dividend Policy
Neither DoubleClick nor MessageMedia has ever paid cash dividends on its
stock and both anticipate that they will continue to retain any earnings for the
foreseeable future for use in the operation of their respective businesses.
76
BUSINESS OF MESSAGEMEDIA
Overview
MessageMedia's outsourced services provide customers with:
a comprehensive set of e-messaging solutions for businesses that seek to
increase sales, improve customer communications and develop long-term
customer loyalty;
permission-based e-messaging to create an immediate two-way dialogue with
customers;
tools to track, review and refine e-messaging campaigns by leveraging
MessageMedia's expertise and proprietary technology;
rapidly deployable, cost-effective outsourced solutions which eliminate the
need to invest in the technology, hardware and human resources necessary to
implement and manage a comprehensive set of e-messaging and e-intelligence
solutions; and
the ability to manage large volumes of simple or complex customer
communications and easily integrate more advanced e-messaging and e-survey
and database applications.
MessageMedia's software solutions provide customers with:
a complete solution for email marketing and communications that integrates
with relational databases such as Oracle or SQL Server;
functions such as targeted email, including both filtering and data
segmentation, personalized email, dynamic content editing and trackable
URLs and campaign sequencing; and
all standard email list server functions such as reliable high throughput
email delivery, bounce management, discussion lists, announcement lists and
easy unsubscribes.
MessageMedia was originally incorporated in the state of Wyoming on
March 11, 1994, under the name of First Virtual Holdings Incorporated. It was
reincorporated in the state of Delaware on January 12, 1996. From inception
through 1998, its revenues principally were derived from its Internet payment
system and related services. In June 1998, MessageMedia was recapitalized by
SOFTBANK Corp. and affiliates through a series of transactions resulting in
their acquisition of 19.1 million shares of MessageMedia common stock. In July
1998, MessageMedia made a strategic decision to focus exclusively on e-messaging
and related services, leveraging the expertise of its key technical personnel
and its existing proprietary technology from the Internet payment system, which
was phased out. In December 1998, MessageMedia changed its name from First
Virtual Holdings Incorporated to MessageMedia, Inc. in connection with its
acquisitions of two e-messaging companies, Email Publishing, Inc., also known as
Epub, and Distributed Bits, L.L.C. also known as Dbits. As a result of the
acquisitions, EPub and DBits became wholly owned subsidiaries of MessageMedia.
These acquisitions enabled MessageMedia to expand its suite of e-messaging
services. In August 1999, MessageMedia acquired two additional e-messaging
companies, Revnet Systems, Inc., also known as Revnet, and Decisive Technology
Corporation, also known as Decisive, to further broaden its comprehensive suite
of e-messaging solutions and its customer base. All of these acquisitions were
accounted for as purchase transactions. A summary of these acquisitions follows:
EPub was a leading provider of outsourced email message delivery services
to businesses and organizations. On December 9, 1998, MessageMedia acquired
all of the common stock of Epub in exchange for 5,582,676 shares of
MessageMedia common stock and assumed all of their options and warrants in
exchange for approximately 417,324 additional shares of MessageMedia common
stock.
Dbits was a development state company developing customer email management
systems and solutions. On December 11, 1998, MessageMedia acquired all
equity interests in DBits in exchange for 1,305,320 shares of MessageMedia
common stock and warrants to purchase an additional 500,000 shares of
MessageMedia common stock.
Revnet was a leading developer and supplier of software solutions providing
businesses and organizations with 'in-house' email message delivery
capability. Revnet also provided
77
outsourced email message delivery services. On August 9, 1999, MessageMedia
acquired all of the common stock of Revnet in exchange for 3,262,120 shares
of MessageMedia common stock and assumed all of their options and warrants
in exchange for approximately 681,675 additional shares of MessageMedia
common stock.
Decisive was a leading provider of online customer intelligence solutions
such as e-surveys. On August 16, 1999, MessageMedia acquired all of the
common stock of Decisive Technology in exchange for 2,054,498 shares of
MessageMedia common stock and assumed all of their options and warrants in
exchange for approximately 466,818 additional shares of MessageMedia common
stock.
Industry Background
Email marketing has its basis in traditional direct marketing principles.
For decades, direct marketers have used traditional mail to communicate with
their customers. The purpose of the direct mail pieces was to give customers
promotional information, offers and incentives that would encourage them to
purchase particular products. Direct marketers soon realized that email could be
used to supplant or enhance traditional methods. Email can be used to
effectively interact with customers and for a variety of purposes other than
purchase incentives.
Permission-based Email can be a Highly Strategic Tool for Online Business.
Permission-based, or 'opt-in,' email is a highly reliable, cost-effective and
timely way for businesses to create a personal, two-way dialogue with their
customers. The complexity and functionality of commercial email is changing
dramatically. For example, email can be used for a variety of highly strategic
functions such as marketing, customer service and transaction confirmations.
Email functions can also be quickly customized or adapted to allow businesses to
target and shape their communications to meet the rapidly changing needs of
their customers. As businesses and consumers grow more comfortable with
conducting commerce over the Internet, email volume associated with business
communication and e-commerce is expected to grow even more quickly. As the cost
benefits and flexibility of email are more widely recognized, MessageMedia
expects businesses to more rapidly embrace email as a strategic tool for
building customer relationships and responding to large volumes of inbound email
communications.
Changing Business Environment and Need to Foster Customer Relationships. The
dramatic growth of the Internet and the proliferation of email in the last five
years have changed the way businesses and customers interact. Prior to the
advent of email, businesses relied primarily on in-person interaction and
physical proximity to the customer as well as techniques such as direct mail and
telemarketing to foster customer relationships. Such methods, however, vary in
their degree of effectiveness and are often characterized by high costs and slow
response times.
Email marketing is effective, fast and inexpensive. Response rates of 15% or
more are common and marketers receive immediate feedback from customers. Email
marketing costs may be 90% less than traditional direct marketing costs.
Moreover, many companies use email as a strategic tool to drive Web site
traffic, facilitate transactions and test new offers.
As a result, businesses are increasingly in need of strategic applications
that enable them to expand their customer base, foster customer loyalty and
provide personalized, one-to-one communication.
Complexity of E-messaging Supports Comprehensive Outsourced Services. To
create strong and effective e-messaging programs, businesses will need a broad
range of technology and strategic expertise to adapt and implement effective
solutions in today's rapidly changing business and regulatory environment.
MessageMedia believes this will lead to an increase in the outsourcing of
e-messaging applications. In order to effectively leverage e-messaging as a key
competitive tool, businesses not only must be able to gather information about
customer preferences and needs, but employ systems that are robust enough to
seamlessly and quickly respond to such data.
The implementation of effective e-messaging systems requires substantial
hardware, software and technical and administrative resources. As email grows in
volume and sophistication, the resources and expertise required to
cost-effectively implement, enhance and scale e-messaging
78
applications increases exponentially. Given the complexities of these strategic
and technical problems and the need to deploy a solution quickly and
cost-effectively, businesses increasingly are looking to outsource their
e-messaging services to 'one-stop' outsourced providers. In general, as the
level of complexity increases, outsourcing becomes a more attractive option.
MessageMedia's Key Capabilities
MessageMedia currently offers the following:
Account Management and Customer Services -- Through MessageMedia's
professional staff of account management and customer service
representatives, MessageMedia delivers e-messaging services specifically
tailored to each customer's business objectives. Each customer is assigned
an account management team comprised of an account director and one or more
customer services representatives, who act as the customer's primary point
of contact for all relationship and campaign management issues. They work
with the customer to develop an e-messaging calendar, create a
specification of campaign needs, develop the necessary web interfaces,
customize the customer database through which MessageMedia maintains,
imports and manipulates data, implement project plans and manage
pre-production and production testing, campaign roll-out and post-mailing
analysis. Additionally, MessageMedia's customer services professionals have
extensive experience in the development and delivery of effective customer
communications programs.
Outbound Messaging -- MessageMedia manages all logistics of e-messaging
delivery, from time-scheduled outbound message distribution to highly
interactive and event-driven communications, such as confirming an Internet
consumer purchase. E-messages with personalized content can be precisely
targeted to segments of MessageMedia's customers' emailing list.
MessageMedia's technology determines which format the email reader uses in
order to maximize the visual impact of the sender's message. MessageMedia
provides reliable, large-scale delivery of messages, personalized and
customized to each of its customer's customers in an e-messaging campaign,
as well as sophisticated error-handling and 'bounce' processing to ensure a
clean and current customer emailing list. MessageMedia's outbound messaging
capabilities include the ability to include audio and video media in the
email messages being sent by customers.
Inbound Messaging -- MessageMedia manages all logistics of response
processing from customers of its customers, including response validation,
response tracking, performance of customer defined actions and automated
database updates. MessageMedia's response-handling capabilities enable its
customers to engage in interactive, two-way marketing campaigns, entirely
using email. The ability to process and respond to customers' inquiries
improves the quality of the customer relationship by ensuring
MessageMedia's customer's ability to hear, acknowledge and respond to such
requests in a personalized manner.
e-Survey -- MessageMedia provides its customers with a wide array of email
based survey services. These services range from the development of the
permission profiling questions that may be asked in the permission center
to periodic and on-going transaction surveys to measure customer
satisfaction to surveys directed at a specific target audience, question or
problem. MessageMedia employs quantitative methods professionals with
extensive experience in the design, development and deployment of surveys
in both the conventional and e-survey delivery modes. These professionals
also have extensive data analysis and data modeling experience that is used
by customers in the targeting and database segmentation aspects of their
outbound e-messaging campaigns.
Database Services -- MessageMedia tracks and reviews the success of current
and past e-messaging campaigns and can deliver multiple offers to
separately defined customer groups. This allows MessageMedia's customer to
identify what worked and what did not and adaptively update and manage
their campaigns in a proactive manner. All messaging activity is
automatically tracked and logged into MessageMedia's database, creating a
clear history of all customer actions to aid in resolution of individual
requests as well as total campaign
79
analysis. This detailed customer record provides a wealth of information
and enables customers to fine-tune their direct marketing efforts and
increase the return on investment in the next campaign. Additionally,
customers often bring other data from their legacy systems to their
e-messaging database maintained by MessageMedia so that this additional
data may be used to more effectively segment and target their customer
communications.
MessageMedia's Services and Software Offerings
MessageMedia offers a broad range of solution sets including complete
outsourced services, hosted software and services and licensed software, all
powered by MessageMedia's next-generation M(3) Platform. The M(3) Platform
features the industry's most robust systems architecture, which can support
email campaigns of various sizes. The next generation platform is readily
customized to store a diverse range of customer and campaign data. It optimizes
any email format, including HTML, text, AOL and streaming audio or video and
includes support for international and double-byte character sets without
requiring specialized software. Campaigns may be targeted to customer segments
depending on user preferences, behavior or demographic information. A customized
web-based interface allows customers to deliver content, setup campaigns, review
reports, test messages, optimize content and schedule mail events. This platform
makes it easy for customers to migrate between MessageMedia's three solution
sets and allows them to choose the level of self-service that meets their
specific needs.
Outsourced Services. MessageMedia's outsourced services are offered in a
full or partial service bureau model depending on MessageMedia's customer's need
for self-service. The full service model M(3) Connect includes dedicated account
management and customized services. Professional account managers share their
breadth of email marketing expertise in developing customer acquisition,
retention and growth strategies. Customers also have the option of choosing
additional services from a continuum of value-added offerings.
M(3) Connect is a full-service outsourced solution to create and deliver
permission-based, targeted, email campaigns including account management and
production support. A dedicated account manager helps customers execute every
phase of an email campaign from planning and setup, through testing,
integration, customization, delivery and reporting. In addition, a dedicated
account director provides best practices consulting on permission-based
marketing, customer acquisition and retention, campaign management and customer
contact strategy.
Also included in M(3) Connect are inbound email response management tools,
such as automated and agent-managed response handling of bounces, unsubscribes
and customer preferences, data services tools such as customer data loading,
transformation and synchronization, data cleansing and list brokerage services
and creative services tools such as graphic and content design for rich media,
text, AOL or HTML.
M(3) Connect includes TargetDB, a robust database offering, which allows
marketers to develop highly targeted campaigns based on a wide variety of
customer data. This service has a full range of features including query and
select functionality, data visualization and campaign management tools and
comprehensive, customized reporting options. It is able to capture rich
marketing information including promotional history, click-through rates and
demographic and customer preference information.
Survey is MessageMedia's premier online survey solution that allows
companies to stay in touch with customers through cost-effective and flexible
email based surveys. Marketers may use this service for customer loyalty and
employee satisfaction studies, product or service evaluations, Web site
assessments, customer segmentation and profiling and content analysis.
MessageMedia helps customers develop effective survey methodologies,
questionnaire content and sampling, analysis and reporting plans.
MessageMedia's outsourced services are targeted towards six major industry
groups: Internet service providers and portals, publishing, retail/e-tail,
technology, financial services and the travel and entertainment industry. In
each of these industry groups, MessageMedia has developed an
80
understanding of the unique marketing requirements and can customize e-marketing
and communications programs that meet the challenges unique to each specific
industry.
Hosted Software and Services. MessageMedia's hosted software solution,
UnityMail Express, provides customers complete end-user control without the
installation, set-up and maintenance associated with implementing software
in-house. This solution has defined functionality and a finite set of services.
UnityMail Express allows customers to take advantage of advanced email marketing
technology without buying software or maintaining email list servers. Customers
pay monthly recurring charges based on messaging volume.
MessageMedia's hosted services offering is a partial service bureau model
called M(3) Professional, which includes program design and management services
from MessageMedia's world-class account management team, while allowing
customers to control the execution of campaigns by using a web-based interface.
This service gives marketers access to the full set of M(3) Professional
features, while providing a greater degree of control in content design and
campaign scheduling. This offering gives marketers the tools needed to create
and deliver permission-based, targeted email campaigns at a lower price than
M(3) Connect.
Licensed Software. MessageMedia's licensed software solution is called
UnityMail. UnityMail integrates relational databases into advanced email list
servers, allowing the development of one-to-one relationships with customers.
UnityMail performs standard email delivery, bounce management, discussion lists,
announcement lists and easy unsubscribes. Feature sets include dynamic content
management, trackable URLs, targeted email marketing, sampling and testing email
lists, personalized email, auto-sensing HTML or text, load-balancing which
controls message frequency and subscriber deliveries, campaign management for
sequencing messages and comprehensive statistical reporting to help measure
program effectiveness. UnityMail is database-enabled and is easily installed on
customer servers.
UnityMail 4.0 is offered as a single server license, or as UnityMail
Enterprise for distributed or multi-server environments. UnityMail ASP is
licensed to resellers that wish to rent UnityMail software to their domestic or
international end-user customers. Today, over 10 advertising agencies and 12
application service providers use UnityMail as their email platform. For
MessageMedia's software products, MessageMedia provides help desk support 24
hours a day, seven days a week. Additionally, MessageMedia provides
installation, training and integration services on a billable hours basis.
Additionally, for customers with small databases and the need for limited
email marketing functionality, MessageMedia offers MailKing, an entry-level
PC-based email distribution software package. MailKing is priced at $199.95 for
single copy purchases.
Competition
MessageMedia's principal competitors are in the e-messaging services arena,
and MessageMedia may experience additional competition from Internet service
providers and other large established businesses that may enter the market for
e-messaging services. MessageMedia competes for customers based on service
levels, product offerings and price.
Internet marketing companies, in general, and MessageMedia's e-messaging
solutions, in particular, also must compete for a share of advertisers' total
advertising budgets with traditional advertising media such as television,
radio, cable and print. Consequently, MessageMedia competes with advertising and
direct marketing agencies. To the extent that e-messaging is perceived to be a
limited or ineffective advertising medium, companies may be reluctant to devote
a significant portion of their advertising budget to MessageMedia's e-messaging
solutions, which could limit the growth of e-messaging and negatively affect
MessageMedia's business.
MessageMedia also expects that competition may increase as a result of
industry consolidation. Potential competitors may choose to enter the market for
e-messaging solutions by acquiring one or more of MessageMedia's existing
competitors or by forming strategic alliances with such competitors. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their
81
products or services to address the needs of MessageMedia's potential customers.
Accordingly, it is possible that new competitors or alliances may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced revenues and loss of market share, any of which would
harm MessageMedia's business, results of operations and financial condition.
Sales
MessageMedia's sales efforts are currently conducted through a regionally
based, direct sales force. MessageMedia's sales force typically markets its
solutions to the senior level marketing personnel and senior corporate
management within potential customer organizations. MessageMedia has worked with
a number of 'blue chip' customers who have agreed to help facilitate
MessageMedia's sales efforts by acting as customer references.
MessageMedia maintains a separate group of regionally based sales
professionals that are responsible for selling its packaged software
applications, principally UnityMail.
MessageMedia's regionally based, direct sales force is focused on attracting
new customers. MessageMedia's existing customers are supported by the account
management and customer services organization. This group is responsible for
working with current customers on their communications and dialog programs, for
retaining these customers and for increasing the usage of MessageMedia's
services by these customers. MessageMedia's account management and customer
services professionals are highly effective at managing relationships and
selling additional services to existing customers when the need arises.
Research, Development and Engineering
MessageMedia's research, development and engineering activities are focused
primarily on the design, development and enhancement of e-messaging services, as
well as on increasing the capacity and reliability of existing products and
services. MessageMedia has devoted a significant portion of its resources to
research, development and engineering programs. MessageMedia's research,
development and engineering expenses were approximately $2.5 million for the six
month period ended June 30, 2001, and $6.2 million, $4.9 million and $4.8
million for the years ended December 31, 2000, 1999 and 1998, respectively.
MessageMedia believes that significant research, development and engineering
expenditures will be required in order for it to remain competitive.
Accordingly, MessageMedia expects that research, development and engineering
expenses will continue to constitute a significant portion of its overall
expenses in the future.
MessageMedia's ability to design, develop, test and support new software
products and enhancements on a timely basis is critical to MessageMedia's future
success. There can be no assurance that MessageMedia will be successful in
developing and marketing new software products and enhancements that meet
changing customer needs and respond to such technological changes or evolving
industry standards. MessageMedia's current services are designed around
standards that are widely used and accepted within the Internet community,
including the MIME and SMTP email standards, and integrate process-based
security using email confirmation. Current and future use of MessageMedia's
services will depend, in part, on industry acceptance of such standards and
practices as they apply to the Internet and Internet commerce.
Intellectual Property
MessageMedia holds or has applied for various patents, trademarks and
copyrights, including trademark applications for 'MessageMedia' and 'UnityMail.'
Other than its rights to 'MessageMedia' and 'UnityMail,' however, MessageMedia
does not believe that any of these proprietary rights offer it a material
competitive advantage. MessageMedia believes that its ability to establish and
maintain a position of technology leadership in the e-messaging industry depends
more on the skills of its development personnel than on any of its proprietary
rights.
International Operations
On March 13, 2000, MessageMedia entered into a definitive agreement with
@viso Limited, a strategic partnership between Vivendi and SOFTBANK Corp., to
create MessageMedia Europe, B.V., a joint venture between MessageMedia and
@viso. MessageMedia owns 51% and @viso owns 49% of the joint venture. The
initial capitalization of the joint venture was funded with $14.8
82
million during the second quarter of 2000. MessageMedia Europe B.V. is
consolidated into MessageMedia's financial statements. For the period from
inception to June 30, 2001, revenues of $2.4 million and a loss after minority
interest and excluding restructuring costs of approximately $5.4 million were
included in MessageMedia's consolidated financial results.
On May 9, 2001, MessageMedia and @viso agreed to effect an orderly
liquidation of the joint venture. Pursuant to that agreement, the parties
released each other from all claims, liabilities and demands relating to, among
other things, the formation and operation of the joint venture. The initial
capital to effect the liquidation of the joint venture was provided by @viso,
and MessageMedia issued two promissory notes to @viso in the aggregate principal
amount of $4.5 million. If the merger is not consummated, the two promissory
notes will be due upon the earlier of December 31, 2003 or a change of control
of MessageMedia. Upon the closing of the merger, the notes will be immediately
due and payable to @viso. Furthermore, upon the closing of the merger, a payment
of up to $562,500 must be made to @viso as a change of control premium. Upon the
closing of the merger, satisfaction of the two promissory notes and payment of
the change of control premium will become obligations of DoubleClick. SOFTBANK
Corp. indirectly owns 50% of the interest in @viso and approximately 17% of the
outstanding common stock of MessageMedia. SOFTBANK Corp. is not represented on
the MessageMedia board of directors.
Government Regulation
A number of states have adopted laws restricting the distribution of
unsolicited commercial emails, or Spam. MessageMedia actively monitors such
legislation and regulatory development to minimize the risk of its participation
in activities that violate anti-Spam legislation. Additionally, a number of
legislative and regulatory proposals are under consideration by federal and
state lawmakers and regulatory bodies and may be adopted with respect to the
Internet. Some of the issues that such laws or regulations may cover include
user privacy, obscenity, fraud, pricing and characteristics and quality of
products and services. The adoption of any such laws or regulations may decrease
the growth of the Internet, which could in turn decrease the projected demand
for MessageMedia's products and services or increase its cost of doing business.
Moreover, the applicability to the Internet of existing U.S. and international
laws governing issues such as property ownership, copyright, trade secret,
libel, taxation and personal privacy is uncertain and developing. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on MessageMedia's business, results of
operations, financial condition and prospects.
Employees
As of July 31, 2001, MessageMedia employed 225 employees, all of whom were
employed on a full time basis. Of these 225 employees, 37 were in research,
development and engineering, 97 were in operations, 63 were in marketing and
sales and 28 were in administration.
Properties
MessageMedia's corporate facilities consist of approximately 73,485 square
feet of leased space in Louisville, Colorado and 33,805 square feet in Superior,
Colorado. The Louisville facility lease expires on October 14, 2010 and the
Superior facility lease expires on April 30, 2005. MessageMedia leases space in
Denver, Colorado for its computer processing center. In connection with the
December 1998 acquisition of EPub, MessageMedia acquired a facility lease
consisting of approximately 6,500 square feet of leased space in Boulder,
Colorado. This facility lease expires on June 30, 2002. Additionally,
MessageMedia leases facilities in Huntsville, Alabama, New York, New York,
Chicago, Illinois and San Francisco, California.
Legal Proceedings
MessageMedia is not subject to any material legal proceedings.
83
SECURITY OWNERSHIP OF MESSAGEMEDIA MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
As of September 4, 2001, there were 68,685,381 shares of MessageMedia common
stock outstanding. The following table contains information regarding the
ownership of MessageMedia's common stock as of September 4, 2001, by: (i) each
director, (ii) each of MessageMedia's current executive officers and two
individuals who served as executive officers during 2000, (iii) all current
executive officers and directors of MessageMedia as a group and (iv) all those
known by MessageMedia to be beneficial owners of more than 5% of its common
stock. In addition, as a result of entering into the stockholder agreements and
stockholder letters with MessageMedia stockholders, forms of which are attached
as Appendix B and Appendix B-1, respectively, to this proxy statement/
prospectus, DoubleClick may be deemed to be the beneficial owner of 25,661,381
shares of MessageMedia common stock. DoubleClick disclaims beneficial ownership
of such shares. Unless otherwise indicated, MessageMedia believes that each
beneficial owner set forth in the table has sole voting and investment power
with respect to the number of shares set forth opposite such MessageMedia
stockholder's name.
Beneficial Ownership(1)
---------------------------------
Number of Percent of
Beneficial Owner Shares Total
---------------- ------ -----
Bradley A. Feld ............................................ 19,085,170(2) 27.8
Co-Chairman of the Board of Directors
P.O. Box E
Eldorado Springs, CO 80025
Gary Rieschel .............................................. 18,566,157(3) 27.0
200 W. Evelyn Ave., Suite 200
Mountain View, CA 94041
SOFTBANK Corp. ............................................. 11,457,201(4) 16.7
10 Langley Road, #403
Newton Center, MA 02159
STV IV LLC ................................................. 10,819,678(5) 15.8
200 W. Evelyn Ave., Suite 200
Mountain View, CA 94041
SOFTBANK Technology Ventures IV, L.P. ...................... 10,616,268 15.5
200 W. Evelyn Ave., Suite 200
Mountain View, CA 94041
SOFTBANK America Inc. ...................................... 10,323,677 15.0
10 Langley Road, #403
Newton Center, MA 02159
SBTV VI LLC ................................................ 7,746,479(6) 11.3
200 W. Evelyn Ave., Suite 200
Mountain View, CA 94041
SOFTBANK U.S. Ventures VI, L.P. ............................ 3,860,070 5.6
200 W. Evelyn Ave., Suite 200
Mountain View, CA 94041
SOFTBANK Technology Ventures VI, L.P. ...................... 3,599,015 5.2
200 W. Evelyn Ave., Suite 200
Mountain View, CA 94041
Gerald A. Poch ............................................. 3,594,972(7) 5.2
Co-Chairman of the Board of Directors
Pequot Capital Management, Inc.
500 Nyala Farm Road
Westport, CT 06880
Pequot Capital Management, Inc. ............................ 3,544,972(8) 5.2
500 Nyala Farm Road
Westport, CT 06880
Howard S. Diamond .......................................... 2,816,902(9) 4.1
Director
100 Superior Plaza Way
Suite 200
Superior, CO 80027
84
Beneficial Ownership(1)
---------------------------------
Number of Percent of
Beneficial Owner Shares Total
---------------- ------ -----
A. Laurence Jones .......................................... 1,178,022(10) 1.7
President and Chief Executive Officer and Director
Mary Beth Loesch ........................................... 213,500(11) *
Senior Vice President, Corporate Development
Dennis J. Cagan ............................................ 166,600(12) *
Director
4444 Via Alegre
Santa Barbara, CA 93110
R. Terry Duryea ............................................ 62,083(13) *
Director
115 Longmeadow Drive
Los Gatos, CA 95032
Elizabeth Wallace .......................................... 100 *
Former Senior Vice President, Sales and Service
1611 Niagra St.
Denver, CO 80220
Prabhuling Patel ........................................... 37,500(14) --
Senior Vice President, Online Marketing and Communication
William E. Buchholz ........................................ -- --
Senior Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Martin T. Johnson .......................................... -- --
Former Senior Vice President, Chief Financial Officer and
Secretary
1015 North Howe St.
Chicago, IL 60614
All current executive officers and ......................... 27,154,749(15) 39.6
directors as a group, 9 persons
---------
* Represents beneficial ownership of less than 1%.
(1) The share ownership information contained in this table is based upon
information supplied by directors and executive officers and, with respect
to MessageMedia's non-affiliated stockholders, upon public filings with the
Securities and Exchange Commission and information provided by The Nasdaq
National Market. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of
MessageMedia common stock subject to warrants or options currently
exercisable or exercisable within 60 days of September 4, 2001 are deemed
outstanding for computing the percentage of the person or entity holding
such securities, but are not deemed outstanding for computing the
percentage of any other person or entity. Except as indicated by footnote
and subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power with respect to
all shares of MessageMedia common stock shown as beneficially owned by
them. Percentage of beneficial ownership is based on 68,685,381 shares of
MessageMedia common stock outstanding as of September 4, 2001. Except as
otherwise noted, the mailing address for each named individual is that of
MessageMedia, 371 Centennial Parkway, Louisville, Colorado 80027.
(2) Mr. Feld is a Principal Member of STV IV LLC, the general partner of
SOFTBANK Technology Advisors Fund L.P. and SOFTBANK Technology Ventures IV,
L.P., and as such may be deemed to share voting power with respect to
203,410 shares held of record by SOFTBANK Technology Advisors Fund L.P. and
10,616,268 shares held of record by SOFTBANK Technology Ventures IV L.P.
Mr. Feld is a Managing Member of SBTV VI LLC, the general partner of
SOFTBANK Technology Ventures VI, L.P., SOFTBANK U.S. Ventures VI, L.P.,
SOFTBANK Technology Ventures Advisors Fund VI, L.P. and SOFTBANK Technology
Ventures Side Fund VI, L.P., and as such may be deemed to share voting
power
(footnotes continued on next page)
85
(footnotes continued from previous page)
with respect to the 3,599,015 shares held of record by SOFTBANK Technology
Ventures VI, L.P., 3,860,070 shares held of record by SOFTBANK U.S.
Ventures VI, L.P., 140,211 shares held of record by SOFTBANK Technology
Ventures Advisors Fund VI, L.P., and 147,183 shares held of record by
SOFTBANK Technology Ventures Side Fund VI, L.P. Mr. Feld is the record
owner of 496,304 shares and of 22,709 shares subject to options exercisable
within 60 days of September 4, 2001. Mr. Feld disclaims beneficial
ownership of the shares held of record by all entities referred to in this
footnote except to the extent of his pecuniary interest therein. Does not
include shares over which SOFTBANK Technology Ventures IV L.P. shares
voting power with Mr. Lee H. Stein, Mrs. June Stein, Paymentech Merchant
Services, Inc. and First USA Financial, Inc. pursuant to a Voting Agreement
dated as of June 2, 1998. See Statement on Schedule 13D filed on
September 1, 1999 by SOFTBANK Corp. and its affiliates.
(3) Mr. Rieschel is a Principal Member and Managing Member of STV IV LLC, the
general partner of SOFTBANK Technology Advisors Fund L.P. and SOFTBANK
Technology Ventures IV L.P., and as such may be deemed to share voting
power with respect to 203,410 shares held of record by SOFTBANK Technology
Advisors Fund L.P. and 10,616,268 shares held of record by SOFTBANK
Technology Ventures IV L.P. Mr. Rieschel is a Managing Member and Executive
Managing Director of SBTV VI LLC, the general partner of SOFTBANK
Technology Ventures VI, L.P., SOFTBANK U.S. Ventures VI, L.P., SOFTBANK
Technology Ventures Advisors Fund VI, L.P., and SOFTBANK Technology
Ventures Side Fund VI, L.P., and as such may be deemed to share voting
power with respect to the 3,599,015 shares held of record by SOFTBANK
Technology Ventures VI, L.P., 3,860,070 shares held of record by SOFTBANK
U.S. Ventures VI, L.P., 140,211 shares held of record by SOFTBANK
Technology Ventures Advisors Fund VI, L.P., and 147,183 shares held of
record by SOFTBANK Technology Ventures Side Fund VI, L.P. Mr. Rieschel
disclaims beneficial ownership of the shares held of record by all entities
referred to in this footnote except to the extent of his pecuniary interest
therein. Does not include shares over which SOFTBANK Technology Ventures IV
L.P. shares voting power with Mr. Lee H. Stein, Mrs. June Stein, Paymentech
Merchant Services, Inc. and First USA Financial, Inc. pursuant to a Voting
Agreement dated as of June 2, 1998. See Statement on Schedule 13D filed on
September 1, 1999 by SOFTBANK Corp. and its affiliates.
(4) Includes 10,323,677 shares held of record by SOFTBANK America Inc., a
wholly owned subsidiary of SOFTBANK Holdings, Inc., which in turn is a
wholly owned subsidiary of SOFTBANK Corp., 879,488 shares held of record by
Softven No. 2 Investment Enterprise Partnership, an affiliate of SOFTBANK
Corp., and 254,036 shares held of record by SOFTBANK Ventures, Inc., which
is wholly owned by SOFTBANK Corp. Does not include shares over which
SOFTBANK Corp. shares voting power with Mr. Lee H. Stein, Mrs. June Stein,
Paymentech Merchant Services, Inc. and First USA Financial, Inc. pursuant
to a Voting Agreement dated as of June 2, 1998. See Statement on Schedule
13D filed on September 1, 1999 by SOFTBANK Corp. and its affiliates.
(5) Includes 203,410 shares held of record by SOFTBANK Technology Advisors Fund
L.P. and 10,616,268 shares held of record by SOFTBANK Technology Ventures
IV L.P. Does not include shares over which SOFTBANK Technology Ventures IV
L.P. shares voting power with Mr. Lee H. Stein, Mrs. June Stein, Paymentech
Merchant Services, Inc. and First USA Financial, Inc. pursuant to a Voting
Agreement dated as of June 2, 1998. See Statement on Schedule 13D filed on
September 1, 1999 by SOFTBANK Corp. and its affiliates.
(6) Includes 3,599,015 shares held of record by SOFTBANK Technology Ventures
VI, L.P., 3,860,070 shares held of record by SOFTBANK U.S. Ventures VI,
L.P., 140,211 shares held of record by SOFTBANK Technology Ventures
Advisors Fund VI, L.P. and 147,183 shares held of record by SOFTBANK
Technology Ventures Side Fund VI, L.P.
(footnotes continued on next page)
86
(footnotes continued from previous page)
(7) Mr. Poch is a Principal of Pequot Capital Management, Inc., the Investment
Manager and Advisor for Pequot Private Equity Fund, L.P. and Pequot
Offshore Private Equity Find, Inc., and as such may be deemed to
beneficially own the 3,146,580 shares held of record by Pequot Private
Equity Fund, L.P. and 398,392 shares held of record by Pequot Offshore
Private Equity Fund, Inc. Mr. Poch disclaims beneficial ownership of the
shares held of record by all entities referred to in this footnote except
to the extent of his pecuniary interest therein. Includes 50,000 shares
subject to options exercisable within 60 days of September 4, 2001 held by
Mr. Poch.
(8) Includes 3,146,580 shares held of record by Pequot Private Equity Fund,
L.P. and 398,392 shares held of record by Pequot Offshore Private Equity
Fund, Inc. to which Pequot Capital Management, Inc. serves as the
Investment Manager and Advisor.
(9) Mr. Diamond is the Chairman of the Board and the Chief Executive Officer of
Rebar LLC, and as such, may be deemed to beneficially own the 2,816,902
shares held of record by Rebar LLC. Mr. Diamond disclaims beneficial
ownership of the shares held of record by Rebar LLC except to the extent of
his pecuniary interest therein.
(10) Includes 977,576 shares subject to options exercisable within 60 days of
September 4, 2001 and 200,446 shares owned.
(11) Includes 212,500 shares subject to options exercisable within 60 days of
September 4, 2001 and 1,000 shares owned.
(12) Includes 150,000 shares subject to options exercisable within 60 days of
September 4, 2001 and 16,600 shares owned.
(13) Includes 42,083 shares subject to options exercisable within 60 days of
September 4, 2001 and 20,000 shares owned.
(14) Includes 37,500 shares subject to options exercisable within 60 days of
September 4, 2001.
(15) Includes 1,492,368 shares subject to options exercisable within 60 days of
September 4, 2001, 734,350 shares owned and 24,928,031 shares held by
entities affiliated with MessageMedia's current executive officers and
directors. See Notes 2, 7, 9, 10, 11, 12, 13 and 14 above. Shares
beneficially owned by Messrs. Buchholz and Patel are included in this
number.
87
SELECTED FINANCIAL DATA OF MESSAGEMEDIA
The following selected historical consolidated financial information should
be read in conjunction with MessageMedia's consolidated financial statements and
related notes and MessageMedia's 'Management's Discussion and Analysis of
Financial Condition and Results of Operations,' appearing elsewhere in this
proxy statement/prospectus. The consolidated statement of operations data for
each of the three years ended December 31, 1998, 1999 and 2000 and the
consolidated balance sheet data as of December 31, 1999 and 2000 are derived
from the consolidated financial statements of MessageMedia which have been
audited by Ernst & Young LLP, independent auditors, appearing elsewhere in this
proxy statement/prospectus. The consolidated statement of operations data for
the years ended December 31, 1996 and 1997 and the consolidated balance sheet
data as of December 31, 1996, 1997 and 1998 are derived from consolidated
financial statements of MessageMedia which have been audited by Ernst & Young
LLP and are not included or incorporated by reference in this proxy
statement/prospectus. The selected financial data for the three-month and
six-month periods ended June 30, 2000 and 2001 and as of June 30, 2001 have been
derived from MessageMedia's unaudited financial statements, appearing elsewhere
in this proxy statement/prospectus and in the opinion of MessageMedia's
management, include all adjustments, consisting only of normal recurring
adjustments, which are necessary to present fairly the results of operations and
financial position of MessageMedia for those periods in accordance with
accounting principles generally accepted in the United States. Historical
results are not necessarily indicative of the results to be expected in the
future.
Three Months Ended Six Months Ended
Year Ended December 31, June 30, June 30,
---------------------------------------------------- ---------------------- -------------------
1996 1997 1998 1999 2000 2000 2001 2000 2001
---- ---- ---- ---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
(Dollars in thousands, except share data)
Consolidated statement of
operations data:
Revenues.................. $ 696 $ 1,451 $ 1,288 $ 10,021 $ 33,648 $ 8,403 $ 7,562 $ 15,356 $ 16,236
-------- -------- -------- -------- -------- -------- -------- -------- --------
Costs and operating
expenses:
Cost of revenues........ 266 271 98 4,589 17,325 3,861 3,037 6,792 6,866
Marketing and sales..... 1,836 5,424 1,935 9,704 21,526 5,080 2,775 10,579 5,737
Research, development
and engineering........ 4,653 6,687 4,828 4,936 6,234 1,433 1,101 2,698 2,478
General and
administrative......... 4,238 4,378 4,095 7,678 20,083 4,380 2,810 7,873 6,616
Severance............... -- -- -- -- -- -- 600 -- 600
Restructuring
expenses............... -- -- 812 1,025 7,009 -- 6,389 -- 6,389
Write-off of in-process
technology............. -- -- 1,300 -- -- -- -- -- --
Depreciation expense.... 524 1,097 1,148 1,358 5,022 991 1,788 1,730 3,497
Amortization expense.... -- -- 1,038 27,565 50,497 12,971 9,930 25,942 19,700
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total costs and
operating expenses... 11,517 17,857 15,254 56,855 127,696 28,716 28,430 55,614 51,883
-------- --------
Loss from operations...... (10,821) (16,406) (13,966) (46,834) (94,048) (20,313) (20,868) (40,258) (35,647)
Interest income
(expense)............... 131 459 134 565 977 291 (147) 800 (267)
Other income (expense).... -- -- -- -- -- (66) (437) (70) (368)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net loss before minority
interest, extraordinary
item and cumulative
effect of accounting
change.................. (10,690) (15,947) (13,832) (46,269) (93,071) (20,088) (21,452) (39,528) (36,282)
Minority interest......... -- -- -- -- 5,109 430 2,816 1,135 4,140
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net loss before
extraordinary item and
cumulative effect of
change in accounting
principle............... (10,690) (15,947) (13,832) (46,269) (87,962) (19,658) (18,636) (38,393) (32,142)
Extraordinary gain on
exchange of debt........ -- -- -- -- -- -- 5,161 -- 5,161
Cumulative effect of
change in accounting
principle............... -- -- -- -- (192) -- -- (192) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net loss.................. (10,690) (15,947) (13,832) (46,269) (88,154) (19,658) (13,475) 38,585 26,981
Dividends imputed on
preferred stock......... -- (1,250) (1,233) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net loss applicable to
common shares........... $(10,690) $(17,197) $(15,065) $(46,269) $(88,154) $(19,658) $(13,475) $(38,585) $(26,981)
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Basic and diluted loss per
share:
Loss before extraordinary
item.................... $ (2.33) $ (1.94) $ (0.68) $ (1.00) $ (1.57) $ (0.35) $ (0.27) $ (0.69) $ (0.49)
Extraordinary item........ -- -- -- -- -- -- 0.07 -- 0.08
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net loss per share, basic
and diluted............. $ (2.33) $ (1.94) $ (0.68) $ (1.00) $ (1.57) $ (0.35) $ (0.20) $ (0.69) $ (0.41)
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Shares used in per share
computation, basic and
diluted................ 4,588,262 8,842,367 22,304,902 46,367,195 56,080,224 56,178,520 68,647,328 55,751,117 65,065,527
December 31,
---------------------------------------------------- June 30,
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
(Unaudited)
Consolidated balance sheet data: (In thousands)
Cash, cash equivalents and
short term investments... $ 17,128 $ 6,331 $ 4,659 $ 37,920 $ 11,273 $ 7,914
Restricted cash... -- -- -- -- 4,549 4,375
Furniture, equipment, software
and information technology,
net........ 2,024 1,879 1,476 4,728 15,050 10,937
Goodwill, net... -- -- 23,895 75,162 24,100 4,566
Total Assets... 19,693 9,048 31,221 123,191 66,255 37,231
Current Liabilities... 3,236 4,770 2,671 5,765 28,372 16,052
Notes and amounts payable non
current.... 1,913 163 54 36 2,123 6,139
Stockholders' equity (net
capital deficiency).. 14,944 (572) 28,484 117,390 33,614 15,063
88
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MESSAGEMEDIA
Overview
In December 1998, MessageMedia acquired Distributed Bits LLC, or DBits, and
Email Publishing Inc., or Epub. DBits was a development stage company developing
customer email management systems and solutions and Epub was a leading provider
of outsourced email message delivery services. In August 1999, MessageMedia
acquired Revnet Systems, Inc., or Revnet, and Decisive Technology Corporation,
or Decisive. Revnet was a leading developer and supplier of software solutions
providing businesses and organizations with 'in-house' email message delivery
capability and outsourced email message delivery services. Decisive was a
leading provider of online e-intelligence solutions such as surveys.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
'Business Combinations' and No. 142 'Goodwill and Other Intangible Assets.' SFAS
141 eliminates the pooling-of-interest method of accounting for business
combinations and changes the criteria to recognize intangible assets apart from
goodwill. Under SFAS 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually, or more frequently if impairment
indicators arise, for impairment. SFAS 142 requires that goodwill be tested for
impairment annually and if an event occurs or circumstances change that
more-likely-than-not reduce the fair value of a reporting unit below its
carrying value. SFAS 141 is effective for any business combination that is
completed after June 30, 2001. Companies are required to adopt SFAS 142 in the
fiscal year beginning after December 31, 2001. As the goodwill recorded by
MessageMedia arose from the acquisitions of two entities in 1998 and 1999, and
will be completely amortized during 2001, MessageMedia does not believe that the
adoption of SFAS 141 and 142 will have a material impact on its consolidated
financial statements.
On March 13, 2000, MessageMedia entered into a definitive agreement with
@viso Limited, a strategic partnership between Vivendi and SOFTBANK Corp., to
create MessageMedia Europe B.V., a joint venture between MessageMedia and @viso.
MessageMedia owns 51% and @viso owns 49% of the joint venture. The initial
capitalization of the joint venture was funded with $14.8 million during the
second quarter of 2000. MessageMedia Europe B.V. is consolidated into
MessageMedia's financial statements. On May 9, 2001, MessageMedia and @viso
agreed to effect an orderly liquidation of the joint venture. Pursuant to that
agreement, the parties released each other from all claims, liabilities and
demands relating to, among other things, the formation and operation of the
joint venture. The initial capital to effect the liquidation of the joint
venture was provided by @viso, and MessageMedia issued two promissory notes to
@viso in the aggregate principal amount of $4.5 million. Upon the closing of the
merger, the notes will be immediately due and payable to @viso. Furthermore,
upon the closing of the merger, a payment of up to $562,500 must be made to
@viso as a change of control premium. Upon the closing of the merger,
satisfaction of the two promissory notes and payment of the change of control
premium will become obligations of DoubleClick. SOFTBANK Corp. indirectly owns
50% of the interest in @viso and approximately 17% of the outstanding common
stock of MessageMedia. SOFTBANK Corp. is not represented on the MessageMedia
board of directors.
MessageMedia has incurred net operating losses in each quarter since
inception. As of June 30, 2001, MessageMedia had an accumulated deficit of
approximately $205 million. There can be no assurance that MessageMedia's future
revenues will increase or not decrease. In addition, since MessageMedia expects
to introduce new functionality of its services and explore opportunities to
merge with or acquire complementary businesses and technologies, MessageMedia
expects to continue to incur significant operating losses for the foreseeable
future.
89
Results of Operations
Three Months Ended June 30, 2000 and June 30, 2001 and Six Months Ended June 30,
2000 and June 30, 2001
Revenues. For the three months ended June 30, 2001, revenues decreased to
approximately $7.6 million compared to approximately $8.4 million for the three
months ended June 30, 2000. Declines were experienced in both the messaging and
software business in the United States. The decrease is due primarily to the
general economic slowdown in the United States, which has lead to a softened
demand in the marketplace for MessageMedia's outsourced services and software
solutions. During 2000, the number of customers who purchased software hosted
services increased while those purchasing large software licenses decreased.
This product mix shift resulted in lower revenue per customer.
For the six months ended June 30, 2001, revenues increased to approximately
$16.2 million compared to approximately $15.3 million for the six months ended
June 30, 2000. The increase in revenues for the six-month period of the current
year is a result of European sales increasing from $102,922 to $1.4 million,
offset by slowing demand in the United States in the second quarter of
MessageMedia's outsourced services and software solutions.
Costs and Operating Expenses. In April 2001, MessageMedia reduced its
domestic headcount. This reduction in force of 56, or approximately 20% of the
United States workforce, resulted in $600,000 of severance expenses during the
second quarter of 2001. The objective of this reduction was to reduce costs by
over $4 million annually. With the majority of these savings relating to
employment costs, MessageMedia expects these savings to parallel its reduction
in headcount. As a result, MessageMedia expects to achieve savings of
approximately $1.4 million in cost of revenues, $1.2 million in marketing and
sales expenses, $0.4 million in research and engineering expenses and $1.0
million in general and administrative expenses.
In the fourth quarter of 2000, MessageMedia discontinued investment in some
product lines, reduced marketing expenditures, consolidated and closed
facilities, and eliminated 125 employees. The objective of this restructuring
was to reduce costs by over $16 million annually. With the savings relating to a
reduction in outside engineering and marketing expenditures, facility costs and
manpower, MessageMedia expects to achieve savings of approximately $3.4 million
in cost of revenues, $4.2 million in marketing and sales expense, $1.8 million
in research and engineering expenses and $6.6 million in general and
administrative expenses.
Cost of Revenues. The cost of revenues for the messaging and software
service businesses consists of salaries, benefits, consulting fees, and
operational costs related to providing MessageMedia's services and software.
For the three months ended June 30, 2001, the cost of revenues decreased to
approximately $3.0 million compared to approximately $3.9 million for the three
months ended June 30, 2000. Restructuring and cost control measures implemented
in December 2000 and April 2001 were successful in reducing the expenses
associated with providing MessageMedia's products and services.
For the six months ended June 30, 2001, the cost of revenues increased
slightly to approximately $6.9 million compared to approximately $6.8 million
for the six months ended June 30, 2000. This increase in cost was primarily the
result of expenses associated with a full six months of European operations,
offset by the six-month impact of restructuring and cost reduction measures
begun in December 2000 and the realization of cost savings from the reduction in
force in April 2001.
Marketing and sales expenses. Marketing and sales expenses, which include
salaries, wages, consulting fees, advertising, trade shows, travel, and other
marketing expenses, decreased to approximately $2.8 million for the three months
ended June 30, 2001, compared to approximately $5.1 million for the three months
ended June 30, 2000. This decrease is primarily due to a reassessment of
MessageMedia's marketing and sales needs and a corresponding reduction in
marketing and sales activities and staffing for the fiscal quarter.
90
For the six months ended June 30, 2001, marketing and sales expenses
decreased to approximately $5.7 million, compared to approximately $10.6 million
for the six months ended June 30, 2000. This decrease is primarily due to a
reassessment of MessageMedia's marketing and sales needs and a corresponding
reduction in marketing and sales activities and staffing throughout the fiscal
year 2001.
Research, development and engineering expenses. Research, development and
engineering expenses, which include salaries, wages, and consulting fees to
support the development, enhancement, and maintenance of MessageMedia's products
and services, decreased to approximately $1.1 million for the three months ended
June 30, 2001, compared to approximately $1.4 million for the three months ended
June 30, 2000. This decrease is primarily due to staff reductions effected in
December 2000.
Research, development and engineering expenses decreased to approximately
$2.5 million for the six months ended June 30, 2001, compared to approximately
$2.7 million for the six months ended June 30, 2000. This decrease is primarily
due to staff reductions effected in December 2000.
General and administrative expenses. General and administrative expenses
consist primarily of salaries, wages, professional and consulting fees, facility
costs and other expenses associated with the general management and
administration of MessageMedia. General and administrative expenses decreased to
approximately $2.8 million for the three months ended June 30, 2001, compared to
$4.4 million for the three months ended June 30, 2000. This decrease is
primarily due to staff reductions in December 2000 and lower facility costs
associated with the consolidation of operations within Colorado. These general
and administrative expenses include facility costs of $0.9 million for the three
months ended June 30, 2001, compared to $0.7 million for the three months ended
June 30, 2000.
General and administrative expenses decreased to approximately $6.6 million
for the six months ended June 30, 2001, compared to $7.9 million for the six
months ended June 30, 2000. This decrease is primarily the result of the
reduction in force in December 2000, the consolidation operations in Colorado
and other expense reduction programs implemented throughout the year. These
general and administrative expenses include facility costs of $1.9 million for
the six months ended June 30, 2001, compared to $1.0 million for the six months
ended June 30, 2000.
Depreciation and amortization expenses. Depreciation and amortization
expense decreased to $11.7 million for the three months ended June 30, 2001,
compared to approximately $14.0 million for the three months ended June 30,
2000. The most significant reason for the decrease was that amortization of
goodwill, associated with the acquisitions of EPub and DBits, had been fully
expensed in 2000. Goodwill resulting from acquisitions is amortized over two
years.
Depreciation and amortization decreased to $23.2 million for the six months
ended June 30 2001, compared to $27.7 million for the six months ended June 30,
2000. The reduction in the amount of unamortized goodwill to be expensed in 2001
was the primary reason for the decline in expenses.
Severance Expenses. As part of MessageMedia's continuing focus on cost
containment, in April 2001, MessageMedia reduced its domestic headcount. This
reduction in force of 56, or approximately 20% of the United States workforce,
resulted in $600,000 of severance expenses during the second quarter of 2001.
The objective of this reduction was to reduce costs by over $4.0 million
annually.
Restructuring Charges. In the second quarter of 2001, MessageMedia reviewed
its estimates for the restructuring plan and provided an additional $1.8
million. Of this amount, $0.6 million is for additional rent for MessageMedia's
facilities in Colorado, San Francisco and Chicago. The market for commercial
real estate is very soft and although MessageMedia is in discussions with
interested parties to sublease some of its space, it now estimates it will take
it the balance of the year to secure tenants. Following the 2000 restructuring,
the carrying cost of furniture was approximately $0.7 million. This was the
estimated liquidation value of the furniture, derived from conversations with
industry consultants, and represented 60% of its original cost. As the economy
worsened and MessageMedia was unable to sell furnishings, it took an additional
charge of $0.7 million in the
91
second quarter of 2001. Additionally, $0.3 million was charged for a prepaid
asset that no longer has future benefit due to the restructuring.
Also during the second quarter of 2001, MessageMedia agreed with @viso
Limited, its European joint venture partner, to restructure MessageMedia's
European operations. This resulted in a charge of $4.6 million. Associated with
this decision was a gain for the forgiveness of debt in the amount of $5.2
million. From inception to June 30, 2001, MessageMedia Europe B.V. had total
revenues of $2.4 million and MessageMedia has recognized losses after minority
interest and excluding restructuring costs of $5.4 million related to
MessageMedia Europe, B.V. The $4.6 million restructuring charge included $2.1
million for severance cost, $0.4 million for terminations of contracts, $1.3
million for asset impairment and $0.8 million for facility costs, principally
rent and fees.
The restructuring of MessageMedia Europe required the liquidation of the
operation beginning in the second quarter of 2001. The liquidation of
MessageMedia Europe is expected to reduce revenue by approximately $0.5 million
per quarter and quarterly recurring operating expenses by approximately $3.2
million, which consists of a reduction of $0.9 million in cost of revenues, $1.0
million in marketing and sales expenses, $0.9 million in general and
administrative expenses and $0.4 million in depreciation expense. MessageMedia
expects that the liquidation of MessageMedia Europe will result in a reduction
in net loss after minority interest of approximately $1.4 million per quarter
beginning in the third quarter of 2001. MessageMedia does not anticipate any
future expense increases as a result of the liquidation of MessageMedia Europe.
The restructuring reserve at June 30, 2001 was approximately $5.4 million,
representing an increase from December 31, 2000 of $1.2 million. This change
includes additional restructuring charges of $6.4 million reduced by cash
payments of approximately $3.2 million, which consists of $1.3 million in
personnel reduction costs, $0.9 million in contract termination costs, $0.1
million for impaired assets and $0.9 million for facility reduction costs. The
restructuring reserve at June 30, 2001 consisted of $3.4 million associated with
the liquidation of MessageMedia Europe. The remaining $2.0 million of the
restructuring reserve largely related to additional facility costs given
MessageMedia's inability to sublease certain facilities.
Approximately $1.8 million of the restructuring reserve is expected to be
paid by the end of the first quarter of 2002 with cash requirements expected to
be funded from operating cash flows.
Years Ended December 31, 2000, December 31, 1999 and December 31, 1998
Revenues. Prior to July 1998, MessageMedia derived its revenue from its
First Virtual Internet Payment System, or FVIPS, and related services. In
August 1998, MessageMedia phased out the operations of the FVIPS and launched
its e-messaging services. In December 1998, MessageMedia acquired DBits and
EPub, and in August 1999, MessageMedia acquired Revnet and Decisive. Revenue for
the periods presented was earned as detailed in the table below (in thousands):
Year Ended December 31,
--------------------------
2000 1999 1998
---- ---- ----
Messaging and related services.................... $23,897 $ 8,214 $ 425
Software licenses and services.................... 9,751 1,807 --
First Virtual Internet Payment System............. -- -- 863
------- ------- ------
Total revenues................................ $33,648 $10,021 $1,288
------- ------- ------
------- ------- ------
For the year ended December 31, 2000, revenues increased to approximately
$33.6 million compared to approximately $10.0 million for the year ended
December 31, 1999. This increase is primarily attributable to an increase in the
number of customers using MessageMedia's products and services, increased
e-messaging volume, an incremental increase in revenue as a result of the
Decisive and Revnet acquisitions and the startup of MessageMedia Europe, B.V.
For the year ended December 31, 1999, revenues increased to approximately
$10.0 million compared to approximately $1.3 million for the year ended
December 31, 1998. This increase is primarily due to the change in
MessageMedia's business strategy from an internet payment system
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product to e-messaging and software products. In August 1998, MessageMedia began
its e-messaging services, which is now its primary business, and phased out its
FVIPS operations. The increase in revenue was also due to increases in the
number of customers using MessageMedia's services, increased e-messaging volume
and an incremental increase in revenue as a result of the EPub, Revnet and
Decisive acquisitions.
Cost of Revenues. The cost of revenues for e-messaging solutions consists of
salaries, benefits, consulting fees and operational costs related to providing
MessageMedia's outsourced services. Cost of revenues for software licenses
consists of software packaging and distribution costs. The cost of revenues from
FVIPS consisted of fees paid to third parties for processing transactions, costs
of setting up new accounts and communication expenses related to providing
services from the FVIPS. MessageMedia incurred cost of revenues from messaging
services, software products and FVIPS, as detailed in the table below (in
thousands):
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Messaging and related services....................... $15,375 $4,353 $30
Software licenses and services....................... 1,950 236 --
First Virtual Internet Payment System................ -- -- 68
------- ------ ---
Total cost of revenues............................... $17,325 $4,589 $98
------- ------ ---
------- ------ ---
For the year ended December 31, 2000, the cost of revenues increased to
approximately $17.3 million compared to approximately $4.6 million for the year
ended December 31, 1999. This increase is primarily attributable to increased
headcount required to service MessageMedia's growing customer base, the related
growth in the number of mailings and e-messaging volume and the incremental
increase in cost of revenues as a result of the startup of MessageMedia Europe,
B.V. and the acquisitions of Decisive and Revnet.
For the year ended December 31, 1999, the cost of revenues increased to
approximately $4.6 million compared to approximately $98,000 for the year ended
December 31, 1998. This increase is primarily attributable to increased
headcount required to service MessageMedia's growing customer base, the related
growth in the number of mailings and e-messaging volumes and the Decisive and
Revnet acquisitions.
Marketing and sales expenses. Marketing and sales expenses, which include
salaries, wages, consulting fees, advertising, trade shows, travel and other
marketing expenses, increased to approximately $21.5 million for the year ended
December 31, 2000, compared to approximately $9.7 million for the year ended
December 31, 1999. This increase is primarily due to growth in headcount in
sales, customer services and marketing staff as a result of increased sales
efforts related to MessageMedia's new e-messaging and e-intelligence solutions
and an incremental increase in headcount from the Decisive and Revnet
acquisitions and the startup of MessageMedia Europe, B.V. Additionally,
advertising and promotional spending increased as a result of promoting
MessageMedia's new services and products in both the United States and Europe.
For the year ended December 31, 1999, marketing and sales expenses increased
to approximately $9.7 million compared to approximately $1.9 million for the
year ended December 31, 1998. This increase is primarily due to growth in
domestic sales, customer services and marketing headcount, and increased
advertising and promotional spending. Marketing and sales expense for the year
ended December 31, 1999 includes a one-time charge of approximately $855,000 in
compensation expense from acceleration of stock options. This compensation
expense relates to an employment agreement with a former officer, which included
an option vesting acceleration clause that was triggered upon MessageMedia
obtaining certain sales contracts and/or certain sales levels.
Research, development and engineering expenses. Research, development and
engineering expenses, which include salaries, wages and consulting fees to
support the development, enhancement and maintenance of MessageMedia's products
and services, increased to approximately $6.2 million for the year ended
December 31, 2000, compared to approximately $4.9 million for the year ended
December 31, 1999. This increase is due to growth in headcount and
93
related compensation expense associated with MessageMedia's ongoing research,
development and engineering efforts.
For the year ended December 31, 1999, research, development and engineering
expenses increased to approximately $4.9 million, compared to approximately $4.8
million for the year ended December 31, 1998. This increase is due to growth in
headcount and related compensation expense.
General and administrative expenses. General and administrative expenses
consist primarily of salaries, wages, professional and consulting fees, facility
costs and other expenses associated with the general management and
administration of MessageMedia. General and administrative expenses increased to
approximately $20.1 million for the year ended December 31, 2000 compared to
$7.7 million for the year ended December 31, 1999. This increase is primarily
due to increases in MessageMedia's administrative staff and related compensation
expense as a result of MessageMedia's growth. These general and administrative
expenses include facility costs of $3.0 million for the year ended December 31,
2000, compared to $1.2 million for the year ended December 31, 1999.
Additionally, there was an incremental increase in headcount and related
expenses due to MessageMedia's acquisitions of Revnet and Decisive and the
startup of MessageMedia Europe, B.V.
General and administrative expenses increased to approximately $7.7 million
for the year ended December 31, 1999 compared to $4.1 million for the year ended
December 31, 1998. This increase is primarily due to growth in headcount and
related compensation expense and general and administrative expenses associated
with the Revnet and Decisive acquisitions. These general and administrative
expenses include facility costs of $1.2 million for the year ended December 31,
1999, compared to $1.3 million for the year ended December 31, 1998.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased to $55.5 million in 2000 from $28.9 million in 1999. Of this
amount, $3.7 million was related to increased depreciation during 2000, and $23
million was due to a full year amortization of goodwill for acquisitions made in
1999.
From 1998 to 1999, depreciation and amortization increased from $2.3 million
to $28.9 million, principally as a result of amortization of goodwill on the
acquisitions of Epub and Dbits in December 1998 and Revnet and Decisive in
August 1999.
Restructuring charges. In the fourth quarter of the year 2000, MessageMedia
recorded a charge of $7.0 million as a result of the decision to eliminate
certain business development efforts including e-service, an online customer
care solution, MessageMedia's wireless messaging research product and
MessageMedia's secure email delivery product. These product lines had not yet
contributed to revenue, and a decision was made to reduce operating expense and
conserve cash in future periods. The eliminations and reductions in manpower
supporting these product lines resulted in the elimination of 125 positions. All
of these product lines were discontinued and positions were eliminated during
December 2000, although severance payments have been made throughout 2001. In
addition to the cost of eliminating these positions, the discontinuance of these
development efforts resulted in the recognition of restructuring charges for
contractual obligations and software investments incurred to support these
product lines. Finally, this charge also provided for a reduction in occupancy
costs in Colorado as well as in MessageMedia's Chicago and San Francisco sales
offices. The $7.0 million charge included $1.5 million for severance cost, $1.1
million for terminations of contracts for services and software planned to be
included in the eventual product offerings, $2.4 million for asset impairment,
consisting of $1.2 million for leasehold improvements, $300,000 for furniture
write-downs and $900,000 for software write-offs, and $2.0 million for facility
costs, principally rent and real estate fees for subleasing the abandoned
facilities.
The restructuring reserve at December 31, 2000 was $4.2 million and the cash
requirements are expected to be funded from operating cash flows. MessageMedia
does not anticipate any future expense increases as a result of the
restructuring.
94
In the first quarter of 1999, MessageMedia recorded a charge of $1.0 million
as a result of its decision to relocate its corporate headquarters from San
Diego, California to a new facility in Boulder, Colorado. This decision was made
to create efficiencies in MessageMedia's e-messaging services operations, reduce
overhead by centralizing its offices to one facility and eliminate duplication
of efforts from similar positions in the separate offices. The merger
integration and restructuring activity of MessageMedia, DBits and EPub included
a company-wide staff reduction, which resulted in approximately $632,000 of
employee severance pay and other related expenses and approximately $393,000 in
moving expenses and costs related to closing the San Diego facility.
In the second quarter of 1998, MessageMedia recorded a restructuring charge
of approximately $812,000 as a result of its decision to focus its efforts on
the messaging platform, initiate efforts to cease operations of its FVIPS and
better align its cost structure with expected revenue projections. The
restructuring activity included the elimination of job responsibilities company
wide, resulting in approximately $545,000 of employee severance pay and other
related expenses and approximately $267,000 of expenses related to relocating
its corporate office and termination fees for cancellation of certain contracts
related to FVIPS.
Selected Unaudited Quarterly Financial Data
Quarter Ended
-----------------------------------------------------------------------------------------------
3/31/1999 6/30/1999 9/30/1999 12/31/1999 3/31/2000 6/30/2000 9/30/2000 12/31/2000
--------- --------- --------- ---------- --------- --------- --------- ----------
Net revenues................ 754 1,302 3,053 4,912 6,953 8,403 10,278 8,014
Net loss.................... (7,004) (6,152) (13,749) (19,364) (18,927) (19,658) (19,196) (30,373)
Net loss per share,
basic and diluted.......... (0.17) (0.14) (0.29) (0.36) (0.34) (0.35) (0.34) (0.54)
Quarter Ended
---------------------
3/31/2001 6/30/2001
--------- ---------
Net revenues................ 8,674 7,562
Net loss.................... (13,506) (13,475)
Net loss per share,
basic and diluted.......... (0.22) (0.20)
Liquidity and Capital Resources
Six Months Ended June 30, 2000 and June 30, 2001
At June 30, 2001, MessageMedia had $12.3 million in cash and cash
equivalents, including $4.4 million in restricted cash and $4.1 million of cash
in Europe, which is designated to fund the liquidation, compared with $15.8
million in cash and cash equivalents and $4.5 million in restricted cash on
December 31, 2000.
On December 29, 2000, MessageMedia received a $3.0 million bank loan from
Wells Fargo, and on February 22, 2001, MessageMedia raised $8.0 million in
funding from a private placement of MessageMedia's common stock to SOFTBANK
Venture Capital, Pequot Capital Management Inc., and REBAR. Historically,
MessageMedia has experienced recurring losses and has been unable to generate
sufficient working capital needed to meet its cash needs. During 2000,
MessageMedia began restructuring its organization to reduce its expenditures on
infrastructure, including rent, salaries, and other service expenses. During
2001, MessageMedia has continued to focus on reducing expenses in order to
reduce cash burn. In April 2001, MessageMedia reduced its domestic headcount,
and in May 2001, MessageMedia began the process of liquidating its foreign
operations.
The continuing weakness in the economy, which was further aggravated by the
recent World Trade Center attacks, has resulted in a decline in revenues as
customers continue to reduce their marketing expenditures. Accordingly,
MessageMedia has reduced its revenues forecast for the third and fourth quarters
of 2001. The decline in forecasted revenues is accompanied by reductions in
forecasted expenses as MessageMedia continues to manage spending. The result is
a decline in forecasted cash balances for the remainder of 2001.
MessageMedia entered into the amended merger agreement with DoubleClick,
which is expected to close in late October 2001. If this merger does not occur,
MessageMedia plans to seek alternative sources of funding or another merger
partner. Additionally, if this merger does not occur, MessageMedia currently
forecasts that it will not have sufficient unrestricted cash throughout
November 2001 to satisfy the terms of its $3.0 million bank loan from Wells
Fargo. Specifically, a
95
financial covenant of the loan agreement requires that MessageMedia maintain an
unrestricted cash balance of at least $2.0 million. A breach of this covenant
would constitute a default under the loan and entitle Wells Fargo to require its
immediate repayment. If Wells Fargo exercises this right, unless MessageMedia
could secure alternative sources of funding, it would have insufficient working
capital to maintain its operations through December 31, 2001.
Net cash used in operating activities was approximately $10.8 million and
$15.2 million for the six months ended June 30, 2001 and June 30, 2000,
respectively. Net operating cash flows for the six months ended June 30, 2001
were primarily attributable to net losses, increases in minority interest,
settlement of accounts payable, and payment of restructuring charges offset by
non-cash charges for depreciation and amortization. Net operating cash flows for
the six months ended June 30, 2000 were primarily attributable to net losses
offset by non-cash charges for depreciation and amortization, as well as
increases in accounts receivable and prepaid expenses.
Net cash used in investing activities was approximately $1.1 and $7.7
million for the six months ended June 30, 2001 and June 30, 2000, respectively.
Investing activities related to additions of furniture, computer equipment and
software.
Net cash provided by financing activities was approximately $9.0 million and
$19.1 million for the six months ended June 30, 2001 and June 30, 2000,
respectively. Net cash provided by financing activities for the six months ended
June 30, 2001 related primarily to proceeds from the February 2001 private
placement of MessageMedia's common stock to SOFTBANK Venture Capital, Pequot
Capital Management and REBAR. Net cash provided by financing activities for the
six months ended June 30, 2000 related primarily to proceeds received for the
initial capitalization of MessageMedia Europe and from the exercise of stock
options.
Years Ended December 31, 2000, December 31, 1999 and December 31, 1998
At December 31, 2000, MessageMedia had $15.8 million in cash and cash
equivalents, including $4.5 million in restricted cash. Of the $15.8 million,
$11.1 million was in the United States and $4.7 million in MessageMedia Europe,
B.V.
Net cash used in operating activities was approximately $31.5 million, $19.0
million and $11.9 million for the years ended December 31, 2000, 1999 and 1998
respectively. Net operating cash flows for the year ended December 31, 2000 were
primarily attributable to net losses, and increases in minority interest and
accounts receivable, partially offset by non-cash charges for depreciation and
amortization, and increases in the restructuring reserve, accounts payable,
other accrued liabilities, and the write-off of furniture, equipment, and
software. Net operating cash flows for the year ended December 31, 1999 resulted
from net losses, an increase in accounts receivable, and a decrease in other
accrued liabilities, offset by depreciation and amortization, and a decrease in
accrued compensation. Net operating cash flows for the year ended December 31,
1998 were primarily due to net losses offset by depreciation and amortization.
Net cash used in investing activities was approximately $16.3 million, $1.7
million and $422,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. Investing activities related to additions to furniture, computer
equipment and software. For the year ended December 31, 1999, asset additions
were partially offset by cash acquired through the Revnet and Decisive
acquisitions.
Net cash provided by financing activities was approximately $21.5 million,
$54.0 million and $10.7 million for the years ended December 31, 2000, 1999 and
1998, respectively. Net cash provided by financing activities for the year ended
December 31, 2000 related primarily to proceeds from MessageMedia Europe, B.V.,
the exercise of stock options, and proceeds from the Wells Fargo bank loan. The
net cash flow from financing activities in 1999 primarily resulted from proceeds
from issuance of common stock as a result of two separate private placements of
equity in March 1999 and October 1999, and proceeds from the exercise of stock
options. Net cash flow from financing activities in 1998 was primarily due to
proceeds from issuing common stock in a private placement and borrowings from
stockholders.
96
Quantitative and Qualitative Disclosure about Market Risk
MessageMedia's interest income is sensitive to changes in the general level
of United States interest rates and, as of December 31, 2000, to European
interest rates. Because all of MessageMedia's investments are in short-term
investments with maturities of less than three months, however, MessageMedia has
concluded there is no material interest rate risk exposure for these
investments. MessageMedia also faces interest rate risk because MessageMedia has
fixed rate debt. As of December 31, 2000, MessageMedia also faced exposure to
movements in foreign currency exchange rates because MessageMedia had foreign
currency denominated debt.
During the quarter ended June 30, 2001, MessageMedia entered into an
agreement with @viso Limited to shut down the MessageMedia Europe B.V. joint
venture. As part of this liquidation agreement, the full amount of long-term
debt of MessageMedia, denominated in Euro's, was canceled and a new debt
agreement with @viso was signed. The new debt is denominated in United States
dollars and totals $4.5 million, with an interest rate of 10%. The outstanding
principal is due in one lump sum on the earlier of December 31, 2003 or the
consummation of the merger with DoubleClick.
Below, MessageMedia has summarized information on its foreign currency
denominated debt, which is sensitive to foreign currency exchange rates. This
summary presents, as of December 31, 2000, principal cash flows, related
weighted-average interest rates by expected maturity dates and applicable
average forward foreign currency exchange rates.
Balance Sheet Exposure
Operations with United States Dollar Functional Currency
Principal Amount by Expected Maturity
Average Forward Foreign Currency Exchange Rate (USD/Foreign Currency)
Fair Value
December 31,
2001 Total 2000
---- ----- ----
(Dollars in millions)
Long-term Debt Denominated in Foreign Currencies:
Euros
Fixed rate.................................................. $7.7 $7.7 $7.7
Average interest rate....................................... 8% 8% --
Average forward foreign currency exchange rate.............. .95 .95 --
Below is summarized, as of December 31, 2000, information on MessageMedia's
fixed rate debt, which is sensitive to changes in interest rates. The table
presents principal cash flows and related weighted-average interest rates by
expected maturity date.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
Fair Value
December 31,
2001 2002 2003 Total 2000
---- ---- ---- ----- ----
(Dollars in millions)
Long-term debt, including current portion
Fixed rate..................................... $8.5 $1.0 $1.0 $10.5 $10.5
Average interest rate.......................... 8.5% 13.28% 13.28% -- --
97
COMPARISON OF STOCKHOLDERS' RIGHTS
DoubleClick and MessageMedia are both organized under the laws of the State
of Delaware and subject to the provisions of the Delaware General Corporation
Law, or the DGCL. Any differences, therefore, in the rights of holders of
DoubleClick capital stock and MessageMedia capital stock arise primarily from
differences in their respective certificates of incorporation and bylaws. After
the effective time of the merger, the rights of MessageMedia stockholders will
be determined by reference to DoubleClick's amended and restated certificate of
incorporation, as amended, and bylaws. The following is a summary of the
material differences in the rights of the stockholders of MessageMedia and the
rights of the stockholders of DoubleClick. Except as described below, there are
no other material differences in these rights. You are encouraged to refer to
the DGCL and the certificates of incorporation and bylaws of DoubleClick and
MessageMedia on file with the Securities and Exchange Commission for more
information.
Number of Directors; Election and Removal of Directors
DoubleClick may have not less than five nor more than fifteen directors. The
exact number of directors of DoubleClick is determined by its bylaws and is
currently eight persons. The board of directors of DoubleClick is divided into
three classes, each as nearly equal in number as possible, with one class being
elected annually to a three year term. A director may only be removed for cause
and only by the holders of more than two-thirds of the shares entitled to vote
at an election of directors.
The number of directors of MessageMedia is determined by its bylaws and is
currently nine persons. Each director is elected annually to serve until the
annual meeting of stockholders held in the following fiscal year. A director may
be removed, either with or without cause, at any time, only by the holders of a
majority of the shares entitled to vote at an election of directors.
Meetings of the Board of Directors
Special meetings of DoubleClick's board of directors may be called by
DoubleClick's President on two days' notice to each director by mail or 48
hours' notice to each director personally or by telegram. Upon the written
request of two directors or, if there is only one director on the board, the
sole director, the President or Secretary must call a special meeting in the
same manner.
Special meetings of MessageMedia's board of directors may be called by the
Chairman of the Board or by the President, any Vice President, the Secretary or
any two directors of MessageMedia. Advance notice of at least four days must be
given, if given by mail, or at least 48 hours, if given personally, by telephone
or by telegram.
Annual Meeting of Stockholders; Special Meeting of Stockholders
The annual meeting of DoubleClick stockholders must be held on a date and at
a place fixed by the board of directors of DoubleClick. A special stockholders'
meeting may be called at any time by DoubleClick's President and must be called
by its President or Secretary at the request of two-thirds of the board of
directors. DoubleClick stockholders do not have the right to call a special
stockholders' meeting.
The annual meeting of MessageMedia stockholders must be held on a date and
at a time designated by the board of directors of MessageMedia. In the absence
of such designation, the annual meeting of MessageMedia stockholders shall be
held on the twenty-first of March in each year at 9:00 a.m. A special
stockholders' meeting may be called at any time by the MessageMedia board of
directors, by a duly designated committee of the board of director with express
authority to call such a meeting or by one or more MessageMedia stockholders
holding shares in the aggregate entitled to cast not less than ten percent of
the votes cast at that meeting.
Stockholder Proposals
DoubleClick's amended and restated certificate of incorporation, as amended,
provides that a DoubleClick stockholder wishing to bring business before the
annual stockholders' meeting must provide timely notice to DoubleClick's
Secretary at its principal executive offices. To be timely, the notice must be
received between 120 days and 150 days prior to the first anniversary of the
date
98
of the proxy statement for the preceding year's annual meeting. If, however, the
date of the annual stockholders' meeting is more than 30 days before or more
than 60 days after such anniversary date, or if no proxy statement was delivered
to the stockholders for the previous year's annual meeting, notice must be given
between 90 and 60 days before the annual meeting or no later than 10 days
following the day on which DoubleClick first made a public announcement of the
meeting date. If the number of directors to be elected to the DoubleClick board
is increased and DoubleClick has not made a public announcement naming all of
the nominees for director or specifying the size of the increased board at least
70 days prior to the first anniversary of the date of the preceding year's
annual meeting or, if the annual meeting is held more than 30 days before or
60 days after such anniversary date, at least 70 days prior to such annual
meeting, a notice would be timely with respect to nominees for any new positions
created by such increase, if it is received by DoubleClick's Secretary no later
than 10 days following the day on which DoubleClick makes such public
announcement. At a special meeting to elect directors to the board, a
stockholder who provides notice that is received by DoubleClick's Secretary
between 90 and 60 days before the date of the special meeting, or 90 days before
the date of the special meeting and 10 days after the date on which DoubleClick
makes a special announcement of the special meeting and the nominees proposed to
be elected.
The stockholder's written notice must include:
the name and record address of the stockholder;
the number of shares owned beneficially or of record by the stockholder;
and
a brief description of the business to be discussed and the reasons why it
should be discussed at the annual meeting.
Although MessageMedia's amended and restated certificate of incorporation,
as amended, and bylaws are silent on the issue, under the Securities Exchange
Act of 1934, a stockholder wishing to bring business before the annual
stockholders' meeting must provide timely notice to MessageMedia's principal
executive offices not less than 120 days before the date that MessageMedia's
proxy statement was released to stockholders in connection with the previous
year's annual meeting. However, if there was no meeting the previous year, or if
the date of this year's annual meeting has been changed by more than 30 days
from the date of the previous year's meeting, then the deadline is a reasonable
time before MessageMedia begins to print and mail its proxy materials.
Amendment of Bylaws
DoubleClick's bylaws may be repealed, altered, amended or rescinded by the
vote of at least two-thirds of the board of directors or of the outstanding
shares entitled to vote in an election of directors, voting as one class, cast
at a meeting of stockholders called for that purpose.
MessageMedia's bylaws may be adopted, amended or repealed by the vote of
only a majority of the board of directors or of the outstanding shares entitled
to vote in an election of directors.
EXPERTS
The audited financial statements of DoubleClick incorporated by reference in
this proxy statement/prospectus, except as they relate to NetGravity, Inc. for
the year ended December 31, 1998, have been audited by PricewaterhouseCoopers
LLP, independent accountants and, insofar as they relate to NetGravity, Inc. for
the year ended December 31, 1998, have been audited by KPMG LLP, independent
accountants. Such financial statements have been so incorporated in reliance on
the reports of such independent accountants given on the authority of such firms
as experts in auditing and accounting.
The consolidated financial statements of MessageMedia, Inc. at December 31,
2000 and 1999, and for each of the three years in the period ended December 31,
2000, included in this proxy statement/prospectus, and the registration
statement of DoubleClick, of which this proxy statement/prospectus is a part,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report (which contains an explanatory paragraph describing conditions that
raise substantial doubt about MessageMedia, Inc's ability to continue as a going
concern as described in
99
Note 1 to the consolidated financial statements) appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of DoubleClick common stock offered by this proxy
statement/prospectus and the federal income tax consequences in connection with
the merger will be passed upon for DoubleClick by Brobeck, Phleger & Harrison,
New York, New York. Attorneys of Brobeck, Phleger & Harrison own an aggregate of
1,692 shares of DoubleClick common stock. Legal matters with respect to federal
income tax consequences in connection with the merger will be passed upon for
MessageMedia by Cooley Godward, Broomfield, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
DoubleClick and MessageMedia file reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
this information at the public reference rooms of the Securities and Exchange
Commission at the following locations:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W Citicorp Center
Room 1024 500 West Madison Street
Washington, D.C. 20549 Suite 1400
Chicago, IL 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference rooms.
The Securities and Exchange Commission also maintains an Internet World Wide
Web site that contains reports, proxy statements and other information about
issuers, including DoubleClick and MessageMedia, who file electronically with
the Securities and Exchange Commission. The address of that site is
http://www.sec.gov. You can also inspect reports, proxy statements and other
information about DoubleClick and MessageMedia at the offices of the National
Association of Securities Dealers, 1735 K Street, N.W., Washington, D.C. 20006.
DoubleClick has filed a registration statement with the Securities and
Exchange Commission to register the DoubleClick common stock to be issued to
MessageMedia stockholders in the merger. This proxy statement/prospectus
constitutes the prospectus of DoubleClick filed as part of that registration
statement, in addition to being a proxy statement of MessageMedia for use at its
special stockholders' meeting.
As allowed by the Securities and Exchange Commission's rules, this proxy
statement/prospectus does not contain all of the information relating to
DoubleClick included in the registration statement or the exhibits to the
registration statement. Some of the important business and financial information
relating to DoubleClick that may be important in deciding how to vote is not
included in this proxy statement/prospectus, but rather is 'incorporated by
reference' to documents that have been previously filed by DoubleClick with the
Securities and Exchange Commission. The information incorporated by reference is
deemed to be a part of this proxy statement/prospectus, except for any
information superseded by information contained directly in this proxy
statement/prospectus. See 'Incorporation of Documents by Reference.'
DoubleClick has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to DoubleClick and Atlas
Acquisition Corp. and MessageMedia has supplied all information contained in
this proxy statement/prospectus relating to MessageMedia.
Stockholders can obtain any of the documents incorporated by reference
through DoubleClick or the Securities and Exchange Commission. Documents
incorporated by reference are available from DoubleClick without charge,
excluding all exhibits. Stockholders may obtain documents
100
incorporated by reference in this proxy statement/prospectus by requesting them
orally or in writing to the following addresses or by telephone:
DoubleClick Inc.
Investor Relations
450 West 33rd Street
New York, NY 10001
(212) 683-0001
If you would like to request documents, please do so no later than
October 24, 2001, which is five business days prior to the date of
MessageMedia's special stockholders' meeting.
MessageMedia stockholders should rely only on the information contained in
or incorporated by reference in this proxy statement/prospectus to vote on the
amended merger agreement. Neither DoubleClick nor MessageMedia has authorized
anyone to provide information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/prospectus is dated
October [ ], 2001. Stockholders should not assume that the information
contained in this proxy statement/prospectus is accurate as of any other date
and neither the mailing of this proxy statement/prospectus to MessageMedia
stockholders nor the issuance of DoubleClick common stock in the merger shall
create any implication to the contrary.
STOCKHOLDER PROPOSALS
If the merger is not consummated, pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, stockholders of MessageMedia may present proper
proposals for inclusion in MessageMedia's proxy statement and for consideration
at the next annual meeting of MessageMedia's stockholders by submitting their
proposals to MessageMedia in a timely manner. In order to be so included for the
next annual meeting, stockholder proposals must be received by MessageMedia no
later than December 18, 2001 and must comply with the requirements of Rule
14a-8.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows DoubleClick to 'incorporate by
reference' the information DoubleClick files with it, which means that
DoubleClick can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part of
this proxy statement/prospectus and later information filed with the Securities
and Exchange Commission will update and supersede this information. This proxy
statement/prospectus incorporates by reference the documents set forth below
that DoubleClick has previously filed with the Securities and Exchange
Commission. The documents contain important information about DoubleClick and
its finances.
We incorporate by reference DoubleClick's:
Annual report on Form 10-K for the year ended December 31, 2000, including
information in DoubleClick's Definitive Proxy Statement on Schedule 14A,
filed on April 19, 2001;
Quarterly reports on Form 10-Q for the periods ended March 31, 2001 and
June 30, 2001;
Current reports on Form 8-K, filed on September 27, 2000 (as amended by the
Form 8-K/A filed on January 22, 2001), February 2, 2001, February 5, 2001,
March 22, 2001 and June 14, 2001; and
The description of DoubleClick common stock contained in DoubleClick's
registration statement on Form 8-A (File No. 000-23709) filed on
December 1, 1998, registering the DoubleClick common stock under Section
12(g) of the Securities Exchange Act of 1934.
101
In addition, all of DoubleClick's filings with the Securities and Exchange
Commission after the date of this proxy statement/prospectus under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 shall be deemed
to be incorporated by reference until MessageMedia special stockholders'
meeting.
Any statement contained in this proxy statement/prospectus or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement/prospectus.
102
INDEX TO FINANCIAL STATEMENTS
OF MESSAGEMEDIA, INC.
Page
----
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2001
(unaudited) and December 31, 2000......................... F-2
Condensed Consolidated Statements of Operations (unaudited)
for the three and six months ended June 30, 2001 and
2000...................................................... F-3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three and six months ended June 30, 2001 and
2000...................................................... F-4
Notes to Condensed Consolidated Financial Statements........ F-5
Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors........... F-11
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-12
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... F-13
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) for the years ended December 31, 2000, 1999
and 1998.................................................. F-14
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... F-16
Notes to Financial Statements............................... F-17
F-1
MESSAGEMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
June 30 December 31,
2001 2000
---- ----
(Unaudited) (See note 1)
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 7,914 $ 11,273
Restricted cash............................................. 4,375 4,549
Accounts receivable trade, net.............................. 6,591 7,909
Prepaid expenses and other current assets................... 2,295 2,750
--------- ---------
Total current assets................................ 21,175 26,481
Furniture, equipment and software, net...................... 10,937 15,050
Goodwill, net............................................... 4,566 24,100
Deposits and other.......................................... 553 624
--------- ---------
Total assets........................................ $ 37,231 $ 66,255
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 2,095 $ 6,156
Accrued compensation and related liabilities................ 1,439 1,859
Deferred revenue............................................ 802 1,822
Note payable, current portion............................... 932 872
Accounts payable to Joint Venture Partner................... 1,047 1,153
Note payable to Joint Venture Partner....................... -- 7,941
Capital lease obligations, current portion.................. 294 719
Restructuring reserve....................................... 5,371 4,163
Other accrued liabilities................................... 4,072 3,687
--------- ---------
Total current liabilities........................... 16,052 28,372
Note payable................................................ 1,550 2,031
Note payable to Joint Venture Partner....................... 4,564 --
Capital lease obligations................................... 25 92
--------- ---------
Total long-term liabilities................................. 6,139 2,123
Minority Interest........................................... (23) 2,146
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none
outstanding at June 30, 2001 and December 31, 2000........ -- --
Common stock, $0.001 par value; 100,000,000 shares
authorized, 68,648,043 and 56,708,086 shares issued and
outstanding at June 30, 2001 and December 31, 2000,
respectively.............................................. 69 57
Additional paid-in-capital.............................. 220,155 212,031
Warrants................................................ 158 321
Accumulated other comprehensive income.................. (169) (296)
Deferred compensation................................... (18) (348)
Accumulated deficit..................................... (205,132) (178,151)
--------- ---------
Total stockholders' equity.......................... 15,063 33,614
--------- ---------
Total liabilities and stockholders' equity.......... $ 37,231 $ 66,255
--------- ---------
--------- ---------
See accompanying notes to the condensed consolidated financial statements.
F-2
MESSAGEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenues
Messaging.............................. $ 5,267 $ 5,862 $ 11,336 $ 10,223
Software and related services.......... 2,295 2,541 4,900 5,133
-------- -------- -------- --------
Total revenues............................. 7,562 8,403 16,236 15,356
Costs and operating expenses:
Cost of revenues....................... 3,037 3,861 6,866 6,792
Marketing and sales.................... 2,775 5,080 5,737 10,579
Research, development and
engineering.......................... 1,101 1,433 2,478 2,698
General and administrative............. 2,810 4,380 6,616 7,873
Severance.............................. 600 -- 600 --
Restructuring charge................... 6,389 -- 6,389 --
Depreciation and amortization.......... 11,718 13,962 23,197 27,672
-------- -------- -------- --------
Total costs and operating expenses......... 28,430 28,716 51,883 55,614
-------- -------- -------- --------
Loss from operations....................... (20,868) (20,313) (35,647) (40,258)
Interest income............................ 91 386 211 899
Interest expense........................... (238) (95) (478) (99)
Foreign currency gain/(loss)............... (341) (55) (242) (55)
Other income/(expense) (96) (11) (126) (15)
-------- -------- -------- --------
Loss before minority interest,
extraordinary item and cumulative effect
of accounting change..................... (21,452) (20,088) (36,282) (39,528)
Minority interest.......................... 2,816 430 4,140 1,135
-------- -------- -------- --------
Loss before extraordinary item and
cumulative effect of accounting change... (18,636) (19,658) (32,142) (38,393)
Extraordinary gain on exchange of debt..... 5,161 -- 5,161 --
Cumulative effect of change in accounting
principle................................ -- -- -- (192)
-------- -------- -------- --------
Net loss applicable to common shares....... $(13,475) $(19,658) $(26,981) $(38,585)
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted earnings per share:
Loss before extraordinary item............. $ (0.27) $ (0.35) $ (0.49) $ (0.69)
Extraordinary item......................... 0.07 -- 0.08 --
-------- -------- -------- --------
Net loss per common share, basic and
diluted.................................. $ (0.20) $ (0.35) $ (0.41) $ (0.69)
Weighted-average common shares used in per
share computation, basic and diluted..... 68,647,328 56,178,520 65,065,527 55,751,117
See accompanying notes to the condensed consolidated financial statements.
F-3
MESSAGEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
-------------------
2001 2000
---- ----
Operating Activities
Net loss from continuing operations......................... $(26,981) $(38,585)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 23,282 27,672
Reduction in restricted cash.............................. 174 --
Compensation expense for stock options.................... 324 371
Write-off of impaired assets.............................. 1,000 --
Minority interest......................................... (2,170) (1,135)
Extraordinary gain on exchange of debt.................... (5,161) --
Exchange (gain) loss...................................... (242) (55)
Changes in operating assets and liabilities:
Accounts receivable..................................... 1,241 (5,496)
Prepaid expenses and other.............................. 35 (1,767)
Deposits and other...................................... 64 (51)
Accounts payable........................................ (3,941) 216
Accrued compensation and related liabilities............ (420) 1,031
Deferred revenue........................................ (1,007) 825
Payable to related party................................ -- 1,153
Restructuring reserve................................... 2,484 --
Other accrued liabilities............................... 523 584
-------- --------
Net cash used in continuing operating activities............ (10,795) (15,237)
Investing Activities
Additions to furniture, equipment and software.............. (1,129) (7,677)
-------- --------
Net cash provided by (used in) investing activities......... (1,129) (7,677)
Financing Activities
Proceeds from issuance of common stock, net................. 343 4,116
Proceeds from minority interest partner..................... -- 7,291
Proceeds from related party loan............................ 2,000 7,729
Proceeds from private placement, net of issuance costs...... 7,636 --
Repayment of bank loan...................................... (422) --
Repayment of capital lease obligations...................... (491) (19)
-------- --------
Net cash provided by financing activities................... 9,066 19,117
Effect of exchange rate changes on cash and cash
equivalents............................................... (501) 282
Net increase (decrease) in cash and cash equivalents of
continuing
operations................................................ (3,359) (3,515)
Cash and cash equivalents at the beginning of period........ 11,273 37,920
-------- --------
Cash and cash equivalents at the end of period.............. $ 7,914 $ 34,405
-------- --------
-------- --------
See accompanying notes to the condensed consolidated financial statements.
F-4
MESSAGEMEDIA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States (GAAP) for interim financial information and with instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month and
six-month periods ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in this proxy statement/prospectus.
During 2001, we have continued to focus on reducing expenses in order to
reduce cash burn. In April of 2001 we reduced our domestic headcount, and in May
of 2001 we began the process of liquidating our foreign operations.
The continuing weakness in the economy, which was further aggravated by the
recent World Trade Center attacks, has resulted in a decline in revenues as
customers continue to reduce their marketing expenditures. Accordingly, we have
reduced our revenues forecast for the third and fourth quarters of 2001. The
decline in forecasted revenues is accompanied by reductions in forecasted
expenses as we continue to manage spending. The result is a decline in
forecasted cash balances for the remainder of 2001.
We entered into an amended merger agreement with DoubleClick Inc., which is
expected to close in late October 2001. If this merger does not occur, we plan
to seek alternative sources of funding or another merger partner. Additionally,
if this merger does not occur, we currently forecast that we will not have
sufficient unrestricted cash throughout November 2001 to satisfy the terms of
our $3.0 million bank loan from Wells Fargo. Specifically, a financial covenant
of the loan agreement requires that we maintain an unrestricted cash balance of
at least $2.0 million. A breach of this covenant would constitute a default
under the loan and entitle Wells Fargo to require its immediate repayment. If
Wells Fargo exercises this right, unless we could secure alternative sources of
funding, we would have insufficient working capital to maintain our operations
through December 31, 2001.
Net Loss Per Share
Basic and diluted earnings per share are calculated in accordance with FASB
Statement No. 128, 'Earnings Per Share.' All earnings per share amounts for all
periods have been represented, and where appropriate, restated to conform to the
SFAS 128 requirements. Due to the antidilutive effect, options and warrants were
not included in the calculation of diluted earnings per share.
F-5
MESSAGEMEDIA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The antidilutive securities consist of the following:
June 30,
---------------------
2001 2000
---- ----
Options..................................................... 8,462,481 9,284,994
Warrants.................................................... 297,000 505,660
--------- ---------
Total antidilutive securities........................... 8,759,481 9,790,654
--------- ---------
--------- ---------
2. Merger with DoubleClick
On June 1, 2001, MessageMedia and DoubleClick Inc. ('DoubleClick') entered
into a merger agreement, which was amended on June 26, 2001, that provides for
the merger of MessageMedia with, and into, DoubleClick. DoubleClick, which
provides a broad range of media, technology, data and research products and
services to online marketers, had 2000 revenue of $530 million.
3. Restructuring
European Restructuring
On March 13, 2000, we entered into a definitive agreement with @viso Limited
('@viso'), a strategic partnership between Vivendi and SOFTBANK Corp.
('SOFTBANK'), to create MessageMedia Europe B.V., Inc. ('MME'), a joint venture
between MessageMedia and @viso. Under terms of the joint venture agreement, we
own 51% and @viso owns 49% of MME. The initial capitalization of the joint
venture was funded with $14.8 million during the second quarter of 2000.
On May 9, 2001, we signed with @viso, the Agreement To Effect Orderly
Liquidation of MessageMedia Europe, B.V. This liquidation agreement allows for
the orderly liquidation of the joint venture between MessageMedia and @viso, and
the termination of all related agreements undertaken at the formation of the
joint venture. To fund the expected net cash cost of the liquidation, the
liquidation agreement required $4,000,000 of funding to be contributed equally
by MessageMedia and @viso. Pursuant to the liquidation agreement, @viso loaned
MessageMedia $2,000,000 which was contributed to MME. Also provided in the
agreement was a release of MessageMedia's obligation to @viso for the initial
funding of the joint venture and cancellation of the technology licensed from
MessageMedia to the joint venture. In consideration, MessageMedia issued @viso a
promissory note with an aggregate principal amount of $2,500,000. Both notes
totaling $4,500,000 accrue interest at 10% per annum and are due and payable on
the earlier of December 31, 2003 or the consummation of the merger with
DoubleClick. The notes become immediately due and payable should a change of
control occur prior to December 31, 2003. Pursuant to the agreement, a premium
payment will be due should a change in control occur prior to December 31, 2003.
As a result of the restructuring plan, a total of 60 employees will be
terminated, all offices will be closed and all assets and liabilities will be
liquidated. Most employees left by the end of July 2001, and the liquidation
process began about July 1. It is estimated that the cost of liquidation will
be $4.6 million, broken down as follows (in thousands):
F-6
MESSAGEMEDIA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Balance at June 30, 2001
---------------------------------------
Non-Cash Future Cash
Charges Expenditures Total Charges
------- ------------ -------------
Personnel reduction costs......................... $ -- $2,078 $2,078
Contract termination costs........................ -- 404 404
Impairment of assets.............................. 1,007 350 1,357
Facility reduction costs.......................... -- 750 750
------ ------ ------
Total restructuring costs......................... $1,007 $3,582 $4,589
------ ------ ------
------ ------ ------
We estimate that most of the future cash expenditures related to this plan
will be made by December 31, 2001.
Including liquidation costs, and adding back for minority interest, the
revenues and net losses of the joint venture as are follows (in thousands):
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues............................. 610 103 1,451 134
Net losses........................... (4,434) (447) (5,812) (1,180)
Also related to this liquidation was the forgiveness of debt from @viso to
MessageMedia for the original capitalization. This resulted in an extraordinary
gain of $5.2 million in the quarter ended June 30, 2001.
The restructuring of MessageMedia Europe required the liquidation of the
operation beginning in the second quarter of 2001. The liquidation of
MessageMedia Europe is expected to reduce revenue by approximately $0.5 million
per quarter and quarterly recurring operating expenses by approximately $3.2
million, which consists of a reduction of $0.9 million in cost of revenues, $1.0
million in marketing and sales expenses, $0.9 million in general and
administrative expenses and $0.4 million in depreciation expense. MessageMedia
expects that the liquidation of MessageMedia Europe will result in a reduction
in net loss after minority interest of approximately $1.4 million per quarter
beginning in the third quarter of 2001. MessageMedia does not anticipate any
future expense increases as a result of the liquidation of MessageMedia Europe.
2000 Restructuring
In the fourth quarter of the year 2000, we recorded a charge of
$7.0 million as a result of the decision to eliminate certain business
development efforts including e-service, an online customer care solution, our
wireless messaging research product and our secure e-mail delivery product.
These product lines had not yet contributed to revenue, and a decision was made
to reduce operating expense and conserve cash in future periods. The
eliminations and reductions in manpower supporting these product lines resulted
in the elimination of 125 positions. All of these product lines were
discontinued and positions were eliminated during December 2000, although
severance payments have been made throughout 2001. In addition to the cost of
eliminating these positions, the discontinuance of these development efforts
resulted in the recognition of restructuring charges for contractual obligations
and software investments incurred to support these product lines. Finally, this
charge also provided for a reduction in occupancy costs in Colorado as well as
in our Chicago and San Francisco sales offices. The $7.0 million charge included
$1.5 million for severance cost, $1.1 million for terminations of contracts for
services and software planned to be included in the eventual product offerings,
$1 million for facility rent expense for the six months following the
December 2000 business restructuring, $500,000 for the estimated differential
between sublease income and rent expense, $400,000 for broker fees associated
with
F-7
MESSAGEMEDIA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
subleases of the facilities, $100,000 for incidental expenses of the subleasing
process, $900,000 for a write-off of the book value of software purchased in
conjunction with product lines which were eliminated in the December 2000
business restructuring, $1.2 million for the write-off of the remaining
unamortized leasehold improvements in vacated facilities and $300,000 for
the write-off of undepreciated furniture and fixtures within vacated facilities.
These assets provided no further value to our continuing operations.
In the second quarter of 2001, we reviewed our estimates for the
restructuring plan and provided an additional $1.8 million. Of this amount,
$0.6 million is for additional rent for our facilities in Colorado, San
Francisco and Chicago. The market for commercial real estate is very soft and
although we are in discussions with interested parties to sublease some of our
space, we now estimate it will take us the balance of the year to secure
tenants. Following the 2000 restructuring, the carrying cost of furniture was
approximately $0.7 million. This was the estimated liquidation value of the
furniture, derived from conversations with industry consultants, and represented
60% of its original cost. As the economy worsened and MessageMedia was unable to
sell furnishings, it took an additional charge of $0.7 million in the second
quarter of 2001. Additionally, $0.3 million was charged for a prepaid asset that
no longer has future benefit due to the restructuring.
Under the 2000 restructure plan, we have made total payments and disposals
as follows (in thousands):
Balance at
Through June 30, 2001 June 30, 2001
---------------------------------------------- ----------------------
Cash Non-cash Restructure Future cash Total
expenditures charges Total reversal expenditures charges
------------ ------- ----- -------- ------------ -------
Year 2000 Restructuring Plan:
Personnel reduction costs.... $1,563 $ -- $1,563 $ -- $ 23 $1,586
Contract termination costs... 906 -- 906 -- 266 1,172
Impairment of assets......... 67 3,382 3,449 -- 23 3,472
Facility reduction costs..... 914 -- 914 -- 1,665 2,579
------ ------ ------ ------ ------ ------
Total restructuring
costs.................. $3,450 $3,382 $6,832 $ -- $1,977 $8,809
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
We estimate that most of the future cash expenditures related to this plan will
be made by December 31, 2001. With the savings relating to a reduction in
outside engineering and marketing expenditures, facility costs and manpower,
MessageMedia expects to achieve savings of approximately $3.5 million in cost of
revenues, $4.2 million in marketing and sales expense, $1.8 million in research
and engineering expenses and $6.6 million in general and administrative
expenses.
The restructuring reserve at June 30, 2001 was approximately $5.4 million
and consisted of the following components (in millions):
Europe U.S. Total
------ ---- -----
Personnel reduction costs................................... $1.9 $ -- $1.9
Contract termination costs.................................. 0.4 0.3 0.7
Impairment of assets........................................ 0.3 -- 0.3
Facility reduction costs.................................... 0.8 1.7 2.5
---- ---- ----
Total................................................... $3.4 $2.0 $5.4
---- ---- ----
---- ---- ----
F-8
MESSAGEMEDIA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
4. Severance
As part of our continuing focus on cost containment, in April 2001, we
reduced our domestic headcount. This reduction in force of 56, or approximately
20% of the United States workforce, resulted in $600,000 of severance expenses
during the second quarter of 2001. The objective of this reduction was to reduce
costs by over $4 million annually. With the majority of these savings relating
to employment costs, MessageMedia expects these savings to parallel its
reduction in headcount. As a result, MessageMedia expects to achieve savings of
approximately $1.4 million in cost of revenues, $1.2 million in marketing and
sales expenses, $0.4 million in research and engineering expenses and $1.0 in
general and administrative expenses.
The composition of the employee groups impacted by the April 2001 reduction
in workforce is as follows:
Employee Group Number of Employees
-------------- -------------------
Production and information technology personnel............. 20
Software development personnel.............................. 5
Sales and account management personnel...................... 16
General and administrative personnel........................ 15
MessageMedia anticipates that the percentage of the $4.0 million savings
relating to each employee group will be approximately proportionate to the
number of employees terminated in each group.
5. Business Segments
Operating segments are components of an enterprise about which separate
financial information is available and regularly evaluated by the chief
operating decision makers of an enterprise. Under this definition, beginning in
the third quarter of 2000, the Company has operated under two segments:
messaging and related services, and software licenses and services. The factors
used by management to identify reportable segments are differences in products
and services and management organization. Services included in the messaging and
related services segment are principally outsourced e-mail communication and
campaign management in a full service bureau model. Products and services
included in the software licenses and services include a software product that
is sold as both boxed software or as a hosted service. Separate financial
information by segment for total assets is not available and is not evaluated by
the chief operating decision makers of the Company. We do not have any
intersegment revenue, and the chief decision makers of the Company evaluate
segment performance based on revenue.
The revenue by segment is as follows:
Three Months
Ended Six Months Ended
June 30, June 30,
--------------- -----------------
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
Revenues:
Messaging and related services............................ $5,267 $5,862 $11,336 $10,223
Software licenses and services............................ 2,295 2,541 4,900 5,133
------ ------ ------- -------
Total revenues........................................ $7,562 $8,403 $16,236 $15,356
------ ------ ------- -------
------ ------ ------- -------
6. Changes in Capital Structure
On February 22, 2001, we sold 11,267,606 shares of our common stock to seven
investors, including affiliates of SOFTBANK Venture Capital, Pequot Capital
Management, Inc., and Rebar, LLC, for an aggregate purchase price of
approximately $8,000,000. The sale of the common stock was not registered under
the Securities Act of 1933, as amended, in reliance on Section 4(2)
F-9
MESSAGEMEDIA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
and/or Regulation D promulgated thereunder. The securities were not offered or
sold by any form of general solicitation and the purchasers represented their
intention to acquire the securities for investment purposes only and not with a
view toward the distribution thereof.
7. Comprehensive Income
Other comprehensive income as of June 30, 2001 and June 30, 2000 consists of
a foreign currency translation income related to MessageMedia Europe of $127,000
and a loss of $231,000, respectively. Therefore, the comprehensive loss for the
six months ending June 30, 2001 and June 30, 2000 is as follows (in thousands):
June 30, 2001 June 30, 2000
------------- -------------
Other comprehensive income (loss).................. $ 127 $ (231)
Net loss........................................... (26,981) (38,585)
-------- --------
Comprehensive loss................................. $(26,854) $(38,816)
-------- --------
-------- --------
8. New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 'Business Combinations' and No. 142
'Goodwill and Other Intangible Assets' (SFAS 141 and 142). SFAS 141 eliminates
the pooling-of-interest method of accounting for business combinations and
changes the criteria to recognize intangible assets apart from goodwill. Under
SFAS 142, goodwill and indefinite lived intangible assets are no longer
amortized but are reviewed annually, or more frequently if impairment indicators
arise, for impairment. SFAS 142 requires that goodwill be tested for impairment
annually and if an event occurs or circumstances change that
more-likely-than-not reduce the fair value of a reporting unit below its
carrying value. SFAS 141 is effective for any business combination that is
completed after June 30, 2001. Companies are required to adopt FAS 142 in the
fiscal year beginning after December 31, 2001. As the goodwill recorded by
MessageMedia arose from the acquisitions of two entities in 1998 and 1999, and
will be completely amortized during 2001, we do not believe that the adoption of
SFAS 141 and 142 will have a material impact on our consolidated financial
statements.
F-10
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
MESSAGEMEDIA, INC.
We have audited the accompanying consolidated balance sheets of
MessageMedia, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of MessageMedia'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 consolidated financial position of MessageMedia,
Inc. at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 1 to the financial statements, MessageMedia changed its
method of recognizing revenue in 2000.
The accompanying financial statements have been prepared assuming that
MessageMedia will continue as a going concern. As more fully described in
Note 1, MessageMedia has incurred recurring operating losses and negative cash
flows and has a substantial need for additional funding to support its
operations. These conditions raise substantial doubt about MessageMedia's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 15, 2001,
except for Note 14 as to which the date is
February 23, 2001,
and except for the third and fourth paragraphs of Note 1
as to which the date is
September 28, 2001
F-11
MESSAGEMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
Year Ended December 31,
------------------------
2000 1999
---- ----
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 11,273 $ 37,920
Restricted cash............................................. 4,549 --
Accounts receivable, net.................................... 7,909 4,278
Prepaid expenses and other.................................. 2,750 749
--------- --------
Total current assets................................ 26,481 42,947
Furniture, equipment and software, net...................... 15,050 4,728
Goodwill, net............................................... 24,100 75,162
Deposits and other.......................................... 624 354
--------- --------
Total assets........................................ $ 66,255 $123,191
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................ $ 6,156 $ 2,482
Accrued compensation and related liabilities................ 1,859 1,912
Deferred revenue............................................ 1,822 324
Note payable and capital lease obligations, current
portion................................................... 1,591 25
Payable to joint venture partner............................ 9,094 --
Restructuring reserve....................................... 4,163 65
Other accrued liabilities................................... 3,687 957
--------- --------
Total current liabilities........................... 28,372 5,765
Note payable and capital lease obligations, long term....... 2,123 36
Minority interest........................................... 2,146 --
Stockholders' Equity:
Preferred stock, 5,000,000 shares authorized, none
outstanding on December 31, 2000 and 1999,
respectively, and none outstanding on March 31,
2001.................................................. -- --
Common stock, $0.001 par value; 100,000,000 shares
authorized, 56,708,086 and 54,920,498 shares issued
and outstanding on December 31, 2000 and 1999,
respectively, and 68,642,801 shares issued and
outstanding on March 31, 2001......................... 57 55
Additional paid-in capital.............................. 212,031 208,343
Warrants................................................ 321 321
Accumulated other comprehensive income.................. (296) --
Deferred compensation................................... (348) (1,332)
Accumulated deficit..................................... (178,151) (89,997)
--------- --------
Total stockholders' equity.......................... 33,614 117,390
--------- --------
Total liabilities and stockholders' equity.......... $ 66,255 $123,191
--------- --------
--------- --------
See accompanying notes.
F-12
MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Year Ended December 31,
--------------------------------------
2000 1999 1998
---- ---- ----
Revenues............................................... $ 33,648 $ 10,021 $ 1,288
Costs and operating expenses:
Cost of revenues................................... 17,325 4,589 98
Marketing and sales................................ 21,526 9,704 1,935
Research, development and engineering.............. 6,234 4,936 4,828
General and administrative......................... 20,083 7,678 4,095
Restructuring expenses............................. 7,009 1,025 812
Write-off of in-process technology................. -- -- 1,300
Depreciation expense............................... 5,022 1,358 1,148
Amortization expense............................... 50,497 27,565 1,038
-------- -------- --------
Total costs and operating expenses..................... 127,696 56,855 15,254
-------- -------- --------
Loss from operations................................... (94,048) (46,834) (13,966)
Interest income........................................ 1,522 654 218
Interest expense....................................... (433) (89) (84)
Other expense.......................................... (112) -- --
-------- -------- --------
Net loss before minority interest and cumulative effect
of accounting change................................. (93,071) (46,269) (13,832)
Minority interest...................................... (5,109) -- --
-------- -------- --------
Net loss before cumulative effect of change in
accounting principle................................. (87,962) (46,269) (13,832)
Cumulative effect of change in accounting principle.... (192) -- --
-------- -------- --------
Net loss............................................... (88,154) (46,269) (13,832)
Dividends imputed on preferred stock................... -- -- (1,233)
-------- -------- --------
Net loss applicable to common shares................... $(88,154) $(46,269) $(15,065)
-------- -------- --------
-------- -------- --------
Net loss per share, basic and diluted.................. $ (1.57) $ (1.00) $ (0.68)
Pro forma net loss assuming the accounting change is
applied retroactively................................ $(87,962) $(46,436) $(15,090)
Pro forma net loss per share........................... $ (1.57) $ (1.00) $ (0.68)
Shares used in per share computation, basic and
diluted.............................................. 56,080,224 46,367,195 22,304,902
See accompanying notes.
F-13
MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)
Preferred Stock Common Stock Additional
--------------- ------------------- Paid-In- Deferred Accumulated
Shares Amount Shares Amount Capital Warrants Compensation Deficit
------ ------ ------ ------ ------- -------- ------------ -------
Balance at December 31, 1997..... 250 1 8,903,855 9 26,300 3,017 (155) (29,743)
Issuance of stock dividends to
Series A preferred
stockholders.................... -- -- 108,125 -- 153 -- -- (153)
Issuance of common stock for the
exercise of warrants............ -- -- 947,495 1 1,604 (1,501) -- --
Issuance of common stock for
exercise of stock options....... -- -- 659,637 1 271 -- -- --
Conversion of Series A preferred
stock........................... (250) (1) 1,752,141 2 473 -- -- --
Issuance of common stock for
services rendered............... -- -- 59,009 -- 87 -- -- --
Charge associated with extending
option terms.................... -- -- -- -- 406 -- -- --
Deferred compensation and related
amortization.................... -- -- -- -- 166 -- 119 --
Common stock issued to SOFTBANK
and affiliates.................. -- -- 20,784,883 21 15,338 -- -- --
Dividend imputed on Series A
convertible preferred stock,
canceled upon buyout of Series A
convertible preferred by
SOFTBANK........................ -- -- -- -- 938 -- -- --
Employee stock purchase plan..... -- -- 17,907 -- 44 -- -- --
Common stock issued for EPub
acquisition..................... -- -- 5,582,676 5 20,258 -- (583) --
Common stock and warrants issued
for Dbits acquisition........... -- -- 1,305,320 1 4,926 350 (39) --
Net loss......................... -- -- -- -- -- -- -- (13,832)
----- --- ---------- ----- ------- ------- ------- ---------
Balance at December 31, 1998..... -- -- 40,121,048 40 70,964 1,866 (658) (43,728)
----- --- ---------- ----- ------- ------- ------- ---------
----- --- ---------- ----- ------- ------- ------- ---------
Issuance of common stock for
exercise of stock options....... -- -- 1,700,049 2 3,287 -- -- --
Issuance of common stock for
exercise of warrants............ -- -- 1,280,074 1 2,582 (1,545) -- --
Deferred compensation and related
amortization.................... -- -- -- -- 29 -- (674) --
Acceleration of stock options.... -- -- -- -- 916 -- -- --
Common stock issued for Revnet
Acquisition..................... -- -- 3,262,120 3 41,032 -- -- --
Common stock issued for Decisive
Acquisition..................... -- -- 2,054,498 2 39,159 -- -- --
Common stock issued for Private
Offerings....................... -- -- 6,448,066 7 49,956 -- -- --
Employee stock purchase plan..... -- -- 47,348 -- 272 -- -- --
Issuance of common stock for
forgiveness of stockholder
debt............................ -- -- 7,295 -- 146 -- -- --
Net loss......................... -- -- -- -- -- -- -- (46,269)
----- --- ---------- ----- ------- ------- ------- ---------
Balance at December 31, 1999..... -- -- 54,920,498 55 208,343 321 (1,332) (89,997)
----- --- ---------- ----- ------- ------- ------- ---------
----- --- ---------- ----- ------- ------- ------- ---------
Issuance of common stock for
exercise of stock options....... -- -- 1,444,963 2 4,160 -- -- --
Deferred compensation and related
amortization.................... -- -- -- -- (304) -- 984 --
Costs associated with 1999
private offering................ -- -- -- -- (35) -- -- --
Issuance of common stock for
employee compensation........... -- -- 200,000 -- 87 -- -- --
Decisive acquisition working
capital adjustment.............. -- -- (35,289) -- (565) -- --
Adjustment to shares issued...... -- -- 8,248 -- -- -- -- --
Employee stock purchase plan..... -- -- 169,666 -- 345 -- -- --
Other comprehensive income --
cumulative translation
adjustment...................... -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- (88,154)
Comprehensive loss............... -- -- -- -- -- -- -- --
----- --- ---------- ----- ------- ------- ------- ---------
Balance at December 31, 2000..... -- -- 56,708,086 57 212,031 321 (348) (178,151)
----- --- ---------- ----- ------- ------- ------- ---------
----- --- ---------- ----- ------- ------- ------- ---------
See accompanying notes.
F-14
MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -- (Continued)
(Dollars in thousands, except share data)
Accumulated
Other Total
Comprehensive Stockholders
Income Equity
------ ------
Balance at December 31, 1997................................ -- (572)
Issuance of stock dividends to Series A preferred
stockholders.............................................. -- --
Issuance of common stock for the exercise of warrants....... -- 104
Issuance of common stock for exercise of stock options...... -- 272
Conversion of Series A preferred stock...................... -- 475
Issuance of common stock for services rendered.............. -- 87
Charge associated with extending option terms............... -- 406
Deferred compensation and related amortization.............. -- 285
Common stock issued to SOFTBANK and affiliates.............. -- 15,359
Dividend imputed on Series A convertible preferred stock,
canceled upon buyout of Series A convertible preferred by
SOFTBANK.................................................. -- 938
Employee stock purchase plan................................ -- 44
Common stock issued for EPub acquisition.................... -- 19,680
Common stock and warrants issued for Dbits acquisition...... -- 5,238
Net loss.................................................... -- (13,832)
----- --------
Balance at December 31, 1998................................ -- 28,484
----- --------
----- --------
Issuance of common stock for exercise of stock options...... -- 3,289
Issuance of common stock for exercise of warrants........... -- 1,038
Deferred compensation and related amortization.............. -- (645)
Acceleration of stock options............................... -- 916
Common stock issued for Revnet Acquisition.................. -- 41,035
Common stock issued for Decisive Acquisition................ -- 39,161
Common stock issued for Private Offerings................... -- 49,963
Employee stock purchase plan................................ -- 272
Issuance of common stock for forgiveness of stockholder
debt...................................................... -- 146
Net loss.................................................... -- (46,269)
----- --------
Balance at December 31, 1999................................ -- 117,390
----- --------
----- --------
Issuance of common stock for exercise of stock options...... -- 4,162
Deferred compensation and related amortization.............. -- 680
Costs associated with 1999 private offering................. -- (35)
Issuance of common stock for employee compensation.......... -- 87
Decisive acquisition working capital adjustment............. -- (565)
Adjustment to shares issued................................. -- --
Employee stock purchase plan................................ -- 345
Other comprehensive income -- cumulative translation
adjustment................................................ (296) (296)
Net loss.................................................... -- (88,154)
--------
Comprehensive loss.......................................... -- (88,450)
----- --------
Balance at December 31, 2000................................ (296) 33,614
----- --------
----- --------
See accompanying notes.
F-15
MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
---------------------------------
2000 1999 1998
---- ---- ----
Operating Activities
Net loss.................................................... $ (88,154) $ (46,269) $ (13,832)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 55,589 28,923 2,186
Minority interest........................................... (5,109) -- --
Exchange (gain)/loss........................................ 8 -- --
In-process technology charge................................ -- -- 1,300
Write-off of impaired assets................................ 2,382 -- --
Restricted cash............................................. (4,549) -- --
Loss on disposal of assets.................................. -- -- 34
Common stock issued for services............................ 87 -- 87
Compensation expense for stock options...................... 680 1,347 691
Changes in operating assets and liabilities:
Accounts receivable........................................ (3,616) (3,145) (133)
Prepaid expenses and other................................. (1,982) (317) 23
Deposits and other......................................... (269) (267) 116
Accounts payable........................................... 3,652 385 (372)
Accounts payable to related party.......................... 1,514 -- --
Accrued compensation and related liabilities............... (54) 1,477 (262)
Deferred revenue........................................... 1,494 (51) (538)
Accrued interest........................................... -- (15) (275)
Amount due to stockholders................................. -- -- (97)
Restructuring reserve...................................... 4,155 -- --
Other accrued liabilities.................................. 2,646 (1,076) (833)
--------- --------- ---------
Net cash flows used in operating Activities.............. (31,526) (19,008) (11,905)
Investing Activities
Additions to furniture, equipment and software.............. (16,309) (3,775) (436)
Proceeds from sales of fixed assets......................... -- -- 14
Cash and cash equivalents acquired with acquisitions........ -- 2,054 --
--------- --------- ---------
Net cash flows used in investing activities.............. (16,309) (1,721) (422)
Financing Activities
Proceeds from issuance of common stock, net of issuance
costs...................................................... 310 50,235 8,908
Proceeds from issuance/extension of warrants................ -- 1,038 104
Proceeds from borrowings from stockholders and bank......... 3,004 -- 1,412
Proceeds from exercise of stock options..................... 4,162 3,289 271
Contribution from minority interest holder.................. 7,255 -- --
Proceeds from related party loan............................ 7,552 -- --
Repayment of amount due to stockholders..................... -- (395) --
Repayment of loan from Bank................................. (101) (92) --
Repayment of capital lease obligations...................... (640) (85) (40)
--------- --------- ---------
Net cash flows provided by financing activities............. 21,542 53,990 10,655
--------- --------- ---------
Effect of exchange rate changes on cash..................... (354) -- --
Net increase/(decrease) in cash and cash equivalents........ (26,647) 33,261 (1,672)
Cash and cash equivalents at the beginning of year.......... 37,920 4,659 6,331
--------- --------- ---------
Cash and cash equivalents at the end of year............... $ 11,273 $ 37,920 $ 4,659
--------- --------- ---------
--------- --------- ---------
Supplemental Disclosures of Cash Flow Information:
Interest paid.............................................. $ 433 $ 89 $ 84
--------- --------- ---------
--------- --------- ---------
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
Capital lease entered into................................. $ 1,390 $ -- $ --
--------- --------- ---------
--------- --------- ---------
Issuance of common stock for forgiveness of stockholder
debt..................................................... $ -- $ 146 $ 1,534
--------- --------- ---------
--------- --------- ---------
Conversion of Series A redeemable convertible preferred
stock.................................................... $ -- $ -- $ 3,234
--------- --------- ---------
--------- --------- ---------
Issuance of common stock for forgiveness of SOFTBANK
loan..................................................... $ -- $ -- $ 1,412
--------- --------- ---------
--------- --------- ---------
See accompanying notes.
F-16
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization and Business Activity
We are a leading provider of permission-based, comprehensive e-messaging
solutions. Our services utilize the medium of e-mail to develop and foster
permission-based relationships with customers. Our suite of services and
products enables businesses to use e-messaging as strategic tools to increase
sales, improve customer communication and develop long-term customer loyalty.
Our e-messaging solutions, available either on an outsourced-subscription basis
or using in-house, packaged software, allow businesses to establish and enhance
two-way customer dialogue across the extended enterprise, from marketing to
sales to customer service.
The accompanying financial statements have been prepared assuming we will
continue as a going concern. We have experienced recurring losses and have a
deficiency in working capital needed to meet our cash needs. During 2000, we
began restructuring our organization to reduce our expenditures on
infrastructure including rent, salaries and other service expenses related to
our e-services division. In addition, in early 2001 we completed a private
placement for net proceeds to us of $7.7 million. There can be no assurance that
the restructuring of our organization will achieve the desired results or that
revenues will increase to the level necessary to generate positive cash flow
from operations.
The continuing weakness in the economy, which was further aggravated by the
World Trade Center attacks, has resulted in a decline in revenues as customers
continue to reduce their marketing expenditures. Accordingly, we have reduced
our revenues forecast for the third and fourth quarters of 2001. The decline in
forecasted revenues is accompanied by reductions in expenses as we continue to
manage spending. The net result is that management expects reduced cash balances
for the remainder of 2001.
We entered into an amended merger agreement with DoubleClick Inc., which is
expected to close in late October 2001. If this merger does not occur, we plan
to seek alternative sources of funding or another merger partner. Additionally,
if this merger does not occur, we currently forecast that we will not have
sufficient unrestricted cash throughout November 2001 to satisfy the terms of
our $3.0 million bank loan from Wells Fargo. Specifically, a financial covenant
of the loan agreement requires that we maintain an unrestricted cash balance of
at least $2.0 million. A breach of this covenant would constitute a default
under the loan and entitle Wells Fargo to require its immediate repayment. If
Wells Fargo exercises this right, unless we could secure alternative sources of
funding, we would have insufficient working capital to maintain our operations
through December 31, 2001.
On December 13, 1996, we completed an initial public offering (the
'Offering') of 2,000,000 shares of our common stock under the name First Virtual
Holdings Incorporated, with an offering price of $9.00 per share, resulting in
gross proceeds of $18.0 million and net proceeds (less the underwriters'
discount and offering expenses) of approximately $15.0 million. Upon completion
of the offering, all of the then outstanding shares of preferred stock were
converted to common stock.
On June 23, 1998, at our Annual Meeting of Stockholders, the stockholders
approved an investment in MessageMedia by affiliates of SOFTBANK Corp. and
SOFTBANK Venture Capital (together 'SOFTBANK') and E*Trade Group Inc. SOFTBANK
and affiliates purchased approximately 19.2 million shares of our common stock
and became our majority stockholder. On September 10, 1998, SOFTBANK purchased
approximately 1.6 million additional shares of our common stock.
On December 9, 1998, we changed our name to MessageMedia and our NASDAQ
National Market symbol to 'MAIL' and amended the Certificate of Incorporation to
increase the number
F-17
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
of our authorized shares of our common stock from 40,000,000 to 100,000,000. On
March 30, 1999, we changed our NASDAQ symbol to 'MESG'.
On December 9, 1998, we acquired all of the common stock and all outstanding
rights of the common stock of EPub in exchange for 5,582,676 shares of our
common stock and the assumption by us of options and warrants to acquire up to
approximately 417,324 additional shares of our common stock at a weighted
average exercise price of $.04 per share.
On December 11, 1998, we acquired all equity interests, including options,
warrants or other purchase rights, if any, in DBits, in exchange for 1,350,320
shares of our common stock and warrants to purchase an additional 250,000 shares
of our common stock at an exercise price of $6.00 per share and an additional
250,000 shares of our common stock at $8.00 per share.
On March 26, 1999, we issued 2,352,942 shares of our common stock in a
private placement for net proceeds to us of $9,902,082.
On August 9, 1999, we acquired all of the common stock and all outstanding
rights to acquire shares of the common stock of Revnet in exchange for 3,262,120
shares of our common stock and the assumption of options to acquire up to
approximately 681,675 additional shares of our common stock, at a weighted
average exercise price of $1.36 per share.
On August 16, 1999, we acquired all of the common stock and all outstanding
rights to acquire shares of the common stock of Decisive in exchange for
2,054,498 shares of our common stock and the assumption by us of options to
acquire up to approximately 466,818 additional shares of our common stock, at a
weighted average exercise price of $2.69.
On October 21, 22, and 25, 1999, in three separate closings, we completed a
private placement of 4,095,124 shares of our common stock for net proceeds of
$40,060,984.
Principles of Consolidation
The consolidated financial statements include our accounts and the majority
owned subsidiaries in which we have a controlling interest. All significant
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Reclassifications of Prior Year Amounts
Certain 1998 and 1999 balances have been reclassified to conform to the year
2000 presentations.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of less
than three months to be cash equivalents.
Restricted Cash
Restricted cash consists of collateral for letters of credit on three of our
leased facilities.
Fair Value of Financial Instruments
SFAS No. 107, 'Disclosures about Fair Value of Financial Instruments,'
requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet,
F-18
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
for which it is practicable to estimate that value. Our financial instruments
include current assets and liabilities. The carrying amount of these financial
instruments reported in the balance sheets approximates their fair value.
Off Balance Sheet Risk and Concentration of Credit Risk
Financial instruments that potentially subject us to concentration of credit
risk consists primarily of cash and cash equivalents and accounts receivable. We
maintain our cash and cash equivalents in high quality U.S. financial
institutions. We extend credit to various customers and establish an allowance
for doubtful accounts for specific customers that we determine to have a
significant credit risk.
Furniture, Equipment and Software
Furniture, equipment and software are stated at cost and depreciated over
the estimated useful lives of the assets using the straight-line method. The
estimated useful lives are five years for furniture and generally three years
for equipment and software.
Intangible Assets
Intangible assets arose primarily from the acquisition of two entities in
December 1998 and two entities in August of 1999. The excess of cost over the
fair value of the net assets acquired has been allocated to goodwill and
developed technology. These intangible assets are being amortized over their
useful lives of two years.
Asset Impairment
In accordance with Statement of Financial Accounting Standards No. 121,
'Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of' (SFAS 121), we recognize impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS 121 also addresses the accounting
for long-lived assets that we expect to dispose of. In the year 2000, we
recorded an impairment loss of $2.4 million as a result of the decision to
eliminate the e-services line of business and reduce overhead by centralizing
our Colorado offices to one facility. Of the $2.4 million loss, $1.0 million
related to software for e-services and $1.4 million for facilities. (See note
9.)
Foreign Currency Translation
The financial statements of MessageMedia Europe are prepared in euros and
translated into U.S. dollars based on the current exchange rate at the end of
the period for the balance sheet and an average rate for the period for the
statement of income. The functional currency for MessageMedia Europe is the
euro, as such, translation adjustments are reflected as foreign currency
translation adjustments within comprehensive income in stockholders' equity and
accordingly have no effect on net income. Transaction adjustments for payables
denominated in a foreign currency are included in income. Foreign currency
transaction adjustments are not material to income.
Stock-Based Compensation
We account for stock option grants to employees in accordance with
Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees' (APB 25) and related Interpretations because we believe the
alternative fair value accounting provided for under
F-19
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Statement of Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation,' requires the use of option valuation models that were not
developed for use in valuing employee stock options. Deferred compensation is
recorded only when the fair value of the stock on the date of the option grant
exceeds the exercise price of the option. The deferred compensation is amortized
over the vesting period of the option.
Revenue Recognition
We derive our revenue from outsourced e-messaging services and software
products and related support services. Prior to July 1998, we derived our
revenue from the First Virtual Internet Payment System ('FVIPS') and related
consulting services. In the third quarter of 1998, we phased out the operations
of the FVIPS and launched our e-messaging services.
FVIPS revenue consists of consumer and merchant registrations, transaction
revenue and marketing revenue. Consumer registration fees and merchant
registration fees were recognized over a twelve month period. Also, the related
direct costs of processing such registrations and renewals were deferred and
amortized over a 12-month period. Transaction revenue and marketing revenue were
recognized when earned. The operation of the Internet payment system was
discontinued in the third quarter of 1998.
Effective January 1, 2000, we changed our method of accounting for revenue
recognition in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements. Previously, we had recognized setup fees as
we invoiced the customers for these fees. Under the new accounting method
adopted retroactive to January 1, 2000, we now recognize setup fees over the
life of the contract. The cumulative effect of the change on prior years
resulted in a charge to operations of $192,000, which is included in operations
for the year ended December 31, 2000. The effect of the change on the year ended
December 31, 2000 was to decrease results of operations before the cumulative
effect of the accounting change by $93,000. The pro forma amounts presented in
the statement of operations were calculated assuming the accounting change was
made retroactively to prior periods. We recognized the $192,000 that was
included in the cumulative effect adjustment as follows: $90,000 in revenue for
the three months ended March 31, 2000; $50,000 in revenue for the three months
ended June 30, 2000; $31,000 in revenue for the three months ended September 31,
2000; and $10,000 in revenue for the three months ended December 31, 2000. The
remainder will be recognized in 2001.
Messaging revenue is recognized as earned in accordance with individual
customer contracts, which typically provide for monthly minimums and varying
revenue on a per message basis, depending upon monthly message volumes and
message complexity. Revenue from e-intelligence service agreements is recognized
on a percentage completion basis.
Statement of Position 97-2, 'Software Revenue Recognition' (SOP 97-2), was
issued in October 1997 and was amended by Statement of Position 98-4
(SOP 98-4). Our revenue recognition policies and practices for software license
fees are consistent with SOP 97-2 and SOP 98-4. Additionally, SOP 98-9 is
effective for transactions entered into beginning January 1, 2000. We recognize
revenue on software contracts with terms of one-year or less over the life of
the contracts. Revenue on multi-year contracts is typically recognized upon
delivery, unless extended payment terms exist. Substantially all of our
customers that purchase our software products also enter into annual support and
maintenance contracts. Revenue attributable to annual support and maintenance
contracts is recognized ratably over the term of the respective agreements.
Revenue on hosted software services is recognized as we provide services to the
customer.
F-20
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Net Loss Per Share
Basic and diluted earnings per share are calculated in accordance with FASB
Statement No. 128, 'Earnings Per Share.' All earnings per share amounts for all
periods, have been represented and where appropriate, restated to conform to the
SFAS 128 requirements. Due to the antidilutive effect, options and warrants were
not included in the calculation of diluted earnings per share.
The antidilutive securities consist of the following:
December 31,
----------------------------------
2000 1999 1998
---- ---- ----
Options............................................ 10,916,913 9,458,602 4,124,787
Warrants........................................... 505,660 505,660 1,776,073
---------- --------- ---------
Total antidilutive securities.................. 11,422,573 9,964,262 5,900,860
---------- --------- ---------
---------- --------- ---------
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, 'Accounting for Derivative Instruments
and Hedging Activities' ('SFAS 133'). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. In June
1999, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 137, which amended SFAS 133, delaying its effective
date to fiscal years beginning after June 15, 2000. We do not currently hold any
derivative instruments nor do we engage in hedging activities. We adopted this
accounting standard as required effective January 1, 2001 and it did not have a
material impact on our consolidated financial position.
2. Balance Sheet Details (in thousands)
Accounts receivable, net consist of the following:
December 31,
-------------------
2000 1999
---- ----
Trade accounts receivable............................... $ 8,560 $ 4,546
Other receivables....................................... 491 304
Less allowance for bad debt............................. (1,142) (572)
-------- --------
$ 7,909 $ 4,278
-------- --------
-------- --------
Furniture, equipment and software consist of the following:
December 31,
-------------------
2000 1999
---- ----
Equipment............................................... $ 14,408 $ 5,689
Software................................................ 5,129 2,122
Furniture............................................... 2,679 224
Leasehold improvements.................................. 1,118 --
Less accumulated depreciation........................... (8,284) (3,307)
-------- --------
$ 15,050 $ 4,728
-------- --------
-------- --------
F-21
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Intangible assets consist of the following:
December 31,
-------------------
2000 1999
---- ----
Developed technology -- Epub............................ $ 900 $ 900
Goodwill -- Epub........................................ 18,200 18,200
Goodwill -- Dbits....................................... 5,833 5,833
Goodwill -- Revnet...................................... 39,405 39,405
Goodwill -- Decisive.................................... 38,863 39,428
Less accumulated amortization........................... (79,101) (28,604)
-------- --------
$ 24,100 $ 75,162
-------- --------
-------- --------
Current portion of debt and capital lease obligations consist of the
following:
December 31,
-------------------
2000 1999
---- ----
Note payable to bank.................................... $ 872 $ --
Obligation under capital leases......................... 719 25
-------- --------
$ 1,591 $ 25
-------- --------
-------- --------
Long-term portion of debt and capital lease obligations consist of the
following:
December 31,
-------------------
2000 1999
---- ----
Note payable to bank.................................... $ 2,031 $ --
Obligation under capital leases......................... 92 36
-------- --------
$ 2,123 $ 36
-------- --------
-------- --------
3. Related Party Transactions
Marketing and sales expense for the year ended December 31, 1999 included a
one-time charge of approximately $855,000 in compensation expense from
acceleration of stock options. This compensation expense relates to an
employment agreement with a former officer that included an option vesting
acceleration clause that was triggered upon MessageMedia obtaining certain sales
contracts and/or certain sales levels.
Other long-term assets includes a note receivable from one of our officers.
On July 28, 2000, we entered into an agreement to loan $200,000 to one of our
current officers to be paid back to us at the end of two years at an annual
interest rate of 8%.
4. Business Segments
Operating segments are components of an enterprise about which separate
financial information is available and regularly evaluated by the chief
operating decision makers of an enterprise. Under this definition, beginning in
the third quarter of 2000, we have operated under two segments: messaging and
related services, and software licenses and services. The factors used by
management to identify reportable segments are differences in products and
services and the management organization. Services included in the messaging and
related services segment are principally outsourced e-mail communication and
campaign management in a full service bureau model. Products and services
included in the software licenses and services include a software product that
is sold as both boxed software or as a hosted service. Separate financial
information by segment for total assets is not available and is not evaluated by
the chief operating decision
F-22
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
makers of MessageMedia. We do not have intersegment revenue, and the chief
decision makers of MessageMedia evaluate segment performance based on revenue.
The revenue by segment is as follows:
December 31,
--------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Revenues:
Messaging and related services........................ $23,897 $ 8,214 $ 425
Software licenses and services........................ 9,751 1,807 --
First Virtual Internet Payment System................. -- -- 863
------- ------- ------
Total revenues........................................ $33,648 $10,021 $1,288
------- ------- ------
------- ------- ------
5. Joint Venture
On March 13, 2000, we entered into an agreement with @viso Limited
('@viso'), a strategic partnership between Vivendi and SOFTBANK Corp., to create
MessageMedia Europe B.V. a joint venture between MessageMedia and @viso. Under
terms of the joint venture agreement, MessageMedia owns 51% and @viso owns 49%
of the joint venture. The initial capitalization of the joint venture was funded
with $14.8 million during the second quarter. MessageMedia Europe B.V. is
consolidated into our financial statements. As part of this agreement, we
entered into a loan agreement to borrow 8.124 million Euros from @viso, which we
then immediately contributed to MessageMedia Europe B.V. The note has an annual
interest rate of 8%. The note and accumulated interest are due in one lump sum
on June 15, 2001. At December 31, 2000, the balance payable to @viso was
comprised of principal due on this loan of $7.6 million and interest payable of
$0.4 million, with the remainder being trade accounts payable due to @viso. For
the year ended December 31, 2000, MessageMedia Europe B.V. recorded revenues of
approximately $932,000 and a loss after minority interest of approximately $4.7
million. The December 31, 2000 consolidated balance sheet includes total assets
of $3.5 million for MessageMedia Europe B.V.
6. Notes Payable
In connection with our acquisition of EPub in December 1998, we assumed a
note owed to a bank with an interest rate of the bank's prime rate plus 1% and
monthly principal payments of $6,250, due through the note's maturity date of
June 2000. The note was secured by our business assets. As of December 31, 1999,
the note has been paid in full. In connection with the note, detachable warrants
were issued by EPub. (See Note 8.)
On December 29, 2000, we entered into a loan agreement to borrow $3.0
million from a bank with an annual interest rate of 13.28%. The note is payable
in monthly principal and interest payments of $100,510 due through the note's
maturity date of November 20, 2003. The note is secured by all of our trade
receivables. Total annual payments due on the note for the years 2001, 2002 and
2003 are $1.2 million, $1.2 million and $1.1 million, respectively.
During 2000, we entered into the following letters of credit related to
facility operating leases: $664,000 on April 11, 2000, $413,000 on May 15, 2000,
$2.3 million on August 24, 2000 and $1.2 million on November 28, 2000. All of
these letters of credit have terms of one year and automatically renew annually
for the life of the respective operating leases that they secure.
F-23
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Commitments
Leases
We lease our office facilities and some of our office and computer equipment
under non-cancelable operating lease agreements. The facility leases require us
to pay standard common area maintenance fees and are subject to certain minimum
escalation provisions. Rent expense for all operating leases was approximately
$2.8 million, $885,000 and $636,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
We acquired capital lease obligations relating to office and computer
equipment when we acquired Decisive in August 1999 and entered into additional
capital leases during the year 2000. Cost and accumulated depreciation of
equipment under capital leases were $1.5 million and $233,000, respectively at
December 31, 2000.
Annual future minimum lease payments for operating and capital leases as of
December 31, 2000, are as follows:
Operating Capital
Leases Leases
------ ------
(In thousands)
2001........................................................ $ 4,785 $ 770
2002........................................................ 4,629 99
2003........................................................ 4,498 12
2004........................................................ 4,495 --
2005........................................................ 3,357 --
Thereafter.................................................. 10,229 --
------- -----
Total minimum lease payments................................ $31,993 881
-------
-------
Less amount representing interest........................... (70)
-----
Present value of future minimum lease payments.............. 811
Less current portion........................................ (719)
-----
Long-term portion of obligations under capital leases....... $ 92
-----
-----
8. Stockholders' Equity
Preferred Stock
On October 22, 1997, we completed a private placement of preferred stock and
received net proceeds of $4.9 million. Under the private placement agreement,
1,000 shares of Series A redeemable convertible preferred stock were issued at
$5,000 per share. The Series A redeemable convertible preferred stock was
convertible into common stock at the option of the investors at a per share
conversion price equal to the lesser of $5.50 or 80% of the average closing bid
price of the common stock for the prior ten days.
The Series A redeemable convertible preferred stock was redeemable for cash
if a holder proposed to convert its shares at a conversion price below $4.00 and
carried an annual dividend of 7% payable quarterly, in cash or shares of common
stock. The Series A preferred stockholders converted 345 shares into common
stock during 1998.
In June 1998, we issued approximately 9.8 million shares of common stock to
SOFTBANK and 833,333 shares of common stock to E*Trade for approximate net
proceeds of $6.6 million. In addition, SOFTBANK purchased $5.8 million of our
outstanding debt and preferred stock, which were subsequently converted into
approximately 8.5 million shares of our common stock. The $5.8 million amount
includes a settlement to two of our stockholders who, on February 5, 1998 had
filed civil actions against us seeking to recover the principal and interest due
under unsecured lines
F-24
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
of credit. The total amount of principal and interest paid out as settlement was
approximately $1.5 million. Also included in the transaction was the purchase of
the 655 remaining outstanding shares from the Series A redeemable convertible
preferred stock.
Warrants
In connection with the sale of Series B preferred stock in December 1995 to
a financial institution, we issued warrants to purchase shares of Series A and
Series B preferred stock. In April 1996, the Series B preferred stockholder
partially exercised its warrant by purchasing 465,000 shares of Series B
preferred stock at $3.189 per share. As of December 31, 2000, no warrants to
purchase shares of Series A or Series B preferred stock remained outstanding. In
addition, the Series B preferred stockholder paid us $3,017,115 for warrants to
purchase 852,272 shares of Series A preferred stock and 475,734 shares of Series
B preferred stock at $0.01 per share. In March 1998, the Series B stockholder
exercised its warrant to purchase 852,272 shares of Series A preferred stock,
which was immediately converted into shares of our common stock. In December
1999, the warrant for 475,734 series B preferred shares was exercised and
immediately converted into common stock.
In connection with a consulting agreement, an incentive warrant to purchase
300,000 shares of common stock at $5.63 per share was issued on September 24,
1997 to a third party. The first 100,000 shares of common stock can be exercised
when the third party produces $10 million of net sales through the use of
technology and services that we would provide. The second 100,000 shares of
common stock can be exercised when the third party produces $25 million of net
sales through the use of technology and services that we would provide and the
third 100,000 shares of common stock can be exercised when the third party
produces $50 million of net sales through the use of technology and services
that we would provide. These warrants expire on December 20, 2003. As of
December 31, 2000 no sales have been attributed to the third party's efforts.
Under a consulting agreement, dated September 8, 1997, a warrant to purchase
65,000 shares of common stock at $5.63 per share was granted to a third party as
payment for consulting services rendered. Under the terms of the September 8,
1997 warrant agreement, 20,000 shares became exercisable upon completion (as
defined in the agreement) with the remaining 45,000 shares to be exercisable
when the third party delivers two catalog merchants to us who execute agreements
with us in regards to either licensing of VirtualPINS or interactive messaging
services. These warrants expire on December 30, 2002. On September 29, 1997, the
warrant to purchase 20,000 shares of our common stock became exercisable and
accordingly, we estimated the fair value of the warrant using the Black-Scholes
option pricing model. However, no value was allocated to the warrant as the
estimated fair value was nominal. This warrant expires on December 30, 2002. In
June 1998, the warrant to purchase 45,000 shares of our common stock expired as
the incentive terms of this portion of the agreement were not met. On March 3,
1999, an additional warrant for 10,000 common shares at $5.63 was granted to the
third party and are exercisable through December 2002. We estimated the fair
value of the warrant using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rate of 5.86%, volatility factor of
1.25, dividend yield of 0% and a weighted average expected life of four years.
However, no value was allocated to the warrants as the estimated fair value was
nominal.
In connection with the sale of Series A redeemable convertible preferred
stock in October 1997, warrants to purchase up to 850,000 shares of common stock
at $5.75 per share were issued to the Series A preferred stockholders. These
warrants will expire on October 15, 2001. In June 1998, the original Series A
preferred stockholders were granted a reduction in the exercise price of these
warrants from $5.75 per share to $1.00 per share. The fair value of these
revised warrants is $1,080,000 and has been reflected as a dividend to the
Series A preferred stockholders. The fair value of these warrants was calculated
using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 4.0%, volatility factor of 0.75, dividend yield of 0%
F-25
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
and a weighted average expected life of 3 years. Such warrants carry
restrictions as to their exercisability. As of December 31, 2000, all of these
warrants, with the exception of 17,000, have been exercised.
In connection with our acquisition of EPub in December 1998, we assumed a
warrant issued to a financial institution which was convertible into 25,564
shares of our common stock at an exercise price of $0.40 per share. This warrant
was exercised in February 1999.
In connection with our acquisition of DBits in December 1998, we issued
warrants to purchase an aggregate of 500,000 shares of our common stock, of
which 250,000 may be exercised for $6.00 per share and 250,000 may be exercised
for $8.00 per share. These warrants are exercisable immediately with the $6.00
warrants expiring on May 11, 2001 and the $8.00 warrants expiring on May 11,
2002. We estimated the fair value of these warrants to be $350,000 using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.0%, volatility factor of 0.75, dividend yield of 0% and a
weighted average expected life of 1.5-2.0 years. 40,340 of the warrants were
exercised on April 5, 1999 and 1,000 of the warrants were exercised on June 23,
1999.
Stock Option Plan
Our 1994 Incentive and Non-Statutory Stock Option Plan (1994 Plan), under
which options to purchase 482,300 shares of common stock were granted, was
replaced with the 1995 Stock Plan (1995 Plan). Under the 1995 Plan, we are
authorized to issue up to 9,000,000 common shares to officers, employees,
directors and consultants who provide services to us. In 1999, we authorized the
1999 Non-Officer Stock Option Plan (1999 Plan) under which we can issue up to
3,000,000 common shares to officers and employees. Options granted under the
1995 and 1999 Plans generally vest over four years and are exercisable for a
period of up to ten years from the date of grant. Incentive and non-qualified
stock options are granted at prices that approximate the fair value of the
shares at the date of grant as determined by the board of directors. The
following table summarizes stock option activity:
Weighted
Average
Shares Exercise Price
------ --------------
Balance at December 31, 1997................................ 3,268,093 $4.80
Options granted......................................... 4,145,919 1.87
Options assumed in acquisitions......................... 391,760 0.02
Options exercised....................................... (659,637) 0.41
Options canceled........................................ (2,021,348) 4.48
----------
Balance at December 31, 1998................................ 5,124,787 $2.85
Options granted......................................... 6,329,644 9.86
Options assumed in acquisitions......................... 1,148,493 1.90
Options exercised....................................... (1,700,049) 1.96
Options canceled........................................ (1,444,273) 5.11
----------
Balance at December 31, 1999................................ 9,458,602 $7.17
Options granted......................................... 6,029,887 2.80
Options exercised....................................... (1,444,963) 2.88
Options canceled........................................ (3,126,613) 8.54
----------
Balance at December 31, 2000................................ 10,916,913 $4.22
---------- -----
---------- -----
Pursuant to the terms of the December 22, 1995 Series B preferred stock
Purchase Agreement, on April 11, 1996, our board of directors granted options to
purchase 1,000,000 shares of common stock to officers, directors and key
employees of the Company at $6.30 per share. These options are fully vested and
to date, 425,000 shares have been exercised. In 1999, our board of directors
granted additional options to purchase 2,173,000 shares of common stock to
officers
F-26
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
and directors at a weighted-average exercise price of $7.86 per share. As of
December 31, 2000, 811,906 of these options were vested and 100,000 have been
cancelled. All of these options were granted outside of our stock option plans
and are included in the table above.
On April 29, 1998, we offered all employees of record the opportunity to
re-price their option grants under the 1995 Stock Option Plan to the fair market
value of the stock on that date which was $0.94 per share. We cancelled
1,363,876 at a weighted-average exercise price of $4.75 and re-issued the same
number of options at $0.94.
As of December 31, 2000, the 1995 and 1999 plans, as well as the options
assumed under the Revnet and Decisive acquisitions, include 1,915,994 options
that are exercisable. There are 1,611,405 options available for future grant
under the 1995 and 1999 Plans.
Exercise prices and weighted average remaining contractual life for all
options outstanding as of December 31, 2000 are as follows:
Options Outstanding Options Outstanding Options Exercisable
---------------------------------------------------------- -----------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Price Outstanding Life Price Exercisable Price
----------------------- ----------- ---- ----- ----------- -----
$ 0.01 - 0.32........... 49,466 7.17 $ 0.06 10,993 $ 0.05
$ 0.33 - 0.99........... 3,911,191 8.86 0.52 498,596 0.90
$ 1.00 - 5.00........... 1,963,372 8.67 3.72 337,772 2.70
$ 5.01 - 10.00........... 2,841,404 7.63 6.39 1,629,136 6.47
$10.01 - 15.00........... 2,021,938 8.55 11.85 782,738 11.70
$15.01 - 20.00........... 129,542 8.80 17.16 43,665 17.05
---------- ---------
10,916,913 3,302,900
---------- ---------
---------- ---------
Prior to the EPub and Revnet acquisitions, these companies had granted
unvested options to some of their key employees at a per share value below the
then current fair market value of such shares. As a result, when we acquired
EPub and Revnet, we recorded deferred compensation expense for the difference
between the exercise price and the fair value of our common stock for these
unvested options. Deferred compensation expense amounted to $285,000, $431,000
and $680,000 for the years ended December 31, 1998, 1999 and 2000.
Pro forma information regarding net loss is required by SFAS 123 and has
been determined as if we had accounted for our employee stock options under the
fair value method of that Statement. The fair value for the 2000 options was
estimated at the date of grant, using the Black-Scholes option pricing model,
with the following assumptions: risk-free interest rate of 5.75%; dividend yield
of 0%; and a weighted-average expected life of the option of five years with a
volatility factor of 1.95. The fair value for the 1999 options was estimated at
the date of grant, using the Black-Scholes option pricing model, with the
following assumptions: risk-free interest rate of 5.875%; dividend yield of 0%;
and a weighted-average expected life of the option of five years with a
volatility factor of 1.25. The fair value for the 1998 options was estimated at
the date of grant, using the Black-Scholes option pricing model, with the
following assumptions: risk-free interest rate of 5.0%; dividend yield of 0%;
and a weighted-average expected life of the option of five years with a
volatility factor of .75.
The weighted average fair values of the options granted during 2000, 1999
and 1998 were $2.64, $9.80 and $2.17, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our employee stock options have characteristics significantly different from
those of traded options and because changes in the subjective assumptions can
materially affect the
F-27
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
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.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying Statement 123 for pro forma disclosure purposes are not likely to be
representative of the effects on pro forma net income (loss) in the future years
because they do not take into consideration pro forma compensation expense
related to grants made prior to 1995. Our pro forma information follows:
December 31,
-------------------------------------
2000 1999 1998
---- ---- ----
(In thousands, except per share data)
Pro forma net loss applicable to common shares........ $(100,249) $(59,179) $(16,513)
Pro forma net loss per common share, basic and
diluted............................................. $ (1.79) $ (1.28) $ (0.74)
Employee Stock Purchase Plan
In 1996, we adopted an Employee Stock Purchase Plan (the 'ESPP'), whereby
employees, at their option, can purchase shares of our common stock. This is
done through a payroll deduction at the lower of 85% of the fair market value on
the first day of each ESPP offering period or the end of each period. The ESPP
has been designed to qualify as a noncompensatory plan under Section 423 of the
Internal Revenue Code. The ESPP expires at the earliest of December 31, 2006,
the date on which all shares available for issuance have been sold or the
consummation of a change in control transaction. We have reserved 500,000 shares
of common stock for issuance under the ESPP. At December 31, 2000 employees have
purchased 257,081 shares through the ESPP and 242,919 shares are available for
future purchases. Due to immateriality, the estimated fair value of employee's
purchase rights under the ESPP have not been included in the SFAS 123 pro forma
disclosure above.
Shares Reserved for Future Issuance
As of December 31, 2000, we have reserved shares of common stock for future
issuance as follows:
Stock options........................................... 12,528,318
Warrants................................................ 805,660
Employee stock purchase plan............................ 242,919
----------
13,576,897
----------
----------
9. Restructure Charge
In the fourth quarter of the year 2000, we recorded a charge of $7.0 million
as a result of the decision to eliminate certain business development efforts
including e-service, an online customer care solution, our wireless messaging
research product and our secure e-mail delivery product. These product lines had
not yet contributed to revenue, and a decision was made to reduce operating
expense and conserve cash in future periods. The eliminations and reductions in
manpower supporting these product lines resulted in the elimination of 125
positions. All of these product lines were discontinued and the positions were
eliminated during December 2000, although severance payments have been made
throughout 2001. In addition to the cost of eliminating these positions, the
discontinuance of these development efforts resulted in the recognition of
restructuring charges for contractual obligations and software investments
incurred to support these product lines. Finally, this charge also provided for
a reduction in occupancy costs in Colorado as well as our Chicago and San
Francisco sales offices. The $7.0 million charge included $1.5 million
F-28
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
for severance cost, $1.1 million for terminations of contracts for services and
software planned to be included in the eventual product offerings, $1 million
for facility rent expense for the six months following the December 2000
business restructuring, $500,000 for the estimated differential between sublease
income and rent expense, $400,000 for broker fees associated with subleases of
the facilities, $100,000 for incidental expenses of the subleasing process,
$900,000 for a write-off of the book value of software purchased in conjunction
with product lines which were eliminated in the December 2000 business
restructuring, $1.2 million for the write-off of the remaining unamortized
leasehold improvements in vacated facilities and $300,000 for the write-off of
undepreciated furniture and fixtures within vacated facilities. These assets
provided no further value to our continuing operations.
In the first quarter of 1999, we recorded a charge of $1.0 million as a
result of our decision to relocate our corporate headquarters from San Diego,
California to a new facility in Boulder Colorado. This decision was made to
create efficiencies in our messaging services operations, reduce overhead by
centralizing our offices to one facility and eliminate duplication of efforts
from similar positions in the separate offices. The merger integration and
restructuring activity of MessageMedia, DBits and EPub included the elimination
of job responsibilities company wide, resulting in approximately $632,000 of
employee severance pay and other related expenses for 17 employees and,
approximately $393,000 in moving expenses and costs related to closing our
facility. No reversals occurred in 2000. As of December 31, 2000, all
termination and relocation costs have been incurred and offset against this
reserve.
In the second quarter 1998, we recorded a restructuring charge of $812,000
as a result of our decision to focus our efforts on the messaging platform,
initiate efforts to cease operations of the FVIPS and better align our cost
structure with expected revenue projections. The restructuring charge included
the elimination of job responsibilities company wide, resulting in approximately
$545,000 of employee severance pay and other related expenses for 21 employees
and approximately $267,000 related to relocating our corporate office and
termination fees for cancellation of contracts related to FVIPS of which we no
longer intended to make use. No reversals occurred in 2000. As of December 31,
2000, all termination and relocation costs have been incurred and offset against
this reserve.
Under the 2000 restructure plan, we have made total payments, disposals and
reversals as follows:
Balance at
Through December 31, 2000 December 31, 2000
---------------------------------------------- ----------------------
Cash Non-Cash Restructure Future Cash Total
Expenditures Charges Total Reversal Expenditures Charges
------------ ------- ----- -------- ------------ -------
(In thousands)
Year 2000 Restructure Plan:
Personnel reduction costs... $441 $ -- $ 441 $ -- $1,035 $1,476
Contract termination
costs..................... 23 -- 23 -- 1,149 1,172
Impairment of assets........ -- 2,382 2,382 -- -- 2,382
Facility reduction costs.... -- -- -- -- 1,979 1,979
---- ------ ------ ---- ------ ------
Total restructuring
costs $464 $2,382 $2,846 $ -- $4,163 $7,009
---- ------ ------ ---- ------ ------
---- ------ ------ ---- ------ ------
We estimate that all of the future cash expenditures related to this plan
will be made by December 31, 2001.
10. Income Taxes
For the years ended December 31, 2000 and 1999, there was no current or
deferred tax expense.
F-29
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
The following table reconciles the federal statutory tax expense to the
effective income tax expense attributable to continuing operations:
December 31,
-------------------
2000 1999
---- ----
Variations from the federal statutory rate are as follows:
Expected federal income tax expense at statutory rate
are as follows........................................ $(27,243) $(16,210)
Effect of permanent differences......................... 17,755 5,288
State income tax expense net of federal benefit......... (1,145) (1,319)
Other................................................... (552) --
Valuation allowance..................................... 11,185 12,241
-------- --------
Income tax expense...................................... $ -- $ --
-------- --------
-------- --------
Significant components of our deferred tax assets as of December 31, 2000
and 1999 are shown below (in thousands). Valuation allowances of $44.4 million
and $30.4 million have been recognized for 2000 and 1999, respectively, to
offset the net deferred tax assets, as realization of such assets is uncertain.
December 31,
--------------------
2000 1999
---- ----
Deferred tax assets:
Net operating loss carryforwards........................ $ 36,983 $ 28,230
R&D credit.............................................. 2,478 1,329
Restructuring expense................................... 2,025 --
Other................................................... 2,874 1,135
--------- --------
Total deferred tax assets........................... 44,360 30,694
Deferred tax liabilities:
Acquired Intangibles.................................... -- (329)
--------- --------
Total deferred tax liabilities...................... -- (329)
Valuation allowance for deferred tax assets................. (44,360) (30,365)
--------- --------
Net deferred tax assets..................................... $ -- $ --
--------- --------
--------- --------
At December 31, 2000, we had federal, California and Colorado tax net
operating loss carryforwards of approximately $33.9 million, $1.8 million and
$1.2 million. These federal, California and Colorado carryforwards will begin to
expire in 2010, 2000 and 2019, respectively, unless previously utilized. We also
have federal and California state research credit carryforwards of approximately
$1.6 million and $862,000, respectively, which will begin expiring in 2010,
unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, use of our net
operating losses and tax credit carryforwards will be limited because of a
cumulative change in ownership of more than 50% that occurred during 1999. Such
tax net operating losses and credit carryforwards have been reduced, including
the related deferred tax assets.
11. Acquisitions
Acquisition of EPub
On December 9, 1998, we acquired all of the common stock and all outstanding
rights of the common stock of EPub in exchange for 5,582,676 shares of our
common stock and the assumption by us of options and warrants to acquire up to
approximately 417,324 additional shares of our
F-30
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
common stock at a weighted average exercise price of $0.04 per share. EPub's
objective was to be the leading provider of email message delivery services to
businesses and organizations on an 'outsourced' basis. EPub's service offerings
were intended to make managing communications via email easy and accessible to
companies with a need to get their message to a larger audience, whether the
message is in the form of an advertisement, a newsletter, a picture, a software
upgrade or just information. The purchase price was calculated to be $20,763,300
based on the fair market value of $3.38 per share of our common stock. The fair
market value per share was determined based on the average market price for
several days surrounding the date that both parties agreed on the terms of the
acquisition. The value assigned to options assumed was determined using the
intrinsic value of $3.34 per share resulting in a total value for options
assumed of $1,393,862. The purchase price included merger costs of $500,000. The
transaction was accounted for using the purchase method of accounting and as a
result intangible assets of $18,200,259 in goodwill and $900,000 of developed
technology was recorded related to this acquisition. The acquired goodwill and
other developed technology were amortized ratably from the date of acquisition
over a period of 24 months. The results of operations of the acquired company
were included in our statement of operations from the date of acquisition
forward.
Acquisition of DBits
On December 11, 1998, we acquired all equity interests, including options,
warrants or other purchase rights, if any, in DBits, in exchange for 1,305,320
shares of our common stock and warrants to purchase an additional 250,000 shares
of our common stock at an exercise price of $6.00 per share and an additional
250,000 shares of our common stock at $8.00 per share. DBits developed an
inbound e-mail management system that helps companies manage large volumes of
incoming e-mail inquiries. The purchase price was calculated to be $5,577,635
based on the fair market value of $3.65 per share of our common stock. The fair
market value per share was determined based on the average market price for
several days surrounding the date that both parties agreed on the terms of the
acquisition. The value assigned to warrants was determined using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.0%, volatility factor of 0.75, dividend yield of 0% and
weighted average expected life of 1.5 - 2.0 years. The purchase price included
merger costs of $300,000 and the value of warrants of $350,000. The transaction
was accounted for using the purchase method of accounting and as a result
intangible assets of $5,833,357 in goodwill was recorded related to this
acquisition. The acquired goodwill was amortized ratably from the date of
acquisition over a period of 24 months. The results of operations of the
acquired company were included in our statement of operations from the date of
acquisition forward.
Acquisition of Revnet
On August 9, 1999, we acquired all of the common stock and all outstanding
rights to acquire shares of the common stock of Revnet Systems, Inc. in exchange
for 3,262,120 of our shares common stock and the assumption of options to
acquire up to approximately 681,675 additional shares of our common stock, at a
weighted average exercise price of $1.36. Revnet primarily marketed and
developed software and services for the management of Internet communications.
Revnet's products and services were designed to manage email lists for firms
involved in electronic commerce on the Internet, as well as for associations,
universities and governments. The purchase price was calculated to be
$41,834,901 based on the fair market value of $10.64 per share of our common
stock. The fair market value per share was determined based on the average
market price for the ten days surrounding the date that both parties agreed on
the terms of the acquisition. The value assigned to options assumed was
determined using the intrinsic value of $9.28 per share resulting in a total
value for options assumed of $6,325,944. The purchase price also included
acquisition costs of $800,000. The transaction was accounted for using the
purchase
F-31
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
method of accounting and as a result intangible assets of $39,404,967 in
goodwill was recorded related to this acquisition. The acquired goodwill was
amortized ratably from the date of acquisition over a period of 24 months. The
results of operations of the acquired company were included in our statement of
operations from the date of acquisition forward.
Acquisition of Decisive
On August 16, 1999, we acquired all of the common stock and all outstanding
rights to acquire shares of the common stock of Decisive Technology Corporation
in exchange for 2,054,498 shares of our common stock and our assumption of
options to acquire up to approximately 466,818 additional shares of our common
stock, at a weighted average exercise price of $2.69. Decisive was a leading
online provider of customer intelligence solutions for Internet and ecommerce
businesses. The transaction was accounted for using the purchase method of
accounting and goodwill was recorded. The purchase price was calculated to be
$39,635,955 based on the fair market value of $16.03 per share of our common
stock. The fair market value per share was determined based on the average
market price for the ten days surrounding the date that both parties agreed on
the terms of the acquisition. The value assigned to options assumed was
determined using the intrinsic value of $13.34 per share resulting in a total
value for options assumed of $6,227,354. The purchase price also included
acquisition costs of $475,000. The transaction was accounted for using the
purchase method of accounting. The transaction was accounted for using the
purchase method of accounting and as a result intangible assets of $39,428,361
in goodwill was recorded related to this acquisition. The acquired goodwill was
amortized ratably from the date of acquisition over a period of 24 months. The
results of operations of the acquired company were included in our statement of
operations from the date of acquisition forward.
On the date of the acquisition, we implemented a plan to relocate the
Decisive facility to Colorado. We established a reserve for approximately
$328,000 which included costs associated with employee relocation or termination
costs and other miscellaneous facility closure costs. As of December 31, 2000,
all termination and relocation costs have been incurred and offset against this
reserve.
The accompanying statements of operations reflect the operating results of
Revnet, Decisive, EPub and Dbits since the date of their respective
acquisitions. The pro forma unaudited results of operations for the years ended
December 31, 1998 and 1999, assuming the purchase of the acquired companies had
occurred on January 1 of the respective years, are as follows:
1998 1999
---- ----
(unaudited, in
thousands)
Net revenues................................................ $ 6,844 $ 13,635
-------- --------
Net loss attributed to common stockholders.................. $(73,100) $(73,831)
-------- --------
Net loss per share attributable to common stockholders,
basic and diluted......................................... $ (2.14) $ (1.49)
-------- --------
12. Unaudited Quarterly Results (in thousands, except share data)
The following tables contain selected unaudited 2000 and 1999 consolidated
results of operations on a quarterly basis. The restated amounts were calculated
assuming the accounting change was made retroactively to prior periods in the
year 2000. (See note 1.)
F-32
MESSAGEMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Fourth Second Quarter
Quarter Third Quarter Ended Ended First Quarter Ended
Ended September 30, 2000 June 30, 2000 March 31, 2000
December 11, --------------------- --------------------- ---------------------
2000 Reported Restated Reported Restated Reported Restated
---- -------- -------- -------- -------- -------- --------
Net revenues.............................. $ 8,014 $ 10,231 $ 10,278 $ 8,476 $ 8,403 $ 7,043 $ 6,953
Net loss before cumulative effect of
change in accounting principle........... -- -- -- -- -- -- (18,735)
Cumulative effect of change in accounting
principle................................ -- -- -- -- -- -- (192)
--------- --------- --------- --------- --------- --------- ---------
Net loss.................................. $ (30,373) $ (19,243) $ (19,196) $ (19,585) $ (19,658) $ (18,645) $ (18,927)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Amounts per common share:
Net loss before cumulative effect of
change in accounting principle........ -- -- -- -- -- -- $ (.34)
Cumulative effect of change in
accounting principle.................. -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss.................................. $ (.54) $ (.34) $ (.34) $ (.35) $ (.35) $ (.34) $ (.34)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fourth Second First
Quarter Third Quarter Quarter Quarter
Ended Ended Ended Ended
December 31, September 30, June 30, March 31,
1999 1999 1999 1999
---- ---- ---- ----
Net revenue..................................... $ 4,912 $ 3,053 $ 1,302 $ 754
Net loss........................................ $ (19,364) $ (13,749) $ (6,152) $ (7,004)
--------- --------- -------- --------
--------- --------- -------- --------
Net loss per share, basic and diluted........... $ (.36) $ (.29) $ (.14) $ (.17)
--------- --------- -------- --------
--------- --------- -------- --------
13. 401(k) Profit Sharing Plan
We maintain a 401(k) profit sharing plan which allows substantially all
employees to contribute up to 15% of their salary, subject to annual limitations
and requirements that we set. The Board of Directors may, at its sole
discretion, approve company contributions. To date, there have been no company
contributions under the plan.
14. Subsequent Events
On February 23, 2001, we received additional funding from SOFTBANK Venture
Capital, Pequot Capital Management and Rebar LLC through a private placement of
11,267,606 shares of our common stock for net proceeds to us of $7.7 million,
after issuance costs.
F-33
APPENDIX A
Execution Copy
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
DOUBLECLICK INC.
ATLAS ACQUISITION CORP.
and
MESSAGEMEDIA, INC.
Dated as of June 1, 2001
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.............................................................. A-1
SECTION 1.01 Certain Defined Terms....................................... A-1
ARTICLE II THE MERGER.............................................................. A-4
SECTION 2.01 The Merger.................................................. A-4
SECTION 2.02 Closing..................................................... A-5
SECTION 2.03 Effective Time.............................................. A-5
SECTION 2.04 Effect of the Merger........................................ A-5
SECTION 2.05 Certificate of Incorporation; Bylaws; Directors and Officers
of Surviving Corporation.................................. A-5
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES..................... A-6
SECTION 3.01 Conversion of Shares........................................ A-6
SECTION 3.02 Exchange of Shares Other than Treasury Shares............... A-6
SECTION 3.03 Stock Transfer Books........................................ A-7
SECTION 3.04 No Fractional Share Certificates............................ A-8
SECTION 3.05 Options and Warrants to Purchase Company Common Stock....... A-8
SECTION 3.06 Unvested Stock.............................................. A-8
SECTION 3.07 Company Stock Purchase Plan................................. A-9
SECTION 3.08 Certain Adjustments......................................... A-9
SECTION 3.09 Lost, Stolen or Destroyed Certificates...................... A-9
SECTION 3.10 Taking of Necessary Action; Further Action.................. A-9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY............................... A-9
SECTION 4.01 Organization and Qualification; Subsidiaries................ A-10
SECTION 4.02 Certificate of Incorporation and Bylaws..................... A-10
SECTION 4.03 Capitalization.............................................. A-10
SECTION 4.04 Authority Relative to This Agreement........................ A-11
SECTION 4.05 No Conflict; Required Filings and Consents.................. A-12
SECTION 4.06 Permits; Compliance with Laws............................... A-12
SECTION 4.07 SEC Filings; Financial Statements........................... A-12
SECTION 4.08 Absence of Certain Changes or Events........................ A-13
SECTION 4.09 Employee Benefit Plans; Labor Matters....................... A-14
SECTION 4.10 Customers and Suppliers..................................... A-16
SECTION 4.11 Certain Tax Matters......................................... A-17
SECTION 4.12 Contracts................................................... A-17
SECTION 4.13 Litigation.................................................. A-17
SECTION 4.14 Environmental Matters....................................... A-17
SECTION 4.15 Intellectual Property....................................... A-17
SECTION 4.16 Taxes....................................................... A-20
SECTION 4.17 Insurance................................................... A-22
SECTION 4.18 Properties; Bank Accounts................................... A-22
SECTION 4.19 Affiliates.................................................. A-22
SECTION 4.20 Opinion of Financial Advisor................................ A-22
SECTION 4.21 Brokers..................................................... A-23
SECTION 4.22 Certain Business Practices.................................. A-23
SECTION 4.23 Business Activity Restriction............................... A-23
SECTION 4.24 Section 203 of the DGCL Not Applicable...................... A-23
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.................. A-23
SECTION 5.01 Organization and Qualification.............................. A-23
SECTION 5.02 Certificate of Incorporation and Bylaws..................... A-24
SECTION 5.03 Capitalization.............................................. A-24
SECTION 5.04 Authority Relative to This Agreement........................ A-24
SECTION 5.05 No Conflict; Required Filings and Consents.................. A-25
A-i
Page
----
SECTION 5.06 SEC Filings; Financial Statements........................... A-25
SECTION 5.07 Certain Tax Matters......................................... A-26
SECTION 5.08 Brokers..................................................... A-26
SECTION 5.09 No Parent Material Adverse Effect........................... A-26
ARTICLE VI COVENANTS............................................................... A-26
SECTION 6.01 Conduct of Business Pending the Closing..................... A-26
SECTION 6.02 Notices of Certain Events................................... A-28
SECTION 6.03 Access to Information; Confidentiality...................... A-28
SECTION 6.04 No Solicitation of Transactions............................. A-28
SECTION 6.05 Tax-Free Transaction........................................ A-29
SECTION 6.06 Control of Operations....................................... A-30
SECTION 6.07 Further Action; Consents; Filings........................... A-30
SECTION 6.08 Additional Reports.......................................... A-30
SECTION 6.09 Tax Matters................................................. A-31
SECTION 6.10 Employee Benefits........................................... A-31
ARTICLE VII ADDITIONAL AGREEMENTS.................................................. A-31
SECTION 7.01 Registration Statement; Proxy Statement..................... A-31
SECTION 7.02 Company Stockholders' Meetings.............................. A-33
SECTION 7.03 Indemnification; Directors' and Officers' Insurance......... A-33
SECTION 7.04 No Shelf Registration....................................... A-34
SECTION 7.05 Public Announcements........................................ A-34
SECTION 7.06 NNM Listing................................................. A-34
SECTION 7.07 Company Stock Options/Registration Statements on Form S-8... A-34
SECTION 7.08 Employee Benefit Matters.................................... A-34
SECTION 7.09 Affiliates.................................................. A-35
SECTION 7.10 Taking of Additional Actions................................ A-35
ARTICLE VIII CONDITIONS TO THE MERGER.............................................. A-35
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate
the Merger................................................ A-35
SECTION 8.02 Conditions to the Obligations of Company.................... A-35
SECTION 8.03 Conditions to the Obligations of Parent..................... A-36
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER....................................... A-37
SECTION 9.01 Termination................................................. A-37
SECTION 9.02 Effect of Termination....................................... A-38
SECTION 9.03 Amendment................................................... A-38
SECTION 9.04 Waiver...................................................... A-39
SECTION 9.05 Termination Fee; Expenses................................... A-39
ARTICLE X GENERAL PROVISIONS....................................................... A-39
SECTION 10.01 Non-Survival of Representations and Warranties.............. A-39
SECTION 10.02 Notices..................................................... A-39
SECTION 10.03 Severability................................................ A-40
SECTION 10.04 Assignment; Binding Effect; Benefit......................... A-40
SECTION 10.05 Incorporation of Exhibits................................... A-40
SECTION 10.06 Governing Law............................................... A-41
SECTION 10.07 Waiver of Jury Trial........................................ A-41
SECTION 10.08 Headings; Interpretation.................................... A-41
SECTION 10.09 Counterparts................................................ A-41
SECTION 10.10 Entire Agreement............................................ A-41
ANNEXES
ANNEX A Stockholder Agreement
A-ii
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of June 1, 2001
(as amended, supplemented or otherwise modified from time to time in accordance
with the terms hereof, this 'Agreement'), among DOUBLECLICK INC., a Delaware
corporation ('Parent'), MESSAGEMEDIA, INC., a Delaware corporation ('Company'),
and ATLAS ACQUISITION CORP., a Delaware corporation and a direct wholly owned
Subsidiary of Parent ('Merger Sub').
WITNESSETH:
WHEREAS, the boards of directors of Parent and Company have determined that
it is advisable and in the best interests of their respective companies and
stockholders to enter into a business combination by means of the merger of
Merger Sub with and into Company (the 'Merger') and have approved and adopted
this Agreement;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, certain stockholders of
Company have entered into a stockholder agreement ('Stockholder Agreement') in
the form attached hereto as Annex A;
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware (the
'DGCL'), Parent will acquire all of the common stock of Company through the
Merger of Merger Sub with and into Company; and
WHEREAS, for United States Federal income tax purposes, it is intended that
the Merger shall qualify as a 'reorganization' under Section 368(a) of the
Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder, the 'Code'), and that this Agreement shall
be, and hereby is, adopted as a plan of reorganization for purposes of
Section 368 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms. Unless the context otherwise requires,
the following terms, when used in this Agreement, shall have the respective
meanings specified below (such meanings to be equally applicable to the singular
and plural forms of the terms defined):
'Affiliate' shall mean, with respect to any Person, any other Person that
controls, is controlled by or is under common control with the first Person.
'Blue Sky Laws' shall mean state securities or 'blue sky' Laws.
'Business Day' shall mean any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized by Law or executive order to close in the City of New York.
'Company Common Stock' shall mean the shares of common stock, par value
$0.001 per share, of Company.
'Company Competing Transaction' shall mean any of the following involving
Company (other than the Merger):
(i) any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or other similar transaction
(other than, for the purpose of Section 9.05(b)(ii)(B), such a transaction
in which Company acquires another Person and the shares of
A-1
Company Common Stock issued to the equityholders of such other Person
constitute less than 50% of the capital stock of the successor company in
such transaction);
(ii) any sale, lease, exchange, transfer or other disposition of 20% or
more of the assets of Company and the Company Subsidiaries (as defined in
Section 4.01), taken as a whole, in a single transaction or series of
related transactions;
(iii) any tender offer or exchange offer for 20% or more of the
outstanding voting securities of Company or the filing of a registration
statement under the Securities Act in connection therewith;
(iv) any Person having acquired 'beneficial ownership' or the right to
acquire 'beneficial ownership' of, or any 'group' (as such terms are defined
under Section 13(d) of the Exchange Act) having been formed that
beneficially owns, or has the right to acquire beneficial ownership of, 20%
or more of the outstanding voting securities of Company;
(v) any solicitation in opposition to the approval of this Agreement by
the stockholders of Company; or
(vi) any public announcement of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing.
'Company Disclosure Schedule' shall mean the disclosure schedule delivered
by Company to Parent concurrently with the execution of this Agreement and
forming a part hereof.
'Company Material Adverse Effect' shall mean any change in or effect on the
business of Company or the Company Subsidiaries that, individually or in the
aggregate (taking into account all other such changes or effects), is, or is
reasonably likely to be, materially adverse to the business, assets,
liabilities, prospects, financial condition or results of operations of Company
and the Company Subsidiaries, taken as a whole; provided, however, that in no
event shall any of the following, in and of themselves, be considered a Company
Material Adverse Effect: (a) any decrease in the market price or trading volume
of the Company Common Stock after the date hereof or the de-listing thereof from
the NNM listing or a litigation relating thereto; (b) the fact that Company does
not meet the revenue predictions in Company's internal projections separately
delivered to Parent on the date hereof; (c) any litigation or loss of current or
prospective customers, employees, suppliers or distributors, or any reductions
in sales or revenues, that arose from the announcement or pendency of the
Merger; (d) any changes in general economic conditions or changes affecting the
industry generally in which Company operates (provided that such changes do not
affect Company in a materially disproportionate manner); (e) any adverse change
arising from or relating to any change in accounting requirements or principles
or any change in applicable Laws, rules or regulations or the interpretation
thereof and (f) any loss of customers to Parent or DoubleClick Email Canada Inc.
(formerly known as FloNetwork Inc.).
'Company Stock Plans' shall mean Company's 1995 Stock Plan and 1999
Non-Officer Stock Option Plan and Decisive Technology Corporation's 1996 Stock
Option Plan.
'Company Stock Purchase Plan' shall mean Company's Employee Stock Purchase
Plan.
'Confidentiality Agreement' shall mean the confidentiality agreement, dated
as of February 22, 2001, between Parent and Company.
'$' shall mean United States Dollars.
'Encumbrances' shall mean all claims, security interests, liens, pledges,
escrows, options, proxies, rights of first refusal, preemptive rights,
mortgages, hypothecations, prior assignments, title retention agreements,
indentures, security agreements or any other similar encumbrance or right.
'Environmental Law' shall mean any Law and any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those relating
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Material.
A-2
'Environmental Permit' shall mean any permit, approval, identification
number, license or other authorization required under or issued pursuant to any
applicable Environmental Law.
'ERISA' shall mean the Employee Retirement Income Security Act of 1974, as
amended.
'Exchange Act' shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
'Expenses' shall mean, with respect to any party hereto, all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its Affiliates) incurred by such party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of its obligations pursuant to this Agreement and the consummation
of the Merger, the preparation, printing, filing and mailing of the Registration
Statement (as defined in Section 7.01) and the Proxy Statement (as defined in
Section 7.01), the solicitation of stockholder approvals, the filing of HSR Act
notification and report form, if any, and all other matters related to the
transactions contemplated hereby and the closing of the Merger.
'Governmental Entity' shall mean any United States Federal, state or local
or any foreign governmental, regulatory or administrative authority, agency or
commission or any court, tribunal or arbitral body.
'Governmental Order' shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Entity.
'Hazardous Material' shall mean (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, friable
asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical,
material or substance defined or regulated as toxic or hazardous or as a
pollutant or contaminant or waste under any applicable Environmental Law.
'HSR Act' shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, together with the rules and regulations promulgated
thereunder.
'IRS' shall mean the United States Internal Revenue Service.
'Knowledge of Company' shall mean that any officer or director of Company or
any Company Subsidiary is actually aware of a fact or other matter or should
have been aware of a fact or other matter based upon reasonable inquiry and
investigation.
'Knowledge of Parent' shall mean that any officer or director of Parent is
actually aware of a fact or other matter or should have been aware of a fact or
other matter based upon reasonable inquiry and investigation.
'Law' shall mean any Federal, state, foreign or local statute, law,
ordinance, regulation, rule, code, order, judgment, decree, other requirement or
rule of law of the United States or any other jurisdiction, and any other
similar act or law.
'NNM' shall mean The Nasdaq National Market.
'Parent Common Stock' shall mean the shares of common stock, par value
$0.001 per share, of Parent.
'Parent Convertible Notes' shall mean the $250,000,000 4.75% Convertible
Notes of Parent due 2006.
'Parent Disclosure Schedule' shall mean the disclosure schedule delivered by
Parent to Company concurrently with the execution of this Agreement and forming
a part hereof.
'Parent Material Adverse Effect' shall mean any change in or effect on the
business of Parent and the Parent Subsidiaries (as defined in Section 5.03)
that, individually or in the aggregate (taking into account all other such
changes or effects), is, or is reasonably likely to be, materially adverse to
the business, assets, liabilities, financial condition or results of operations
of Parent and the Parent Subsidiaries, taken as a whole; provided, however, that
in no event shall any of the following, in and of themselves, be considered a
Parent Material Adverse Effect: (a) any decrease in the market price or trading
volume of the Parent Common Stock after the date hereof or a
A-3
litigation relating thereto; (b) any changes in general economic conditions or
changes affecting the industry generally in which Parent operates (provided that
such changes do not affect Parent in a materially disproportionate manner); or
(c) any adverse change arising from or relating to any change in accounting
requirements or principles or any change in applicable Laws, rules or
regulations or the interpretation thereof.
'Parent Stock Plans' shall mean Parent's 1996 Stock Plan, 1997 Stock
Incentive Plan, 1999 Non-Officer Stock Option/Stock Issuance Plan, Employee
Stock Purchase Plan and all plans assumed by Parent in connection with its
acquisitions.
'Permitted Encumbrances' shall mean (i) liens for Taxes, assessments and
other governmental charges not yet due and payable, (ii) immaterial unfiled
mechanics', workmen's, repairmen's, warehousemen's, carriers' or other like
liens arising or incurred in the ordinary course of business which are not yet
due and payable, (iii) equipment leases with third parties entered into in the
ordinary course of business, (iv) liens held by Wells Fargo Equipment Finance,
Inc. on all of Company's assets and (v) Encumbrances described on Section 4.18
of the Company Disclosure Schedule.
'Person' shall mean an individual, corporation, partnership, limited
partnership, limited liability partnership, limited liability company,
syndicate, individual (including, without limitation, a 'person' as defined in
Section 13(d)(3) of the Exchange Act), trust, association, entity or government
or political subdivision, agency or instrumentality of a government.
'SEC' shall mean the United States Securities and Exchange Commission.
'Securities Act' shall mean the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
'Subsidiary' shall mean, with respect to any Person, any corporation,
limited liability company, partnership, joint venture or other legal entity of
which such Person (either alone or through or together with any other subsidiary
of such Person) owns, directly or indirectly, a majority of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity, other than, with respect to Company and the Company
Subsidiaries, Message Media Europe, B.V., a company existing under the laws of
the Netherlands, and any of its Subsidiaries.
'Tax' shall mean (i) any and all taxes, fees, levies, duties, tariffs,
imposts and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any Governmental Entity or other taxing authority ('Taxing
Authority'), including, without limitation, income, franchise, windfall or other
profits, gross or net receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation or
net worth taxes; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license, registration and
documentation fees; and customs duties, tariffs and similar charges; (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, combined, consolidated or unitary
group for any taxable period; and (iii) any liability for the payment of amounts
of the type described in (i) or (ii) as a result of being a transferee of, or a
successor in interest to, any Person or as a result of an express or implied
obligation to indemnify any Person.
'Tax Return' shall mean any return, statement or form (including, without
limitation, any estimated tax report or return, withholding tax reports or
return and information report or return) required to be filed with respect to
any Taxes.
'U.S. GAAP' shall mean United States generally accepted accounting
principles.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, at the Effective Time
(as defined in Section 2.03),
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Merger Sub shall be merged with and into Company. As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and Company shall
continue as the surviving corporation of the Merger, as a wholly owned
Subsidiary of Parent (the 'Surviving Corporation'). Notwithstanding the
foregoing, Parent may elect at any time prior to the Effective Time to change
the method of effecting the business combination between Parent and Company if
and to the extent that Parent deems such change to be desirable, including,
without limitation, (a) in lieu of merging Merger Sub with and into Company as
provided herein, to merge Company with and into Merger Sub or to merge Company
with and into Parent (provided that Company shall not be deemed to have breached
any of its representations, warranties, covenants or other agreements set forth
herein solely by reason of such election), or (b) to substitute any direct or
indirect wholly owned Subsidiary of Parent for Merger Sub as a constituent
corporation in the Merger; provided, however, such change shall not be effected
without Company's prior written consent if such change will negatively affect
Company or its stockholders. In the event of an election by Parent to the effect
of any such change, the parties shall execute an appropriate amendment to this
Agreement.
SECTION 2.02 Closing. Unless this Agreement shall have been terminated and
the Merger herein contemplated shall have been abandoned pursuant to
Section 9.01 and subject to the satisfaction or waiver of the conditions set
forth in Article VIII, the consummation of the Merger shall take place as
promptly as practicable (and in any event within three (3) Business Days) after
satisfaction or waiver of the conditions set forth in Article VIII, at a closing
(the 'Closing') to be held at the offices of Brobeck, Phleger & Harrison LLP,
1633 Broadway, 47th Floor, New York, New York 10019, unless another date, time
or place is agreed to by Parent and Company.
SECTION 2.03 Effective Time. At and after the time of the Closing, the
parties shall cause the Merger to be consummated by filing a certificate of
merger (the 'Certificate of Merger') with the Secretary of State of the State of
Delaware in such form as required by, and executed in accordance with, the
relevant provisions of the DGCL (the date and time of such filing, or such later
date and time as may be set forth therein, being the 'Effective Time').
SECTION 2.04 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all the property, rights, privileges,
powers and franchises of Company and Merger Sub shall vest in Company as the
Surviving Corporation, and all debts, liabilities and duties of Company and
Merger Sub shall become the debts, liabilities and duties of Company as the
Surviving Corporation.
SECTION 2.05 Certificate of Incorporation; Bylaws; Directors and Officers of
Surviving Corporation. Unless otherwise agreed by Parent and Company before the
Effective Time, at the Effective Time:
(a) subject to the requirements of Section 7.03(a), the Certificate of
Incorporation and the Bylaws of Merger Sub in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation and the Bylaws
of the Surviving Corporation, until thereafter amended as provided by Law
and such Certificate of Incorporation or Bylaws; provided, however, that
Article I of the Certificate of Incorporation of the Surviving Corporation
shall be amended to change the name of the Surviving Corporation;
(b) the officers of Merger Sub immediately prior to the Effective Time
shall serve in their respective offices of the Surviving Corporation from
and after the Effective Time, in each case until their successors are
elected or appointed and qualified or until their resignation or removal;
and
(c) the directors of Merger Sub immediately prior to the Effective Time
shall serve as the directors of the Surviving Corporation from and after the
Effective Time, in each case until their successors are elected or appointed
and qualified or until their resignation or removal.
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ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Conversion of Shares. At the Effective Time, by virtue of the
Merger, and without any action on the part of Parent, Merger Sub, Company or the
holders of any of the following securities:
(a) Each share of Company Common Stock issued and outstanding
immediately before the Effective Time (excluding those shares to be
cancelled in accordance with Section 3.01(b)) and all rights in respect
thereof shall forthwith cease to exist and be converted into and
exchangeable for .0436 share (the 'Exchange Ratio') of Parent Common Stock.
(b) Each share of Company Common Stock held in the treasury of Company
or owned by Parent, Merger Sub or any wholly owned Subsidiary of Company or
Parent immediately prior to the Effective Time shall be canceled and retired
and no shares of stock or other securities of Parent, the Surviving
Corporation or any other corporation shall be issuable, and no payment of
other consideration shall be made, with respect thereto.
(c) Each issued and outstanding share of capital stock of Merger Sub
shall be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation. From and after the Effective
Time, each outstanding certificate theretofore representing shares of Merger
Sub common stock shall be deemed for all purposes to evidence ownership of
and to represent the number of shares of Surviving Corporation common stock
into which such shares of Merger Sub common stock shall have been converted.
SECTION 3.02 Exchange of Shares Other than Treasury Shares.
(a) Exchange Agent. As of the Effective Time, Parent shall enter into an
agreement with American Stock Transfer & Trust Company, Inc. or such other bank
or trust company as may be designated by Parent to act as exchange agent for the
Merger (the 'Exchange Agent').
(b) Parent to Provide Common Stock and Cash. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for the benefit of the
holders of Company Common Stock: (i) certificates of Parent Common Stock
('Parent Certificates') representing the number of whole shares of Parent Common
Stock issuable pursuant to Section 3.01(a) in exchange for shares of Company
Common Stock outstanding immediately prior to the Effective Time and
(ii) sufficient funds to permit payment in lieu of fractional shares pursuant to
Section 3.04.
(c) Exchange Procedures. The Exchange Agent shall mail to each holder of
record of certificates representing shares of Company Common Stock ('Company
Certificates'), whose shares were converted into the right to receive Parent
Common Stock (and cash in lieu of fractional shares pursuant to Section 3.04)
promptly after the Effective Time (and in any event not later than the later to
occur of seven (7) Business Days after (i) the Effective Time and (ii) receipt
by Parent of a complete list from Company of the names and addresses of its
holders of record): (i) a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon receipt of the Company Certificates by the
Exchange Agent, and shall be in such form and have such other provisions as
Parent may reasonably specify); and (ii) instructions for use in effecting the
surrender of the Company Certificates in exchange for Parent Certificates (and
cash in lieu of fractional shares). Upon surrender of a Company Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed, and such other documents as may be reasonably required by
the Exchange Agent, the holder of such Company Certificate shall be entitled to
receive, in exchange therefor, a Parent Certificate representing the number of
whole shares of Parent Common Stock that such holder has the right to receive
pursuant to this Article III, dividends or distributions declared or made on
such Parent Common Stock after the Effective Time and payable between the
Effective Time and the time of such surrender and/or payment of cash in lieu of
fractional shares which such holder has the right to receive pursuant to
Section 3.04, and the Company Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Company
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Certificate that, prior to the Effective Time, represented shares of Company
Common Stock will be deemed from and after the Effective Time, to represent for
all purposes only the right to receive the number of full shares of Parent
Common Stock into which such shares of Company Common Stock are so convertible,
any dividends or distributions declared or made on such Parent Common Stock
after the Effective Time and payable between the Effective Time and the time of
such surrender and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 3.04.
Notwithstanding any other provision of this Agreement, no interest will be paid
or will accrue on any cash payable to holders of Company Certificates pursuant
to the provisions of this Article III.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Company
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Company Certificate shall surrender
such Company Certificate. Subject to the effect of applicable escheat or similar
Laws, following surrender of any such Company Certificate, there shall be paid
to the record holder of the Parent Certificates issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section 3.02(d)) with
respect to such shares of Parent Common Stock.
(e) Transfer of Ownership. If any Parent Certificate is to be issued in a
name, or cash in lieu of fractional shares paid to a Person, other than that in
which the Company Certificate surrendered in exchange therefor is registered, it
will be a condition of the issuance and/or payment thereof that the Company
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the Person requesting such exchange will have paid to
Parent or any agent designated by it any transfer or other Taxes required by
reason of the issuance of a Parent Certificate for shares of Parent Common Stock
in any name other than that of the registered holder of the Company Certificate
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such Tax has been paid or is not payable.
(f) Termination of Exchange Agent Funding. Any portion of funds (including
any interest earned thereon) or Parent Certificates held by the Exchange Agent
which have not been delivered to holders of Company Certificates pursuant to
this Article III within six months after the Effective Time shall promptly be
paid or delivered, as appropriate, to Parent, and thereafter holders of Company
Certificates who have not theretofore complied with the exchange procedures set
forth in and contemplated by this Section 3.02 shall thereafter look only to
Parent (subject to abandoned property, escheat and similar Laws) only as general
creditors thereof for their claim for shares of Parent Common Stock, any cash in
lieu of fractional shares of Parent Common Stock and any dividends or
distributions (with a record date after the Effective Time) with respect to
Parent Common Stock to which they are entitled.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 3.02, none of the Exchange Agent, the Surviving Corporation nor any
party hereto shall be liable to any Person in respect of any shares of Parent
Common Stock or cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law.
SECTION 3.03 Stock Transfer Books. As of the Effective Time, the stock
transfer books of Company shall be closed, and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of any such stock transfer books. In the event of a transfer of
ownership of shares of Company Common Stock that is not registered in the stock
transfer records of Company at the Effective Time, a certificate or certificates
representing the number of full shares of Parent Common Stock into which such
shares of Company Common Stock shall have been converted shall be issued to the
transferee together with a cash payment in lieu of fractional shares, if any, in
accordance with Section 3.04 hereof, and a cash payment in the amount of
dividends, if any, in accordance with Section 3.02(d) hereof, if the certificate
or certificates representing such shares of Company Common Stock, as the case
may be, is or are surrendered in accordance with the provisions of Section
3.02(c) hereof, accompanied by all
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documents required to evidence and effect such transfer and by evidence of
payment of any applicable stock transfer Tax.
SECTION 3.04 No Fractional Share Certificates. No scrip or fractional share
Parent Certificate shall be issued upon the surrender for exchange of Company
Certificates, and an outstanding fractional share interest shall not entitle the
owner thereof to vote, to receive dividends or to any rights of a stockholder of
Parent or of Surviving Corporation with respect to such fractional share
interest. As promptly as practicable following the Effective Time, Parent shall
deposit with the Exchange Agent an amount in cash sufficient for the Exchange
Agent to pay each holder of Company Common Stock an amount in cash, rounded to
the nearest whole cent, equal to the product obtained by multiplying (i) the
fractional share interest to which such holder would otherwise be entitled
(after taking into account all shares of Company Common Stock held at the
Effective Time by such holder) by (ii) the closing price for a share of Parent
Common Stock on the NNM on the Business Day immediately prior to the Effective
Time. As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Company Common Stock with respect to any
fractional share interests, the Exchange Agent shall make available such
amounts, net of any required withholding Taxes, to such holders of Company
Common Stock subject to and in accordance with the terms of Section 3.02 hereof.
SECTION 3.05 Options and Warrants to Purchase Company Common Stock. At the
Effective Time, the Company Stock Plans and each option granted by Company to
purchase shares of Company Common Stock pursuant to the Company Stock Plans or
otherwise listed on Schedule 4.03 of the Company Disclosure Schedule ('Company
Stock Options') which is outstanding and unexercised immediately prior to the
Effective Time, and each warrant to purchase shares of Company Common Stock
('Company Warrants') listed on Schedule 4.03 of the Company Disclosure Schedule
which is outstanding and unexercised immediately prior to the Effective Time,
shall be assumed by Parent and converted into an option or warrant, as the case
may be, to purchase shares of Parent Common Stock in such number and at such
exercise price as provided below and otherwise having the same terms and
conditions as in effect immediately prior to the Effective Time (except (a) to
the extent that such terms, conditions and restrictions may be altered in
accordance with their terms, or the terms of the agreements between Company and
the holder of a Company Stock Option set forth on Section 3.05 of the Company
Disclosure Schedule, as a result of the Merger contemplated hereby and (b) that
all references in each such Company Stock Option or Company Warrant to Company
shall be deemed to refer to Parent):
(a) the number of shares of Parent Common Stock to be subject to the new
option or warrant, as the case may be, shall be equal to the product of
(x) the number of shares of Company Common Stock subject to the original
Company Stock Option or Company Warrant immediately prior to the Effective
Time and (y) the Exchange Ratio;
(b) the exercise price per share of Parent Common Stock under the new
option or warrant, as the case may be, shall be equal to (x) the exercise
price per share of Company Common Stock in effect under the original Company
Stock Option or Company Warrant immediately prior to the Effective Time
divided by (y) the Exchange Ratio; and
(c) in effecting such assumption and conversion, the aggregate number of
shares of Parent Common Stock to be subject to each assumed Company Stock
Option or Company Warrant will be rounded down, if necessary, to the next
whole share and the aggregate exercise price shall be rounded up, if
necessary, to the next whole cent.
The adjustments provided herein with respect to any options that are
'incentive stock options' (as defined in Section 422 of the Code) shall be
effected in a manner consistent with the requirements of Section 424(a) of the
Code.
SECTION 3.06 Unvested Stock. At the Effective Time, any unvested shares of
Company Common Stock awarded to, or otherwise held by, employees, directors and
consultants pursuant to a Company Stock Plan outstanding immediately prior to
the Effective Time shall be converted into unvested shares of Parent Common
Stock in accordance with the Exchange Ratio and shall remain subject to the same
terms, restrictions and vesting schedule as in effect immediately prior to the
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Effective Time. All outstanding rights which Company may hold immediately prior
to the Effective Time to repurchase unvested shares of Company Common Stock
shall be assigned to the Parent in the Merger and shall thereafter be
exercisable by Parent upon the same terms and subject to the same conditions in
effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to such rights and the purchase price payable per share
shall be adjusted to reflect the Exchange Ratio (with the number of shares
rounded down to the nearest whole share and the purchase price rounded up to the
nearest whole cent).
SECTION 3.07 Company Stock Purchase Plan. Immediately prior to the Effective
Time, each outstanding purchase right pursuant to the Company Stock Purchase
Plan shall be exercised for the purchase of Company Common Stock at the price
per share set forth in the Company Stock Purchase Plan, and the Company Common
Stock so purchased shall be considered issued and outstanding immediately prior
to the Effective Time and shall be converted pursuant to Section 3.02 hereof.
The Company Stock Purchase Plan shall terminate effective with such exercise of
purchase rights described herein and no further purchase rights shall be granted
thereafter.
SECTION 3.08 Certain Adjustments. If between the date of this Agreement and
the Effective Time, (a) the outstanding shares of Parent Common Stock, or
Company Common Stock shall be changed into a different number of shares by
reason of any reclassification, recapitalization, split-up, combination or
exchange of shares, or any dividend payable in stock or other securities shall
be declared thereon with a record date within such period, or (b) except as
otherwise permitted pursuant to this Agreement, the number of outstanding shares
of Company Common Stock (calculated in accordance with the Treasury Method under
U.S. GAAP as of the date of this Agreement) is in excess of that specified in
Section 4.03 or disclosed on Schedule 4.03 of the Company Disclosure Schedule
(regardless of whether such excess is a result of an additional issuance of
capital stock or a correction to such Sections), then, in either case, the
Exchange Ratio shall be adjusted accordingly to provide to Parent and Company
the same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange, dividend or
increase.
SECTION 3.09 Lost, Stolen or Destroyed Certificates. In the event any
Company Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Company
Certificates, upon the making of an affidavit of that fact by the holder
thereof, such shares of Parent Common Stock (and cash in lieu of fractional
shares) as may be required pursuant to Section 3.01; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Company
Certificates to indemnify Parent against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Company Certificates alleged to have been lost, stolen or destroyed.
SECTION 3.10 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Company, the officers and directors of Company are
hereby fully authorized in the name of their corporation or otherwise to take,
and will use all good faith efforts to take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in writing in the Company Disclosure
Schedule, all such exceptions to be referenced to a specific representation set
forth in this Article IV and any other representation or
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warranty of Company to the extent that it is apparent from such disclosure that
such disclosure is applicable to such other representation or warranty, that:
SECTION 4.01 Organization and Qualification; Subsidiaries.
(a) Company has been duly organized and is validly existing and in good
standing under the Laws of the State of Delaware and has the requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. Each Subsidiary of Company (a 'Company
Subsidiary') has been duly organized and is validly existing and in 'good
standing' (with respect to jurisdictions that recognize the concept of good
standing or similar concepts) under the Laws of the jurisdiction in which it is
incorporated or chartered and has the requisite corporate or other power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. Each of Company and the Company Subsidiaries is
duly qualified or licensed to do business, and is in 'good standing' (with
respect to jurisdictions that recognize the concept of good standing or similar
concepts), in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary.
(b) Company does not own, directly or indirectly, any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership or joint venture
arrangement, other business entity or other Person. Schedule 4.01(b) of the
Company Disclosure Schedule sets forth the percentage of the equity or similar
interest in each such corporation, partnership or joint venture arrangement,
other business entity or other Person owned by Company and the Company
Subsidiaries and, if applicable, other Persons. All outstanding shares of
capital stock of each such corporation, partnership or joint venture
arrangement, other business entity or other Person are duly authorized, validly
issued, fully paid and nonassessable. All of the outstanding shares of capital
stock of each Company Subsidiary are owned by Company free and clear of all
Encumbrances. There are no outstanding subscriptions, options, warrants, puts,
calls, rights, exchangeable or convertible securities or other commitments,
arrangements, or agreements of any character relating to the issued or unissued
capital stock or other securities of any such Company Subsidiary, or otherwise
obligating Company or any such Company Subsidiary to issue, transfer, sell,
purchase, redeem or otherwise acquire any such securities.
SECTION 4.02 Certificate of Incorporation and Bylaws. The copies of the
certificate of incorporation and bylaws of Company, the certificate of
incorporation, bylaws or equivalent organizational documents of each Company
Subsidiary and the organizational documents (including the operating agreements)
of each joint venture entity owned by Company previously presented to Parent by
Company are true, complete and correct copies thereof. Such certificates of
incorporation, bylaws and equivalent organizational documents are in full force
and effect. Neither Company nor any Company Subsidiary is in violation of any of
the provisions of its respective certificate of incorporation, bylaws or
equivalent organizational documents.
SECTION 4.03 Capitalization. The authorized capital stock of Company
consists of 100,000,000 shares of Company Common Stock and 5,000,000 shares of
the Company's Preferred Stock, par value $0.001 per share (the 'Company
Preferred Stock'). As of the close of business on May 29, 2001, (i) 68,632,410
shares of Company Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable, (ii) no shares of Company Common
Stock were held in the treasury of Company, (iii) 19,285,103 shares of Company
Common Stock were reserved for future issuance pursuant to Company Stock
Options, Company Warrants and the Company Stock Purchase Plan and (iv) no shares
of Company Preferred Stock were issued and outstanding. A true and complete list
as of the date hereof of each holder of an outstanding Company Stock Option or
Company Warrant, the grant or issuance date of each Company Stock Option or
Company Warrant, the plan under which such Company Stock Option was granted, if
any, the number of shares of Company Common Stock for which each Company Stock
Option or Company Warrant is exercisable, the exercise price of each Company
Stock Option or Company Warrant, the vesting schedule of each Company Stock
Option (including the extent vested to the date of this Agreement and whether
and to what extent the exercisability of such Company Stock Option
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will be accelerated and become exercisable as a result of or relating to the
transactions contemplated by this Agreement), the status of each Company Stock
Option as either an 'incentive stock option' (as defined in Section 422 of the
Code) or a nonstatutory stock option; a true and complete list as of the date
hereof of each holder of an outstanding purchase right under the Company Stock
Purchase Plan, including the payroll deduction amount elected by such holder and
the price per share of Company Common Stock at the start of the current purchase
period; and a true and complete list of the name of each holder of any shares of
Company Common Stock that are unvested as of the date hereof, including the
grant or issuance date of such stock, the per share purchase price, if any,
payable upon forfeiture or repurchase by Company of such stock, the vesting
schedule applicable to such Company Common Stock (including the extent vested to
the date of this Agreement and whether and to what extent the vesting of such
Company Common Stock will be accelerated as a result of or relating to the
transactions contemplated by this Agreement), and the status of each share of
Company Common Stock as acquired pursuant to the exercise of an 'incentive stock
option' (as defined in Section 422 of the Code) or not, are set forth on
Schedule 4.03 of the Company Disclosure Schedule. Except for shares of Company
Common Stock issuable pursuant to the Company Stock Plans, the Company Warrants,
the Company Stock Purchase Plan and as otherwise set forth on Schedule 4.03 of
the Company Disclosure Schedule, there are not issued, reserved for issuance or
outstanding, (A) any shares of capital stock or other voting securities of
Company or any Company Subsidiary or (B) any options, warrants, convertible or
exchangeable securities or other rights, agreements, arrangements or commitments
of any character to which Company or any Company Subsidiary is a party or by
which Company or any Company Subsidiary is bound relating to the issued or
unissued capital stock of Company or any Company Subsidiary or obligating
Company or any Company Subsidiary to issue or sell any shares of capital stock
of, or other equity interests in, Company or any Company Subsidiary. All shares
of Company Common Stock subject to issuance as aforesaid, upon issuance prior to
the Effective Time on the terms and conditions specified in the instruments
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid and nonassessable. There are no outstanding contractual obligations
of Company to repurchase, redeem or otherwise acquire any shares of Company
Common Stock. There are no outstanding contractual obligations of Company to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Company Subsidiary or other Person. Company
has provided to Parent complete copies of the Company Stock Plans and all
documents pursuant to which Company has granted Company Stock Options that are
currently outstanding and the form of all stock option agreements evidencing
such Company Stock Options. Company has provided to Parent complete copies of
all documents pursuant to which Company has granted Company Warrants that are
currently outstanding and the form of all warrant agreements evidencing such
Company Warrants.
SECTION 4.04 Authority Relative to This Agreement. Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder, and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Company and the
consummation by Company of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of Company are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby (other than, with respect to
the Merger, the approval of this Agreement by the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote with respect thereto
at the Company Stockholders' Meeting (as defined in Section 7.02), and the
filing and recordation of the Certificate of Merger as required by the DGCL).
This Agreement has been duly executed and delivered by Company and, assuming the
due authorization, execution and delivery by the other parties hereto,
constitutes the legal, valid and binding obligation of Company, enforceable
against Company in accordance with its terms, except to the extent that
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar Laws affecting the enforcement of creditors'
rights generally and by principles of equity regarding the availability of
remedies (whether in a proceeding at Law or in equity).
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SECTION 4.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Company do not, and the
performance by Company of its obligations hereunder and the consummation of the
Merger will not, (i) conflict with or violate any provision of the certificate
of incorporation or bylaws of Company or any equivalent organizational documents
of any Company Subsidiary; (ii) assuming that all consents, approvals,
authorizations and permits described in Section 4.05(b) have been obtained and
all filings and notifications described in Section 4.05(b) have been made,
conflict with or violate any Law applicable to Company or any Company Subsidiary
or by which any property or asset of Company or any Company Subsidiary is
subject; or (iii) result in any breach of or constitute a default (or an event
which with the giving of notice or lapse of time or both could reasonably be
expected to become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any property or asset of Company or any Company Subsidiary
pursuant to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation.
(b) The execution and delivery of this Agreement by Company do not, and the
performance by Company of its obligations hereunder and the consummation of the
Merger will not, require any consent, approval, authorization or permit of, or
filing by Company with or notification by Company to, any Governmental Entity,
except pursuant to applicable requirements of the Exchange Act, the Securities
Act, the Blue Sky Laws, the rules and regulations of the NNM, the premerger
notification requirements of the HSR Act, if any, and the filing and recordation
of the Certificate of Merger as required by the DGCL.
SECTION 4.06 Permits; Compliance with Laws. Each of Company and the Company
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, establishment registrations, product listings, permits, easements,
variances, exceptions, consents, certificates, identification and registration
numbers, approvals and orders of any Governmental Entity necessary for Company
and the Company Subsidiaries to own, lease and operate their respective
properties and assets, or to store, distribute and market their respective
products or otherwise to carry on their respective businesses as they are now
being conducted (collectively, the 'Company Permits'), and, as of the date of
this Agreement, none of the Company Permits has been suspended or cancelled nor
is any such suspension or cancellation pending or threatened in writing. Neither
Company nor any Company Subsidiary is in conflict with, or in default or
violation of, (i) any Law applicable to Company or such Company Subsidiary or by
which any property or asset of Company or such Company Subsidiary is bound or
affected or (ii) any Company Permits. Schedule 4.06 of the Company Disclosure
Schedule sets forth, as of the date of this Agreement, all actions, proceedings,
investigations or surveys pending or, to the Knowledge of Company, threatened in
writing against Company or any Company Subsidiary that could reasonably be
expected to result in the suspension or cancellation of any Company Permit.
Since December 31, 1997, neither Company nor any Company Subsidiary has received
from any Governmental Entity any written notification with respect to possible
conflicts, defaults or violations of Laws. The Merger will not result in the
suspension or cancellation of any Company Permit.
SECTION 4.07 SEC Filings; Financial Statements.
(a) Company has timely filed all forms, reports, statements and documents
required to be filed by it (A) with the SEC and the NNM since December 13, 1996
(collectively, together with any such forms, reports, statements and documents
Company may file subsequent to the date hereof until the Closing, the 'Company
Reports') and (B) with any other Governmental Entities. Each Company Report
(i) was prepared in accordance with the requirements of the Securities Act, the
Exchange Act or the rules and regulations of the NNM, as the case may be, and
(ii) did not at the time it was filed (or, with respect to any registration
statement filed under the Securities Act, at the time of effectiveness) contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each form, report, statement and document referred to in clause (B)
of this Section 4.07(a) was prepared in all material respects in accordance with
the requirements of applicable Law. No Company
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Subsidiary is subject to the periodic reporting requirements of the Exchange Act
or required to file any form, report or other document with the SEC, the NNM,
any other stock exchange or any other comparable Governmental Entity.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Company Reports was prepared in accordance
with U.S. GAAP (except, in the case of unaudited financial statements, for the
absence of footnotes and subject to normal year end adjustments, which
adjustments are not material) applied on a consistent basis throughout the
periods indicated (except as may be indicated in the notes thereto) and each
presented fairly the consolidated financial position of Company and the Company
Subsidiaries as at the respective dates thereof, and their consolidated results
of operations, stockholders' equity and cash flows for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against on the most
recent consolidated balance sheet of Company as reported in the Company Reports,
including the notes thereto, Company has no liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on a balance sheet or in notes thereto prepared in
accordance with U.S. GAAP, except for liabilities or obligations incurred in the
ordinary course of business consistent with past practice since December 31,
2000.
(d) Subject to any reserves set forth in Company's financial statements, the
accounts receivable shown thereon represent bona fide claims against debtors for
sales and other charges, and are not subject to discount except for normal cash
and immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in Company's financial statements was calculated in
accordance with U.S. GAAP and in a manner consistent with prior periods.
SECTION 4.08 Absence of Certain Changes or Events. Since December 31, 2000,
each of Company and the Company Subsidiaries has conducted its business only in
the ordinary course consistent with past practice and, since such date, there
has not been (i) any Company Material Adverse Effect, (ii) any event that could
reasonably be expected to prevent or materially delay the performance of
Company's obligations pursuant to this Agreement and the consummation of the
Merger by Company, (iii) any change by Company or any Company Subsidiary in its
accounting methods, principles or practices, (iv) any declaration, setting aside
or payment of any dividend or distribution in respect of the shares of Company
Common Stock or any redemption, purchase or other acquisition of any of
Company's securities, (v) any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to employees, officers, consultants or directors of Company or any
Company Subsidiary, (vi) any issuance or sale of any stock, notes, bonds or
other securities other than pursuant to the exercise of outstanding securities,
or entering into any agreement with respect thereto, (vii) any amendment to
Company's certificate of incorporation or bylaws or any Company Subsidiary's
certificate of incorporation, bylaws or equivalent organizational documents,
(viii) other than in the ordinary course of business, any (x) purchase, sale,
assignment or transfer of any material assets, (y) Encumbrance on any material
assets or properties, tangible or intangible, except for liens for Taxes not yet
delinquent or (z) waiver of any rights of material value or cancellation or any
material debts or claims, (ix) any incurrence of any material liability
(absolute or contingent), except for current liabilities and obligations
incurred in the ordinary course of business consistent with past practice,
(x) any settlement, waiver, release, assignment or compromise relating to any
action, suit, proceeding, claim arbitration or litigation involving Company or
any Company Subsidiary, (xi) any incurrence of any damage, destruction or
similar loss, whether or not covered by insurance, materially affecting the
business or properties of Company or any Company Subsidiary, (xii) any entering
into any transaction of a material nature other than in the ordinary course of
business, consistent with past practices or (xiii) any negotiation or agreement
by
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Company or any Company Subsidiary to do any of the things described in the
preceding clauses (i) through (xii).
SECTION 4.09 Employee Benefit Plans; Labor Matters.
(a) Section 4.09(a) of the Company Disclosure Schedule lists each employee
benefit fund, plan, program, arrangement and contract (including, without
limitation, any 'pension' plan, fund or program, as defined in Section 3(2) of
ERISA, and any 'employee benefit plan', as defined in Section 3(3) of ERISA) and
any plan, program, arrangement or contract providing for severance; medical,
dental or vision benefits; life insurance or death benefits; disability
benefits, sick pay or other wage replacement; vacation, holiday or sabbatical;
pension or profit-sharing benefits; stock options or other equity compensation;
bonus or incentive pay or other material fringe benefits), whether written or
not ('Benefit Plans'), maintained, sponsored or contributed to or required to be
contributed to by Company or other trade or business (whether or not
incorporated) treated as a single employer with Company (a 'Company ERISA
Affiliate') pursuant to Code Section 414(b), (c), (m) or (o), or with respect to
which Company or any Company ERISA Affiliate could incur liability under
Section 4069, 4212(c) or 4204 of ERISA or Section 412 of the Code (the 'Company
Benefit Plans'), and Company has delivered or made available to Parent a true,
complete and correct copy of (i) such Company Benefit Plan and the most recent
summary plan description related to such Company Benefit Plan, if a summary plan
description is required therefor, (ii) each trust agreement or other funding
arrangement relating to such Company Benefit Plan, (iii) the most recent annual
report (Form 5500) filed with the IRS with respect to such Company Benefit Plan,
(iv) the most recent actuarial report or financial statement relating to such
Company Benefit Plan and (v) the most recent determination, notification,
advisory or opinion letter issued by the IRS with respect to such Company
Benefit Plan, if it is intended to be qualified under Section 401(a) of the
Code, and any pending request for such a letter. Neither Company nor any Company
ERISA Affiliate nor, to the Knowledge of Company, any other Person, has any
express or implied commitment, whether legally enforceable or not, to modify,
change or terminate any Company Benefit Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
(b) Each Company Benefit Plan has been administered in all material respects
in accordance with its terms and all applicable Laws, including, without
limitation, ERISA and the Code, and all contributions required to be made under
the terms of any of the Company Benefit Plans as of the date of this Agreement
have been timely made or have been reflected on the most recent consolidated
balance sheet filed or incorporated by reference in the Company Reports prior to
the date of this Agreement. With respect to the Company Benefit Plans, no event
has occurred and there exists no condition or set of circumstances in connection
with which Company or any Company ERISA Affiliate is likely to be subject to any
material liability (other than for routine benefit liabilities) under the terms
of, or with respect to, such Company Benefit Plans, under ERISA, the Code or any
other applicable Law.
(c) Company, on behalf of itself and each Company ERISA Affiliate, hereby
represents that: (i) each Company Benefit Plan which is intended to qualify
under Section 401(a), 401(k), 401(m) or 4975(e)(6) of the Code has received a
favorable determination or is currently awaiting receipt of a favorable advisory
or opinion letter from the IRS as to its qualified status under the Code, and
each trust established in connection with any Company Benefit Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination letter from the IRS that it is so exempt, or
such Company Benefit Plan has been established under a standardized prototype
plan for which an IRS opinion letter has been obtained by the Plan sponsor and
is valid as to Company and no fact or event has occurred that could adversely
affect the qualified status of any such Company Benefit Plan or the exempt
status of any such trust, or otherwise could not be corrected through various
IRS or Department of Labor plan correction programs without the loss of
qualified status; (ii) each Company Benefit Plan that is required to be
registered under any other applicable Law has been duly registered and no fact
or event has occurred that could adversely affect the registration or status of
such Company Benefit Plan under applicable Law; (iii) there has been no
prohibited transaction (within the meaning of
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Section 406 of ERISA or Section 4975 of the Code) with respect to any Company
Benefit Plan; and (iv) each Company Benefit Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability, other than (A) liability for ordinary administrative
expenses, including surrender charges and related financial fees typically
incurred in a termination event, (B) if the Company Benefit Plan is a pension
benefit plan subject to Part 2 of Title I of ERISA, liability for the accrued
benefits as of the date of such termination (if and to the extent required by
ERISA) to the extent that either there are sufficient assets set aside in a
trust or insurance contract to satisfy such liability or such liability is
reflected on the most recent consolidated balance sheet filed or incorporated by
reference in the Company Reports prior to the date of this Agreement or
(C) liability for continuation health care coverage under COBRA. No suit,
administrative proceeding, action or other litigation has been brought, or to
the Knowledge of Company, is threatened, against or with respect to any Company
Benefit Plan, including any audit or inquiry by the IRS or United States
Department of Labor (other than routine benefits claims) or any other
Governmental Entity.
(d) No Company Benefit Plan is a multiemployer pension plan (as defined in
Section 3(37) of ERISA) or other pension plan subject to Title IV of Part 3 of
Title I ERISA or Section 412 of the Code and neither Company nor any Company
ERISA Affiliate has sponsored or contributed to or been required to contribute
to a multiemployer pension plan or other pension plan subject to Title IV of
ERISA. No material liability under Title IV of ERISA has been incurred by
Company or any Company ERISA Affiliate that has not been satisfied in full, and
no condition exists that presents a material risk to Company or any Company
ERISA Affiliate of incurring or being subject (whether primarily, jointly or
secondarily) to a material liability thereunder. None of the assets of Company
or any Company ERISA Affiliate is, or may reasonably be expected to become, the
subject of any lien arising under ERISA or Section 412(n) of the Code.
(e) With respect to each Company Benefit Plan that is subject to Title IV or
Part 3 of Title I of ERISA or Section 412 of the Code, (i) no reportable event
(within the meaning of Section 4043 of ERISA, other than an event that is not
required to be reported before or within 30 days of such event) has occurred or
is expected to occur, (ii) there was not an accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived, as of the most recently ended plan year of such Company Benefit
Plan; and (iii) there is no 'unfunded benefit liability' (within the meaning of
Section 4001(a)(18) of ERISA).
(f) Company has set forth on Schedule 4.09(f) of the Company Disclosure
Schedule and has delivered to Parent true, complete and correct copies of
(i) all written employment agreements with officers, or in the case of oral
agreements, written descriptions of such agreements, and all written consulting
agreements of Company and the Company Subsidiaries, or in the case of oral
agreements, written descriptions of such agreements, providing for annual
compensation in excess of $100,000 and in effect as of the date of this
Agreement, (ii) all severance plans, agreements, programs and policies of
Company and the Company Subsidiaries with or relating to their respective
employees, directors or consultants and in effect as of the date of this
Agreement, and (iii) all plans, programs, agreements and other arrangements of
Company and the Company Subsidiaries with or relating to their respective
employees, directors or consultants which contain 'change of control'
provisions. Except as set forth on Schedule 4.09(f) of the Company Disclosure
Schedule, which discloses the Company's estimate of excess parachute payments
based on assumptions described therein, no payment or benefit which will be made
by Company or any Company Subsidiary or Parent under any Company Benefit Plan or
other arrangement will constitute an excess parachute payment under Section
280G(b)(1) of the Code. The consummation of the transactions contemplated by
this Agreement will not individually or in conjunction with any other possible
event (including termination of employment) (i) entitle any current or former
employee or other service provider of Company or any Company Subsidiary to
severance benefits or any other payment, compensation or benefit (including
forgiveness of indebtedness), except as expressly provided by this Agreement, or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation or benefit due any such employee or service provider.
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(g) Neither Company nor any Company Subsidiary is a party to, nor has any
obligations under or with respect to, any collective bargaining or other labor
union contract applicable to Persons employed by Company or such Company
Subsidiary and no collective bargaining agreement is being negotiated by
Company, any Company Subsidiary or any Person that may bind Company or any
Company Subsidiary thereunder. As of the date of this Agreement, there is no
labor dispute, strike or work stoppage against Company or any Company Subsidiary
pending or, to the Knowledge of Company, threatened, which may interfere with
the business activities of Company or any Company Subsidiary. As of the date of
this Agreement, none of Company, the Company Subsidiaries nor any of their
respective representatives or employees has committed any unfair labor practice
in connection with the operation of the respective businesses of Company or the
Company Subsidiaries, and there is no charge or complaint against Company or any
Company Subsidiary by the National Labor Relations Board or any comparable
Governmental Entity pending or, to the Knowledge of Company, threatened.
(h) Except as required by Law, no Company Benefit Plan provides any of the
following retiree or post-employment benefits to any Person: medical, disability
or life insurance benefits. Company and each Company ERISA Affiliate are in
material compliance with (i) the requirements of the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 and the rules and regulations (including proposed
rules and regulations) thereunder ('COBRA') and (ii) the applicable requirements
of the Health Insurance Portability and Accountability Act of 1996 and the rules
and regulations (including the proposed rules and regulations) thereunder.
(i) Each of Company and the Company Subsidiaries is in compliance in all
material respects with all currently applicable Laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices
(including, without limitation, relating to termination of employment and
notices relating thereto), and is not engaged in any unfair labor practice. Each
of Company and the Company Subsidiaries has withheld all amounts required by Law
or by agreement to be withheld from the wages, salaries, and other payments to
employees. Neither Company nor any Company Subsidiary is liable for any arrears
of wages or any Taxes or any penalty for failure to comply with any of the
foregoing. Neither Company nor any Company Subsidiary is liable for any payment
to any trust or other fund or to any Governmental Entity, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending
claims against Company or any Company Subsidiary under any workers compensation
plan or policy or for long-term disability. There are no controversies pending
or, to the Knowledge of Company, threatened, among Company or any Company
Subsidiary, on the one hand, and any of their respective employees, on the other
hand, which controversies have or could reasonably be expected to result in an
action, suit, proceeding, claim, arbitration or investigation before any
Governmental Entity.
(j) Section 4.09(j) of the Company Disclosure Schedule sets forth a true and
complete list of all employees of Company by department and grade and the base
compensation and any severance amounts payable to such employees. Each employee
whose employment has been terminated by Company has signed Company's standard
separation agreement, a form of which has been provided to Parent.
SECTION 4.10 Customers and Suppliers. No customer which individually
accounted for more than one percent (1%) of Company's consolidated gross
revenues during the 12-month period preceding the date hereof has canceled or
otherwise terminated, or made any written threat to Company or any Company
Subsidiary to cancel or otherwise terminate its relationship with Company or
such Company Subsidiary, and no customer which individually accounted for more
than three percent (3%) of Company's consolidated gross revenues during the
12-month period preceding the date hereof (a '3% Customer') has decreased
materially its relationship with Company or any Company Subsidiary or its usage
of the services or products of Company or any Company Subsidiary. Neither
Company nor any Company Subsidiary has actual knowledge of any
A-16
facts or circumstances relating to any of its 3% Customers which Company or any
Company Subsidiary believes could reasonably be expected to negatively impact
the business or operations of Company or such Company Subsidiary. Schedule 4.10
sets forth a true and complete list of all customer contracts currently up for
renewal or subject to renewal within three months of the date hereof.
SECTION 4.11 Certain Tax Matters. None of Company, any Company Subsidiary
nor any of their respective Affiliates has taken or agreed to take any action
that could reasonably be expected to prevent the Merger from constituting a
'reorganization' under Section 368 of the Code.
SECTION 4.12 Contracts. Schedule 4.12 of the Company Disclosure Schedule
sets forth a list of each contract or agreement that is material to the
business, assets, liabilities, financial condition or results of operations of
Company (each, a 'Material Contract'). Company is not in material violation of
or in material default under (nor does there exist any condition which with the
passage of time or the giving of notice could reasonably be expected to cause
such a material violation of or material default under) any Material Contract.
Each Material Contract is in full force and effect and is a legal, valid and
binding obligation of Company and, to the Knowledge of Company, each of the
other parties thereto, enforceable in accordance with its terms.
SECTION 4.13 Litigation. Except as set forth on Section 4.13 of the Company
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the Knowledge of Company, threatened in writing
against Company or any Company Subsidiary or any of their respective properties
or any of their respective officers or directors (in their capacities as such)
and, to the Knowledge of Company, there are no existing facts or circumstances
that could reasonably be expected to result in such a suit, claim, action,
proceeding or investigation. Neither Company nor any Company Subsidiary is aware
of any facts or circumstances that could reasonably be expected to result in the
denial of insurance coverage under policies issued to Company or the Company
Subsidiaries in respect of such suits, claims, actions, proceedings and
investigations, except in any case as could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Neither
Company nor any Company Subsidiary is subject to any outstanding order, writ,
injunction or decree which could reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect or materially interfere with
Company's ability to consummate the transactions contemplated herein. Schedule
4.13 of the Company Disclosure Schedule sets forth all litigation that Company
and the Company Subsidiaries have pending against other parties.
SECTION 4.14 Environmental Matters. Each of Company and the Company
Subsidiaries is in compliance with all applicable Environmental Laws and all
Company Permits required by Environmental Laws. All past noncompliance of
Company or any Company Subsidiary with Environmental Laws or Environmental
Permits has been resolved without any pending, ongoing or future obligation,
cost or liability. Neither Company nor any Company Subsidiary has released a
Hazardous Material at, or transported a Hazardous Material to or from, any real
property currently or formerly owned, leased or occupied by Company or any
Company Subsidiary in violation of any Environmental Law.
SECTION 4.15 Intellectual Property.
(a) All patents (including, without limitation, all U.S. and foreign
patents, patent applications, patent disclosures, and any and all divisions,
continuations, continuations-in-part, reissues, re-examinations and extensions
thereof); design rights, trademarks, trade names and service marks (whether or
not registered); trade dress; Internet domain names; internet protocol
addresses; copyrights (whether or not registered) and any renewal rights
therefor; sui generis database rights; data; statistical models; technology;
inventions; supplier lists; trade secrets and know-how; computer software
programs or applications in both source and object code form; databases;
technical documentation of such software programs and databases ('Technical
Documentation'); registrations and applications for any of the foregoing and all
other tangible or intangible proprietary information or materials that are or
have been used in (including, without limitation, in the development of)
Company's business and/or in any product, technology or process (i) currently
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being or formerly manufactured, published or marketed by Company or
(ii) previously or currently under development for possible future
manufacturing, publication, marketing or other use by Company are hereinafter
referred to as the 'Company Intellectual Property.' For purposes of this
Section 4.15, the term 'Company' shall mean Company and all Company
Subsidiaries.
(b) Schedule 4.15(b) of the Company Disclosure Schedule contains a true and
complete list of Company's patents, patent applications, registered trademarks,
trademark applications, common law trademarks, trade names, registered service
marks, service mark applications, common law service marks, Internet domain
names, Internet domain name applications, copyright registrations and
applications and other filings and formal actions made or taken pursuant to
Federal, state, local and foreign Laws by Company to protect its interests in
Company Intellectual Property, and includes details of all due dates for further
filings, maintenance, payments or other actions falling due in respect of
Company Intellectual Property within twelve (12) months of the Closing Date. All
of Company's patents, patent applications, registered trademarks, trademark
applications, registered service marks and service mark registrations, and
registered copyrights remain in good standing with all fees and filings due as
of the Closing Date duly made and the due dates specified in the Company
Disclosure Schedule are accurate and complete. Schedule 4.15(b) of the Company
Disclosure Schedule contains a true and complete list of the data
processing-related registrations that Company has obtained anywhere in the
World. Company has made all such registrations which it is required to have made
and is in good standing with respect to such registrations with all fees due as
of the Effective Time duly made.
(c) Company Intellectual Property contains only those items and rights which
are: (i) owned by Company; (ii) in the public domain; or (iii) rightfully used
by Company pursuant to a valid and enforceable license (the 'Company Licensed
Intellectual Property'), the parties, date, term and subject matter of each such
license agreement (each, a 'License Agreement') being set forth on Schedule
4.15(c) of the Company Disclosure Schedule. Schedule 4.15(c) contains a true and
complete list of license or other agreements (including territories associated
with such rights) with third parties wherein Company has licensed or otherwise
provided any exclusive rights to any of the Company Intellectual Property to
such third party.
Company has all rights in Company Intellectual Property necessary to carry
out Company's current activities and Company's future activities to the extent
such future activities are already planned (and had all rights necessary to
carry out its former activities at the time such activities were being
conducted), including, without limitation, to the extent required to carry out
such activities, rights to make, use, reproduce, modify, adopt, create
derivative works based on, translate, distribute (directly and indirectly),
transmit, display and perform publicly, license, rent and lease and, other than
with respect to Company Licensed Intellectual Property, assign and sell, Company
Intellectual Property.
(d) To the Knowledge of Company, the reproduction, manufacturing,
distribution, licensing, sublicensing, sale or any other exercise of rights in
any Company Intellectual Property, product, work, technology or process as now
used or offered or proposed for use, licensing or sale by Company does not
infringe on any patent, design right, trademark, trade name, service mark, trade
dress, Internet domain name, copyright, database, statistical model, technology,
invention, supplier list, trade secret, know-how, computer software program or
application of any Person. No claims (i) challenging the validity, effectiveness
or, other than with respect to Company Licensed Intellectual Property, ownership
by Company of any Company Intellectual Property, or (ii) to the effect that the
use, distribution, licensing, sublicensing, sale or any other exercise of rights
in any product, work, technology or process as now used or offered or proposed
for use, licensing, sublicensing or sale by Company or its agents or use by its
customers infringes or will infringe on any intellectual property or other
proprietary or personal right of any Person, have been asserted or are
threatened in writing by any Person, nor, to the Knowledge of Company, are there
any valid grounds for any bona fide claim of any such kind. To the Knowledge of
Company, all of the rights within the Company Intellectual Property are
enforceable and subsisting. There is no unauthorized use, infringement or
misappropriation of any Company Intellectual Property by any third party,
employee or former employee, to the Knowledge of Company, and Company has not
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been notified of any such unauthorized use, infringement or misappropriation of
any Company Intellectual Property by any third party, employee or former
employee.
(e) All personnel, including employees, agents, consultants and contractors,
who have contributed to or participated in the conception and development of
Company Intellectual Property on behalf of Company, have executed nondisclosure
agreements in the form set forth in Schedule 4.15(e) of the Company Disclosure
Schedule and either (i) have been a party to an enforceable 'work-for-hire'
arrangement or agreements with Company in accordance with applicable federal and
state Law that has accorded Company full, effective, exclusive and original
ownership of all tangible and intangible property thereby arising, or (ii) have
executed appropriate instruments of assignment in favor of Company as assignee
that have conveyed to Company effective and exclusive ownership of all tangible
and intangible property thereby arising.
(f) Company is not, nor as a result of the execution or delivery of this
Agreement, or performance of Company's obligations hereunder, will Company be,
in violation of any license, sublicense, agreement or instrument to which
Company is a party or otherwise bound, nor will execution or delivery of this
Agreement, or performance of Company's obligations hereunder, cause the
diminution, termination or forfeiture of any Company Intellectual Property.
(g) Schedule 4.15(g) of the Company Disclosure Schedule contains a true and
complete list of all of Company's proprietary software programs (the 'Company
Software Programs').
(h) The source code and system documentation relating to the Company
Software Programs (i) have at all times been maintained in strict confidence,
(ii) have been disclosed by Company only to employees who have a 'need to know'
the contents thereof in connection with the performance of their duties to
Company and who have executed the nondisclosure agreements referred to in this
Section 4.15, and (iii) have not been disclosed to any third party.
(i) Company has taken all reasonable steps, in accordance with normal
industry practice, to preserve and maintain complete notes and records relating
to Company Intellectual Property to cause the same to be readily understood,
identified and available.
(j) The Company Software Programs (i) have been designed to ensure year 2000
compatibility, which includes, but is not limited to, date data century
recognition, and calculations that accommodate same century and multi-century
formulas and date values; (ii) operate and will operate in accordance with their
specifications prior to, during and after the calendar year 2000 AD; and
(iii) shall not end abnormally or provide invalid or incorrect results as a
result of date data, specifically including date data which represents or
references different centuries or more than one century.
(k) As of the date of this Agreement, all Company Intellectual Property is
free and clear of any and all Encumbrances other than Permitted Encumbrances.
(l) Company does not owe any royalties or other payments to third parties in
respect of Company Intellectual Property. All royalties or other payments due on
Company Intellectual Property and Company Licensed Intellectual Property that
have accrued prior to the date of this Agreement have been paid and all
royalties or other payments due on Company Intellectual Property and Company
Licensed Intellectual Property between the date of this Agreement and the
Effective Time shall have been paid.
(m) Company regularly scans all Company Software Programs, Company
Intellectual Property and Company Licensed Intellectual Property with 'best in
class' commercially available virus detection software. To the Knowledge of
Company, the Company Software Programs and other Company Intellectual Property
contain no 'viruses.' For the purposes of this Agreement, 'virus' means any
computer code intentionally designed to disrupt, disable or harm in any manner
the operation of any software or hardware. None of the foregoing contains any
worm, bomb, backdoor, clock, timer, or other disabling device code, design or
routine which causes the software to be erased, inoperable, or otherwise
incapable of being used, either automatically or upon command by any party.
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(n) Company has implemented all commercially reasonable steps in the
physical and electronic protection of its information assets from unauthorized
disclosure, use or modification. Schedule 4.15(n) of the Company Disclosure
Schedule sets forth (i) each breach of security of which Company is aware,
(ii) its known or anticipated consequences and (iii) the steps Company has taken
to remedy such breach.
(o) All information (the 'Database Information') contained in the databases
maintained by Company (the 'Databases') has been (i) collected in accordance
with fair information collection practices (including, but not limited to,
(a) the standards promulgated by the Online Privacy Alliance; (b) the standards
promulgated by the Direct Marketing Association, and (c) all applicable Laws,
including, but not limited, to those relating to the use of information
collected from or about consumers) so that, at a minimum and prior to submitting
any information to Company or its agents, Internet users received notice of how
the information will be used and a choice whether to submit such information;
and (ii) stored, maintained and used in accordance with such notices and all
Laws.
(p) Company has the sole and exclusive right to use and commercially exploit
the Database Information, free of consideration to any third party.
(q) Company has not collected and maintains no personal information about
persons in violation of any Law. Company is, and has always been, in compliance
with (i) its then-current privacy policy (including the policy posted on
Company's Web site(s)) during the period in effect or posted and (ii) its
customers' privacy policies, when required to do so by contract. No change needs
to be made to the business or operations of Company in order to comply with any
applicable Laws relating to privacy as in effect on the date hereof. Company's
standard customer email delivery agreement requires that customers represent
contractually that (A) all email lists provided by such customers contain email
addresses of subscribers who have 'opted-in' to receive emails from such
customers; and (B) emails sent on behalf of such customers include instructions
on how to unsubscribe. Company does not deliver any emails to any subscribers
who have unsubscribed from receiving emails either from Company's customers or
from Company to the extent Company has been advised of such requests to
unsubscribe.
(r) Schedule 4.15(r) of Company Disclosure Schedule provides a list and
summary of all material communications (oral and written) between Company and
any private or public organizations purporting to police unsolicited email (an
'Email Organization'). As of the date of this Agreement, Company has informed
Parent of all such communications between Company and any Email Organization.
Other than as disclosed on Schedule 4.15(r) of Company Disclosure Schedule,
there have been no communication(s) between Company and any Email Organization
that could be reasonably expected to result in a Company Material Adverse
Effect. Other than as disclosed on Schedule 4.15(r) of the Company Disclosure
Schedule, there is no action, suit, proceeding, claim, arbitration or
investigation pending against Company with any Email Organization, or, to the
Knowledge of Company, threatened against Company or against any of its
properties or against any of its officers or directors (in their capacities as
such).
SECTION 4.16 Taxes.
(a) Company and the Company Subsidiaries have properly completed and timely
filed all Tax Returns required to be filed by them and have paid all Taxes shown
as due thereon. The Company Reports reflect all liabilities for unpaid Taxes of
Company and the Company Subsidiaries for periods and portions of periods through
the date of the Company's latest financial statements included in the Company
Reports. Neither Company nor any Company Subsidiary has any material liability
for unpaid Taxes accruing after the date of the Company's latest financial
statements included in the Company Reports.
(b) There is (i) no material claim for Taxes that is a lien against the
property of Company or is being asserted against Company or any Company
Subsidiary other than liens for Taxes not yet due and payable, (ii) to the
Knowledge of Company, no audit, administrative proceeding or court proceeding
with respect to any Taxes or of any Tax Return of Company or any Company
Subsidiary being conducted by a Tax Authority; (iii) no extension of the statute
of limitations on
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the assessment of any Taxes that has been granted by Company or any Company
Subsidiary and currently in effect, and (iv) no deficiency, refund litigation,
proposed adjustment or matter in controversy with respect to any Taxes due and
owing by Company or any Company Subsidiary.
(c) To the Knowledge of Company, no claim or notice has ever been made by a
Tax Authority in a jurisdiction where Company or any Company Subsidiary has not
filed a Tax Return that the Company or any Company Subsidiary is or may be
subject to taxation by such jurisdiction.
(d) There has been no change in ownership of Company that has caused the
utilization of any losses of Company or any Company Subsidiary to be limited
pursuant to Section 382 of the Code, and any loss carryovers reflected on the
latest financial statements included in the Company Reports are properly
computed and reflected.
(e) Neither Company nor any Company Subsidiary has been or will be required
to include any material adjustment in taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax Laws as a result of transactions, events or
accounting methods employed prior to the Merger except as may occur incident to
or as a result of the Merger.
(f) Neither Company nor any Company Subsidiary has filed or will file any
consent to have the provisions of Section 341(f)(2) of the Code (or comparable
provisions of any state Tax Laws) apply to Company or any Company Subsidiary.
(g) Neither Company nor any Company Subsidiary is a party to any Tax sharing
or Tax allocation agreement, nor does Company or any Company Subsidiary have any
liability or potential liability to another party under any such agreement, nor
has Company or any Company Subsidiary incurred any liability for Taxes of any
Person under Treas. Reg. 'SS'1.1502-6 (or any similar provision of state, local
or foreign Law), as a transferee or successor, by contract or otherwise.
(h) Company has not filed any disclosures under Section 6662 of the Code or
comparable provisions of state, local or foreign Law to prevent the imposition
of penalties with respect to any Tax reporting position taken on any Tax Return.
(i) Neither Company nor any Company Subsidiary has ever been a member of a
consolidated, combined or unitary group of which Company was not the ultimate
parent corporation.
(j) Company has not ever been a 'personal holding company' within the
meaning of Section 542 of the Code or a 'United States real property holding
corporation' within the meaning of Section 897 of the Code.
(k) Company has not constituted either a 'distributing corporation' or a
'controlled corporation' (within the meaning of Section 355(a)(1)(A) of the
Code) in a distribution of stock qualifying for tax-free treatment under
Section 355 of the Code (i) in the two years prior to the date hereof or
(ii) in a distribution which could otherwise constitute part of a 'plan' or
'series of related transactions' (within the meaning of Section 355(e) of the
Code) in conjunction with the Merger.
(l) Each of Company and the Company Subsidiaries withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party. Each of Company and the Company Subsidiaries has collected all amounts
required to be collected by it on account of Taxes and has remitted the same to
the appropriate Governmental Entity in the manner and within the time required
under any applicable Law, or if not yet due, has set such amounts aside in
appropriate accounts for payment when due.
(m) No power of attorney has been granted by Company or any Company
Subsidiary with respect to any matters relating to Taxes that is currently in
effect.
(n) Neither Company nor any Company Subsidiary has settled any claim, audit
or administrative or court proceeding with respect to Taxes.
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SECTION 4.17 Insurance. Each of Company and the Company Subsidiaries is
presently insured, and during each of the past three calendar years (including
2001) has been insured, against such risks as companies engaged in a similar
business would, in accordance with good business practice, customarily be
insured. The policies of fire, theft, liability and other insurance maintained
with respect to the assets or businesses of Company and the Company Subsidiaries
provide adequate coverage against loss. Set forth on Schedule 4.17 of the
Company Disclosure Schedule is a complete and correct list as of the date hereof
of all insurance policies maintained by Company and the Company Subsidiaries,
and Company has provided to Parent complete and correct copies of all such
policies, together with all riders and amendments thereto. All such policies:
(i) are with insurance companies reasonably believed by Company to be
financially sound and reputable; (ii) are in full force and effect; (iii) are
sufficient for compliance by Company and the Company Subsidiaries with all
requirements of applicable Law and of all material agreements to which Company
and the Company Subsidiaries are party; (iv) are valid and outstanding policies
enforceable against the insurer; (v) insure against risks of companies similarly
situated and by companies engaged in similar businesses and owning similar
assets; and (vi) provide that they remain in full force and effect through the
Effective Date and all premiums due thereon have been paid. Each of Company and
the Company Subsidiaries has complied in all material respects with the terms of
such policies.
SECTION 4.18 Properties; Bank Accounts.
(a) Each of Company and the Company Subsidiaries has good and valid title,
free and clear of all Encumbrances, except for Permitted Encumbrances, to all
its material properties and assets, whether real, personal or mixed, reflected
in Company's consolidated financial statements contained in Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000 as being owned
by Company and the Company Subsidiaries as of the date thereof, other than
(i) any properties or assets that have been sold or otherwise disposed of in the
ordinary course of business since the date of such financial statements,
(ii) liens disclosed in the notes to such financial statements and (iii) liens
arising in the ordinary course of business after the date of such financial
statements. All buildings, and all fixtures, equipment and other property and
assets that are material to the business of Company and the Company Subsidiaries
on a consolidated basis, held under leases or sub-leases by Company or the
Company Subsidiaries are held under valid instruments enforceable in accordance
with their respective terms, subject to applicable Laws of bankruptcy,
insolvency or similar Laws relating to creditors' rights generally and to
general principles of equity (whether applied in a proceeding in Law or equity).
Substantially all of Company's and the Company Subsidiaries' equipment in
regular use has been reasonably maintained and is in serviceable condition,
reasonable wear and tear excepted. Each of Company and the Company Subsidiaries
owns or has the valid and subsisting right to use all assets and properties
necessary or advisable to operate its business in the manner presently
conducted. Schedule 4.18 of the Company Disclosure Schedule identifies each
parcel of real property ever owned or leased by Company or the Company
Subsidiaries.
(b) Schedule 4.18 of the Company Disclosure Schedule sets forth the names
and addresses of all banks and other institutions at which Company and the
Company Subsidiaries have accounts, deposits or the like, and the names of all
Persons authorized to draw on or give instructions with respect thereto or
holding a power-of-attorney on behalf of Company or the Company Subsidiaries.
Any cash held in such accounts is not subject to any restrictions or limitations
as to withdrawal.
SECTION 4.19 Affiliates. Schedule 4.19 of the Company Disclosure Schedule
sets forth the names and addresses of each Person who is, in Company's
reasonable judgment, an affiliate (as such term is used in Rule 145 under the
Securities Act) of Company.
SECTION 4.20 Opinion of Financial Advisor. Stephens Inc. ('Company Financial
Advisor') has delivered to the board of directors of Company its opinion to the
effect that, as of the date hereof, the consideration to be received in the
Merger by Company stockholders is fair to the holders of shares of Company
Common Stock from a financial point of view.
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SECTION 4.21 Brokers.
(a) Other than the fee of the Company Financial Advisor, which will not
exceed $900,000, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of Company.
(b) Attached hereto as Schedule 4.21(b) of the Company Disclosure Schedule
are true, complete and correct copies of all agreements between Company and
Company Financial Advisor. Other than as attached hereto as Schedule 4.21(b) of
the Company Disclosure Schedule, there are no other agreements between Company
and Company Financial Advisor.
SECTION 4.22 Certain Business Practices. None of Company, any Company
Subsidiary nor any of their respective directors, officers, agents or employees
(in their capacities as such) has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or
(iii) made any other unlawful payment, gift or contribution.
SECTION 4.23 Business Activity Restriction. Other than as set forth on
Schedule 4.23, there is no non-competition or other similar agreement,
commitment, judgment, injunction, order or decree to which Company or any
Company Subsidiary is a party or subject to that has or could reasonably be
expected to have the effect of prohibiting or impairing the conduct of business
by Company or any Company Subsidiary or the consummation of the Merger by
Company. Other than as set forth on Schedule 4.23, neither Company nor any
Company Subsidiary has entered into any agreement under which Company or such
Company Subsidiary is restricted from selling, licensing or otherwise
distributing any of its technology or products to, or providing services to,
customers or potential customers or any class of customers, in any geographic
area, during any period of time or in any segment of the market or line of
business.
SECTION 4.24 Section 203 of the DGCL Not Applicable. The board of directors
of Company has approved the Merger, this Agreement and the Stockholder
Agreements, and such approval is sufficient to render inapplicable to the
Merger, this Agreement and the Stockholder Agreements (including any amendments
to this Agreement and the Stockholder Agreements) and the transactions
contemplated by this Agreement and the Stockholder Agreements the provisions of
Section 203 of the DGCL. No other state takeover statute or similar statute or
regulation applies or purports to apply to the Merger, this Agreement, the
Stockholder Agreements or the transactions contemplated by this Agreement and
the Stockholder Agreements.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby represents and warrants to Company,
subject to the exceptions specifically disclosed in the Parent Disclosure
Schedule, all such exceptions to be referenced to a specific representation set
forth in this Article V and any other representation or warranty of Parent or
Merger Sub to the extent that it is apparent from such disclosure that such
disclosure is applicable to such other representation or warranty, that:
SECTION 5.01 Organization and Qualification. Parent and Merger Sub have each
been duly organized and each is validly existing and in good standing under the
Laws of the State of Delaware and has the requisite corporate power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted. Each of
Parent and Merger Sub is duly qualified or licensed to do business, and each is
in good standing (to the extent applicable), in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that could not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
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SECTION 5.02 Certificate of Incorporation and Bylaws. The copies of each of
Parent's and Merger Sub's certificate of incorporation and bylaws previously
provided to Company by Parent are true, complete and correct copies thereof.
Such certificates of incorporation and bylaws are in full force and effect.
Neither Parent nor Merger Sub is in violation of any of the provisions of its
respective certificate of incorporation or bylaws.
SECTION 5.03 Capitalization.
(a) The authorized capital stock of Parent consists of 400,000,000 shares of
Parent Common Stock and 5,000,000 shares of preferred stock, no par value per
share ('Parent Preferred Stock'). As of the close of business on May 1, 2001,
(i) 130,880,992 shares of Parent Common Stock were issued and outstanding, all
of which are validly issued, fully paid and nonassessable, (ii) no shares of
Parent Common Stock were held in the treasury of Parent, (iii) no shares of
Parent Common Stock were held by any directly or indirectly owned Subsidiary of
Parent, including Merger Sub (each a 'Parent Subsidiary'), and (iv) one
(1) share of Parent Preferred Stock was issued and outstanding. Except for the
shares of Parent Common Stock issuable pursuant to the Parent Stock Plans,
shares of Parent Common Stock issuable upon conversion of the Parent Convertible
Notes, shares of Parent Common Stock issuable upon exchange of the exchangeable
shares of Parent's Subsidiary, Thunderball Acquisition II Inc. (which shares
were issued in connection with Parent's acquisition of FloNetwork Inc.) and
shares of Parent Common Stock issuable pursuant to the Letter Agreement, dated
as of May 7, 2001, among Parent and the former stockholders of DoubleClick
Scandinavia AB, there are no options, warrants, convertible or exchangeable
securities or other rights, agreements, arrangements or commitments of any
character to which Parent or any Parent Subsidiary is a party or by which Parent
or any Parent Subsidiary is bound relating to the issued or unissued capital
stock of Parent or any Parent Subsidiary or obligating Parent or any Parent
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, Parent or any Parent Subsidiary. All shares of Parent Common Stock
subject to issuance as aforesaid, upon issuance prior to the Effective Time on
the terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
There are no outstanding contractual obligations of Parent to repurchase, redeem
or otherwise acquire any shares of Parent Common Stock. There are no material
outstanding contractual obligations of Parent to provide funds to, or make any
material investment (in the form of a loan, capital contribution or otherwise)
in, any Parent Subsidiary or any other Person.
(b) All of the shares of Parent Common Stock to be issued (i) in connection
with the Merger, when issued in accordance with this Agreement, and (ii) upon
the conversion of any Company Stock Option or Company Warrant into an option or
warrant, as the case may be, to purchase shares of Parent Common Stock in
accordance with Section 3.05, when issued upon exercise thereof following the
Effective Time, have been duly authorized, will be validly issued, fully paid
and nonassessable and will not be subject to preemptive rights or similar
contractual rights granted by Parent.
SECTION 5.04 Authority Relative to This Agreement. Each of Parent and Merger
Sub has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by each of Parent and Merger Sub and the consummation by Parent and Merger Sub
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action, and no other corporate proceedings on the part
of Parent or Merger Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to the
Merger, the consent of Parent as sole stockholder of Merger Sub and the filing
and recordation of the Certificate of Merger as required by the DGCL). This
Agreement has been duly executed and delivered by each of Parent and Merger Sub
and, assuming the due authorization, execution and delivery by Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against Parent and Merger Sub in accordance with its terms,
except to the extent that enforceability hereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar Laws affecting the
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enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies (whether in a proceeding at Law or in equity).
SECTION 5.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance by Parent and Merger Sub of their obligations hereunder
and the consummation of the Merger will not, (i) conflict with or violate any
provision of the certificate of incorporation or bylaws of Parent or any
equivalent organizational documents of any Parent Subsidiary, (ii) assuming that
all consents, approvals, authorizations and permits described in Section 5.05(b)
have been obtained and all filings and notifications described in Section
5.05(b) have been made, conflict with or violate any Law applicable to Parent or
any Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is subject or (iii) result in any breach of or constitute a default
(or an event which with the giving of notice or lapse of time or both could
reasonably be expected to become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any property or asset of Parent pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation.
(b) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance by Parent and Merger Sub of their obligations hereunder
and the consummation of the Merger will not, require any consent, approval,
authorization or permit of, or filing by Parent with or notification by Parent
to, any Governmental Entity, except pursuant to applicable requirements of the
Exchange Act, the Securities Act, the Blue Sky Laws, the rules and regulations
of the NNM, the premerger notification requirements of the HSR Act, if any, and
the filing and recordation of the Certificate of Merger as required by the DGCL.
SECTION 5.06 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports, statements and documents required
to be filed by it (A) with the SEC and the NNM since February 20, 1998
(collectively, together with any such forms, reports, statements and documents
Parent may file subsequent to the date hereof until the Closing, the 'Parent
Reports') and (B) with any other Governmental Entities. Each Parent Report
(i) was prepared in accordance with the requirements of the Securities Act, the
Exchange Act or the rules and regulations of the NNM, as the case may be, and
(ii) did not at the time it was filed (or, with respect to any registration
statement filed under the Securities Act, at the time of effectiveness) contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each form, report, statement and document referred to in clause (B)
of this Section 5.06(a) was prepared in all material respects in accordance with
the requirements of applicable Law. No Parent Subsidiary is subject to the
periodic reporting requirements of the Exchange Act or required to file any
form, report or other document with the SEC, the NNM, any other stock exchange
or any other comparable Governmental Entity.
(b) Except as provided in the Parent Reports, each of the consolidated
financial statements (including, in each case, any notes thereto) contained in
the Parent Reports was prepared in accordance with U.S. GAAP (except, in the
case of unaudited financial statements, for the absence of footnotes and subject
to normal year end adjustments, which adjustments are not material) applied on a
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto) and each presented fairly, in all material respects, the
consolidated financial position of Parent and the consolidated Parent
Subsidiaries as at the respective dates thereof, and their consolidated results
of operations, stockholders' equity and cash flows for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against on the most
recent consolidated balance sheet of Parent and the Parent Subsidiaries as
reported in the Parent Reports, including the notes thereto, neither Parent nor
any Parent Subsidiary has any liabilities or obligations of any
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nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on a balance sheet or in notes thereto prepared in
accordance with U.S. GAAP, except for liabilities or obligations incurred in the
ordinary course of business consistent with past practice since December 31,
2000.
SECTION 5.07 Certain Tax Matters. Neither Parent nor any of its Affiliates
has taken or agreed to take any action that could reasonably be expected to
prevent the Merger from constituting a 'reorganization' under Section 368 of the
Code.
SECTION 5.08 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of Parent.
SECTION 5.09 No Parent Material Adverse Effect. Since December 31, 2000,
there has been no Parent Material Adverse Effect.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business Pending the Closing. Company agrees that,
between the date of this Agreement and the Effective Time, unless Parent shall
otherwise agree in writing and except as contemplated or permitted by this
Agreement or as set forth in Schedule 6.01 to the Company Disclosure Schedule,
(x) the business of Company and the Company Subsidiaries shall be conducted only
in, and Company shall not take any action, or permit any of the Company
Subsidiaries to take action, except in, the ordinary course of business
consistent with past practice and (y) Company shall use its reasonable efforts
to keep available the services of such of the current officers, significant
employees and significant consultants of Company and to preserve the current
relationships of Company and the Company Subsidiaries with such of the corporate
partners, customers, suppliers and other Persons with which Company and the
Company Subsidiaries have significant business relations in order to preserve
substantially intact its business organization. By way of amplification and not
limitation, Company shall not, between the date of this Agreement and the
Effective Time, directly or indirectly, do or agree to do, or permit any of the
Company Subsidiaries, directly or indirectly, to do or agree to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change its certificate of incorporation or bylaws
or equivalent organizational documents;
(b) issue, deliver, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee or encumber, or authorize the issuance, delivery, sale,
pledge, disposition, grant, transfer, lease, license, guarantee or
Encumbrance of, (i) any shares of capital stock of Company or any Company
Subsidiary of any class, or securities convertible into or exchangeable or
exercisable for any shares of such capital stock, or any options, warrants
or other rights of any kind to acquire any shares of such capital stock, or
any other ownership interest (including, without limitation, any phantom
interest), of Company or any Company Subsidiary, other than (x) the issuance
of shares of Company Common Stock pursuant to the exercise of stock options
or warrants therefor outstanding as of the date of this Agreement, (y) the
issuance of up to an additional 350,000 shares of Company Common Stock
pursuant to new grants of options or share purchase rights to future
employees and consultants (including, without limitation, any employees who
transfer from MessageMedia Europe B.V. or any of its subsidiaries to
Company), and (z) the issuance of shares of Company Common Stock to
participants in the Company Stock Purchase Plan in accordance with its terms
or (ii) any material property or assets of Company or any Company Subsidiary
except pursuant to existing contracts, provided that Company may issue
nonexclusive software licenses in the ordinary course of business consistent
with past practice;
(c) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or Person or any
division thereof; (ii) incur any indebtedness for borrowed money (other than
de
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minimus amounts) or issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any Person for borrowed money or make any loans or advances
material to the business, assets, liabilities, financial condition or
results of operations of Company and the Company Subsidiaries, taken as a
whole; (iii) terminate, cancel or request any material change in, or agree
to any material change in, any Material Contract other than in the ordinary
course of business consistent with past practice; (iv) make or authorize any
capital expenditure, other than capital expenditures set forth on Schedule
6.01(c) to the Company Disclosure Schedule; or (v) enter into or amend any
contract, agreement, commitment or arrangement that, if fully performed,
would not be permitted under this Section 6.01(c)
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock, except that any Company Subsidiary may pay dividends or make
other distributions to Company;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock, except
repurchases of de minimus amounts of unvested shares at cost in connection
with the termination of the employment relationship with any employee
pursuant to stock option or purchase agreements in effect on the date
hereof;
(f) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options granted under the Company Stock Plans
or authorize cash payments in exchange for any Company Stock Options granted
under any of such plans;
(g) amend the terms of, repurchase, redeem or otherwise acquire any of
its securities, or propose to do any of the foregoing, except repurchases of
de minimus amounts of unvested shares at cost in connection with the
termination of the employment relationship with any employee pursuant to
stock option or purchase agreements in effect on the date hereof;
(h) except as set forth in Section 6.01(h) of the Company Disclosure
Schedule, increase the compensation payable or to become payable to its
directors, officers, consultants or employees, grant any rights to
retention, severance or termination pay to, or enter into any employment,
retention or severance agreement; except as set forth in Section 6.01(h) of
the Company Disclosure Schedule, establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer, consultant
or employee of Company or any Company Subsidiary (except as allowed by
Section 6.01(b)), except to the extent required by applicable Law or the
terms of a collective bargaining agreement; or, except as set forth in
Section 6.01(h) of the Company Disclosure Schedule, enter into or amend any
contract, agreement, commitment or arrangement between Company or any
Company Subsidiary, on the one hand, and any of Company's or any Company
Subsidiary's directors, officers, consultants or employees (except as
allowed by Section 6.01(b)), on the other hand;
(i) except as permitted under Section 6.01(c), pay, discharge or satisfy
any claims, liabilities or obligations (whether absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction of claims, liabilities or obligations (A) in the ordinary
course of business and consistent with past practice or (B) reflected or
reserved against on the latest balance sheet included in the Company Reports
or (C) as otherwise set forth on Schedule 6.01(i) of the Company Disclosure
Schedule;
(j) make any change with respect to Company's or any Company
Subsidiary's accounting policies, principles, methods or procedures,
including, without limitation, revenue recognition policies, other than as
required by U.S. GAAP;
(k) other than as is required to comply with Section 8.03(f), make any
Tax election or settle or compromise any Tax liability; or
(l) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing or to take any
action which would make any of the
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representations or warranties of Company contained in this Agreement untrue,
incomplete or incorrect or prevent or materially impair Company or any
Company Subsidiary from performing, or cause Company or any Company
Subsidiary not to, perform its covenants hereunder or result in any of the
conditions to the Merger set forth herein not being satisfied.
SECTION 6.02 Notices of Certain Events. Each of Parent and Company shall
give prompt notice to the other of (i) any notice or other communication from
any Person alleging that the consent of such Person is or may be required in
connection with the Merger; (ii) any notice or other communication from any
Governmental Entity in connection with the Merger; and (iii) any actions, suits,
claims, investigations or proceedings commenced or, to the Knowledge of Company
or the Knowledge of Parent, as the case may be, threatened in writing against,
relating to or involving or otherwise affecting Parent or Company, respectively,
or any of their respective Subsidiaries, which, if pending on the date hereof,
would have been required to have been disclosed in this Agreement, or that
otherwise relate to the consummation of the Merger. In addition, Company shall
give prompt notice to Parent of the occurrence of a default or event that, with
the giving of notice or lapse of time or both, will become a default under any
Company Material Contract, and each of Parent and Company shall notify the other
of any change that could reasonably be expected to have a Parent Material
Adverse Effect or a Company Material Adverse Effect, respectively, or to
materially delay or impede the ability of Company or Parent, respectively, to
perform their respective obligations pursuant to this Agreement and to effect
the consummation of the Merger.
SECTION 6.03 Access to Information; Confidentiality.
(a) Except as required pursuant to any confidentiality agreement or similar
agreement or arrangement to which Parent or Company or a Company Subsidiary is a
party (which has been disclosed to Company or Parent, as the case may be, prior
to the date of this Agreement) or pursuant to applicable Law or the regulations
or requirements of any stock exchange or other regulatory organization with
whose rules a party hereto is required to comply, from the date of this
Agreement to the Effective Time, Parent shall and Company shall (i) provide to
the other (and its officers, directors, employees, accountants, consultants,
legal counsel, financial advisors, agents and other representatives
(collectively, 'Representatives')) access at reasonable times upon prior notice
to its and its Subsidiaries' officers, employees, agents, properties, offices
and other facilities and to the books and records thereof and (ii) furnish
promptly such information concerning its and its Subsidiaries' business,
properties, contracts, assets, liabilities and personnel as the other party or
its Representatives may reasonably request. No investigation conducted pursuant
to this Section 6.03 shall affect or be deemed to modify any representation or
warranty made in this Agreement.
(b) The parties hereto shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement with respect to the information disclosed pursuant to
this Agreement.
SECTION 6.04 No Solicitation of Transactions.
(a) Unless and until this Agreement shall have been terminated as provided
or permitted herein, Company shall not, directly or indirectly, and shall cause
its Representatives (including Representatives of Company Subsidiaries) not to,
directly or indirectly, solicit, initiate or encourage (including, without
limitation, by way of furnishing nonpublic information), any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to its stockholders) that constitutes, or may reasonably be expected to
lead to, any Company Competing Transaction, or enter into or maintain or
continue discussions or negotiate with any Person in furtherance of such
inquiries or to obtain a Company Competing Transaction, or agree to or endorse
any Company Competing Transaction, or authorize or knowingly permit any of
Company's Representatives or any Company Subsidiary, or any Representative of a
Company Subsidiary, to take any such action; provided, however, that nothing
contained in this Section 6.04 shall prohibit the board of directors of Company
(i) from complying with Rule 14d-9 or 14e-2(a) promulgated under the Exchange
Act with regard to a tender or exchange offer not made in violation of this
Section 6.04 or (ii) prior to receipt of the approval by the stockholders of
Company of this
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Agreement and the Merger, from providing information (subject to a
confidentiality agreement at least as restrictive as the Confidentiality
Agreement, except that such confidentiality agreement shall permit any
disclosure required under this Section 6.04) in connection with, and
negotiating, another unsolicited, bona fide written proposal regarding a Company
Competing Transaction that (x) Company's board of directors shall have concluded
in good faith, after consultation with Cooley Godward LLP or other independent
outside counsel of nationally recognized reputation, that taking such action is
necessary to prevent the Company's board of directors from violating its
fiduciary duties to Company's stockholders under applicable Law, (y) if any cash
consideration is involved, shall not be subject to any financing contingency,
and with respect to which Company's board of directors shall have determined in
the proper exercise of its fiduciary duties to Company's stockholders that the
acquiring party is capable of consummating such Company Competing Transaction on
the terms proposed, and (z) Company's board of directors shall have determined
(based upon advice of Company's independent financial advisors of nationally
recognized reputation, which Parent hereby acknowledges that Stephen, Inc. shall
qualify) in the proper exercise of its fiduciary duties to Company's
stockholders that such Company Competing Transaction provides greater value to
the stockholders of Company than the Merger (and Company's independent financial
advisors of nationally recognized reputation opine in writing that such Company
Competing Transaction is superior from a financial point of view) (any such
Company Competing Transaction fulfilling each of the requirements of this clause
(ii) of Section 6.04(a) being referred to herein as a 'Company Superior
Proposal'). Any violation of the restrictions set forth in this Section 6.04 by
any Representative of Company (including any Representative of a Company
Subsidiary), whether or not such Person is purporting to act on behalf of
Company or otherwise, shall be deemed to be a breach of this Section 6.04 by
Company. Company shall notify Parent in accordance with the notice provisions of
this Agreement in writing and orally within 24 hours after any of Company's
Chief Executive Officer, Chief Financial Officer or Senior Vice President,
Business Development receive any proposal or offer, or promptly after any
inquiry or contact with any Person with respect thereto, regarding a Company
Competing Transaction is made or received, such notice to include the identity
of the Person making such proposal, offer, inquiry or contact, and the terms of
such Company Competing Transaction, and, by way of amplification and without
limitation, Company shall keep Parent apprised (in accordance with the notice
provisions of this Agreement) on a current basis, of the status of such Company
Competing Transaction and of any modifications to the terms thereof. In
addition, Company shall notify Parent promptly (and in any event within 24
hours) orally and in writing if at any time the Company's board of directors
determines that it believes any such proposal fulfills the requirements of
Section 6.04(a)(ii)(x) - (z). In connection with any such potential Company
Competing Transaction, prior to furnishing any information or entering into any
discussions or negotiations with any Person making such proposal, Company shall
provide to Parent prompt oral and written notice (and in any event within 24
hours) to the effect that Company is furnishing information to, or entering into
discussions or negotiations with, such Person and Company shall keep Parent
promptly informed of the status of the terms and conditions of any such
discussions or negotiations. Prior to accepting a Company Competing Proposal,
Company shall provide Parent with 24 hours' oral and written notice of such
intention.
(b) Company immediately shall cease and cause to be terminated all existing
discussions or negotiations with any parties conducted heretofore with respect
to a Company Competing Transaction. Company shall not release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which it is a party.
SECTION 6.05 Tax-Free Transaction.
(a) From and after the date of this Agreement, each party hereto shall use
reasonable efforts to cause the Merger to qualify, and shall not knowingly take
any actions or cause any actions to be taken which could reasonably be expected
to prevent the Merger from qualifying as a 'reorganization' under
Section 368(a) of the Code.
(b) Each of Company and Parent shall execute and deliver to Company counsel
and Parent counsel rendering the tax opinions referred to in Sections 8.02(c)
and 8.02(d) or 8.03(e), as
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applicable, respectively, a certificate, in form and substance reasonably
acceptable to such counsel, signed by an officer of Company or Parent, as the
case may be, setting forth factual representations and covenants that will serve
as a basis for the tax opinions required under Sections 8.02(c)and 8.02(d) or
8.03(e) hereof, as applicable. Company and Parent shall use reasonable efforts
to obtain the tax opinions that would satisfy the condition to the Closing set
forth in Sections 8.02(c) and 8.02(d) or 8.03(e), as applicable.
SECTION 6.06 Control of Operations. Nothing contained in this Agreement
shall give Parent, directly or indirectly, the right to control or direct the
operations of Company and the Company Subsidiaries prior to the Effective Time.
Prior to the Effective Time, Company shall exercise, consistent with the terms
and conditions of this Agreement, complete control and supervision over its
operations.
SECTION 6.07 Further Action; Consents; Filings.
(a) Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use all reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective the
Merger, (ii) obtain from Governmental Entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
Parent or Company or any of their respective Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and (iii) promptly make all necessary filings, and thereafter make
any other required or appropriate submissions, with respect to this Agreement
and the Merger required under (A) the rules and regulations of the NNM, (B) the
Securities Act, the Exchange Act and any other applicable Federal or state
securities Laws, (C) the HSR Act and any related governmental request
thereunder, if any, and (D) any other applicable Law. The parties hereto shall
cooperate and consult with each other in connection with the making of all such
filings, including, without limitation, by providing copies of all such
documents to the nonfiling parties and their advisors prior to filing, and none
of the parties shall file any such document if any of the other parties shall
have reasonably objected to the filing of such document. Company and Parent
shall use commercially reasonable efforts to furnish to each other all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable Law (including all information
required to be included in the Proxy Statement and the Registration Statement)
in connection with the transactions contemplated by this Agreement. No party
shall consent to any voluntary extension of any statutory deadline or waiting
period or to any voluntary delay of the consummation of the Merger at the behest
of any Governmental Entity without the consent and agreement of the other
parties hereto, which consent shall not be unreasonably withheld or delayed.
(b) Each of Company and Parent will give (or will cause their respective
Subsidiaries to give) any notices to third Persons, and use, and cause their
respective Subsidiaries to use, commercially reasonable efforts to obtain any
consents from third Persons necessary, proper or advisable (as determined by
Parent in good faith with respect to notices or consents to be delivered or
obtained by Company) to consummate the transactions contemplated by this
Agreement.
SECTION 6.08 Additional Reports. Company and Parent shall each furnish to
the other, if requested, copies of any reports of the type referred to in
Sections 4.07 and 5.06 which it files with the SEC on or after the date hereof,
and Company and Parent, as the case may be, each covenant and warrant that as of
the respective dates thereof, such reports will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Any unaudited
consolidated interim financial statements included in such reports (including
any related notes and schedules) will fairly present, in all material respects,
the financial position of Company and its consolidated subsidiaries, or Parent
and its consolidated subsidiaries, as the case may be, as of the dates thereof
and the results of operations and changes in financial position or other
information including therein for the periods or as of the date then ended
(subject, where appropriate, to normal year-end adjustments), in each case in
accordance
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with past practice and U.S. GAAP (except for the absence of footnotes)
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto).
SECTION 6.09 Tax Matters. Company shall provide the following information to
Parent not later than ten (10) Business Days after the date of this Agreement:
(i) a complete list of the types of Tax Returns being filed by Company in each
taxing jurisdiction, (ii) a list of any deferred intercompany gain with respect
to transactions to which Company has been a party and (iii) a depreciation
schedule for the most recently filed federal income tax return for Company.
Company shall provide Parent and its accountants, counsel and other
representatives reasonable access, during normal business hours from the date
hereof through the Effective Time, to all of Company's Tax Returns and other
records and workpapers relating to Taxes.
SECTION 6.10 Employee Benefits.
(a) From and after the Effective Time, the Surviving Corporation and its
Subsidiaries will honor in accordance with their terms all existing employment,
severance, consulting and salary continuation agreements between Company or any
of the Company Subsidiaries and any current or former executive officer or
director of Company or any of the Company Subsidiaries, subject to any
modifications thereto agreed to by any such officers or directors with the
Surviving Corporation.
(b) At the Effective Time or following a transition period during which
employees of Company continue to participate in one or more Company Benefit
Plans, Parent will cause the Surviving Corporation to provide the benefits to
employees of Company who are retained by Parent or the Surviving Corporation
(including health benefits, severance policies and general employment policies
and procedures) which are substantially comparable in the aggregate to benefits
that are available to similarly situated employees of Parent and the Parent
Subsidiaries, provided, however, that such insurance carriers, outsider
providers or the like are able to provide such benefits on terms reasonably
acceptable to Parent, and provided, further, that nothing in this Section
6.10(b) shall prevent the Surviving Corporation or any of its Subsidiaries from
making any change required by applicable Law, and provided, further, that it
shall not result in any duplication of benefits.
(c) To the extent permitted under applicable Law, each employee of Company
or the Company Subsidiaries shall be given credit for all service with Company
or the Company Subsidiaries (or service credited by Company or its Subsidiaries)
under all employee benefit plans, programs, policies and arrangements maintained
by Parent or the Surviving Corporation (other than sabbatical benefits, for
which employees of Company or the Company Subsidiaries will not receive any such
past service credit) in which they participate or in which they become
participants for purposes of eligibility and vesting; provided, however, that
insurance carriers, outsider providers or the like are able to honor such
commitments on terms reasonably acceptable to Parent.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Registration Statement; Proxy Statement.
(a) Parent and Company shall jointly prepare and shall use commercially
reasonable efforts to cause to be filed with the SEC, within 21 days of the date
of this Agreement, a document or documents that will constitute (i) the
registration statement on Form S-4 of Parent (together with all amendments
thereto, the 'Registration Statement'), in connection with the registration
under the Securities Act of Parent Common Stock to be issued to Company's
stockholders pursuant to the Merger and (ii) the proxy statement with respect to
the Merger relating to the Company Stockholders' Meeting (together with any
amendments thereto, the 'Proxy Statement'). Copies of the Proxy Statement shall
be provided to the NNM in accordance with its rules. Each of the parties hereto
shall use reasonable efforts to cause the Registration Statement to become
effective as promptly as practicable after the date hereof, and, prior to the
effective date of the Registration Statement, the parties hereto shall take all
action required under any applicable Laws in connection with the issuance of
shares of Parent Common Stock pursuant to the Merger. Parent or
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Company, as the case may be, shall furnish all information concerning Parent or
Company as the other party may reasonably request in connection with such
actions and the preparation of the Registration Statement and the Proxy
Statement. Each of Parent and Company shall notify the other of the receipt of
any comments from the SEC on the Registration Statement and the Proxy Statement
and of any requests by the SEC for any amendments or supplements thereto or for
additional information and shall provide to each other promptly copies of all
correspondence between Parent, Company or any of their representatives and
advisors and the SEC. As promptly as practicable after the effective date of the
Registration Statement, the Proxy Statement shall be mailed to the stockholders
of Company. Each of the parties hereto shall cause the Proxy Statement to comply
as to form and substance, as to matters relating to, and supplied for inclusion
therein by, such party, in all material respects with the applicable
requirements of (i) the Exchange Act, (ii) the Securities Act and (iii) the
rules and regulations of the NNM.
(b) The Proxy Statement shall include with respect to Company and its
stockholders, (i) the approval of the Merger and the recommendation of the board
of directors of Company to Company's stockholders that they vote in favor of
approval and adoption of this Agreement and the Merger, unless a withdrawal of
such approval and recommendation is permitted pursuant to Section 6.04 following
receipt by Company of a Company Superior Proposal, and (ii) the opinion of
Company Financial Advisor referred to in Section 4.20.
(c) No amendment or supplement to the Proxy Statement or the Registration
Statement shall be made without the approval of Parent and Company, which
approval shall not be unreasonably withheld or delayed; provided, however, that
the consent of Parent shall not be required to amend or supplement the Proxy
Statement to reflect the amendment, modification or withdrawal of the
recommendation of Company's board of directors that Company's stockholders vote
in favor of the approval of this Agreement in accordance with Section 6.04
following receipt by Company of a Company Superior Proposal. Each of the parties
hereto shall advise the other parties hereto, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order, of
the suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or of any
request by the SEC for amendment of the Proxy Statement or the Registration
Statement or comments thereon and responses thereto or requests by the SEC for
additional information.
(d) None of the information supplied by Company for inclusion or
incorporation by reference in the Registration Statement or the Proxy Statement
shall, at the respective times filed with the SEC or other regulatory agency
and, in addition, (A) in the case of the Proxy Statement, at the date it or any
amendments or supplements thereto are mailed to stockholders of Company, at the
time of the Company Stockholders' Meeting and at the Effective Time and (B) in
the case of the Registration Statement, when it becomes effective under the
Securities Act and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If, at any time prior
to the Effective Time, any event or circumstance relating to Company or any
Company Subsidiary, or their respective officers or directors, should be
discovered by Company that should be set forth in an amendment or a supplement
to the Registration Statement or the Proxy Statement, Company shall promptly
inform Parent. All documents that Company is responsible for filing with the SEC
in connection with the Merger will comply as to form in all material respects
with the applicable requirements of the rules and regulations of the Securities
Act and the Exchange Act.
(e) None of the information supplied by Parent for inclusion or
incorporation by reference in the Registration Statement or the Proxy Statement
shall, at the respective times filed with the SEC or other regulatory agency
and, in addition, (A) in the case of the Proxy Statement, at the date it or any
amendments or supplements thereto are mailed to stockholders of Company, at the
time of the Company Stockholders' Meeting and at the Effective Time and (B) in
the case of the Registration Statement, when it becomes effective under the
Securities Act and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required
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to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. If, at
any time prior to the Effective Time, any event or circumstance relating to
Parent or any Parent Subsidiary, or their respective officers or directors,
should be discovered by Parent that should be set forth in an amendment or a
supplement to the Registration Statement or the Proxy Statement, Parent shall
promptly inform Company. All documents that Parent is responsible for filing
with the SEC in connection with the Merger will comply as to form in all
material respects with the applicable requirements of the rules and regulations
of the Securities Act and the Exchange Act.
(f) Cooley Godward LLP will provide an opinion addressed to Company which
will be filed as Exhibit 8.1 to the Registration Statement, and Brobeck, Phleger
& Harrison LLP will provide an opinion addressed to Parent which will be filed
as Exhibit 8.2 to the Registration Statement, in each case to the effect that
the description in the Registration Statement of the material federal income tax
consequences of the Merger is correct in all material respects. Each of such
opinions shall be based on representation letters in form and substance
acceptable to the rendering counsel and executed by Company, Parent and Merger
Sub.
SECTION 7.02 Company Stockholders' Meetings. Company shall call and hold a
special meeting of the stockholders of Company (the 'Company Stockholders'
Meeting'), as promptly as practicable after the date hereof (subject to
applicable Laws), for the purpose of voting upon the approval and adoption of
this Agreement and the Merger pursuant to the Proxy Statement, and Company shall
use all reasonable efforts to hold the Company Stockholders' Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective. Unless Company's board of directors has withheld, amended, modified
or withdrawn its recommendation in compliance with Section 6.04, Company shall
use all reasonable efforts to solicit from its stockholders proxies in favor of
the approval of this Agreement and the Merger pursuant to the Proxy Statement
and shall take all other action necessary or advisable to secure the vote or
consent of stockholders required by the DGCL or applicable stock exchange
requirements to obtain such approval. Each of the parties hereto shall take all
other action necessary or, in the reasonable opinion of the other parties
hereto, advisable to promptly and expeditiously secure any vote or consent of
stockholders required by applicable Law and such party's certificate of
incorporation and bylaws to effect the Merger. Company shall call and hold the
Company Stockholders' Meeting for the purpose of voting upon the approval and
adoption of this Agreement and the Merger whether or not Company's board of
directors at any time subsequent to the date hereof determines that this
Agreement is no longer advisable or recommends that Company's stockholders
reject it.
SECTION 7.03 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, (i) Parent will, and Parent will
cause the Surviving Corporation to, indemnify and hold harmless, and will
provide advancement of expenses to, each person who is or was a director or
officer of Company or any of its Subsidiaries at or at any time prior to the
Effective Time (an 'Indemnified Party'), to the same extent such persons are
indemnified or have the right to the advancement of expenses as of the date of
this Agreement by Company pursuant to Company's certificate of incorporation and
bylaws as in effect on the date of this Agreement; provided that the Indemnified
Party to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately and finally determined that such Indemnified Party
is not entitled to indemnification, and (ii) Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of Company
pursuant to any indemnification agreements (including, without limitation, those
set forth in Company's certificate of incorporation and bylaws as in effect on
the date of this Agreement) between Company and any of the Indemnified Parties
in effect immediately prior to the date of this Agreement.
(b) In the event the Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers a material amount of its
properties and assets to any Person in a single transaction or a series of
transactions, then, and in each such case, Parent will either guaranty the
indemnification
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obligations referred to in this Section 7.03 or will make or cause to be made
proper provision so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, assume the indemnification
obligations described herein for the benefit of the indemnified parties and have
substantially equal financial ability as the Company (immediately prior to the
Effective Time) to satisfy the obligations of the parties pursuant to this
Section 7.03 as a condition to such merger, consolidation or transfer becoming
effective.
(c) The provisions of this Section 7.03 are (i) intended to be for the
benefit of, and will be enforceable by, each of the Indemnified Parties and
(ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such Person may have by contract or
otherwise.
(d) For a period of six years after the Effective Time, Parent shall
maintain in effect the directors' and officers' liability insurance policies
maintained by Company; provided, however, that in no event shall Parent be
required to expend in any one year in excess of 150% of the annual premium
currently paid by Company for such coverage, which annual premium Company hereby
represents is $310,000; and provided further, that if the premium for such
coverage, exceeds such amount, Parent shall purchase a policy with the greatest
coverage available for such 150% of the annual premium.
SECTION 7.04 No Shelf Registration. Parent shall not be required to amend or
maintain the effectiveness of the Registration Statement for the purpose of
permitting resale of the shares of Parent Common Stock received pursuant hereto
by the Persons who may be deemed to be 'affiliates' of Company within the
meaning of Rule 145 promulgated under the Securities Act.
SECTION 7.05 Public Announcements. The initial press release concerning the
Merger to be released in connection with the execution and delivery of this
Agreement shall be a joint press release and, thereafter, Parent and Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or the Merger and
shall not issue any such press release or make any such public statement without
the prior written approval of the other (which shall not be unreasonably
withheld or delayed), except to the extent required by applicable Law or the
requirements of the rules and regulations of the NNM, in which case the issuing
party shall use all reasonable efforts to consult with the other party before
issuing any such release or making any such public statement.
SECTION 7.06 NNM Listing. Prior to the Effective Time, Parent shall use all
reasonable efforts to obtain approval from the NNM of the listing, as of the
Effective Time, of the shares of Parent Common Stock to be issued in connection
with the Merger.
SECTION 7.07 Company Stock Options/Registration Statements on Form S-8.
Prior to the Effective Time, Company and Parent shall take, or cause to be
taken, all action necessary and appropriate to effect the assumption of the
Company Stock Options and Company Warrants as contemplated by Section 3.05,
including obtaining the consent of affected optionees and warrant holders.
Parent shall reserve for issuance the number of shares of Parent Common Stock
that will be issuable upon exercise of Company Stock Options and Company
Warrants assumed pursuant to Section 3.05 hereof. As promptly as reasonably
practical after the Effective Time, Parent shall file with the SEC one or more
registration statements on Form S-8 for the shares of Parent Common Stock
issuable with respect to Company Stock Options and will maintain the
effectiveness of such registration statements for so long as any of such options
or other rights remain outstanding.
SECTION 7.08 Employee Benefit Matters. As of the Effective Time, Parent
shall cause the Surviving Corporation to honor and satisfy all obligations and
liabilities with respect to the Company Benefit Plans, other than the Company
Stock Purchase Plan. Notwithstanding the foregoing, the Surviving Corporation
shall not be required to continue any particular Company Benefit Plan after the
Effective Time, and any Company Benefit Plan may be amended or terminated or may
be merged with any Parent Benefit Plans in accordance with its terms and
applicable Law so long as employees of Company who are employed by the Surviving
Corporation or Parent are provided benefits and coverage by the Surviving
Corporation or Parent that are the same or substantially the same as that
provided by Parent to similarly situated employees. If
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requested by Parent prior to the Effective Time, Company shall take all actions
necessary and appropriate to terminate any Company Benefit Plan that is a 401(k)
plan (each, a '401(k) Plan') as of the last day of the payroll period
immediately preceding the Closing Date and no further contributions shall be
made to any 401(k) Plan, and Company shall provide to Parent (i) executed
resolutions by the board of directors of Company, as applicable, authorizing
such termination and (ii) an executed amendment to each 401(k) Plan sufficient
to assure compliance with all applicable requirements of the Code and
regulations thereunder so that the tax-qualified status of such 401(k) Plan will
be maintained at the time of termination.
SECTION 7.09 Affiliates. Parent shall be entitled to place legends on the
certificates evidencing any of the Parent Common Stock to be received by
(i) any Affiliate of Company or (ii) any Person Parent reasonably identifies (by
written notice to Company) as being a Person who may be deemed an 'affiliate'
within the meaning of Rule 145 promulgated under the Securities Act, and to
issue appropriate stop transfer instructions to the transfer agent for such
Parent Common Stock.
SECTION 7.10 Taking of Additional Actions. Company shall, prior to the
Effective Time, use its commercially reasonable efforts to take the actions
specified on Schedule 7.10 of the Company Disclosure Schedule.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate the
Merger. The obligations of the parties hereto to consummate the Merger are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following conditions by joint action of the parties hereto:
(a) the Registration Statement shall have been declared effective by the
SEC under the Securities Act and no stop order suspending the effectiveness
of the Registration Statement shall have been issued by the SEC and no
proceeding for that purpose shall have been initiated by the SEC and not
concluded or withdrawn;
(b) this Agreement and the Merger shall have been duly approved and
adopted by the requisite vote of stockholders of Company in accordance with
the DGCL;
(c) no order, statute, rule, regulation, executive order, stay, decree,
writ, judgment or injunction shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or Governmental Entity
which prohibits or prevents the consummation of the Merger which has not
been vacated, dismissed or withdrawn prior to the Effective Time. Company
and Parent shall use their reasonable best efforts to have any of the
foregoing vacated, dismissed or withdrawn by the Effective Time;
(d) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act or any other applicable
competition, merger control or similar Law shall have expired or been
terminated;
(e) all consents, approvals and authorizations legally required to be
obtained to consummate the Merger shall have been obtained from all
Governmental Entities, except where the failure to obtain any such consent,
approval or authorization could not reasonably be expected to result in a
Parent Material Adverse Effect or a Company Material Adverse Effect; and
(f) the shares of Parent Common Stock to be issued in the Merger shall
have been authorized for listing on the NNM, subject to notice of issuance.
SECTION 8.02 Conditions to the Obligations of Company. The obligations of
Company to consummate the Merger, or to permit the consummation of the Merger,
are subject to the satisfaction or, if permitted by applicable Law, waiver of
the following further conditions:
(a) each of the representations and warranties of Parent and Merger Sub
contained in this Agreement shall be true, complete and correct in all
respects both (i) when made and
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(ii) on and as of the Effective Time as if made at and as of the Effective
Time (other than representations and warranties which address matters only
as of a certain date, which shall be so true, complete and correct as of
such certain date), except in each case for any failures to be true,
complete and correct which do not, in the aggregate, have a Parent Material
Adverse Effect; and Company shall have received a certificate of the Chief
Executive Officer and Chief Financial Officer of Parent to such effect;
(b) Parent and Merger Sub shall have performed or complied in all
material respects with all covenants required by this Agreement to be
performed or complied with by them on or prior to the Effective Time, except
where the failure to so comply has not resulted in a Parent Material Adverse
Effect, and Company shall have received certificates of the Chief Executive
Officer and Chief Financial Officer of Parent and the President of Merger
Sub to that effect; and
(c) Company shall have obtained an opinion from Company's legal counsel,
dated the date of the Closing, in form and substance reasonably satisfactory
to it and issued in reliance on the officer's certificate described in
Section 6.05(b) hereof, based upon customary representations of Company and
Parent and customary assumptions, to the effect that if the Merger is
consummated in accordance with the provisions of this Agreement, under
current Law, for federal income tax purposes, the Merger should qualify as a
'reorganization' within the meaning of Section 368(a) of the Code, which
opinion shall not have been withdrawn or modified in any material respect.
(d) Parent shall have obtained an opinion from Parent's legal counsel,
dated the date of the Closing, issued in reliance on the officer's
certificate described in Section 6.05(b) hereof, based upon customary
representations of Company and Parent reasonably satisfactory to counsel, to
the effect that if the Merger is consummated in accordance with the
provisions of this Agreement, under current Law, for federal income tax
purposes, the Merger should qualify as a 'reorganization' within the meaning
of Section 368(a) of the Code, which opinion shall not have been withdrawn
or modified in any material respect, provided however that if the
transaction is effected by a merger of Company into Parent (or a merger of
Company into a subsidiary of Parent), then this condition shall be a
condition to Parent's obligation to consummate the Merger, rather than a
condition to Company's obligation, as set forth in Section 8.03(e).
SECTION 8.03 Conditions to the Obligations of Parent. The obligations of
Parent to consummate the Merger, or to permit the consummation of the Merger,
are subject to the satisfaction or, if permitted by applicable Law, waiver of
the following further conditions:
(a) each of the representations and warranties of Company contained in
this Agreement shall be true, complete and correct in all respects both
(i) when made and (ii) on and as of the Effective Time as if made at and as
of the Effective Time (other than representations and warranties which
address matters only as of a certain date, which shall be so true, complete
and correct as of such certain date), except in each case for any failures
to be true, complete and correct which do not, in the aggregate, have a
Company Material Adverse Effect; and Parent shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of
Company to such effect;
(b) Company shall have performed or complied in all material respects
with all covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time, except where the failure to so
comply has not resulted in a Company Material Adverse Effect; and Parent
shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of Company to that effect;
(c) all consents of third parties set forth on Schedule 8.03(c) shall
have been obtained;
(d) there shall have been no Company Material Adverse Effect since the
date of this Agreement;
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(e) Parent shall have obtained the opinion referenced in Section 8.02(d)
if the transaction is to be effected by a merger of Company into Parent (or
a merger of Company into a Subsidiary of Parent);
(f) Company shall have properly completed and filed all Tax Returns
relating to any Taxes of Company and all Company Subsidiaries for all
periods ending prior to the Effective Time, to the extent the due date of
such returns (determined without regard to extensions) is on or prior to the
Effective Time, and paid in full all such Taxes shown as due thereon. For
this purpose the only state income, privilege and franchise Tax Returns that
must be filed are those for the following states: Alabama, California,
Colorado, Illinois, Kansas (but only to the extent Taxes are due),
Massachusetts (but only to the extent Taxes are due), New York and Texas
(but only to the extent Taxes are due). Also for this purpose the only sales
and use tax returns that must be filed are those for Colorado and Alabama.
Company shall provide to Parent drafts of all Tax Returns to be filed after
the date hereof no later than fifteen (15) days prior to the proposed filing
date thereof. Such Tax Returns shall be filed only after Parent's approval,
which approval shall not be unreasonably withheld or delayed; and
(g) Company shall have obtained letters relating to MessageMedia
Australia Pty Limited and MessageMedia New Zealand, Ltd., respectively,
reasonably satisfactory in form and substance to Parent, to the effect that
Company has no existing or future obligations in respect of MessageMedia
Australia Pty Limited or MessageMedia New Zealand, Ltd. other than with
respect to the license agreements between such parties.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite adoption and approval of this Agreement, as follows:
(a) by mutual written consent duly authorized by the boards of directors
of each of Parent and Company;
(b) by either Parent or Company, if the Effective Time shall not have
occurred on or before October 31, 2001; provided, however, that the right to
terminate this Agreement under this Section 9.01(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
shall have caused, or resulted in, the failure of the Effective Time to
occur on or before such date;
(c) by either Parent or Company, if any Governmental Order, writ,
injunction or decree preventing the consummation of the Merger shall have
been entered by any court of competent jurisdiction and shall have become
final and nonappealable;
(d) by Parent, if
(i) the board of directors of Company withdraws, modifies or changes
its recommendation of this Agreement or the Merger in a manner adverse to
Parent or its stockholders or shall have resolved to do so;
(ii) the board of directors of Company shall have recommended to the
stockholders of Company a Company Competing Transaction;
(iii) Company fails to comply in all material respects with
Section 6.04 or Section 7.02;
(iv) a party to a Stockholder Agreement (other than Parent) fails to
vote in favor of the Merger in accordance with the Stockholder Agreement
or fails to comply with Section 4(b) of the Stockholder Agreement;
(v) a Company Competing Transaction shall have been announced or
otherwise publicly known and the board of directors of Company shall have
(A) failed to recommend against acceptance of such by its stockholders
(including by taking no
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position, or indicating its inability to take a position, with respect to
the acceptance of a Company Competing Transaction involving a tender
offer or exchange offer) within five (5) Business Days of Parent's
written request for such action or (B) failed to reconfirm its approval
and recommendation of this Agreement and the transactions contemplated
hereby within five (5) Business Days of the first announcement or other
public knowledge of such proposal for a Company Competing Transaction;
(vi) the board of directors of Company shall have determined that a
Company Competing Transaction was a Company Superior Proposal and to take
any of the actions allowed by clause (ii) of Section 6.04 and shall not
have, prior to Parent's termination of this Agreement pursuant to this
Section 9.01(d)(vi), (1) reconfirmed its approval and recommendation of
this Agreement and (2) recommended against acceptance of such Company
Superior Proposal by its stockholders;
(vii) the board of directors of Company resolves to take any of the
actions described above;
(e) by Parent or Company, if this Agreement and the Merger is brought to
a vote and shall fail to receive the requisite votes for approval at the
Company Stockholders' Meeting or any adjournment or postponement thereof;
(f) by Parent, 20 days after receipt by Company of a written notice from
Parent of a breach of any representation, warranty, covenant or agreement on
the part of Company set forth in this Agreement, or if any representation or
warranty of Company shall have become untrue, incomplete or incorrect, in
either case such that the conditions set forth in Section 8.03 would not be
satisfied (a 'Terminating Company Breach'); provided, however, that if such
Terminating Company Breach is cured by Company within 20 days, Parent may
not terminate this Agreement under this Section 9.01(f); or
(g) by Company, 20 days after receipt by Parent of a written notice from
Company of a breach of any representation, warranty, covenant or agreement
on the part of Parent or Merger Sub set forth in this Agreement, or if any
representation or warranty of Parent or Merger Sub shall have become untrue,
incomplete or incorrect, in either case such that the conditions set forth
in Section 8.02 would not be satisfied (a 'Terminating Parent Breach');
provided, however, that if such Terminating Parent Breach is cured by Parent
within 20 days, Company may not terminate this Agreement under this
Section 9.01(g).
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.01 will remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 9.02 Effect of Termination. Except as provided in Section 9.05, in
the event of termination of this Agreement pursuant to Section 9.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of any party hereto or any of its Affiliates or any of its
or their officers or directors, and all rights and obligations of each party
hereto shall cease (except for the provisions of Section 6.03(b), this
Section 9.02, Section 9.05 and Article X, which provisions shall survive such
termination); provided, however, that nothing herein shall relieve any party
hereto from liability for breach of any of its representations and warranties or
the breach of any of its covenants or agreements set forth in this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, which shall survive termination of
this Agreement and remain in full force and effect in accordance with their
terms.
SECTION 9.03 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective boards of directors at any
time prior to the Effective Time; provided, however, that, after the approval of
this Agreement by the stockholders of Company, no amendment may be made that
changes the amount or type of consideration into which Company Common Stock will
be converted pursuant to this Agreement. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
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SECTION 9.04 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for or waive compliance with the performance of
any obligation or other act of any other party hereto, (b) waive any inaccuracy
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance by the other party with any
of the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
SECTION 9.05 Termination Fee; Expenses.
(a) Except as set forth in this Section 9.05, all Expenses incurred in
connection with this Agreement and the Merger shall be paid by the party
incurring such Expenses, whether or not the Merger is consummated, except that
Parent and Company each shall pay one-half of all Expenses incurred solely for
printing, filing and mailing the Registration Statement and the Proxy Statement
and all SEC and other regulatory filing fees incurred in connection with the
Registration Statement and the Proxy Statement (for the avoidance of doubt, not
including related attorneys' and accountants' fees and Expenses) and any fees
required to be paid under the HSR Act.
(b) Without limiting any other remedies available to Parent, in the event
that
(i) Parent shall terminate this Agreement pursuant to Section 9.01(d) or
Section 9.01(f), or
(ii) this Agreement is terminated pursuant to Section 9.01(b) or Section
9.01(e), and (A) at or prior to the time of such termination, either there
shall have been proposed or publicly announced a Company Competing
Transaction or (B) within twelve (12) months after such termination, Company
shall enter into a definitive agreement with respect to any Company
Competing Transaction or any Company Competing Transaction involving Company
shall be consummated,
then Company shall pay to Parent (the 'Company Termination Fee') a sum equal to
$1,654,000. Any Company Termination Fee shall be paid in same day funds within
three (3) Business Days after the date this Agreement is terminated or within
three (3) Business Days after the Company Termination Fee otherwise becomes due
and payable pursuant to this Section 9.05(b).
(c) Parent and Company agree that the agreements contained in Section
9.05(b) above are an integral part of the transaction contemplated by this
Agreement and constitute liquidated damages and not a penalty and that without
these Agreements, Parent would not enter into this Agreement or the Stockholder
Agreements. Accordingly, if Company fails to pay to Parent any amounts due under
Section 9.05(b), Company shall pay the fees and expenses (including legal fees
and expenses) in connection with any action, including the filing of any lawsuit
of other legal action, taken to collect payment, together with interest on such
amounts at the prime rate of Citibank, N.A. in effect on the date such payment
was required to be made.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to
Section 9.01, as the case may be. This Section 10.01 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
SECTION 10.02 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in Person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.02);
provided that all notices given
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pursuant to Section 6.04(a) hereof shall be by telecopy or facsimile in addition
to and not in lieu of any other manner:
(a) if to Company:
MessageMedia, Inc.
371 Centennial Parkway
Louisville, CO 80027
Attn: William Buchholz
Facsimile: (303) 440-0303
with a copy to:
Cooley Godward LLP
380 Interlocken Crescent, Suite 900
Broomfield, CO 80021
Attn: Michael L. Platt
Facsimile: (720) 566-4099
(b) if to Parent or Merger Sub:
DoubleClick Inc.
450 West 33rd Street
New York, NY 10001
Attn: Elizabeth Wang
Facsimile: (212) 287-9704
with a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, NY 10019
Attention: Scott L. Kaufman
Facsimile: (212) 586-7878
SECTION 10.03 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner to the fullest extent
permitted by applicable Law in order that the Merger may be consummated as
originally contemplated to the fullest extent possible.
SECTION 10.04 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Notwithstanding anything contained in this Agreement to the contrary, other than
Section 7.03, nothing in this Agreement, expressed or implied, is intended to
confer on any Person other than the parties hereto or their respective
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.
SECTION 10.05 Incorporation of Exhibits. The Parent Disclosure Schedule, the
Company Disclosure Schedule and all Annexes attached hereto and referred to
herein are hereby incorporated herein and made a part of this Agreement for all
purposes as if fully set forth herein. Parent and Company acknowledge that the
Parent Disclosure Schedule and the Company Disclosure Schedule (i) are qualified
in their entirety by reference to specific provisions of this Agreement and
(ii) are not intended to constitute and shall not be construed as indicating
that such matter is required to be disclosed, nor shall such disclosure be
construed as an admission that
A-40
such information is material with respect to Parent or Company, as the case may
be, except to the extent required by this Agreement and by applicable Law.
SECTION 10.06 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the Laws of the State of Delaware,
other than conflict of laws principles thereof directing the application of any
Law other than that of the State of Delaware.
SECTION 10.07 Waiver of Jury Trial. To the fullest extent permitted by Law,
each party hereto hereby irrevocably waives all right to trial by jury in any
proceeding (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or any transaction or agreement contemplated hereby
or the actions of any party hereto in the negotiation, administration,
performance or enforcement hereof.
SECTION 10.08 Headings; Interpretation. The descriptive headings contained
in this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
SECTION 10.09 Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 10.10 Entire Agreement. This Agreement (including the Stockholder
Agreements, the Annexes, the Parent Disclosure Schedule and the Company
Disclosure Schedule) and the Confidentiality Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
DOUBLECLICK INC.
By: /s/ JEFF EPSTEIN
..................................
Name: Jeff Epstein
Title: Executive Vice President,
Strategic Planning
ATLAS ACQUISITION CORP.
By: /s/ JEFF EPSTEIN
..................................
Name: Jeff Epstein
Title: Executive Vice President and
Secretary
MESSAGEMEDIA, INC.
By: /s/ A. LAURENCE JONES
..................................
Name: A. Laurence Jones
Title: President & Chief Executive
Officer
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APPENDIX A-1
Execution Copy
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as
of June 26, 2001 (as amended, supplemented or otherwise modified from time to
time in accordance with the terms hereof, this 'Agreement'), among DOUBLECLICK
INC., a Delaware corporation ('Parent'), MESSAGEMEDIA, INC., a Delaware
corporation ('Company'), and ATLAS ACQUISITION CORP., a Delaware corporation and
a direct wholly owned Subsidiary of Parent ('Merger Sub'). Capitalized terms
used in this Agreement without definition shall have the respective meanings
ascribed to such terms in the Merger Agreement.
W I T N E S S E T H:
WHEREAS, Parent, Company and Merger Sub are parties to that certain
Agreement and Plan of Merger and Reorganization, dated as of June 1, 2001 (the
'Merger Agreement'), which contemplates a business combination of Parent and
Company by means of the merger of Merger Sub with and into Company;
WHEREAS, pursuant to Section 2.01 of the Merger Agreement, Parent may elect
at any time prior to the Effective Time to change the method of effecting the
business combination between Parent and Company if and to the extent that Parent
deems such change to be desirable, including, without limitation, in lieu of
merging Merger Sub with and into Company as provided therein, to merge Company
with and into Parent (provided that Company shall not be deemed to have breached
any of its representations, warranties, covenants or other agreements set forth
therein solely by reason of such election);
WHEREAS, each of Parent and Company have determined that it is advisable and
in the best interests of their respective companies and stockholders to enter
into a business combination by means of the merger of Company with and into
Parent;
WHEREAS, each of the parties to the Merger Agreement desire to modify and
amend the Merger Agreement in all respects necessary to give effect to the
election of Parent to change the method of effecting the business combination
between Parent and Company from a merger of Merger Sub with and into Company to
a merger of Company with and into Parent (the 'Merger'); and
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, certain stockholders of
Company have executed the stockholder letter ('Stockholder Letter') in the form
attached hereto as Annex A.
NOW, THEREFORE, in consideration of the foregoing and the premises set forth
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
A. The Merger Agreement shall be modified and amended as follows:
(i) For purposes of this Agreement and the Merger Agreement, the term
'Merger' shall mean the merger of Company with and into Parent;
(ii) Section 2.01 shall be deleted in its entirety and replaced with the
following:
'SECTION 2.01 The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL,
at the Effective Time (as defined in Section 2.03), Company shall be
merged with and into Parent. As a result of the Merger, the separate
corporate existence of Company shall cease and Parent shall continue as
the surviving corporation of the Merger (the 'Surviving Corporation').
Notwithstanding the foregoing, Parent may elect at any time prior to the
Effective Time to change the method
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of effecting the business combination between Parent and Company if and
to the extent that Parent deems such change to be desirable, including,
without limitation, in lieu of merging Company with and into Parent as
provided herein, to merge Company with and into Merger Sub (or another
direct or indirect wholly owned Subsidiary of Parent) or to merge Merger
Sub (or another direct or indirect wholly owned Subsidiary of Parent)
with and into Company (provided that Company shall not be deemed to have
breached any of its representations, warranties, covenants or other
agreements set forth herein solely by reason of such election); provided,
however, such change shall not be effected without Company's prior
written consent if such change will negatively affect Company or its
stockholders. In the event of an election by Parent to the effect of any
such change, the parties shall execute an appropriate amendment to this
Agreement.'
(iii) Section 2.04 shall be deleted in its entirety and replaced with
the following:
'SECTION 2.04 Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise provided herein, all
the property, rights, privileges, powers and franchises of Company shall
vest in Parent as the Surviving Corporation, and all debts, liabilities
and duties of Company shall become the debts, liabilities and duties of
Parent as the Surviving Corporation.'
(iv) Section 2.05 shall be deleted in its entirety and replaced with the
following:
'SECTION 2.05 Certificate of Incorporation; Bylaws; Directors and
Officers of Surviving Corporation. Unless otherwise agreed by Parent and
Company before the Effective Time, at the Effective Time:
(a) subject to the requirements of Section 7.03(a), the
Certificate of Incorporation and the Bylaws of Parent in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation, until
thereafter amended as provided by Law and such Certificate of
Incorporation or Bylaws;
(b) the officers of Parent immediately prior to the Effective
Time shall serve in their respective offices of the Surviving
Corporation from and after the Effective Time, in each case until
their successors are elected or appointed and qualified or until
their resignation or removal; and
(c) the directors of Parent immediately prior to the Effective
Time shall serve as the directors of the Surviving Corporation from
and after the Effective Time, in each case until their successors are
elected or appointed and qualified or until their resignation or
removal.'
(v) Section 3.01(b) shall be amended to delete therefrom the phrase
', the Surviving Corporation'.
(vi) Section 3.01(c) shall be deleted in its entirety.
(vii) In the first sentence of Section 3.04, the phrase 'or of Surviving
Corporation' shall be deleted.
(viii) Section 3.09 shall be amended to delete therefrom the phrase
', the Surviving Corporation'.
(ix) The first sentence of Article IV shall be amended to delete the
phrase 'and Merger Sub'.
(x) The heading to Article V shall be amended to read 'Representations
and Warranties of Parent' and any representations and warranties of Merger
Sub in the Merger Agreement shall be void and given no effect.
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(xi) In the second sentence of Section 6.04(a), the title 'Senior Vice
President, Business Development' shall be deleted and replaced with the
title 'Senior Vice President, Corporate Development.'
(xii) Section 6.05(b) shall be deleted in its entirety and replaced with
the following:
'(b) Each of Company and Parent shall execute and deliver to Company
counsel and Parent counsel rendering the tax opinions referred to in
Sections 8.02(c) and 8.03(e), respectively, a certificate, in form and
substance reasonably acceptable to such counsel, signed by an officer of
Company or Parent, as the case may be, setting forth factual
representations and covenants that will serve as a basis for the tax
opinions required under Sections 8.02(c)and 8.03(e) hereof. Company and
Parent shall use reasonable efforts to obtain the tax opinions that would
satisfy the condition to the Closing set forth in Sections 8.02(c) and
8.03(e).'
(xiii) Sections 6.10(b) and Section 6.10(c) shall be deleted in their
entirety and replaced with the following:
'(b) At the Effective Time or following a transition period during
which employees of Company continue to participate in one or more Company
Benefit Plans, Parent will provide the benefits to employees of Company
who are retained by Parent (including health benefits, severance policies
and general employment policies and procedures) which are substantially
comparable in the aggregate to benefits that are available to similarly
situated employees of Parent and the Parent Subsidiaries, provided,
however, that such insurance carriers, outsider providers or the like are
able to provide such benefits on terms reasonably acceptable to Parent,
and provided, further, that nothing in this Section 6.10(b) shall prevent
Parent or any of its Subsidiaries from making any change required by
applicable Law, and provided, further, that it shall not result in any
duplication of benefits.
(c) To the extent permitted under applicable Law, each employee of
Company or the Company Subsidiaries shall be given credit for all service
with Company or the Company Subsidiaries (or service credited by Company
or its Subsidiaries) under all employee benefit plans, programs, policies
and arrangements maintained by Parent (other than sabbatical benefits,
for which employees of Company or the Company Subsidiaries will not
receive any such past service credit) in which they participate or in
which they become participants for purposes of eligibility and vesting;
provided, however, that insurance carriers, outsider providers or the
like are able to honor such commitments on terms reasonably acceptable to
Parent.'
(xiv) The last sentence of Section 7.01(f) shall be deleted and replaced
with the following:
'Each such opinion shall be based on representation letters in form
and substance acceptable to the rendering counsel and executed by Company
and Parent.'
(xv) Sections 7.03(a) and 7.03(b) shall be deleted in their entirety and
replaced with the following:
'(a) From and after the Effective Time, (i) Parent will indemnify and
hold harmless, and will provide advancement of expenses to, each person
who is or was a director or officer of Company or any of its Subsidiaries
at or at any time prior to the Effective Time (an 'Indemnified Party'),
to the same extent such persons are indemnified or have the right to the
advancement of expenses as of the date of this Agreement by Company
pursuant to Company's certificate of incorporation and bylaws as in
effect on the date of this Agreement; provided that the Indemnified Party
to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately and finally determined that such Indemnified
Party is not entitled to indemnification, and (ii) Parent will fulfill
and honor in all respects the obligations of Company pursuant to any
indemnification agreements (including, without limitation, those set
forth in Company's certificate of incorporation and bylaws as in effect
on the date of this Agreement) between Company
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and any of the Indemnified Parties in effect immediately prior to the
date of this Agreement.
(b) In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other Person and shall not be
the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers a material amount of its properties and
assets to any Person in a single transaction or a series of transactions,
then, and in each such case, Parent will make or cause to be made proper
provision so that the successors and assigns of Parent assume the
indemnification obligations described herein for the benefit of the
indemnified parties and have at least substantially equal financial
ability as the Company (immediately prior to the Effective Time) to
satisfy the obligations of the parties pursuant to this Section 7.03 as a
condition to such merger, consolidation or transfer becoming effective.'
(xvi) Section 7.08 shall be deleted in its entirety and replaced with
the following:
'SECTION 7.08 Employee Benefit Matters. As of the Effective Time,
Parent shall honor and satisfy all obligations and liabilities with
respect to the Company Benefit Plans, other than the Company Stock
Purchase Plan. Notwithstanding the foregoing, Parent shall not be
required to continue any particular Company Benefit Plan after the
Effective Time, and any Company Benefit Plan may be amended or terminated
or may be merged with any Parent Benefit Plans in accordance with its
terms and applicable Law so long as employees of Company who are employed
by Parent are provided benefits and coverage by Parent that are the same
or substantially the same as that provided by Parent to similarly
situated employees. If requested by Parent prior to the Effective Time,
Company shall take all actions necessary and appropriate to terminate any
Company Benefit Plan that is a 401(k) plan (each, a '401(k) Plan') as of
the last day of the payroll period immediately preceding the Closing Date
and no further contributions shall be made to any 401(k) Plan, and
Company shall provide to Parent (i) executed resolutions by the board of
directors of Company, as applicable, authorizing such termination and
(ii) an executed amendment to each 401(k) Plan sufficient to assure
compliance with all applicable requirements of the Code and regulations
thereunder so that the tax-qualified status of such 401(k) Plan will be
maintained at the time of termination.'
(xvii) Section 8.02 shall be deleted in its entirety and replaced with
the following:
'SECTION 8.02 Conditions to the Obligations of Company. The
obligations of Company to consummate the Merger, or to permit the
consummation of the Merger, are subject to the satisfaction or, if
permitted by applicable Law, waiver of the following further conditions:
(a) each of the representations and warranties of Parent
contained in this Agreement shall be true, complete and correct in
all respects both (i) when made and (ii) on and as of the Effective
Time as if made at and as of the Effective Time (other than
representations and warranties which address matters only as of a
certain date, which shall be so true, complete and correct as of such
certain date), except in each case for any failures to be true,
complete and correct which do not, in the aggregate, have a Parent
Material Adverse Effect; and Company shall have received a
certificate of the Chief Executive Officer and Chief Financial
Officer of Parent to such effect;
(b) Parent shall have performed or complied in all material
respects with all covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time,
except where the failure to so comply has not resulted in a Parent
Material Adverse Effect, and Company shall have received certificates
of the Chief Executive Officer and Chief Financial Officer of Parent
to that effect; and
(c) Company shall have obtained an opinion from Company's legal
counsel, dated the date of the Closing, in form and substance
reasonably satisfactory to it and issued in reliance on the officer's
certificate described in Section 6.05(b) hereof, based upon
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customary representations of Company and Parent reasonably
satisfactory to counsel and customary assumptions, to the effect that
if the Merger is consummated in accordance with the provisions of
this Agreement, under current Law, for federal income tax purposes,
the Merger will qualify as a 'reorganization' within the meaning of
Section 368(a) of the Code, which opinion shall not have been
withdrawn or modified in any material respect.'
(xviii) Section 8.03(e) shall be deleted in its entirety and replaced
with the following:
'(e) Parent shall have obtained an opinion from Parent's legal
counsel, dated the date of the Closing, in form and substance reasonably
satisfactory to it and issued in reliance on the officer's certificate
described in Section 6.05(b) hereof, based upon customary representations
of Company and Parent reasonably satisfactory to counsel and customary
assumptions, to the effect that if the Merger is consummated in
accordance with the provisions of this Agreement, under current Law, for
federal income tax purposes, the Merger will qualify as a
'reorganization' within the meaning of Section 368(a) of the Code, which
opinion shall not have been withdrawn or modified in any material
respect.'
(xix) Clause (iv) of Section 9.01(d) shall be deleted in its entirety
and replaced with the following:
'(iv) a party to a Stockholder Agreement and a Stockholder Letter
(other than Parent) fails to vote in favor of the Merger in accordance
with the Stockholder Agreement and the Stockholder Letter or fails to
comply with Section 4(b) of the Stockholder Agreement;'.
(xx) Section 9.01(g) shall be deleted in its entirety and replaced with
the following:
'(g) by Company, 20 days after receipt by Parent of a written notice
from Company of a breach of any representation, warranty, covenant or
agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, incomplete
or incorrect, in either case such that the conditions set forth in
Section 8.02 would not be satisfied (a 'Terminating Parent Breach');
provided, however, that if such Terminating Parent Breach is cured by
Parent within 20 days, Company may not terminate this Agreement under
this Section 9.01(g).'
(xxi) Section 9.03 shall be deleted in its entirety and replaced with
the following:
'SECTION 9.03 Amendment. This Agreement may be amended by Parent and
Company by action taken by or on behalf of their respective boards of
directors at any time prior to the Effective Time; provided, however,
that, after the approval of this Agreement by the stockholders of
Company, no amendment may be made that changes the amount or type of
consideration into which Company Common Stock will be converted pursuant
to this Agreement. This Agreement may not be amended except by an
instrument in writing signed by Parent and Company.'
B. Each of the parties hereto agrees to use all commercially reasonable
efforts to take, or cause to be taken, all appropriate action, and do, or cause
to be done, all things reasonably necessary, proper or advisable to give effect
to this Agreement and implement the modifications to the Merger Agreement set
forth herein; provided, however, that the Merger Agreement (including without
limitation Section 6.07 thereof) shall otherwise remain unmodified and in full
force and effect. In addition, Company shall prepare and send a waiver and
consent, in the form attached hereto as Schedule I, to each of the third parties
set forth on Schedule II hereto promptly after the date of this Agreement (but
in any event within seven (7) business days).
C. The parties hereto, being all of the parties to the Merger Agreement,
hereby acknowledge and agree that this Agreement constitutes a valid amendment
of the Merger Agreement pursuant to Section 9.03 thereof.
D. If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of Law or public policy, all other
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the
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Merger is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner to the fullest extent permitted by
applicable Law in order that the Merger may be consummated as originally
contemplated to the fullest extent possible.
E. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of Law or otherwise) without the prior written consent of Parent and Company.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Notwithstanding anything contained in this Agreement to
the contrary, other than clause (xv) of Section A, nothing in this Agreement,
expressed or implied, is intended to confer on any Person other than the parties
hereto or their respective successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
F. This Agreement shall be governed by, and construed and enforced in
accordance with, the Laws of the State of Delaware, other than conflict of laws
principles thereof directing the application of any Law other than that of the
State of Delaware.
G. To the fullest extent permitted by Law, each party hereto hereby
irrevocably waives all right to trial by jury in any proceeding (whether based
on contract, tort or otherwise) arising out of or relating to this Agreement or
any transaction or agreement contemplated hereby or the actions of any party
hereto in the negotiation, administration, performance or enforcement hereof.
H. The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
I. This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
J. This Agreement, the Merger Agreement (including the Stockholder
Agreements, the Stockholder Letters, the Annexes, the Parent Disclosure Schedule
and the Company Disclosure Schedule thereto) and the Confidentiality Agreement
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
DOUBLECLICK INC.
By: /S/ JEFF EPSTEIN
.................................
Name: Jeff Epstein
Title: Executive Vice President,
Strategic Planning
ATLAS ACQUISITION CORP.
By: /S/ JEFF EPSTEIN
.................................
Name: Jeff Epstein
Title: Executive Vice President
and Secretary
MESSAGEMEDIA, INC.
By: /S/ WILLIAM E. BUCHHOLZ
.................................
Name: William E. Buchholz
Title: Senior Vice President,
Finance and Administration,
Chief Financial Officer and
Secretary
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APPENDIX B
FORM OF STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT (this 'Agreement') is made and entered into as of
June 1, 2001 between DOUBLECLICK INC., a Delaware corporation ('Parent'), and
the undersigned stockholder ('Stockholder') of MESSAGEMEDIA, INC., a Delaware
corporation ('Company'). Capitalized terms used and not otherwise defined herein
shall have the respective meanings set forth in the Merger Agreement described
below.
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization
dated as of May 31, 2001 among Parent, Atlas Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ('Merger Sub'), and Company
(such agreement, as it may be amended, supplemented or otherwise modified from
time to time, is hereinafter referred to as the 'Merger Agreement'), Parent has
agreed to acquire the outstanding securities of Company pursuant to a statutory
merger of Merger Sub with and into Company (the 'Merger') in which each
outstanding share of capital stock of Company (the 'Company Capital Stock') will
be converted into shares of common stock, par value $0.001 per share, of Parent
(the 'Parent Shares') at the Exchange Ratio as set forth in the Merger Agreement
(the 'Transaction');
WHEREAS, in order to induce Parent to enter into the Merger Agreement and
consummate the Transaction, Company has agreed to use its reasonable best
efforts to cause certain stockholders of Company to execute and deliver to
Parent a Stockholder Agreement upon the terms set forth herein; and
WHEREAS, Stockholder is the registered and beneficial owner of such number
of shares of the outstanding capital stock of Company as is indicated on the
signature page of this Agreement (the 'Shares').
NOW, THEREFORE, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance.
(a) Stockholder is the beneficial owner of the Shares and, except as
otherwise set forth on the signature page hereto, has owned each such Share at
all times since the date such Share was originally issued by Company. The Shares
constitute Stockholder's entire interest in the outstanding capital stock and
voting securities of Company. The Shares are, and will be at all times up until
the Expiration Date (as defined below), free and clear of any liens, claims,
options, charges or other encumbrances. Stockholder's principal residence or
place of business is accurately set forth on the signature page hereto. As used
herein, the term 'Expiration Date' shall mean the earlier to occur of the (i)
Effective Time or (ii) termination of the Merger Agreement in accordance with
the terms thereof.
(b) Stockholder agrees not to transfer (except as may be specifically
required by court order or by operation of law, in which case any such
transferee shall agree to be bound hereby), sell, exchange, pledge, hypothecate,
engage in any hedging transaction with respect to, or otherwise dispose of or
encumber, any Shares or any New Shares (as defined below) or to make any offer
or agreement relating thereto, at any time prior to the Expiration Date.
1.2 New Shares. Stockholder agrees that any shares of capital stock or
voting securities of Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the date of this
Agreement and prior to the Expiration Date ('New Shares') shall be on the terms
and subject to the conditions of this Agreement to the same extent as if they
constituted Shares.
2. Agreement to Vote Shares. Prior to the Expiration Date, at every meeting
of the stockholders of Company at which the Merger is considered or voted upon,
and at every
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adjournment thereof, and on every action or approval by written resolution of
the stockholders of Company with respect to the Merger, Stockholder shall vote
the Shares and any New Shares in favor of approval and adoption of the Merger
Agreement and of the Transaction.
3. Irrevocable Proxy. Stockholder hereby agrees to timely deliver to Parent
a duly executed proxy in the form attached hereto as Exhibit I (the 'Proxy'). In
the event that Stockholder is unable to provide any such Proxy in a timely
manner, Stockholder hereby grants Parent a power of attorney to execute and
deliver such Proxy for and on behalf of Stockholder, which power of attorney,
being coupled with an interest, shall survive any death, disability, bankruptcy
or any other such impediment of Stockholder. Upon the execution of this
Agreement by Stockholder, Stockholder hereby revokes any and all prior proxies
or powers of attorney given by Stockholder with respect to the Shares and agrees
not to grant any subsequent proxies or powers of attorney with respect to the
Shares until after the Expiration Date.
4. Representations, Warranties and Covenants of Stockholder. Stockholder
hereby represents, warrants and covenants to Parent as follows:
(a) Stockholder has full power, authority and legal capacity to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Stockholder and constitutes the valid and binding
obligation of Stockholder, enforceable against Stockholder in accordance with
its terms. Except as may be limited by (i) the effect of bankruptcy, insolvency,
conservatorship, arrangement, moratorium or other laws affecting or relating to
the rights of creditors generally, or (ii) the rules governing the availability
of specific performance, injunctive relief or other equitable remedies and
general principles of equity, regardless of whether considered in a proceeding
in equity or at law, the execution and delivery of this Agreement by Stockholder
does not, and the performance of Stockholder's obligations hereunder will not,
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any right
to terminate, amend, accelerate or cancel any right or obligation under, or
result in the creation of any lien or encumbrance on any Shares or New Shares
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Stockholder is a party or by which Stockholder or the Shares or New Shares are
or will be bound or affected.
(b) Until the Expiration Date, Stockholder will not and will use
Stockholder's reasonable best efforts to cause Company, and any Representatives
of Company or Stockholder, not to, except to the extent otherwise permitted
under Section 6.04 of the Merger Agreement, take any of the actions restricted
by such Section 6.04, which provisions are hereby incorporated by reference. In
the event Stockholder shall receive or become aware of any Company Competing
Transaction subsequent to the date hereof, Stockholder shall promptly inform
Parent as to any such matter and the details thereof to the extent possible
without breaching any other agreement to which such Stockholder is a party or
violating its fiduciary duties. Stockholder shall take all actions requested by
Company in connection with complying with Company's obligations under the Merger
Agreement.
(c) Stockholder understands and agrees that if Stockholder attempts to
transfer, vote or provide any other person with the authority to vote any of the
Shares or New Shares other than in compliance with this Agreement, Company shall
not, and Stockholder hereby unconditionally and irrevocably instructs Company to
not, permit any such transfer on its books and records, issue a new certificate
representing any of the Shares or New Shares or record such vote unless and
until Stockholder shall have complied with the terms of this Agreement.
5. Additional Documents. Stockholder hereby covenants and agrees to execute
and deliver any additional documents necessary or desirable, in the reasonable
opinion of Parent, to carry out the purpose and intent of this Agreement.
6. Consent and Waiver. Stockholder hereby gives any consents or waivers that
are reasonably required for the consummation of the Transaction under the terms
of any agreement to which Stockholder is a party or pursuant to any rights
Stockholder may have.
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7. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. Confidentiality. Stockholder agrees (i) to hold any information regarding
this Agreement and the Transaction in strict confidence and (ii) not to divulge
any such information to any third person, except to the extent any of the same
is hereafter publicly disclosed by Parent.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without the prior written consent of the other. This Agreement is
intended to bind Stockholder solely as a securityholder of Company only with
respect to the specific matters set forth herein.
9.3 Amendment and Modification. This Agreement may not be modified, amended,
altered or supplemented except by the execution and delivery of a written
agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Parent will be irreparably harmed and that there will be no adequate remedy
at law for a violation of any of the covenants or agreements of Stockholder set
forth herein. Therefore, it is agreed that, in addition to any other remedies
that may be available to Parent upon any such violation, Parent shall have the
right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Parent at law or in equity
and Stockholder hereby waives any and all defenses which could exist in its
favor in connection with such enforcement and waives any requirement for the
security or posting of any bond in connection with such enforcement.
9.5 Notices. All notices, requests, demands or other communications that are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given (a) when delivered, if
delivered by hand, (b) one Business Day after transmitted, if transmitted by a
nationally recognized overnight courier service, (c) when telecopied, if
telecopied (which is confirmed), or (d) three business days after mailing, if
mailed by registered or certified mail (return receipt requested), to the
parties at the following addresses:
(a) If to Stockholder, at the address set forth below Stockholder's
signature at the end hereof.
(b) if to Parent, to:
DoubleClick Inc.
450 West 33rd Street
New York, NY 10001
Attention: Elizabeth Wang, General Counsel
Facsimile No: (212) 287-9704
with a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway
New York, New York 10019
Attention: Scott L. Kaufman, Esq.
Facsimile No.: (212) 586-7878
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
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9.6 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the internal laws of the State of New York without
giving effect to the principles of conflicts of law thereof.
9.7 Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
9.8 Counterpart. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for convenience only
and shall not affect the construction or interpretation of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have caused this Stockholder Agreement to be
executed as of the date first above written.
DOUBLECLICK INC.
By: ..................................
Name: ..................................
Title: ................................
Address: .................................
..................................
Phone: ..................................
Facsimile: ................................
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STOCKHOLDER NAME
........................................
Stockholder Name
........................................
(Signature of Spouse)
Address: .............................
.............................
.............................
Phone: .............................
Facsimile: ..............................
.........................................
(Social Security or Tax I.D. Number)
Total Number of Shares of Company Capital Stock owned on the date hereof:
Common Stock: .......................
State of Residence: .......................
SIGNATURE PAGE TO STOCKHOLDER AGREEMENT
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EXHIBIT I
FORM OF IRREVOCABLE PROXY
TO VOTE STOCK OF
MESSAGEMEDIA, INC.
The undersigned stockholder of MessageMedia, Inc., a Delaware corporation
('Company'), hereby irrevocably (to the full extent permitted by the Delaware
General Corporation Law) appoints the members of the board of directors of
DoubleClick Inc., a Delaware corporation ('Parent'), and each of them, or any
other designee of Parent (provided such designee serves as an executive officer
of Parent), as the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and exercise all
voting and related rights (to the full extent that the undersigned is entitled
to do so) with respect to all of the shares of capital stock of Company that now
are or hereafter may be beneficially owned by the undersigned, and any and all
other shares or securities of Company issued or issuable in respect thereof on
or after the date hereof (collectively, the 'Shares') in accordance with the
terms of this Irrevocable Proxy. The Shares beneficially owned by the
undersigned stockholder of Company as of the date of this Irrevocable Proxy are
listed on the final page of this Irrevocable Proxy. Upon the undersigned's
execution of this Irrevocable Proxy, any and all prior proxies given by the
undersigned with respect to any Shares are hereby revoked and the undersigned
agrees not to grant any subsequent proxies with respect to the Shares until
after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Delaware General Corporation Law), is coupled with an interest, and is granted
in consideration of Parent entering into that certain Agreement and Plan of
Merger and Reorganization (the 'Merger Agreement') among Parent, Atlas
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ('Merger Sub'), and Company, which Merger Agreement provides for the
merger of Merger Sub with and into Company (the 'Merger'). As used herein, the
term 'Expiration Date' shall mean the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and provisions
of the Merger Agreement, and (ii) the date of termination of the Merger
Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the Delaware General Corporation Law), at every annual,
special or adjourned meeting of the stockholders of Company and in every written
consent in lieu of such meeting, in favor of approval and adoption of the Merger
Agreement and of the transactions contemplated thereby.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy on any other matter except as provided above. The undersigned stockholder
may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy shall terminate, and be of no further effect,
automatically upon the Expiration Date.
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: June 1, 2001
.....................................
(Signature of Stockholder)
.....................................
(Print Name of Stockholder)
Shares beneficially owned:
____________ shares of Company Common
Stock
B-7
APPENDIX B-1
FORM OF STOCKHOLDER LETTER
June , 2001
DoubleClick Inc.
450 West 33rd Street
New York, NY 10001
Attention: Elizabeth Wang, Esq.
Facsimile No: (212) 287-9804
Re: Stockholder Agreement by and between the undersigned and
DoubleClick Inc., dated as of June 1, 2001 (the 'Stockholder Agreement')
Dear Ms. Wang:
The undersigned stockholder entered into the Stockholder Agreement in
connection with the Agreement and Plan of Merger and Reorganization among
DoubleClick Inc. ('Parent'), Atlas Acquisition Corp. ('Merger Sub') and
MessageMedia, Inc. ('Company'), dated as of June 1, 2001 (the 'Original
Agreement'). Terms used without definition herein have the meanings ascribed
thereto in the Stockholder Agreement.
In connection with the execution and delivery of the Amendment to Agreement
and Plan of Merger and Reorganization among Parent, Merger Sub and Company,
dated as of the date hereof (the 'Amendment'), which amends the Original
Agreement, the undersigned stockholder hereby:
1. agrees that for purposes of this Stockholder Letter, the term (a)
'Merger Agreement' shall refer to the Original Agreement, as amended by the
Amendment, (b) 'Transaction' shall refer to the acquisition by Parent of the
outstanding securities of Company pursuant to a direct merger of Company
with and into Parent in which each outstanding share of capital stock of
Company will be converted into shares of common stock, par value $0.001 per
share, of Parent at the Exchange Ratio, as set forth in the Merger
Agreement, and (c) 'Proxy' shall refer to the irrevocable proxy in the form
attached hereto as Exhibit I; and
2. reaffirms all of its representations, warranties, covenants and
obligations under the Stockholder Agreement, including, without limitation,
its agreement to vote the Shares and any New Shares in favor of the approval
and adoption of the Merger Agreement and of the Transaction, and to deliver
a Proxy to Parent.
Very truly yours,
STOCKHOLDER
.....................................
Name:
Title:
Agreed to and accepted as of the date
first written above:
DOUBLECLICK INC.
By: .................................
Name:
Title:
cc: Scott L. Kaufman, Esq.
Brobeck, Phleger & Harrison LLP
1633 Broadway
New York, NY 10019
Facsimile No: (212) 586-7878
B-1-1
EXHIBIT I
FORM OF IRREVOCABLE PROXY
TO VOTE STOCK OF MESSAGEMEDIA, INC.
The undersigned stockholder of MessageMedia, Inc., a Delaware corporation
('Company'), hereby irrevocably (to the full extent permitted by the Delaware
General Corporation Law) appoints the members of the board of directors of
DoubleClick Inc., a Delaware corporation ('Parent'), and each of them, or any
other designee of Parent (provided such designee serves as an executive officer
of Parent), as the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and exercise all
voting and related rights (to the full extent that the undersigned is entitled
to do so) with respect to all of the shares of capital stock of Company that now
are or hereafter may be beneficially owned by the undersigned, and any and all
other shares or securities of Company issued or issuable in respect thereof on
or after the date hereof (collectively, the 'Shares') in accordance with the
terms of this Irrevocable Proxy. The Shares beneficially owned by the
undersigned stockholder of Company as of the date of this Irrevocable Proxy are
listed on the final page of this Irrevocable Proxy. Upon the undersigned's
execution of this Irrevocable Proxy, any and all prior proxies given by the
undersigned with respect to any Shares are hereby revoked and the undersigned
agrees not to grant any subsequent proxies with respect to the Shares until
after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Delaware General Corporation Law), is coupled with an interest, and is granted
in consideration of Parent entering into that certain Agreement and Plan of
Merger and Reorganization dated as of June 1, 2001 among Parent, Atlas
Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary
of Parent ('Merger Sub'), and Company (the 'Original Agreement'), as amended by
that certain Amendment to Agreement and Plan of Merger and Reorganization dated
as of the date hereof among Parent, Merger Sub and Company (the 'Amendment' and,
together with the Original Agreement, the 'Merger Agreement'), which Merger
Agreement provides for the merger of Company with and into Parent (the
'Merger'). As used herein, the term 'Expiration Date' shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Merger Agreement, and (ii) the
date of termination of the Merger Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the Delaware General Corporation Law), at every annual,
special or adjourned meeting of the stockholders of Company and in every written
consent in lieu of such meeting in favor of approval and adoption of the Merger
Agreement and of the transaction contemplated thereby.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy on any other matter except as provided above. The undersigned stockholder
may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy shall terminate, and be of no further effect,
automatically upon the Expiration Date.
B-1-2
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: June , 2001
.....................................
(Signature of Stockholder)
.....................................
(Print Name of Stockholder)
Shares beneficially owned:
.....................................
shares of Company Common Stock
B-1-3
APPENDIX C
May 31, 2001
Members of the Board of Directors of
MESSAGEMEDIA, INC.
371 Centennial Parkway
Louisville, CO 80027
Members of the Board:
We have acted as your financial advisor in connection with your proposed
merger with DoubleClick, Inc. (the 'Transaction') pursuant to a merger
agreement, dated as of this date ('Merger Agreement'). DoubleClick has proposed
to issue 3 million shares of common stock for all issued and outstanding shares
of MessageMedia (the 'Company') in a tax-free transaction. The terms and
conditions of the Transaction are more fully set forth in the Merger Agreement.
You have requested our opinion as to the fairness to the disinterested
shareholders of the Company from a financial point of view of the consideration
to be received by such shareholders in the Transaction. For purposes of this
opinion, the term 'disinterested shareholders' means holders of the Company's
one class of publicly traded common stock (the 'Company Shares') other than
(1) directors, officers and employees of the Company, and (2) any holder of ten
percent (10%) or more of the outstanding shares of Common Stock (assuming the
exercise of convertible securities beneficially owned by the holder).
In connection with rendering our opinion we have:
(i) analyzed certain publicly available financial statements and
reports regarding the Company;
(ii) analyzed certain internal financial statements and other
financial and operating data (including financial
projections for the year ended December 31, 2001) concerning
the Company prepared by management of the Company;
(iii) analyzed on a proforma basis, the effect of the transaction;
(iv) reviewed the reported prices and trading activity for the
Company Shares and the outstanding shares of DoubleClick's
common stock (the 'DoubleClick Shares');
(v) compared the financial performance of the Company and
DoubleClick and the prices and trading activity of the
Company Shares and DoubleClick shares with that of certain
other comparable publicly-traded companies and their
securities;
(vi) reviewed the financial terms, to the extent publicly
available, of certain comparable transactions;
(vii) reviewed the Merger Agreement and related documents;
(viii) discussed with management of the Company the operations of
and future business prospects for the Company and the
anticipated financial consequences of the Transaction to the
Company;
(ix) assisted in your deliberations regarding the material terms
of the Transaction and your negotiations with DoubleClick;
(x) performed such other analyses and provided such other
services as we have deemed appropriate.
We have relied on the accuracy and completeness of the information and
financial data provided to us by the Company, and our opinion is based upon such
information. We have inquired into the reliability of such information and
financial data only to the limited extent necessary to provide a reasonable
basis for our opinion, recognizing that we are rendering only an informed
opinion and not an appraisal or certification of value. With respect to the
financial projections prepared by management of the Company, we have assumed
that they have been
C-1
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of the Company.
As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. In the ordinary course of business, Stephens Inc.
and its affiliates at any time may hold long or short positions, and may trade
or otherwise effect transactions as principal or for the accounts of customers,
in debt or equity securities or options on securities of the Company. Stephens
is receiving a fee, and reimbursement of its expenses, in connection with the
issuance of this fairness opinion. We are also receiving a fee as exclusive
financial advisor to the Company.
Based on the foregoing and our general experience as investment bankers, and
subject to the qualifications stated herein, we are of the opinion on the date
hereof that the consideration to be received by the disinterested shareholders
of the Company in the Transaction is fair to them from a financial point of
view.
This opinion and a summary discussion of our underlying analyses and role as
your financial advisor may be included in communications to the Company's
shareholders provided that we approve of such disclosures prior to publication.
Very truly yours,
STEPHENS INC.
By: /s/ RICK MASSEY
..................................
RICK MASSEY
Managing Director
C-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The amended and restated certificate of incorporation of DoubleClick (the
'Registrant') provides that, except to the extent prohibited by the Delaware
General Corporation Law (the 'DGCL'), no director of the Registrant shall be
personally liable to the Registrant or its stockholders for monetary damages for
any breach of fiduciary duty as a director. Under the DGCL, the directors have a
fiduciary duty to the Registrant which is not eliminated by this provision of
the amended and restated certificate of incorporation and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the federal securities laws or state or federal environmental laws. The
Registrant has obtained liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of the director: (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) arising under Section 174 of the
DGCL, or (iv) for any transaction from which the director derived an improper
personal benefit. The DGCL provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors and officers may be entitled under a corporation's certificate of
incorporation or bylaws, any agreement, a vote of stockholders or otherwise. The
Registrant's amended and restated certificate of incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the DGCL and provides that the Registrant shall fully indemnify any
person who was or is a party or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was a director or officer of the Registrant, or is or was serving
at the request of the Registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description
------ -----------
2.1 -- Agreement and Plan of Merger and Reorganization, dated as of June 1, 2001, among the
Registrant, Atlas Acquisition Corp. and MessageMedia, Inc., together with amendment,
dated as of June 26, 2001 (attached as Appendix A and Appendix A-1 to the proxy
statement/prospectus contained in this registration statement).
4.1 -- Specimen certificate representing shares of Common Stock (incorporated by reference
to Exhibit 4.1 to the Registrant's registration statement on Form S-1 (Reg. No.
333-42323)).
5.1 -- Opinion of Brobeck, Phleger & Harrison LLP regarding the legality of the securities
being issued.
8.1 -- Opinion of Cooley Godward LLP as to certain federal income tax consequences of the
merger.
II-1
Exhibit
Number Description
------ -----------
8.2 -- Opinion of Brobeck, Phleger & Harrison LLP as to certain
federal income tax consequences of the merger.
23.1 -- Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibits 5.1 and 8.2).
23.2 -- Consent of Cooley Godward LLP (included in Exhibit 8.1).
23.3 -- Consent of PricewaterhouseCoopers LLP with respect to the
Registrant's financial statements.
23.4 -- Consent of Ernst & Young LLP, independent auditors of
MessageMedia, Inc.'s financial statements.
23.5 -- Consent of KPMG LLP with respect to NetGravity, Inc.'s
financial statements.
24.1'D' -- Power of Attorney.
99.1'D' -- Form of MessageMedia, Inc. Proxy Card.
99.2 -- Consent of Stephens Inc.
---------
'D' Previously filed.
(b) Opinion of Stephens Inc., attached as Appendix C to the proxy
statement/prospectus which is part of this registration statement.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
'Calculation of Registration Fee' table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement
II-2
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;
(5) That, 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 Securities Act of 1933 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;
(6) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act of 1933, such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(7) That every prospectus (i) that is filed pursuant to paragraph (6)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to this registration statement and will not be used until
such amendment is effective and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment 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;
(8) That, for purposes of determining any 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 of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective;
(9) That, 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;
(10) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of this registration statement through the date of
responding to the request; and
(11) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement when
it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York, on this 3rd day of
October, 2001.
DOUBLECLICK INC.
By /S/ KEVIN P. RYAN
..................................
Kevin P. Ryan
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
* Chairman of the Board of Directors October 3, 2001
..........................................
Kevin J. O'Connor
/S/ KEVIN P. RYAN Chief Executive Officer (Principal October 3, 2001
......................................... Executive Officer) and Director
Kevin P. Ryan
/S/ BRUCE DALZIEL Acting Chief Financial Officer October 3, 2001
......................................... (Principal Financial Officer)
Bruce Dalziel
* Vice President of Corporate Finance October 3, 2001
......................................... (Principal Accounting Officer)
Thomas Etergino
* Director October 3, 2001
.........................................
Dwight A. Merriman
* Director October 3, 2001
.........................................
David N. Strohm
* Director October 3, 2001
.........................................
Mark E. Nunnelly
* Director October 3, 2001
.........................................
Thomas S. Murphy
* Director October 3, 2001
.........................................
W. Grant Gregory
* Director October 3, 2001
.........................................
Don Peppers
By: /S/ KEVIN P. RYAN
.........................................
Kevin P. Ryan
Attorney-in-Fact
II-4
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
2.1 Agreement and Plan of Merger and Reorganization, dated as of
June 1, 2001, among the Registrant, Atlas Acquisition Corp.
and MessageMedia, Inc., together with amendment, dated as of
June 26, 2001 (attached as Appendix A and Appendix A-1 to
the proxy statement/prospectus contained in this
registration statement).
4.1 Specimen certificate representing shares of Common Stock
(incorporated by reference to Exhibit 4.1 to the
Registrant's registration statement on Form S-1 (Reg. No.
333-42323)).
5.1 Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the securities being issued.
8.1 Opinion of Cooley Godward LLP as to certain federal income
tax consequences of the merger.
8.2 Opinion of Brobeck, Phleger & Harrison LLP as to certain
federal income tax consequences of the merger.
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibits 5.1 and 8.2).
23.2 Consent of Cooley Godward LLP (included in Exhibit 8.1).
23.3 Consent of PricewaterhouseCoopers LLP with respect to the
Registrant's financial statements.
23.4 Consent of Ernst & Young LLP, independent auditors of
MessageMedia, Inc.'s financial statements.
23.5 Consent of KPMG LLP with respect to NetGravity, Inc.'s
financial statements.
24.1'D' Power of Attorney.
99.1'D' Form of MessageMedia, Inc. Proxy Card.
99.2 Consent of Stephens Inc.
---------
'D' Previously filed.
STATEMENT OF DIFFERENCES
-------------------------
The registered trademark symbol shall be expressed as............. 'r'
The section symbol shall be expressed as.......................... 'SS'
The dagger symbol shall be expressed as........................... 'D'
EX-5
3
ex5-1.txt
EXHIBIT 5.1
EXHIBIT 5.1
Brobeck, Phleger & Harrison LLP
1633 Broadway
New York, New York 10019
Phone (212) 581-1600
Fax (212) 586-7878
www.brobeck.com
October 3, 2001
DOUBLECLICK INC.
450 West 33rd Street
New York, NY 10001
Re: DoubleClick Inc. Registration Statement on Form S-4 for 3,019,208 shares of
common stock
Ladies and Gentlemen:
We have acted as counsel to DoubleClick Inc., a Delaware corporation (the
'Company'), in connection with the registration by the Company of 3,019,208
shares of the Company's common stock (the 'Shares') pursuant to the Company's
Registration Statement on Form S-4 (the 'Registration Statement') filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the 'Act').
This opinion is being furnished in accordance with the requirements of
Item 21(a) of Form S-4 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares and such other instruments, documents or other information as we deemed
necessary or appropriate in rendering our opinion. Based on such review, we are
of the opinion that the Shares have been duly authorized, and if, as and when
issued in accordance with the Registration Statement and the related proxy
statement/prospectus (as amended and supplemented through the date of issuance)
will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
'Legal Matters' in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
EX-8
4
ex8-1.txt
EXHIBIT 8.1
EXHIBIT 8.1
[Logo]
September 26, 2001
MESSAGEMEDIA, INC.
371 Centennial Parkway
Louisville, Colorado 80027
ATTORNEYS AT LAW
One Maritime Plaza
20th Floor
San Francisco, CA
94111-3580
Main 415 693-2000
Fax 415 951-3699
www.cooley.com
SUSAN COOPER PHILPOT
415 693-2078
philpotsc@cooley.com
Broomfield, CO
720 566-4000
Denver, CO
303 606-4800
Kirkland, WA
425 893-7700
Menlo Park, CA
650 843-5100
Palo Alto, CA
650 843-5000
Reston, VA
703 262-8000
San Diego, CA
858 550-6000
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the 'Registration Statement') filed pursuant to the
Agreement and Plan of Merger and Reorganization dated as of June 1, 2001, and as
amended as of June 26, 2001 (the 'Reorganization Agreement'), by and among
DoubleClick Inc., a Delaware corporation ('Acquiror'), Atlas Acquisition Corp.,
a Delaware corporation and wholly owned subsidiary of Acquiror, and
MessageMedia, Inc., a Delaware corporation (the 'Target'). Pursuant to the
Reorganization Agreement, the Target shall merge with and into the Acquiror, and
the Target shall cease its separate corporate existence (the 'Merger').
Except as otherwise indicated, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the 'Code').
We have acted as counsel to the Target in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined, and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
(b) the Registration Statement;
(c) those certain tax representation letters of even date herewith
delivered to us by Acquiror and Target (the 'Tax Representation Letters');
and
(d) such other instruments and documents related to the formation,
organization and operation of Acquiror and Target and to the consummation of
the Merger and the other transactions contemplated by the Reorganization
Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due execution
and delivery are a prerequisite to the effectiveness thereof;
(b) All representations, warranties and statements made or agreed to by
Acquiror, Target, their managements, employees, officers, directors and
stockholders in connection with the Merger, including, but not limited to,
those set forth in the Reorganization Agreement (including the exhibits
thereto) and the Tax Representation Letters are true and accurate at all
relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
[Logo]
MessageMedia, Inc.
Page Two
(d) The Merger will be consummated in accordance with the Reorganization
Agreement without any waiver or breach of any material provision thereof,
and the Merger will be effective under applicable state law;
(e) Any representation or statement made 'to the knowledge of' or
similarly qualified is correct without such qualification; and
(f) The opinion of even date herewith rendered by Brobeck, Phleger &
Harrison LLP to Acquiror and filed as Exhibit 8.2 to the Registration
Statement has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, for federal income tax purposes, the Merger will be a
reorganization within the meaning of Section 368(a) of the Code.
In addition to your request for our opinion on this specific matter of
federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement. We have reviewed the
discussion entitled 'Federal Income Tax Considerations' contained in the
Registration Statement and believe that, insofar as it relates to statements of
law and legal conclusions, it is correct in all material respects and represent,
where indicated, our opinion as to the tax consequences to the MessageMedia
stockholders of the merger.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement and does not address the federal
tax consequences of any transaction other than the Merger as described in the
Reorganization Agreement. In addition, no opinion is expressed as to any federal
income tax consequence of the Merger or the other transactions contemplated by
the Reorganization Agreement except as specifically set forth herein, and this
opinion may not be relied upon except with respect to the consequences
specifically discussed herein.
No opinion is expressed as to any transaction whatsoever, including the
Merger, if any of the representations, warranties, statements and assumptions
material to our opinion and upon which we have relied are not accurate and
complete in all material respects at all relevant times.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or interpretations
would not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered solely in connection with the filing of the
Registration Statement. It is intended for the benefit of the Target and may not
be relied upon or utilized for any other purpose or by any other person and may
not be made available to any other person without our prior written consent.
We consent to the reference to our firm under the caption 'Federal Income
Tax Considerations' in the Proxy Statement included in the Registration
Statement and to the reproduction and filing of this opinion as an exhibit to
the Registration Statement.
Sincerely,
COOLEY GODWARD LLP
/s/ SUSAN COOPER PHILPOT
.....................................
SUSAN COOPER PHILPOT
SCP:dm
EX-8
5
ex8-2.txt
EXHIBIT 8.2
EXHIBIT 8.2
Brobeck, Phleger & Harrison LLP
One Market, Spear Street Tower
San Francisco, California 94105
Telephone: 415.442.0900
Fax: 415.442.1010
www.brobeck.com
September 28, 2001
DOUBLECLICK, INC.
450 West 33rd Street
New York, NY 10001
Ladies and Gentlemen:
This opinion is being delivered to you in connection with (i) the Agreement
and Plan of Reorganization (the 'Agreement') dated as of June 1, 2001 and
amended as of June 26, 2001, between DoubleClick, Inc., a Delaware corporation
('Parent'), Atlas Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ('Merger Sub'), and MessageMedia, Inc., a Delaware
corporation ('Target'), and (ii) the preparation and filing with the Securities
and Exchange Commission of a Form S-4 Registration Statement relating to the
Merger (the 'Registration Statement'). Pursuant to the Agreement, Target will
merge with and into Parent (the 'Merger').
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the 'Code').
We have acted as legal counsel to Parent in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
1. The Agreement;
2. The Registration Statement;
3. Representation letters provided by Parent and Target in connection
with this opinion; and
4. Such other instruments and documents related to Parent, Target,
Merger Sub and the Merger as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
A. Original documents submitted to us (including signatures) are
authentic, documents submitted to us as copies conform to the
original documents, and there has been (or will be by the Effective
Time) due execution and delivery of all documents where due execution
and delivery are prerequisites to the effectiveness thereof;
B. The Merger will be consummated in accordance with the Agreement
without any waiver or breach of any material provision thereof, and
the Merger will be effective under applicable state law;
C. Parent and Target will report the Merger on their respective federal
income tax returns in a manner consistent with the opinion set forth
below;
D. All covenants contained in the Agreement (including exhibits thereto)
and the representation letters provided us by Parent and Target are
performed without waiver or breach of any material provision thereof;
DoubleClick, Inc.
September 28, 2001
Page 2
E. All statements made 'to the knowledge of' or otherwise similarly
qualified are correct without such qualification. As to all matters
with respect to which a person or entity making a representation has
represented that such person or entity either is not a party to, does
not have, or is not aware of any plan, intention, understanding or
agreement to take an action, there is in fact no plan, intent,
understanding or agreement and such action will not be taken; and
F. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and
correct in all material respects and no actions have been (or will
be) taken which are inconsistent with such representations.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein and in
the Registration Statement, we are of the opinion that (i) for federal income
tax purposes, the Merger will constitute a 'reorganization' as defined in
Section 368(a) of the Code
(i) a holder of Target common stock will not recognize gain or loss to
the extent the holder receives Parent common stock in exchange for
their Target common stock (except to the extent of any cash
received in lieu of fractional shares of Parent common stock);
(ii) a holder of Target common stock who receives cash in lieu of a
fractional share of Parent common stock will recognize capital
gain or loss in an amount equal to the difference between the
amount of cash received and the holder's tax basis allocable to
the fractional share;
(iii) the aggregate tax basis of the Parent common stock received in
the merger by a Target stockholder will be the same as the
aggregate tax basis of the Target common stock surrendered in
exchange for that Parent common stock reduced by any tax basis
allocable to any fractional share interest for which cash is
received; and
(iv) the holding period of the Parent common stock received in the
merger by a Target stockholder will include the period during
which the stockholder held the Target common stock surrendered in
exchange for that Parent common stock.
The statements regarding United States federal income tax consequences set
forth in the Registration Statement under the heading 'The Merger -- Federal
Income Tax Considerations,' insofar as they constitute statements of law or
legal conclusions, constitute our opinion as to such matters. We express no
opinion as to any federal, state or local, foreign or other tax consequences,
other than as set forth herein or in the Registration Statement under the
heading 'The Merger -- Federal Income Tax Considerations.'
In addition to the assumptions and representations described above, this
opinion is subject to the exceptions, limitations and qualifications set forth
below.
(1) This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published
rulings and procedures. Our opinion is not binding upon the Internal
Revenue Service or the courts, and there is no assurance that the
Internal Revenue Service will not successfully assert a contrary
position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective
or retroactive basis, will not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility
to advise you of any new developments in the application or
interpretation of the federal income tax laws.
(2) No opinion is expressed as to any transaction other than the Merger
(whether or not undertaken in connection with the Merger) or as to any
transaction whatsoever, including
DoubleClick, Inc.
September 28, 2001
Page 3
the Merger, if all the transactions described in the Agreement are not
consummated in accordance with the terms of such Agreement and without
waiver or breach of any material provision thereof or if all of the
statements, representations, warranties and assumptions upon which we
relied are not true and accurate at all relevant times. In the event any
one of the statements, representations, warranties or assumptions upon
which we have relied to issue this opinion is incorrect, our opinion
might be adversely affected and may not be relied upon.
This opinion is rendered to you solely in connection with the filing of the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. We also consent to the references to our
firm name wherever appearing in the Registration Statement with respect to the
discussion of the federal income tax consequences of the Merger, including any
amendments to the Registration Statement. This opinion may not be relied upon
for any other purpose, and may not be made available to any other person,
without our prior written consent.
Very truly yours,
/S/ BROBECK, PHLEGER & HARRISON LLP
BROBECK, PHLEGER & HARRISON LLP
EX-23
6
ex23-3.txt
EXHIBIT 23.3
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Amendment No. 2
to the Registration Statement on Form S-4 of our report dated January 11, 2001,
except as to Note 16 which is as of February 22, 2001, relating to the
consolidated financial statements and financial statement schedule, which
appears on DoubleClick Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2000. We also consent to the references to us under the headings
'Experts' and 'Selected Financial Data' in such Registration Statement.
/s/ [SIGNATURE LOGO]
PricewaterhouseCoopers LLP
New York, New York
October 2, 2001
EX-23
7
ex23-4.txt
EXHIBIT 23.4
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions 'MessageMedia
Summary Historical Financial Data,' 'Selected Financial Data of MessageMedia'
and 'Experts' and to the use of our report dated February 15, 2001 except for
Note 14 as to which the date is February 23, 2001, and except for the third and
fourth paragraphs of Note 1 as to which the date is September 28, 2001 with
respect to the consolidated financial statements of MessageMedia, Inc., included
in the Proxy Statement that is made a part of Amendment No. 2 to the
Registration Statement (Form S-4 No. 333-63952) and related Prospectus of
DoubleClick Inc. to be filed on or about September 28, 2001.
/s/ ERNST & YOUNG LLP
Denver, Colorado
September 28, 2001
EX-23
8
ex23-5.txt
EXHIBIT 23.5
EXHIBIT 23.5
Consent of Independent Auditors
The Board of Directors
NetGravity, Inc. and subsidiaries:
We consent to the incorporation herein by reference in Amendment No. 2 to the
Registration Statement on Form S-4 of DoubleClick Inc. (Amendment No. 2) of our
report dated January 27, 1999, relating to the consolidated statements of
operations, stockholders' equity (deficit), and cash flows of NetGravity, Inc.
and subsidiaries for the year ended December 31, 1998, and the related financial
statement schedule, which report appears in the December 31, 2000, annual report
on Form 10-K of DoubleClick Inc.
We also consent to the reference to our firm under the heading 'Experts' in
Amendment No. 2.
/s/ KPMG LLP
San Francisco, California
October 2, 2001
EX-99
9
ex99-2.txt
EXHIBIT 99.2
EXHIBIT 99.2
CONSENT OF STEPHENS INC.
We hereby consent to the use of our opinion letter dated May 31, 2001 to the
Board of Directors of MessageMedia, Inc. included as Appendix C to the Proxy
Statement/Prospectus which forms a part of Amendment No. 2 to the Registration
Statement on Form S-4 relating to the proposed merger of MessageMedia, Inc. with
and into DoubleClick Inc. and to the references to such opinion in such Proxy
Statement/Prospectus in the President and Chief Executive Officer's letter to
the stockholders, and under the captions 'Summary of the Proxy
Statement/Prospectus -- Opinion of MessageMedia's Financial Advisor,' and 'The
Merger.' In giving such consent, we do not admit and we disclaim that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations issued by the Securities and
Exchange Commission thereunder.
STEPHENS INC.
/s/ RICK MASSEY
.....................................
By: Rick Massey
Title: Managing Director
September 26, 2001
Little Rock, Arkansas