-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IGt6qilSabY9f/t3z/RgeQrKpAc/raULK1I5t+awqNSoMtNRFwwFV90iFhpxzgBa 3O6K4NOpJFhE+bZsw65xOQ== 0001047469-97-007893.txt : 19971217 0001047469-97-007893.hdr.sgml : 19971217 ACCESSION NUMBER: 0001047469-97-007893 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19971216 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOUBLECLICK INC CENTRAL INDEX KEY: 0001049480 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133870996 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-42323 FILM NUMBER: 97738871 BUSINESS ADDRESS: STREET 1: 41 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2126830001 MAIL ADDRESS: STREET 1: 41 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10010 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ DOUBLECLICK INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 7319 13-3870996 (State of (Primary Standard Industrial I.R.S. Employer Incorporation) Classification Code) Identification Number)
41 MADISON AVENUE, 32ND FLOOR NEW YORK, NEW YORK 10010 (212) 683-0001 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ------------------------------ KEVIN J. O'CONNOR CHIEF EXECUTIVE OFFICER DOUBLECLICK INC. 41 MADISON AVENUE, 32ND FLOOR NEW YORK, NEW YORK 10010 (212) 683-0001 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) ------------------------------ COPIES TO: ALEXANDER D. LYNCH, ESQ. MARK G. BORDEN, ESQ. BROBECK, PHLEGER & HARRISON LLP HALE AND DORR LLP 1633 BROADWAY, 47TH FLOOR 60 STATE STREET NEW YORK, NEW YORK 10019 BOSTON, MASSACHUSETTS 02109 (212) 581-1600 (617) 526-6000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2) Common Stock, par value $.001 per share............................... $37,030,000 $12,553
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o). (2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed maximum aggregate offering price. ------------------------ 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 THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED DECEMBER 16, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 2,300,000 SHARES [LOGO] COMMON STOCK (PAR VALUE $.001 PER SHARE) ------------------------ All of the 2,300,000 shares of Common Stock offered hereby are being sold by the Company. Prior to the offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $12.00 and $14.00 per share. For factors to be considered in determining the initial public offering price, see "Underwriting". SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. The Company intends to apply for quotation of the Common Stock on the Nasdaq National Market under the symbol "DCLK". ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO OFFERING PRICE DISCOUNT(1) COMPANY(2) ------------------ ------------------ ------------------ Per Share.......................................... $ $ $ Total(3)........................................... $ $ $
- ------------------------ (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting". (2) Before deducting estimated expenses of $750,000 payable by the Company. (3) The Company has granted the Underwriters an option for 30 days to purchase up to an additional 345,000 shares at the initial public offering price, less the underwriting discount, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount and proceeds to Company will be $ , $ and $ , respectively. See "Underwriting". ------------------------ The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the shares will be ready for delivery in New York, New York on or about , 1998, against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. BT ALEX. BROWN COWEN & COMPANY ---------------- The date of this Prospectus is , 1998 [DEPICTION OF THE COMPANY'S DART TECHNOLOGY AND THE COMPANY'S DOUBLECLICK NETWORK, DART SERVICE AND DOUBLECLICK DIRECT] The Company intends to furnish its stockholders annual reports containing audited consolidated financial statements and quarterly reports containing unaudited consolidated financial information for the first three fiscal quarters of each fiscal year of the Company. ------------------------ CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING". ------------------------ DOUBLECLICK IS A REGISTERED TRADEMARK OF THE COMPANY. DART, DOUBLECLICK NETWORK, DOUBLECLICK DIRECT AND THE DOUBLECLICK LOGO ARE TRADEMARKS OF THE COMPANY. THIS PROSPECTUS CONTAINS OTHER PRODUCT NAMES, TRADE NAMES AND TRADEMARKS OF THE COMPANY AND OF OTHER ORGANIZATIONS, ALL OF WHICH ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS. 2 PROSPECTUS SUMMARY THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) REFLECTS, FOLLOWING RECEIPT OF THE REQUISITE BOARD OF DIRECTORS AND STOCKHOLDER APPROVALS AND UPON THE CLOSING OF THE OFFERING, THE FILING OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY WHICH, AMONG OTHER THINGS, WILL AUTHORIZE 5,000,000 SHARES OF UNDESIGNATED PREFERRED STOCK; (II) REFLECTS, UPON THE CLOSING OF THE OFFERING, THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF THE COMPANY'S CONVERTIBLE PREFERRED STOCK INTO AN AGGREGATE OF 6,234,434 SHARES OF COMMON STOCK (THE "PREFERRED STOCK CONVERSION"); (III) REFLECTS, UPON THE CLOSING OF THE OFFERING, THE CONVERSION OF A CONVERTIBLE PROMISSORY NOTE INTO AN AGGREGATE OF 779,302 SHARES OF COMMON STOCK (THE "NOTE CONVERSION"); AND (IV) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THE INFORMATION IN THIS PROSPECTUS ALSO REFLECTS A 1-FOR-2 REVERSE STOCK SPLIT OF THE COMMON STOCK EFFECTED ON DECEMBER 15, 1997 (THE "REVERSE SPLIT"). SEE "DESCRIPTION OF SECURITIES" AND UNDERWRITING". THE COMPANY DoubleClick is a leading provider of comprehensive Internet advertising solutions for advertisers and Web publishers. The Company's technology and media expertise enable it to dynamically deliver highly targeted, measurable and cost-effective Internet advertising for advertisers and to increase ad sales and improve ad space inventory management for Web publishers. DoubleClick offers three distinct Internet advertising solutions: (i) the DoubleClick Network, a leading Internet advertising network which provides ad delivery and related services to over 60 Web sites, including AltaVista, The Dilbert Zone, Macromedia and U.S. News and World Report; (ii) DoubleClick's DART (Dynamic Advertising Reporting and Targeting) Service, an Internet advertising management solution for Web publishers with internal ad sales forces, which is currently being utilized by over 20 Web publishers, including NBC, THE WALL STREET JOURNAL INTERACTIVE EDITION, RealNetworks and THE SPORTING NEWS; and (iii) DoubleClick Direct, the Company's recently introduced advertising solution designed specifically for direct marketers. DoubleClick's proprietary DART technology provides the platform for the Company's solutions. This technology enables advertisers to optimize ad performance by dynamically targeting and delivering ads to Web users based on pre-selected criteria. As a user visits the Web sites of Web publishers which utilize the Company's solutions, DART collects information regarding the user and his or her viewing activities and ad responses, and applies this data to improve its ability to predict the user's reaction and enhance DART's ad targeting capabilities. The sophisticated tracking and reporting functionality incorporated into DART provides advertisers with accurate measurements of ad performance based on selected criteria. In addition, DART provides Web publishers with sophisticated ad space inventory management capabilities. In November 1997, the Company estimates that more than 20 million users visited the Web sites of Web publishers which utilized the Company's solutions, resulting in an aggregate of over 900 million requests received by DoubleClick for the delivery of ads (impressions). During the same period, DoubleClick managed approximately 7,000 Internet advertisements for over 600 advertisers, and over 100 Web publishers representing an aggregate of approximately 350 Web sites utilized the Company's Internet advertising solutions. The Internet and the Web have enjoyed unprecedented growth in recent years. International Data Corporation ("IDC") estimates that by the end of 1997 there will be over 29 million Web users in the United States and over 50 million users worldwide, and the number of Web users is expected to increase 3 to 72 million in the United States and 129 million worldwide by the end of 2000. According to the Georgia Institute of Technology, in 1997, an estimated 47% of Internet users had a college degree, 67% were between the ages of 18 and 44 and their mean household income was $53,000. The Company believes that advertisers will seek to take advantage of the attractive demographics of Internet users. IDC estimates that the dollar value of Internet advertising in the United States will increase from $551 million in 1997 to $4.0 billion in 2001, representing a 64% compounded annual growth rate. In addition, the Company believes that the Internet represents an attractive new medium for direct marketing, which has traditionally been conducted through direct mail and telemarketing, because highly targeted product offers can be made to consumers at the point-of-sale. Jupiter Communications estimates that revenues from direct marketing over the Internet will exceed $1.3 billion in 2002. As a medium for advertisers and advertising agencies, the Internet offers a number of significant advantages over traditional media which the Company believes will lead to significant increases in overall Internet advertising spending. The Internet provides advertisers with the opportunity to reach highly targeted audiences, aggregate ad purchasing, access international, national and local markets, improve advertising accountability and performance, and provide enhanced direct marketing capabilities. DoubleClick's solutions are designed to enable advertisers to take advantage of these growing opportunities to realize significant economic gain through Internet advertising. Web publishers that attempt to support, or profit from, their Web sites by selling Internet advertising are seeking advertising solutions that enable them to increase Web advertising sales, manage Web advertising operations, and effectively manage ad space inventory. DoubleClick provides Web publishers with three distinct Internet advertising solutions which address these issues. By joining the DoubleClick Network, Web publishers can take advantage of DoubleClick's extensive and experienced ad sales organization and also benefit from the dynamic ad targeting and reporting functionality provided by the DART technology. For Web publishers with internal ad sales organizations seeking a comprehensive turnkey ad management solution, DoubleClick offers its DART Service. Using the recently launched DoubleClick Direct, Web publishers can sell their Web sites' available ad space inventory on a cost-per-action basis to direct marketers. To provide U.S. and foreign advertisers with the ability to deliver their ads in global markets and provide Web publishers in international markets with the ability to outsource their ad sales, technical operations and ad space inventory management, the Company is developing DoubleClick Networks in Australia, Canada and the United Kingdom, and through its business partners, in Japan, Iberoamerica (Spain, Portugal and Latin America) and Scandinavia. To support this initiative, DoubleClick has recently opened sales offices in Australia, Canada and the United Kingdom which offer all of the Company's solutions. The Company was incorporated in Delaware on January 23, 1996 as DoubleClick Incorporated and changed its name to DoubleClick Inc. on May 14, 1996. The Company's principal executive offices are located at 41 Madison Avenue, 32nd Floor, New York, New York 10010, and its telephone number at that location is (212) 683-0001. 4 THE OFFERING Common Stock offered by the Company.................. 2,300,000 shares Common Stock to be outstanding after the offering.... 14,606,343 shares(1) Use of proceeds...................................... For general corporate purposes, including working capital, expansion of international operations and sales and marketing capabilities, and possible acquisitions. See "Use of Proceeds". Proposed Nasdaq National Market symbol............... "DCLK"
- ------------------------ (1) Based on the number of shares of Common Stock outstanding on September 30, 1997. Excludes 1,813,155 shares of Common Stock issuable upon the exercise of stock options outstanding at September 30, 1997, with a weighted average exercise price of $0.66 per share. See "Capitalization", "Management -- Stock Plans", "Description of Securities" and Note 5 of Notes to Consolidated Financial Statements. SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
JANUARY 23, 1996 JANUARY 23, 1996 (INCEPTION) (INCEPTION) NINE MONTHS THROUGH THROUGH ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1996 1996 1997 ----------------- ----------------- -------------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues................................................... $ 6,514 $ 2,665 $ 19,657 Cost of revenues........................................... 3,780 1,179 13,048 Gross profit............................................... 2,734 1,486 6,609 Operating expenses......................................... 5,842 2,937 11,228 Loss from operations....................................... (3,108) (1,451) (4,619) Net loss................................................... $ (3,192) $ (1,491) $ (4,612) -------- ------- -------------- -------- ------- -------------- Pro forma net loss per share(1)............................ $ (0.24) $ (0.32) -------- -------------- -------- --------------
AS OF SEPTEMBER 30, 1997 ------------------------------------------- PRO FORMA ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3) --------- ------------- ----------------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents, and short-term investments.............. $ 12,739 $ 12,739 $ 39,796 Working capital.................................................... 11,199 11,199 38,256 Total assets....................................................... 22,263 22,263 49,320 Convertible note payable to related party.......................... 5,000 -- -- Total stockholders' equity......................................... 7,842 12,842 39,899
- ------------------------ (1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares used to compute pro forma net loss per share. (2) Pro forma to give effect to the Preferred Stock Conversion and the Note Conversion. (3) Adjusted to reflect the sale of 2,300,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share after deducting the underwriting discount and the estimated offering expenses payable by the Company. See "Use of Proceeds". 5 RISK FACTORS THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS PROSPECTUS. EXTREMELY LIMITED OPERATING HISTORY; HISTORY OF LOSSES; ANTICIPATION OF CONTINUED LOSSES The Company was incorporated in January 1996 and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with extremely limited operating histories, particularly companies in the new and rapidly evolving markets for the Internet and Internet services, including the Internet advertising market. There can be no assurance that the Company will be successful in addressing such risks. Although the Company has experienced revenue growth in recent periods, historical growth rates may not be sustained and are not necessarily indicative of future operating results. Given the level of planned operating and capital expenditures, the Company anticipates that it will continue to incur operating losses at least into 1999. There can be no assurance that operating losses will not increase in the future or that the Company will ever achieve or sustain profitability. To the extent that revenues do not grow at anticipated rates, that increases in operating expenses precede or are not subsequently followed by commensurate increases in revenues or that the Company is unable to adjust operating expense levels accordingly, the Company's business, results of operations and financial condition will be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview". WEB PUBLISHER CONCENTRATION; DEPENDENCE ON ALTAVISTA Ads delivered on the Web sites of the top four Web publishers on the DoubleClick Network accounted for approximately 60.0% of the Company's revenues for the nine months ended September 30, 1997. The Company anticipates that a substantial portion of the Company's future revenues will be derived from ads delivered on the Web sites of a limited number of Web publishers. The Company typically enters into short-term contracts with Web publishers for inclusion of their Web sites in the DoubleClick Network. The loss of one or more of the Web sites which account for a significant portion of the Company's revenues from the DoubleClick Network or any reduction in traffic on such Web sites could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the loss of such Web sites may result in the loss of advertisers or Web publishers from the DoubleClick Network, which could have a material adverse effect on the Company's business, results of operations and financial condition. Revenues from advertisements delivered on the AltaVista Web site represented 42.8% of the Company's revenues for the nine months ended September 30, 1997. AltaVista is a significant part of the DoubleClick Network and the Company expects AltaVista to continue to account for a significant portion of the Company's revenues for the next few years. While the stated term of the Company's agreement with AltaVista expires in December 1998, either party may terminate the agreement upon 90 days' prior written notice. Further, any development materially affecting the business or financial condition of AltaVista, including any change in control of AltaVista, a subsidiary of Digital Equipment Corporation, could have a material adverse effect on the Company's relationship with AltaVista. The loss of AltaVista as part of the DoubleClick Network, any reduction in traffic on the AltaVista Web site, or a termination of AltaVista's contract with the Company, would have a material adverse effect on the Company's business, results of operations and financial condition. In addition, given the short-term nature of the AltaVista contract, as is the case with most of the Company's Web publisher contracts, the Company will have to negotiate new contracts or renewals which may have terms that are not as favorable to the 6 Company as the existing contracts, and such renegotiations could have a material adverse effect on the Company's business, results of operations and financial condition. RELIANCE ON THE DOUBLECLICK NETWORK Since the third quarter of 1996, the Company's DoubleClick Network has accounted for substantially all of the Company's revenues. Although the Company recently began providing its DART Service to Web publishers and introduced DoubleClick Direct, the Company expects that revenues generated from advertisements delivered to Web sites on the DoubleClick Network will continue to account for a substantial portion of the Company's revenues for the foreseeable future. The DoubleClick Network consists of Web sites of a limited number of Web publishers that have contracted for the Company's solutions pursuant to short-term agreements. There can be no assurance that such Web publishers will remain associated with the DoubleClick Network, that the Web sites on the DoubleClick Network will maintain consistent or increasing levels of traffic over time, or that the Company will be able to timely or effectively replace any exiting DoubleClick Network Web site with other Web sites with comparable traffic patterns and user demographics. The failure of the Company to successfully market the DoubleClick Network or the failure of the Web sites on the DoubleClick Network to maintain consistent or increasing levels of traffic would have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". DEPENDENCE ON A LIMITED NUMBER OF ADVERTISERS The Company's revenues to date have been derived from a limited number of customers which advertise on the DoubleClick Network and the Company expects that a limited number of advertisers will continue to account for a significant percentage of the Company's revenues for the foreseeable future. In particular, Microsoft accounted for 10.1% of the Company's revenues for the nine months ended September 30, 1997 and the Company's top ten advertisers accounted for an aggregate of 29.7% of the Company's revenues during the same period. Further, advertisements delivered by the Company are typically sold pursuant to purchase order agreements which are subject to cancellation. There can be no assurance that current advertisers will continue to purchase advertising from the Company or that the Company will be able to successfully attract additional advertisers. The loss of one or more of the advertisers that represent a material portion of the revenues generated on the DoubleClick Network could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the non-payment or late payment of amounts due by a significant advertiser could have a material adverse effect on the Company's business, results of operations and financial conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company's results of operations may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond the Company's control. These factors include the addition or loss of advertisers or Web publishers that utilize the Company's solutions, the level of user traffic and number of available impressions on the Web sites on the DoubleClick Network, changes in service fees payable by the Company to Web publishers, the introduction of new Internet advertising solutions by the Company or its competitors, the amount and timing of capital expenditures and other costs relating to the expansion of the Company's operations, the timing and number of new hires, the mix of solutions provided, the mix of domestic and international revenues, the incurrence of costs relating to acquisitions, demand for, and market acceptance of, Internet advertising, seasonal trends in Internet usage and advertising placements, advertisers' budgeting cycles, the commitment of advertising budgets to Internet advertising, changes in pricing models for Internet advertising, and general economic conditions. 7 For the foreseeable future, the Company's revenues will be directly contingent on the level of user traffic and advertising activity on the Web sites on the DoubleClick Network in a given period. Accordingly, future revenues and results of operations are difficult to forecast. The Company plans to continue to significantly increase its operating expenses in order to increase its sales and marketing operations, to continue to expand internationally, to upgrade and enhance its DART technology and to market and support its solutions. To the extent that such expenses precede or are not subsequently followed by increased revenues, the Company's business, results of operations and financial condition would be materially and adversely affected. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and any significant shortfall in revenues in relation to the Company's expectations would have a material adverse effect on the Company's business, results of operations and financial condition. The Company has been, and expects in the future to be, subject to seasonal fluctuations in the amount of Internet advertising revenues generated by the Company, as advertisers historically spend less during the first calendar quarter of each year. Further, additional seasonal patterns in Internet advertising spending and other seasonal fluctuations may emerge as the market matures. Due to all of the foregoing factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Furthermore it is possible that in some future quarters the Company's results of operations may fall below the expectations of securities analysts and investors. In such event, the trading price of the Company's Common Stock would likely be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations" and "Business -- Sales and Marketing". DEVELOPING MARKET; UNPROVEN ACCEPTANCE AND EFFECTIVENESS OF WEB ADVERTISING The market for Internet advertising has only recently begun to develop, is rapidly evolving and is characterized by an increasing number of market entrants. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty. Since the Company expects to derive substantially all of its revenues in the foreseeable future from Internet advertising solutions, the future success of the Company is highly dependent on the increased use of the Internet as an advertising medium. The Internet as an advertising medium has not been available for a sufficient period of time to gauge its effectiveness as compared with traditional advertising media. Most of the Company's current or potential advertising customers have limited or no experience using the Internet as an advertising medium, have not devoted a significant portion of their advertising expenditures to Internet advertising and may not find Internet advertising to be effective for promoting their products and services relative to advertising on traditional media. The adoption of Internet advertising, particularly by those entities that have historically relied upon traditional media for advertising, requires the acceptance of a new way of conducting business and exchanging information. In addition, most of the Company's current and potential Web publisher customers have limited or no experience in generating revenues from the sale of advertising space on their Web sites. There can be no assurance that the market for Internet advertising will continue to emerge or become sustainable. If the market fails to develop or develops more slowly than expected, the Company's business, results of operations and financial condition could be materially and adversely affected. There are no widely accepted standards for the measurement of the effectiveness of Internet advertising, and there can be no assurance that such standards will develop sufficiently to support Internet advertising as a significant advertising medium. There also can be no assurance that the Company's advertising customers will accept the Company's or other third-party measurements of impressions on the Web sites of Web publishers utilizing the Company's solutions, or that such measurements will not contain errors. In addition, the effectiveness of Internet advertising is dependent upon 8 the accuracy of information contained in the databases used to target advertisements. Like any database, there can be no assurance that the information in the Company's database will be accurate or that advertisers will be willing to have advertisements targeted by any database containing such potential inaccuracies. The Company's DART technology uses cookies to limit the frequency with which an ad is shown to the user. Cookies are bits of information keyed to a specific server, file pathway or directory location that are stored on a user's hard drive and passed to a Web site's server through the user's browser software. Cookies are placed on the user's hard drive without the user's knowledge or consent, but can be removed by the user at any time through the modification of the user's browser settings. Due to privacy concerns, some Internet commentators, advocates and governmental bodies have suggested that the use of cookies be limited or eliminated. In addition, certain currently available Internet browsers allow a user to delete cookies or prevent cookies from being stored on the user's hard drive. Any reduction or limitation in the use of cookies could limit the effectiveness of ad targeting by the Company's DART technology. Further, there can be no assurance that advertisers will determine that banner advertising, the delivery of which currently comprises substantially all of the Company's revenues, is an effective or attractive advertising medium, and there can be no assurance that the Company will effectively transition to any other forms of Internet advertising should they develop and achieve market acceptance. Moreover, "filter" software programs that limit or prevent advertising from being delivered to a Web user's computer are available. Widespread adoption of such software by users could have a material adverse effect upon the commercial viability of Internet advertising, which would have a material adverse effect on the Company's business, results of operations and financial condition. UNPROVEN BUSINESS MODEL The Company's business model is to generate revenues solely by providing Internet advertising solutions to advertisers and Web publishers. The profit potential of the Company's business model is unproven, and, to be successful, the Company must, among other things, develop and market solutions that achieve broad market acceptance by advertisers and Web publishers. There can be no assurance that Internet advertising, in general, or the Company's solutions, in particular, will achieve broad market acceptance. The Company's ability to generate significant revenues from advertisers will depend, in part, on the development of a large base of Web publishers that utilize the Company's solutions and have Web sites with adequate available ad space inventory, and whose Web sites generate sufficient user traffic with demographic characteristics that are attractive to such advertisers. Furthermore, there is intense competition among sellers of Internet advertising and a variety of related pricing models have developed, making it difficult to project future levels of advertising revenues and applicable gross margins that can be sustained by the Company or the Internet advertising industry in general. Accordingly, no assurance can be given that the Company's business model will be successful or that it can sustain revenue growth and maintain sufficient gross margins. Market acceptance of DoubleClick Direct will depend, in large part, on the adoption of the Internet as a direct marketing vehicle and the continued emergence of Internet commerce. No assurance can be given that the Company's cost-per-action pricing model for DoubleClick Direct will achieve market acceptance by direct marketers, generate significant revenues, or provide acceptable gross margins. RISK OF SYSTEM FAILURE The Company's solutions utilize its DART technology, which resides on a computer system located at the Company's headquarters in New York City. The continuing and uninterrupted performance of such computer system is critical to the success of the Company's business. Any system failure that causes interruptions in the Company's ability to service its customers, including failures that affect the ability of 9 the Company to deliver advertisements without significant delay to the viewer, could reduce customer satisfaction and, if sustained or repeated, would reduce the attractiveness of the Company's solutions to advertisers and Web publishers. An increase in the volume of advertising delivered through the Company's servers could strain the capacity of the software or hardware deployed by the Company, which could lead to slower response time or system failures. To the extent that any capacity constraints are not effectively addressed by the Company, such constraints would have a material adverse effect on the Company's business, results of operations and financial condition. The Company's operations are dependent upon its ability to protect its computer systems against damage from fire, power loss, telecommunications failures, vandalism and other malicious acts, and similar unexpected adverse events. In addition, failure of the Company's telecommunications providers to provide the data communications capacity in the time frame required by the Company for any reason could cause interruptions in the solutions provided by the Company. Despite precautions taken by the Company, unanticipated problems affecting the Company's systems have from time to time in the past caused, and in the future could cause, interruptions in the delivery of the Company's solutions. The Company is currently in the planning stages of acquiring and implementing a back-up, off-site system capable of supporting its operations in the event of a system failure at its headquarters. The Company plans to have such system operational during the first half of 1998. Any damage or failure that interrupts or delays the Company's operations could have a material adverse effect on the Company's business, results of operations and financial condition. COMPETITION The markets for Internet advertising and related products and services are intensely competitive and such competition is expected to continue to increase. There are no substantial barriers to entry in this market and the Company believes that its ability to compete depends upon many factors within and beyond its control, including the timing and market acceptance of new solutions and enhancements to existing solutions developed by the Company and its competitors, customer service and support, sales and marketing efforts, and the ease of use, performance, price and reliability of the Company's solutions. The Company competes for Internet advertising revenues with large Web publishers and Web search engine companies, such as America Online, Yahoo!, Excite and Infoseek. Further, the DoubleClick Network competes with a variety of Internet advertising networks. In marketing the DoubleClick Network and its DART Service to Web publishers, the Company also competes with providers of ad servers and related services, including NetGravity. The Company also encounters competition from a number of other sources, including content aggregation companies, companies engaged in advertising sales networks, advertising agencies, and other companies which facilitate Internet advertising. Many of the Company'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 the Company. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products and services than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, strategic partners, advertisers and Web publishers. Further, there can be no assurance that the Company's competitors will not develop Internet products or services that are equal or superior to the solutions developed by the Company or that achieve greater market acceptance than the Company's solutions. The Company also expects that competition may increase as a result of industry consolidation. 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 10 to address the needs of the Company's prospective advertising and Web publisher customers. Accordingly, it is possible that new competitors or alliances among existing or potential competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that the Company will be able to compete successfully against existing or potential competitors or that competitive pressures will not have a material adverse effect on the Company's business, results of operations and financial condition. The Internet, in general, and the Company, in particular, also must compete for a share of advertisers' total advertising budgets with traditional advertising media such as television, radio, cable and print. To the extent that the Internet is perceived to be a limited or ineffective advertising medium, advertisers may be reluctant to devote a significant portion of their advertising budget to Internet advertising, which could limit the growth of Internet advertising and would have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Competition". MANAGEMENT OF GROWTH The Company has experienced rapid growth in its operations. This rapid growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational and financial resources. The Company has grown from 13 employees as of March 31, 1996 to 171 employees as of December 1, 1997. The Company expects that the number of its employees will continue to increase for the foreseeable future, including the hiring of a new Chief Financial Officer and other additional officers. Furthermore, the Company must continue to improve its financial and management controls, reporting systems and procedures, and expand, train and manage its work force. There can be no assurance that the Company's systems, procedures or controls will be adequate to support the Company's expanding operations or that Company management will be able to achieve the rapid execution necessary to successfully offer its solutions and implement its business plan. The Company's future results of operations will also depend on its ability to expand its sales and marketing and customer support organizations both domestically and internationally. The failure of the Company to manage its growth effectively would have a material adverse effect on the Company's business, results of operations and financial condition. DEPENDENCE ON KEY PERSONNEL The Company's future success depends, in significant part, upon the continued service of its key technical, sales and senior management personnel, particularly Kevin J. O'Connor, Chief Executive Officer and Chairman of the Board of Directors, Kevin P. Ryan, President and Chief Financial Officer, Dwight A. Merriman, Chief Technical Officer, Wenda Harris Millard, Executive Vice President, Marketing and Sales, John L. Heider, Vice President of Engineering, and Barry M. Salzman, Vice President, International, none of whom has entered into an employment agreement with the Company. The loss of the services of one or more of the Company's key personnel could have a material adverse effect on the Company's business, results of operations and financial condition. The Company's future success also depends on its continuing ability to attract and retain highly qualified technical, sales and marketing, customer support, financial and accounting, and managerial personnel. Competition for such personnel in the Internet industry is intense, and there can be no assurance that the Company will be able to retain its key personnel or that it can attract, assimilate or retain other highly qualified personnel in the future. The Company has from time to time in the past experienced, and expects to continue to experience in the future, difficulty in hiring and retaining candidates with appropriate qualifications. See "Management". 11 DEPENDENCE ON THE WEB INFRASTRUCTURE The Company'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. To the extent that the Web continues to experience increased numbers of users, frequency of use or increased bandwidth requirements of users, there can be no assurance that the Web infrastructure will continue to be able to support the demands placed on it or that the performance or reliability of the Web will not be adversely affected. Furthermore, the Web has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and such outages and delays could adversely affect the Web sites of Web publishers utilizing the Company's solutions and the level of traffic on such Web sites on the DoubleClick Network. In addition, the Web could lose its viability as a form of media due to delays in the development or adoption of new standards and protocols (for example, the next-generation Internet protocol) that can handle increased levels of activity. There can be no assurance that the infrastructure or complementary products or services necessary to establish and maintain the Web as a viable commercial medium will be developed, or, if they are developed, that the Web will become a viable commercial medium for advertisers. If the necessary infrastructure, standards or protocols or complementary products, services or facilities are not developed, or if the Web does not become a viable commercial medium, the Company's business, results of operations and financial condition will be materially and adversely affected. Even if such infrastructure, standards or protocols or complementary products, services or facilities are developed, there can be no assurance that the Company will not be required to incur substantial expenditures in order to adapt its solutions to changing or emerging technologies, which could have a material adverse effect on the Company's business, results of operations and financial condition. Moreover, critical issues concerning the commercial use and government regulation of the Internet (including security, cost, ease of use and access, intellectual property ownership and other legal liability issues) remain unresolved and could materially and adversely impact both the growth of the Internet and the Company's business, results of operations and financial condition. DEPENDENCE ON PROPRIETARY RIGHTS; RISK OF INFRINGEMENT The Company regards its intellectual property as critical to its success, and the Company relies upon patent, trademark, copyright and trade secret laws in the United States and other jurisdictions to protect its proprietary rights. The Company has filed one patent application with the United States Patent and Trademark Office to protect certain aspects of its DART technology. The Company pursues the protection of its trademarks by applying to register the trademarks in the United States and (based upon anticipated use) internationally, and is the owner of a registration for the DOUBLECLICK trademark in the United States. There can be no assurance that any of the Company's trademark registrations or patent applications will be approved or granted and, if they are granted, that they will not be successfully challenged by others or invalidated through administrative process or litigation. Further, if the Company's trademark registrations are not approved or granted due to the prior issuance of trademarks to third parties or for other reasons, there can be no assurance that the Company would be able to enter into arrangements with such third parties on commercially reasonable terms allowing the Company to continue to use such trademarks. Patent, trademark, copyright and trade secret protection may not be available in every country in which the Company's solutions are distributed or made available. In addition, the Company seeks to protect its proprietary rights through the use of confidentiality agreements with employees, consultants, advisors and others. There can be no assurance that such agreements will provide adequate protection for the Company's proprietary rights in the event of any unauthorized use or disclosure, that employees of the Company, consultants, advisors or others will maintain the confidentiality of such proprietary information, or that such proprietary information will not otherwise become known, or be independently developed, by competitors. The Company's DART technology 12 collects and utilizes data derived from user activity on the DoubleClick Network and the Web sites of Web publishers using the Company's solutions. This data is used for ad targeting and predicting ad performance. Although the Company believes that it has the right to use such data and the compilation of such data in the Company's database, there can be no assurance that any trade secret, copyright or other protection will be available for such information or that others will not claim rights to such information. Further, pursuant to its contracts with Web publishers using the Company's solutions, the Company is obligated to keep certain information regarding the Web publisher confidential. The Company has licensed in the past, and expects that it may license in the future, elements of its trademarks, trade dress and similar proprietary rights to third parties, including in connection with the establishment of its international business relationships which may be controlled operationally by such third parties. While the Company attempts to ensure that the quality of its brand is maintained by such business partners, no assurances can be given that such partners will not take actions that could materially and adversely affect the value of the Company's proprietary rights or the reputation of its solutions and technologies. The Company currently licenses certain aspects of its predictive modeling technologies from a third party. The failure by the Company to maintain this license, or to find a replacement for such technology in a timely and cost-effective manner, could have a material adverse effect on the Company's business, results of operations and financial condition. Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in Internet-related industries are uncertain and still evolving, and no assurance can be given as to the future viability or value of any proprietary rights of the Company or other companies within the industry. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that third parties will not infringe or misappropriate the Company's proprietary rights. Any such infringement or misappropriation, should it occur, could have a material adverse effect on the Company's business, results of operations and financial condition. Furthermore, there can be no assurance that the Company's business activities will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against the Company. From time to time the Company has been, and expects to continue to be, subject to claims in the ordinary course of its business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by the Company and its business partners. Although such claims have not resulted in litigation or had a material adverse effect on the Company's business, results of operations or financial condition, such claims and any resultant litigation, should it occur, could subject the Company to significant liability for damages and could result in invalidation of the Company's proprietary rights and, even if not meritorious, could be time-consuming and expensive to defend, and could result in the diversion of management time and attention, any of which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Intellectual Property". RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE The market in which the Company competes is characterized by rapidly changing technology, evolving industry standards, frequent new product and service announcements, introductions and enhancements, and changing customer demands. These market characteristics are heightened by the emerging nature of the Web and Internet advertising. Accordingly, the Company's future success will depend on its ability to adapt to rapidly changing technologies, its ability to adapt its solutions to meet evolving industry standards and its ability to continually improve the performance, features and reliability of its solutions in response to both changing customer demands and competitive product and service offerings. The failure of the Company to successfully adapt to such changes in a timely manner could have a material adverse effect on the Company's business, results of operations and financial condition. Furthermore, there can be no assurance that the Company will not experience difficulties that could delay or prevent the successful design, development, testing, introduction or marketing of solutions, or 13 that any new solutions or enhancements to existing solutions will adequately meet the requirements of its current and prospective customers and achieve any degree of significant market acceptance. If the Company is unable, for technological or other reasons, to develop and introduce new solutions or enhancements to existing solutions in a timely manner or in response to changing market conditions or customer requirements, or if its solutions or enhancements contain errors or do not achieve a significant degree of market acceptance, the Company's business, results of operations and financial condition would be materially and adversely affected. RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION The Company has recently commenced operations in a number of international markets and a component of the Company's strategy is to continue to expand its international operations and international sales and marketing efforts. To date, the Company has limited experience in developing localized versions of its solutions and in marketing, selling and distributing its solutions internationally. There can be no assurance that the Company will be able to successfully market, sell and deliver its solutions in these markets. In Japan, Iberoamerica (Spain, Portugal and Latin America) and Scandinavia, the Company is relying on its business partners for conducting operations, establishing local networks, aggregating Web publishers and coordinating sales and marketing efforts. The Company's agreements with its business partners have terms ranging from two to four years. Accordingly, the Company's success in such markets is directly dependent on the success of its business partners in such activities. No assurance can be given that such business partners will be successful or that such business partners will dedicate sufficient resources to the business relationship. The failure of the Company's business partners to successfully establish operations and sales and marketing efforts in such markets could have a material adverse effect on the Company's business, results of operations and financial condition. There are certain risks inherent in doing business in international markets, such as unexpected changes in regulatory requirements, potentially adverse tax consequences, export restrictions, export controls relating to encryption technology, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, political instability, fluctuations in currency exchange rates, and seasonal reductions in business activity during the summer months in Europe and certain other parts of the world, any of which could have a material adverse effect on the success of the Company's international operations and, consequently, on the Company's business, results of operations and financial condition. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES Due to concerns arising in connection with the increasing popularity and use of the Web, a number of laws and regulations may be adopted covering issues such as user privacy, pricing, characteristics, acceptable content, taxation and quality of products and services. Such legislation could dampen the growth in use of the Web generally and decrease the acceptance of the Web as a communications and commercial medium, which could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, because the growing popularity and use of the Web has burdened the existing telecommunications infrastructure and many areas with high Web use have begun to experience interruptions in phone service, certain local telephone carriers have petitioned governmental bodies to regulate Internet service providers ("ISPs") and online service providers ("OSPs") in a manner similar to long distance telephone carriers and to impose access fees on ISPs and OSPs. If any of these petitions or the relief sought therein is granted, the costs of communicating on the Web could increase substantially, potentially adversely affecting the growth in use of the Web. Further, due to the global nature of the Web, it is possible that, although transmissions relating to the Company's solutions originate in the State of New York, the governments of other states or foreign countries might attempt to regulate the Company's transmissions or levy sales or other taxes relating to the Company's activities. There can be no assurance that violations of local laws will not be alleged or charged by state 14 or foreign governments, that the Company might not unintentionally violate such laws or that such laws will not be modified, or new laws enacted, in the future. Any of the foregoing developments could have a material adverse effect on the Company's business, results of operations and financial condition. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Sales of significant amounts of Common Stock in the public market after the offering or the perception that such sales will occur could materially and adversely affect the market price of the Common Stock or the future ability of the Company to raise capital through an offering of its equity securities. Of the 14,631,968 shares of Common Stock to be outstanding upon the closing of the offering, the 2,300,000 shares offered hereby will be eligible for immediate sale in the public market without restriction unless the shares are purchased by "affiliates" of the Company within the meaning of Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 12,331,968 shares of Common Stock held by existing stockholders upon the closing of the offering will be "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act. The Company's directors and officers and certain of its stockholders have agreed that they will not sell, directly or indirectly, any Common Stock without the prior consent of the representatives of the Underwriters for a period of 180 days from the date of this Prospectus. Subject to these lock-up agreements and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market (subject in the case of shares held by affiliates to compliance with certain volume restrictions) as follows: (i) 155,250 shares will be eligible for sale 90 days after the date of this Prospectus and (ii) 12,180,571 shares will be eligible for sale upon the expiration of lock-up agreements 180 days after the date of this Prospectus, including 783,163 shares issuable upon the exercise of outstanding stock options. The remaining shares will be eligible for sale in the public market from time to time after the expiration of the lock-up agreements. In addition, certain stockholders, representing approximately 11,552,658 shares of Common Stock, and certain optionholders, with respect to an aggregate of 2,048,105 shares of Common Stock issuable upon the exercise of stock options, have the right, subject to certain conditions, to include their shares in future registration statements relating to the Company's securities and/or to cause the Company to register certain shares of Common Stock owned by them. After the date of this Prospectus, the Company intends to file a Form S-8 registration statement under the Securities Act to register all shares of Common Stock issuable under the Company's 1997 Stock Incentive Plan. Such registration statement is expected to become effective immediately upon filing, and shares covered by that registration statement will thereupon be eligible for sale in the public markets, subject to certain lock-up agreements and Rule 144 limitations applicable to affiliates. See "Management -- Stock Plans", "Description of Securities -- Registration Rights", "Shares Eligible for Future Sale" and "Underwriting". NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the offering, there has been no public market for the Common Stock. Accordingly, there can be no assurance that an active trading market for the Common Stock will develop or be sustained upon the closing of the offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined by negotiations between the Company and the representatives of the Underwriters. See "Underwriting". The trading price of the Company's Common Stock could be subject to wide fluctuations in response to variations in quarterly results of operations, the gain or loss of significant advertisers or Web publisher customers, changes in earning estimates by analysts, announcements of technological innovations or new solutions by the Company or its competitors, general conditions in Internet-related industries and other events or factors, many of which are beyond the Company's control. In addition, the 15 stock market in general has experienced extreme price and volume fluctuations which have affected the market price for many companies in industries similar or related to that of the Company and which have been unrelated to the operating performance of these companies. These market fluctuations may have a material adverse effect on the market price of the Company's Common Stock. CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS Upon the closing of the offering, the directors and executive officers and their affiliates will beneficially own approximately 58.0% of the outstanding Common Stock (56.7% if the Underwriters' over-allotment option is exercised in full). As a result, these stockholders will be able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of the Company. See "Management" and "Principal Stockholders". ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAWS AND DELAWARE LAW PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK Upon receipt of the requisite Board of Directors and stockholder approvals, and following the closing of the offering, the Company's Board of Directors will have the authority to issue up to 5,000,000 shares of Preferred Stock without any further vote or action by the stockholders, and to determine the price, rights, preferences, privileges and restrictions, including voting rights of such shares. Since the Preferred Stock could be issued with voting, liquidation, dividend and other rights superior to those of the Common Stock, the rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any such Preferred Stock. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. Further, certain provisions of the Company's Certificate of Incorporation, including provisions that create a classified Board of Directors, and certain provisions of the Company's Bylaws and of Delaware law could have the effect of delaying or preventing a change in control of the Company. See "Description of Securities -- Anti-Takover Effects of Certain Provisions of Delaware Law and the Company's Certificate of Incorporation and Bylaws". DILUTION Investors purchasing shares of Common Stock in the offering will incur immediate and substantial dilution in net tangible book value per share. To the extent outstanding options to purchase Common Stock are exercised, there will be further dilution. See "Dilution". 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,300,000 shares of Common Stock offered pursuant to the offering are estimated to be approximately $27.1 million ($31.2 million if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $13.00 per share and after deducting the underwriting discount and estimated offering expenses payable by the Company. The primary purposes of the offering are to create a public market for the Common Stock, to facilitate the Company's future access to public equity markets and to obtain additional working capital. The Company intends to use the net proceeds of the offering for general corporate purposes, including working capital, and for the expansion of its international operations and sales and marketing capabilities. In addition, the Company may use a portion of the net proceeds of the offering to acquire or invest in complementary businesses, technologies, services or products, although there are no current agreements or negotiations with respect to any such acquisitions, investments or other transactions. Pending such uses, the net proceeds will be invested in short-term, investment grade instruments, certificates of deposit or direct or guaranteed obligations of the United States. DIVIDEND POLICY The Company has not declared or paid any cash dividends on its capital stock since inception and does not expect to pay any cash dividends for the foreseeable future. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. 17 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1997, (i) on an actual basis, (ii) on a pro forma basis to reflect the Preferred Stock Conversion and the Note Conversion, and (iii) on a pro forma basis as adjusted to give effect to the sale of 2,300,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share after deducting the underwriting discount and estimated offering expenses payable by the Company. This information should be read in conjunction with the Company's Consolidated Financial Statements and the related Notes thereto appearing elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1997 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ---------- ----------- ------------ (IN THOUSANDS) Convertible note payable to related party................................. $ 5,000 $ -- $ -- Stockholders' equity: Convertible Preferred Stock, $.001 par value, 40,000 shares authorized; 40,000 shares issued and outstanding on an actual basis; no shares issued and outstanding on a pro forma or pro forma as adjusted basis................................................................. -- -- -- Preferred Stock, $.001 par value, 5,000,000 shares authorized; no shares issued and outstanding on an actual, pro forma or pro forma as adjusted basis........................................................ -- -- -- Common Stock, $.001 par value, 60,000,000 shares authorized; 5,292,607 shares issued and outstanding on an actual basis; 12,306,343 shares issued and outstanding on a pro forma basis; and 14,606,343 shares issued and outstanding on a pro forma as adjusted basis(1)....................... 5 12 15 Additional paid-in capital................................................ 41,989 46,982 74,036 Deferred compensation..................................................... (1,351) (1,351) (1,351) Accumulated deficit(2).................................................... (32,801) (32,801) (32,801) ---------- ----------- ------------ Total stockholders' equity................................................ 7,842 12,842 39,899 ---------- ----------- ------------ Total capitalization.................................................... $ 12,842 $ 12,842 $ 39,899 ---------- ----------- ------------ ---------- ----------- ------------
- ------------------------ (1) Excludes (a) 1,813,155 shares of Common Stock issuable upon the exercise of stock options outstanding at September 30, 1997, with a weighted average exercise price of $0.66 per share, of which options to purchase 348,147 shares were then exercisable, and (b) 1,186,845 shares reserved for issuance under the Company's 1997 Stock Incentive Plan. See "Management -- Stock Plans", "Description of Securities" and Note 5 of Notes to Consolidated Financial Statements. (2) Consists of $7.8 million of cumulative losses and $25.0 million related to the redemption of shares of Common Stock from certain stockholders in connection with the recapitalization of the Company that occurred simultaneously with the issuance of Convertible Preferred Stock to new investors in June 1997. See "Certain Transactions" and Note 5 of Notes to Consolidated Financial Statements. 18 DILUTION The pro forma net tangible book value of the Company's Common Stock as of September 30, 1997 was $12.8 million, or $1.04 per share of Common Stock, after giving effect to the Preferred Stock Conversion and the Note Conversion. Pro forma net tangible book value per share is equal to the amount of the Company's total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding as of September 30, 1997. Assuming the sale by the Company of 2,300,000 shares of Common Stock offered hereby at an assumed initial public offering price of $13.00 per share and the application of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company as of September 30, 1997 would have been $39.9 million, or $2.73 per share of Common Stock. This represents an immediate increase in pro forma net tangible book value of $1.69 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $10.27 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............................. $ 13.00 Pro forma net tangible book value per share as of September 30, 1997.... $ 1.04 Pro forma increase per share attributable to new investors.............. 1.69 --------- Pro forma net tangible book value per share after the offering.............. 2.73 --------- Pro forma dilution per share to new investors............................... $ 10.27 --------- ---------
The following table summarizes, on a pro forma basis as of September 30, 1997, after giving effect to the Preferred Stock Conversion and the Note Conversion, the total number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid by existing stockholders and by new investors:
SHARES PURCHASED TOTAL CONSIDERATION -------------------------- --------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ------------- ----------- -------------- ----------- -------------- Existing stockholders (1).................... 12,306,343 84.3% $ 45,618,963 60.4% $ 3.71 New investors................................ 2,300,000 15.7 29,900,000 39.6 13.00 ------------- ----- -------------- ----- Total.................................... 14,606,343 100.0% $ 75,518,963 100.0% $ 5.17 ------------- ----- -------------- ----- ------- ------------- ----- -------------- ----- -------
- ------------------------ (1) Excludes (a) 1,813,155 shares of Common Stock issuable upon the exercise of stock options outstanding at September 30, 1997, having with a weighted average exercise price of $0.66 per share, of which options to purchase 348,147 shares were then exercisable, and (b) 1,186,845 shares reserved for issuance under the Company's 1997 Stock Incentive Plan. See "Management -- Stock Plans", "Description of Securities" and Note 5 of Notes to Consolidated Financial Statements. 19 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below with respect to the Company's Consolidated Statement of Operations for the period from January 23, 1996 (inception) through December 31, 1996 and with respect to the Company's Consolidated Balance Sheet as of December 31, 1996 are derived from the audited Consolidated Financial Statements of the Company which are included elsewhere in this Prospectus and are qualified by reference to such Consolidated Financial Statements and the related Notes thereto. The consolidated statement of operations data for the nine months ended September 30, 1997 and the consolidated balance sheet data as of September 30, 1997 are derived from unaudited Consolidated Financial Statements included elsewhere in this Prospectus. The selected consolidated statement of operations data for the period from January 23, 1996 (inception) through September 30, 1996 are derived from unaudited Consolidated Financial Statements not included elsewhere in this Prospectus. The unaudited Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for the fair presentation of its consolidated financial position and the consolidated results of its operations for those periods. Results of operations for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the entire year or for any future period. The selected consolidated financial data set forth below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and the related Notes thereto included elsewhere in this Prospectus.
JANUARY 23, 1996 JANUARY 23, 1996 (INCEPTION) (INCEPTION) NINE MONTHS THROUGH THROUGH ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1996 1996 1997 ------------------- --------------------- --------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues......................................... $ 6,514 $ 2,665 $ 19,657 Cost of revenues................................. 3,780 1,179 13,048 -------- ------- -------- Gross profit................................... 2,734 1,486 6,609 Operating expenses: Sales and marketing............................ 3,079 1,473 6,606 General and administrative..................... 2,145 1,127 3,607 Product development............................ 618 337 1,015 -------- ------- -------- Total operating expenses..................... 5,842 2,937 11,228 -------- ------- -------- Loss from operations............................. (3,108) (1,451) (4,619) Net loss......................................... $ (3,192) $ (1,491) $ (4,612) -------- ------- -------- -------- ------- -------- Pro forma net loss per share (1)................. $ (0.24) $ (0.32) -------- -------- -------- -------- Pro forma weighted average shares used in per share calculation(1)(2)........................ 13,403 14,449 -------- -------- -------- --------
DECEMBER 31, SEPTEMBER 30, 1996 1997 --------------- --------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents, and short-term investments............................ $ -- $ 12,739 Working capital (deficit)........................................................ (3,038) 11,199 Total assets..................................................................... 4,526 22,263 Convertible note payable to related party........................................ -- 5,000 Total stockholders' equity (deficit)............................................. (2,592) 7,842
- ------------------------ (1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares used to compute pro forma net loss per share. (2) See Note 5 of Notes to Consolidated Financial Statements for a description of the Company's recapitalization which occurred in June 1997. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. OVERVIEW DoubleClick is a leading provider of comprehensive Internet advertising solutions for advertisers and Web publishers. The Company offers three distinct Internet advertising solutions: (i) the DoubleClick Network, launched in March 1996; (ii) DoubleClick's DART Service, marketed to Web publishers since January 1997; and (iii) DoubleClick Direct, an Internet-based direct marketing solution introduced on a limited basis in September 1997. DoubleClick's proprietary DART technology, which dynamically matches and delivers ads to a target audience within milliseconds, is the platform for all of the Company's solutions. The Company was formed in January 1996 through the contribution of assets by Kevin J. O'Connor, the Company's Chief Executive Officer, Dwight A. Merriman, the Company's Chief Technical Officer, and the DoubleClick Division of Poppe Tyson, a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Poppe Tyson"). The Company has grown from 13 employees as of March 31, 1996 to 171 employees as of December 1, 1997. From January 23, 1996 (inception) through May 1996, the Company's operating activities related primarily to developing the DART technology and the DoubleClick Network, and recruiting personnel. During the same period, substantially all of the Company's revenues resulted from Internet advertising sales on a commission basis on behalf of the Netscape and Excite Web sites. For the period from January 23, 1996 (inception) through December 31, 1996, such commissions constituted 16.5% of the Company's revenues. All ads sold on behalf of the Netscape and Excite Web sites were delivered directly by such entities, as their Web sites were not on the DoubleClick Network. The Company no longer arranges for the placement of advertisements on a commission basis. Beginning in the fourth quarter of 1996, revenues from advertisements delivered on the DoubleClick Network became a more significant portion of revenues and, since the addition of the AltaVista Web site to the DoubleClick Network in late December 1996, the Company has derived substantially all of its revenues from the DoubleClick Network. The Company offers advertising on the DoubleClick Network to third party advertisers with pricing determined on a CPM (cost per thousand ads delivered) basis. Discounts are offered based on a variety of factors, including the duration and gross dollar amount of advertising campaigns. Advertisements delivered by the Company are typically sold pursuant to purchase order agreements which are subject to cancellation. The Company's revenues are received from the advertiser that orders the ad, and the Company pays the Web publisher on whose Web site such advertisement is delivered a service fee calculated as a percentage of such revenues, which amount is included in cost of revenues. The Company is responsible for billing and collecting for ads delivered on the DoubleClick Network and typically assumes the risk of non-payment from advertisers. In addition, the Company earns service fees for providing the DART Service to Web publishers. DoubleClick Direct advertising is priced on a "cost-per-click", "cost-per-lead" and "cost-per-sale or download" basis. To date, revenues from DoubleClick's DART Service and DoubleClick Direct have not been significant. Advertising revenues are recognized in the period that the advertisement is delivered, provided that no significant obligations remain and collection of the resulting receivable is probable. The Company has recently started to sell sponsorship advertising, which involves a greater degree of integration among the Company, the advertiser and the Web sites on the DoubleClick Network. These sponsorships 21 are typically priced based on the length of time that the sponsorship runs, rather than a CPM basis. Revenues relating to sponsorship advertising are recognized ratably over the sponsorship period. The Company expects that revenues generated from the DoubleClick Network will continue to account for a substantial portion of the Company's revenues for the foreseeable future. Moreover, ads delivered on the Web sites of the top four Web publishers on the DoubleClick Network accounted for approximately 60.0% of the Company's revenues for the nine months ended September 30, 1997. The Company typically enters into short-term contracts with Web publishers for inclusion of their Web sites in the DoubleClick Network. The failure to successfully market the DoubleClick Network, the loss of one or more of the Web sites which account for a significant portion of the Company's revenues from the DoubleClick Network, or any reduction in traffic on such Web sites could have a material adverse effect on the Company's business, results of operations and financial condition. In December 1996, the Company entered into an agreement with Digital Equipment Corporation to be the exclusive third-party provider of advertising services on specified pages within the AltaVista Web site. While the stated term of the agreement expires in December 1998, either party may terminate the agreement upon 90 days' prior written notice. DoubleClick pays AltaVista a service fee calculated as a percentage of the revenues derived from delivery of advertisements on the AltaVista Web site, which percentage is subject to adjustment from time to time based on the achievement of certain quarterly revenue goals. Revenues from advertisements delivered on the AltaVista Web site were $8.5 million, or 42.8% of the Company's revenues for the nine months ended September 30, 1997. AltaVista is a significant part of the DoubleClick Network and is expected to continue to account for a significant portion of the Company's revenues for the next few years. The loss of AltaVista as part of the DoubleClick Network, any reduction in traffic on the AltaVista Web site, or a termination of AltaVista's contract with the Company, would have a material adverse effect on the Company's business, results of operations and financial condition. The Company has incurred significant losses since its inception, and as of September 30, 1997 had an accumulated deficit of $32.8 million, of which $7.8 million related to cumulative losses and $25.0 million related to the redemption of shares of Common Stock from certain stockholders in connection with the recapitalization of the Company that occurred simultaneously with the issuance of Convertible Preferred Stock to new investors in June 1997. In addition, the Company has recorded deferred compensation of $1.5 million, which represents the difference between the exercise price and the fair market value of the Company's Common Stock issuable upon the exercise of certain stock options granted to employees. Of the total deferred compensation amount, $0.2 million was amortized during the nine months ended September 30, 1997. The remaining deferred compensation amount will be amortized over the remaining vesting periods of the related options. The Company believes that period-to-period comparisons of its operating results are not meaningful and that the results for any period should not be relied upon as an indication of future performance. The Company currently expects to significantly increase its operating expenses in order to expand its sales and marketing operations, to continue to expand internationally, to upgrade and enhance its DART technology and to market and support its solutions. As a result of these factors, there can be no assurance that the Company will not incur significant losses on a quarterly and annual basis for the foreseeable future. 22 RESULTS OF OPERATIONS The following table sets forth consolidated statement of operations data for the periods indicated as a percentage of revenues:
PERIOD FROM PERIOD FROM JANUARY 23, 1996 JANUARY 23, 1996 (INCEPTION) (INCEPTION) NINE MONTHS THROUGH THROUGH ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1996 1996 1997 --------------------- --------------------- --------------------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues......................................... 100.0% 100.0% 100.0% Cost of revenues................................. 58.0 44.2 66.4 ----- ----- ----- Gross profit................................... 42.0 55.8 33.6 Operating expenses: Sales and marketing............................ 47.3 55.3 33.6 General and administrative..................... 32.9 42.3 18.4 Product development............................ 9.5 12.6 5.2 ----- ----- ----- Total operating expenses..................... 89.7 110.2 57.2 ----- ----- ----- Loss from operations............................. (47.7)% (54.4 )% (23.6 )% ----- ----- ----- ----- ----- -----
REVENUES The Company's revenues are derived primarily from the delivery of advertisements on the Web sites of Web publishers on the DoubleClick Network. Revenues increased from $2.7 million for the period from January 23, 1996 (inception) through September 30, 1996 to $19.7 million for the nine months ended September 30, 1997. During the period from January 23, 1996 (inception) through September 30, 1996, $1.0 million of the Company's revenues were derived from commissions received from the sale of advertising that was placed on the Web sites of Netscape and Excite. Revenues recognized from commissions for the nine months ended September 30, 1997 were not material and the Company no longer expects to recognize revenues on a commission basis. The increase in revenues was due primarily to an increase in the number of advertisers and ads delivered on the DoubleClick Network, and to the addition of the AltaVista Web site to the DoubleClick Network in December 1996. Revenues earned during the nine months ended September 30, 1997 from advertisements delivered on the AltaVista Web site were $8.5 million, or 42.8% of revenues. AltaVista is a significant part of the DoubleClick Network and is expected to continue to account for a significant portion of the Company's revenues for the next few years. For the nine months ended September 30, 1997, only one advertiser, Microsoft, accounted for approximately 10.1% of revenues. To date, the Company has not derived significant revenues from its DART Service, DoubleClick Direct or international operations. COST OF REVENUES Cost of revenues consists primarily of service fees paid to Web publishers calculated as a percentage of revenues resulting from ads delivered to the Web sites on the DoubleClick Network. Cost of revenues also includes other costs of delivering advertisements, including depreciation of the ad delivery system and Internet access costs. Gross margins were 55.8% and 33.6% for the period from January 23, 1996 (inception) through September 30, 1996 and for nine months ended September 30, 1997, respectively. Gross margins decreased in 1997 due to the shift in the Company's revenue mix away from the sale of advertisements on a commission basis on behalf of the Web sites of Netscape and Excite. 23 OPERATING EXPENSES SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries, commissions, advertising, maintenance of DoubleClick's Web site, trade show expenses, seminars and costs of marketing materials. Sales and marketing expenses were $1.5 million and $6.6 million for the period from January 23, 1996 (inception) through September 30, 1996 and for the nine months ended September 30, 1997, respectively, or 55.3% and 33.6% of revenues, respectively. The increase in absolute dollars was due primarily to the increase in sales personnel, commissions and costs related to the continued development and implementation of the Company's marketing and branding campaigns. The Company expects sales and marketing expenses to increase significantly on an absolute dollar basis but remain relatively constant as a percentage of revenues as the Company hires additional personnel, expands into new markets and continues to promote the DoubleClick brand. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of salaries and fees for professional services. General and administrative expenses were $1.1 million and $3.6 million for the period from January 23, 1996 (inception) through September 30, 1996 and for the nine months ended September 30, 1997, respectively, or 42.3% and 18.4% of revenues, respectively. The increase in absolute dollars was primarily a result of expenses related to increased personnel, professional service fees and facility expenses necessary to support the Company's domestic and international growth. The Company expects general and administrative expenses to increase on an absolute dollar basis but decrease as a percentage of revenues as the Company hires additional personnel and incurs additional costs related to the growth of its business and its operations as a public company. PRODUCT DEVELOPMENT. Product development expenses consist primarily of compensation and consulting expenses and related supplies and materials. To date, all product development costs have been expensed as incurred. Product development expenses were $0.3 million and $1.0 million for the period from January 23, 1996 (inception) through September 30, 1996 and for the nine months ended September 30, 1997, respectively, or 12.6% and 5.2% of revenues, respectively. The increase in absolute dollars was due primarily to increases in product development personnel and consulting expenses. Product development expenses incurred during the nine months ended September 30, 1997 were primarily related to enhancements to the DART technology and the development of DoubleClick Direct. The Company believes that continued investment in product development is critical to attaining its strategic objectives and, as a result, expects product development expenses to increase significantly on an absolute dollar basis but remain relatively constant as a percentage of revenues. LOSS FROM OPERATIONS The Company's loss from operations was $1.5 million for the period from January 23, 1996 (inception) through September 30, 1996 and $4.6 million for the nine months ended September 30, 1997. The increase in the loss from operations was primarily due to the hiring of additional personnel in all areas of the Company as it continued to build its infrastructure, expand its markets and increase its brand awareness. The Company expects to continue to hire additional personnel and increase its spending for marketing and other infrastructure needs. As a result, the Company expects that operating expenses and the loss from operations may increase on an absolute dollar basis and decrease as a percentage of revenues. 24 QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited consolidated quarterly statement of operations data for the seven quarters ended September 30, 1997. In the opinion of management, this information has been prepared substantially on the same basis as the audited Consolidated Financial Statements appearing elsewhere in this Prospectus, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited consolidated quarterly results of operations. The consolidated quarterly data should be read in conjunction with the audited Consolidated Financial Statements of the Company and the Notes thereto appearing elsewhere in this Prospectus. The results of operations for any quarter are not necessarily indicative of the results of operations for any future period.
QUARTER ENDED ---------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1996 1996 1996 1996 1997 1997 ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues........................................ $ 410 $ 972 $ 1,283 $ 3,849 $ 5,329 $ 6,138 Cost of revenues................................ -- 349 830 2,601 3,394 4,094 ----- ----------- ----------- ----------- ----------- ----------- Gross profit.................................. 410 623 453 1,248 1,935 2,044 ----- ----------- ----------- ----------- ----------- ----------- Operating expenses: Sales and marketing........................... 226 427 820 1,606 2,120 1,924 General and administrative.................... 96 459 573 1,017 752 1,019 Product development........................... 34 78 225 281 233 280 ----- ----------- ----------- ----------- ----------- ----------- Total operating expenses.................... 356 964 1,618 2,904 3,105 3,223 ----- ----------- ----------- ----------- ----------- ----------- Income (loss) from operations................... $ 54 $ (341) $ (1,165) $ (1,656) $ (1,170) $ (1,179) ----- ----------- ----------- ----------- ----------- ----------- ----- ----------- ----------- ----------- ----------- ----------- SEPT. 30, 1997 ----------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues........................................ $ 8,190 Cost of revenues................................ 5,560 ----------- Gross profit.................................. 2,630 ----------- Operating expenses: Sales and marketing........................... 2,562 General and administrative.................... 1,836 Product development........................... 502 ----------- Total operating expenses.................... 4,900 ----------- Income (loss) from operations................... $ (2,270) ----------- -----------
QUARTER ENDED ---------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1996 1996 1996 1996 1997 1997 ----------- ----------- ----------- ----------- ----------- ----------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues........................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues................................ -- 35.9 64.7 67.6 63.7 66.7 ----------- ----------- ----------- ----------- ----------- ----------- Gross profit.................................. 100.0 64.1 35.3 32.4 36.3 33.3 ----------- ----------- ----------- ----------- ----------- ----------- Operating expenses: Sales and marketing........................... 55.2 44.0 63.9 41.7 39.8 31.3 General and administrative.................... 23.3 47.2 44.7 26.4 14.1 16.6 Product development........................... 8.3 8.1 17.5 7.3 4.4 4.6 ----------- ----------- ----------- ----------- ----------- ----------- Total operating expenses.................... 86.8 99.3 126.1 75.4 58.3 52.5 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) from operations................... 13.2% (35.2)% (90.8 )% (43.0 )% (22.0 )% (19.2)% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SEPT. 30, 1997 ----------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues........................................ 100.0% Cost of revenues................................ 67.9 ----------- Gross profit.................................. 32.1 ----------- Operating expenses: Sales and marketing........................... 31.3 General and administrative.................... 22.4 Product development........................... 6.1 ----------- Total operating expenses.................... 59.8 ----------- Income (loss) from operations................... (27.7 )% ----------- -----------
The Company's revenues have increased in all quarters presented as a result of increased market acceptance of the DoubleClick Network after its launch in March 1996. In December 1996, the Company added the AltaVista Web site to the DoubleClick Network and revenues from delivery of advertisements on the AltaVista Web site commenced in the first quarter of 1997. Cost of revenues as a percentage of revenues increased throughout the quarters presented, except for the first quarter of 1997, resulting from a shift in the Company's revenue mix away from selling advertisements on behalf of third-party Web sites to delivering advertisements across the DoubleClick Network. In the first quarter of 1997, the Company recognized additional revenues from commissions relating to the final delivery of ads that were ordered in 1996. The Company no longer arranges for the placement of advertisements, nor does it expect to recognize any future revenues, on a commission basis. 25 Operating expenses have increased in each of the quarters presented. Sales and marketing expenses have increased as a result of increased sales personnel and commissions and advertising and promotion. The Company's sales and marketing organization has grown from 8 employees as of March 31, 1996 to 83 employees as of September 30, 1997. General and administrative expenses have increased due primarily to additional personnel, professional fees and facilities costs. In the third quarter of 1997, general and administrative fees increased due in part to legal costs associated with the Company's international expansion and litigation costs relating to the Company's lawsuit against two former employees for misappropriation of trade secrets. This litigation was settled in the fourth quarter of 1997. Product development expenses have increased as a result of continued enhancements to the DART technology and development of new solutions such as the DART Service and DoubleClick Direct. The Company's results of operations may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond the Company's control. See "Risk Factors -- Potential Fluctuations in Quarterly Operating Results; Seasonality". LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has financed its operations primarily through the private placement of equity securities and borrowings from a related party. In June 1997, the Company completed a private placement of equity securities to new investors and received $39.8 million in net proceeds, of which $25.0 million was used to redeem shares of Common Stock from certain stockholders. As of September 30, 1997, the Company had aggregate borrowings from a related party of $5.0 million in the form of a Convertible Promissory Note due June 4, 2000, bearing interest at the Federal Short-Term Rate, 5.8% as of September 30, 1997 (the "Convertible Note"). See "Certain Transactions--Convertible Note". Net cash used in operating activities was $3.4 million and $2.1 million for the period from January 23, 1996 (inception) through December 31, 1996 and for the nine months ended September 30, 1997, respectively. Cash used in operating activities from January 23, 1996 (inception) through September 30, 1997 resulted from net operating losses and increases in accounts receivable, which were partially offset by increases in deferred revenues, accrued expenses and accounts payable. In September 1997, the Company entered into an agreement to establish DoubleClick Japan, Inc. for the purpose of forming a DoubleClick Network in Japan. DoubleClick Japan, Inc. is a business relationship entered into by the Company with Nippon Telegraph and Telephone Corporation, Trans Cosmos, Inc., and NTT Advertising Inc. The Company received an initial payment of $0.5 million for certain fees relating to the use of the DoubleClick tradename and the right to access the Company's DART technology. The Company has a 10% ownership position in this business relationship. As of September 30, 1997, no revenues had been recognized related to DoubleClick Japan, Inc. Net cash used in investing activities was $0.5 million and $9.8 million from January 23, 1996 (inception) through December 31, 1996 and for the nine months ended September 30, 1997, respectively. Cash used in investing activities was primarily related to purchases of short-term investments, investments in business partners and purchases of property and equipment. Cash provided by financing activities of $3.9 million from January 23, 1996 (inception) through December 31, 1996 consisted primarily of $3.3 million in borrowings from a related party and $0.6 million in proceeds from the issuance of Common Stock at inception. Net cash provided by financing activities of $16.5 million for the nine months ended September 30, 1997 primarily consisted of net proceeds from the sale of $39.8 million of Convertible Preferred Stock, of which $25.0 million was paid to redeem Common Stock held by certain stockholders, and borrowings from a related party pursuant to the Convertible Note. 26 As of September 30, 1997, the Company had $4.6 million of cash and cash equivalents and $8.1 million in short-term investments. The Company's principal commitments consisted of obligations under the Convertible Note and obligations under operating leases. Although the Company has no material commitments for capital expenditures, management anticipates that it will experience a substantial increase in its capital expenditures and lease commitments consistent with its anticipated growth in operations, infrastructure and personnel. The Company currently anticipates that it will continue to experience significant growth in its operating expenses for the foreseeable future and that its operating expenses will be a material use of the Company's cash resources. The Company believes that the net proceeds of the offering, together with its existing cash and cash equivalents and short-term investments, will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next twelve months. NEW ACCOUNTING PRONOUNCEMENTS See Note 1 of Notes to Consolidated Financial Statements for recently adopted and recently issued accounting standards. 27 BUSINESS THE COMPANY DoubleClick is a leading provider of comprehensive Internet advertising solutions for advertisers and Web publishers. The Company's technology and media expertise enable it to dynamically deliver highly targeted, measurable and cost-effective Internet advertising for advertisers and to increase ad sales and improve ad space inventory management for Web publishers. DoubleClick offers three distinct Internet advertising solutions: (i) the DoubleClick Network, a leading Internet advertising network which provides ad delivery and related services to over 60 Web sites, including AltaVista, The Dilbert Zone, Macromedia and U.S. News and World Report; (ii) DoubleClick's DART (Dynamic Advertising Reporting and Targeting) Service, an Internet advertising management solution for Web publishers with internal ad sales forces, which is currently being utilized by over 20 Web publishers, including NBC, THE WALL STREET JOURNAL INTERACTIVE EDITION, RealNetworks and THE SPORTING NEWS; and (iii) DoubleClick Direct, the Company's recently introduced advertising solution designed specifically for direct marketers. DoubleClick's proprietary DART technology provides the platform for the Company's solutions. This technology enables advertisers to optimize ad performance by dynamically targeting and delivering ads to Web users based on pre-selected criteria. As a user visits the Web sites of Web publishers which utilize the Company's solutions, DART collects information regarding the user and his or her viewing activities and ad responses, and applies this data to improve its ability to predict the user's reaction and enhance DART's ad targeting capabilities. The sophisticated tracking and reporting functionality incorporated into DART provides advertisers with accurate measurements of ad performance based on selected criteria. In addition, DART provides Web publishers with sophisticated ad space inventory management capabilities. In November 1997, the Company estimates that more than 20 million users visited the Web sites of Web publishers which utilized the Company's solutions, resulting in an aggregate of over 900 million impressions. During the same period, DoubleClick managed approximately 7,000 Internet advertisements for over 600 advertisers, and over 100 Web publishers representing an aggregate of approximately 350 Web sites utilized the Company's Internet advertising solutions. INDUSTRY BACKGROUND THE INTERNET AND THE WEB The Internet and the Web have enjoyed unprecedented growth in recent years. IDC estimates that by the end of 1997 there will be over 29 million Web users in the United States and over 50 million users worldwide, and the number of Web users is expected to increase to 72 million in the United States and 129 million worldwide by the end of 2000. Web users are spending an increasing amount of time on the Web, and according to a recent study by the Georgia Institute of Technology, as of April 1997, an estimated 51% of Internet users access the Internet for 10 or more hours a week. The growth in the number of Web users and the amount of time users spend on the Web is expected to continue as new technologies, such as multimedia capabilities, are developed and adopted, as Web access and bandwidth increase, and as Internet content improves and becomes more dynamic. The Company believes that as electronic commerce increases, advertisers and direct marketers will increasingly seek to use the Web to locate customers, advertise and facilitate transactions. Online transactions can be faster, less expensive and more convenient than transactions conducted via human interaction. A growing number of users have transacted business over the Web, including trading securities, buying goods, purchasing airline tickets and paying bills. According to an A.C. Nielsen study, over 20% of United States Internet users have made a purchase over the Web. IDC estimates that purchases of goods and services over the Internet are expected to increase from $2.6 billion in 1996 to $220 billion in 2001. 28 INTERNET ADVERTISING The Web is emerging as an attractive new medium for advertisers due to the growth in the number of Web users, the amount of time such users spend on the Web, the increase in electronic commerce, the interactive nature of the Web, the Web's global reach and a variety of other factors. Internet users generally have demographic profiles advertisers desire. According to the Georgia Institute of Technology, in 1997, an estimated 47% of Internet users had a college degree, 67% were between the ages of 18 and 44 and their mean household income was $53,000. The interactive nature of the Web gives advertisers the potential to establish dialogues and one-to-one relationships with potential customers, receive direct feedback on their advertising and adapt their advertising to respond to such feedback. The Web also provides advertisers with the opportunity to reach broad, global audiences, since Web sites can be accessed from anywhere in the world, and to target their advertising to populations within specific regions or countries, to users with desirable demographic characteristics, and to people with specific interests. Internet advertising also has the potential to offer advertisers the ability to measure the number of times that a particular advertisement has been viewed, the responses to the advertisement and certain demographic characteristics of the viewers of the advertisement. Accordingly, the Company believes that Web advertising has the potential to be a cost-effective means of reaching a significant number of users with desirable characteristics. The unique characteristics of Internet advertising, combined with the growth in the number of Internet users and their attractive demographic profiles, has led to a significant increase in Internet advertising. IDC estimates that the dollar value of Internet advertising in the United States will increase from $551 million in 1997 to $4.0 billion in 2001, representing a 64% compounded annual growth rate. In comparison, in 1997, IDC estimates that $175 billion will be spent on traditional media (television, radio, cable and print) advertising in the United States. To date, the leading Internet advertisers have been technology companies, search engines and Web publishers. However, many of the largest advertisers on traditional media, including consumer products companies, automobile manufacturers and others, have expanded their use of Internet advertising, and the Company believes that Internet advertising will become an increasing component of their total advertising budgets. DIRECT MARKETING The Company believes that the Internet represents an attractive new medium for direct marketing, which has traditionally been conducted through direct mail and telemarketing, because highly targeted product offers can be made to consumers at the point-of-sale. The success of a direct marketing campaign is generally based on a direct marketer's return on investment which is measured by the response rate (e.g. number of leads, number of sales) and cost-per-response. According to the Direct Marketing Association, in 1997, an estimated $153 billion will be spent on direct marketing in the United States. The Internet has the potential to provide direct marketers with the ability to target and deliver direct marketing campaigns to users with specific characteristics and interests. In addition, unlike many of the traditional methods of direct marketing, the Internet provides direct marketers with the opportunity to contact consumers at the point-of-sale (i.e., their personal computers). Jupiter Communications estimates that revenues from direct marketing over the Internet will exceed $1.3 billion in 2002. 29 THE MARKETS FOR INTERNET ADVERTISING SOLUTIONS ADVERTISERS As a medium for advertisers and advertising agencies, the Internet offers a number of significant advantages over traditional media which the Company believes will lead to significant increases in overall Internet advertising spending. Advertising on the Internet provides advertisers with the opportunity to: REACH HIGHLY TARGETED AUDIENCES. The Internet has the unique capability to provide advertisers with the ability to accurately and automatically target their ads to users with specific interests and characteristics. Information about the user's geographic location, ISP, browser type, operating system and type and size of employer can be obtained through a user's interactions on the Web, regardless of the type of Web site they are viewing, and this information can be utilized by advertisers to target their ads. Web users specify their interests by visiting Web sites with content focused on specific interests, such as sports, travel, news, business and finance and entertainment. In addition, these users visit and utilize search engines to find Web sites and information on specific topics, further identifying their unique interests. AGGREGATE AD PURCHASING. Large advertising campaigns are time-consuming, difficult to manage, and can require media purchasers at advertising agencies to contact large numbers of media outlets in order to place advertisements. Networks of Web sites can provide centralized Internet ad purchasing and alleviate the need to make a series of small ad purchases from numerous Web publishers. ACCESS INTERNATIONAL, NATIONAL AND LOCAL MARKETS. Traditional media providers are constrained in their ability to provide advertisers with worldwide access to consumers since most broadcasters and print publishers only operate in their home countries or in limited geographic regions. Since the Internet is not limited by geographical boundaries, and since IDC estimates that 35% of Internet usage is outside of the United States, the Internet provides a significant media outlet for the global marketplace. Because of its ability to target ads based on a user's geographic location, the Internet also offers the ability to reach audiences across international, national and local markets. IMPROVE ADVERTISING ACCOUNTABILITY AND PERFORMANCE. Advertisers desire accurate and timely tracking, measurement and reporting of ad performance. Since ad performance on traditional media is measured through sampling and estimates, accurate ad performance accountability is difficult. Unlike traditional forms of media, the Internet offers the opportunity to accurately track each Web user that is delivered an advertisement and to determine and record a broad range of information about such user. The Web can also offer advertisers the analytical tools required to evaluate and optimize ad effectiveness, as well as the ability to promptly change ad placements and the creative content of advertisements. PROVIDE ENHANCED DIRECT MARKETING CAPABILITIES. Direct marketers require information about the recipients of an ad who respond with a specific action, such as seeking further information or buying a product. In addition, direct marketers are seeking to improve the return on their investment by adopting more cost-effective methods to reach their target consumers. The Internet may be a more cost-effective way to reach consumers than other direct marketing approaches, including direct mail. As a media outlet, the Internet offers the unique opportunity to advertise on a one-to-one basis at the point-of-sale. To become an attractive medium for direct marketers, direct marketing campaigns on the Internet must be targeted to users that are most likely to respond and a method to accurately track direct marketing expenditures on a cost-per-action basis must be available. 30 WEB PUBLISHERS As a result of the growth in the number of Web users, the advent of open, easy-to-use authoring software and the anticipated increase in Internet commerce, many businesses and organizations are establishing Web sites. A number of these Web publishers are attempting to support, or profit from, their Web sites by selling Internet advertising. Such Web publishers are seeking advertising solutions that enable them to: INCREASE WEB ADVERTISING SALES. Many Web publishers may not have the experience or personnel to effectively sell ad space on their Web sites and are unable to gain access to media buyers at large advertising agencies. Building an internal ad sales force can be difficult and expensive due, in part, to the increasing competition for experienced Internet ad sales personnel. Further, the time and expense required to hire an internal ad sales force, commence ad sales activities, and bill and collect ad sales revenues can have a significant impact on the viability of a Web site. As a result, many Web publishers are seeking to outsource their ad sales and delivery functions to Internet advertising solutions providers with extensive, established sales organizations. By outsourcing their ad sales and delivery functions, Web publishers can start receiving ad revenues faster and can greatly reduce or eliminate related expenditures. In addition, the Company believes that Web publishers with effective national ad sales organizations may seek to outsource their international or local sales functions to Internet solutions providers that are knowledgeable about the target markets and that have the necessary critical mass in such markets for a successful sales effort. MANAGE WEB ADVERTISING OPERATIONS. Many Web publishers cannot afford, or do not have the ability to operate and maintain, the servers and technology necessary for targeted Web advertising. Installing an ad server can take several months and results in significant out-of-pocket expenses. In addition, once an ad server is purchased and installed, the Web publisher assumes responsibility for the server's upgrades and maintenance. Most basic ad servers do not provide ad targeting capabilities and do not offer sophisticated tracking, reporting and billing functionality. Moreover, if a Web publisher operates an ad server independently from a network of other Web sites, the amount of information available to build an effective database regarding Web users and their response patterns will be limited and may be insufficient for purposes of sophisticated ad targeting. As a result, Web publishers may seek to outsource Web advertising operations in order to reduce costs and enhance their ad targeting capabilities. ENABLE EFFECTIVE AD SPACE INVENTORY MANAGEMENT. Many Web sites contain multiple pages and handle thousands of page views every day, providing a large inventory of Internet advertising space which is difficult for the Web publisher to manage. By targeting advertising towards specific ad space within their Web sites, Web publishers can increase the effectiveness of the ads delivered on their Web sites, thereby increasing the value of their ad space. In order to derive value from all of their available advertising space, Web publishers may seek alternatives to selling their ad space such as providing their unsold inventory to direct marketers who pay for ad space based on ad performance. THE DOUBLECLICK SOLUTION DoubleClick's solutions are designed to enable advertisers and Web publishers to take advantage of the growing opportunities to realize significant economic gain through Internet advertising. The Company has developed DART, a proprietary technology that, through its dynamic ad matching, targeting and delivering functionality and its ability to gather and continuously update information on the rapidly increasing number of Web users, provides the platform for DoubleClick's solutions, including: (i) the DoubleClick Network, a collection of over 60 Web sites; (ii) the DART Service, which offers ad targeting, tracking and reporting functionality to Web publishers with internal sales organizations; and (iii) DoubleClick Direct, a recently introduced service that offers direct marketers the ability to pay for 31 advertising on a cost-per-action basis. Each of the Company's solutions has been designed and developed to address and meet the needs of both advertisers and Web publishers. DoubleClick's proprietary DART technology collects, and continually updates, information on the characteristics and response patterns of individual Web users. DART uses this information to dynamically match and deliver an Internet ad to a Web user within milliseconds based on pre-selected criteria, including time of day, user interests, geographic location of the user's server and organization name, size, revenue or industry type. In addition, DART is a powerful ad performance tracking tool which provides comprehensive reporting. THE DOUBLECLICK NETWORK The DoubleClick Network is designed to streamline the Internet advertising purchasing process by providing a one-stop shop for advertisers to buy ads on the Internet. The DoubleClick Network enables advertisers to benefit from the dynamic ad matching, targeting and delivering functionality provided by the DART technology. As a result, advertisers can customize their ad delivery on the DoubleClick Network within specific content categories, on specific Web sites, or by targeting based on a variety of factors, including user interest, organization type and keyword choice. To capitalize on the global reach of the Internet, DoubleClick is establishing DoubleClick Networks in Europe, Asia and other international markets. By joining the DoubleClick Network, Web publishers can take advantage of DoubleClick's extensive and experienced ad sales organization. These Web publishers do not need to establish an internal advertising sales capacity, are relieved of the ad management requirements, including billing, tracking and reporting, and do not incur the start-up and fixed costs associated with establishing, maintaining, upgrading and operating ad servers. Additionally, Web publishers can benefit from the DART ad targeting technology by improving the effectiveness of the advertising on their Web sites which, in turn, increases the value of their Web sites to advertisers. DART SERVICE DoubleClick offers its DART Service to Web publishers with internal ad sales organizations seeking a comprehensive turnkey ad management solution with ad targeting and delivering capabilities, and sophisticated tracking, reporting and billing functionality. The DART Service also handles the difficult and complicated task of ad space inventory management. By using the DART Service, Web publishers can take advantage of the Company's extensive database of Web user targeting information as well as the Company's predictive modeling capabilities to more effectively target ads. DOUBLECLICK DIRECT DoubleClick Direct is a response oriented Internet-based direct advertising solution that enables direct marketers to pay for advertising on a cost-per-action (e.g. cost-per-sale, cost-per-lead or cost-per-click) basis. Using DoubleClick Direct, direct marketers can place their cost-per-action ads on the available ad space inventory on the Web sites of a variety of Web publishers. DoubleClick's DART technology analyzes which ads receive the best response on which Web sites and then selects the appropriate ad and delivers it on the Web sites and pages within the Web sites where the ad is expected to yield the best results. DoubleClick Direct provides Web publishers with an additional source of advertising revenue since it utilizes ad space on their Web sites that has not otherwise been sold. DoubleClick Direct was introduced in the fourth quarter of 1997 on a limited basis to selected direct marketers and the Company is developing additional features to meet the evolving needs of direct marketers. 32 STRATEGY DoubleClick's objective is to be the leading provider of Internet advertising solutions. The following are the key elements of the Company's strategy: PROVIDE THE MOST COMPREHENSIVE INTERNET ADVERTISING SOLUTIONS. The Company intends to leverage the information aggregated from the millions of individual users that visit the Web sites on the DoubleClick Network and the Web sites of Web publishers using the DART Service to further enhance its existing solutions and facilitate the development of additional solutions. DoubleClick believes that its proprietary DART technology and the experience and knowledge gained through the delivery of billions of Internet ads provide it with a significant competitive advantage over other Internet advertising solutions providers. DoubleClick intends to leverage its technology and media expertise to continue to develop new solutions and technological capabilities that meet the needs of advertisers and Web publishers. In addition, the Company intends to add new features and functionality to its DART technology to meet the evolving needs of the Internet advertising market. ENHANCE AND EXPAND THE DOUBLECLICK NETWORK. By enhancing and expanding the DoubleClick Network, the Company believes that the DoubleClick Network will become a leading choice for Web advertisers. The Company intends to continuously target Web publishers of high quality Web sites, directories and search engines for addition to the existing content categories comprising the DoubleClick Network. Any such additions will be required to meet strict inclusion and maintenance criteria in order to ensure that they will continue to provide the desired audiences of advertisers. In order to provide advertisers with additional audiences, the Company also plans to add new content categories comprised of high quality, high traffic Web sites to the DoubleClick Network. EXPAND SALES AND MARKETING. The Company believes that a strong sales and marketing organization is essential to effectively sell and market Internet advertising solutions. The Company intends to continue to expand its sales and marketing efforts. Specifically, DoubleClick plans to expand its DoubleClick Network sales force and has established dedicated sales organizations for its DART Service and DoubleClick Direct. DoubleClick believes that brand awareness of the Company and its solutions is critical to its success given the emerging nature of the Internet advertising market. As a result, the Company is targeting its efforts to advertisers and advertising agencies in order to establish and expand the recognition of its corporate identity and service offerings through its Web site, advertisements within trade publications, direct mail, promotional activities, trade show participation and other media events. ESTABLISH DART SERVICE AND DOUBLECLICK DIRECT. The Company is offering ad management services by providing its DART Service directly to Web publishers which have internal ad sales forces yet desire to utilize DART's ad targeting, tracking, reporting and inventory management capabilities. The Company intends to continue to focus on identifying appropriate Web publishers that may be interested in utilizing its DART Service to manage their ad space inventory. The Company recently launched its DoubleClick Direct service on a limited basis and is building its inventory of direct marketing advertisements and available ad space. The Company intends to add features and functionality to the DoubleClick Direct service to meet the evolving needs of direct marketers and to provide a viable commercial opportunity for Web sites with significant unsold ad space inventory. EXTEND GLOBAL PRESENCE. To provide U.S. and foreign advertisers with the ability to deliver their ads in global markets and to provide Web publishers in international markets with the ability to outsource their ad sales, ad server operations and ad space inventory management, the Company is developing DoubleClick Networks and is providing its other solutions in a number of countries. The Company is building DoubleClick Networks in Australia, Canada and the United Kingdom, and through its business partners, in Japan, Iberoamerica (Spain, Portugal and Latin America) and Scandinavia. To support this initiative, DoubleClick has recently opened sales offices offering all of the Company's solutions in Australia, Canada and the United Kingdom, and intends to establish sales offices in additional countries in the future. 33 TECHNOLOGY OVERVIEW The Company's proprietary DART (Dynamic Advertising Reporting and Targeting) technology serves as the enabling platform for all of the Company's solutions. This centralized ad management technology, resident on the Company's server, is linked to the Web publisher's server and completes the dynamic ad matching, targeting and delivering functions within milliseconds. In addition, unlike shrink-wrapped technology products, continuous enhancements to DART can be made without the need for a Web publisher to upgrade or purchase new equipment or software upgrades. The following diagram illustrates the architecture of DART: [ILLUSTRATION DEPICTING DART TECHNOLOGY'S DYNAMIC AD MATCHING, TARGETING AND DELIVERING ARCHITECTURE] To date, DoubleClick's DART technology has delivered over 6 billion ads worldwide. DART's dynamic matching, targeting and delivering functions enable Web advertisers to target their advertising based on a variety of factors, including user interests, time of day, day of week, organization name and size, domain type (i.e., commercial, government, education, network), operating system, server type and version, and keywords. In addition, the Company offers the ability to match geographic location of the user's server and organization revenue through third-party databases. DART also manages the frequency and distribution of ad placements to limit repetitive ad exposures that can reduce ad effectiveness. Further, in order to deliver the advertisements on the pages that are likely to result in the best response, DART improves its predictive capabilities by continuously collecting information regarding the user and the user's viewing activities and ad responses. DART is a powerful ad performance tracking and reporting tool. Detailed daily online performance reports allow advertisers and Web publishers to actively monitor and react to the success of particular ads and marketing campaigns and Web site traffic patterns, respectively. Such reports can be further tailored to evaluate ad success based on the dynamic ad matching, targeting and delivering factors set 34 forth above. DART delivers advertising content developed using most leading Web tools and technologies, including JAVA, Java Script, RealAudio, RealVideo, Enliven and VRML. In addition, DART is compatible with leading host servers, regardless of the Web publisher's hardware or software. DART is designed to be highly reliable and operates 24 hours a day, seven days a week with minimal downtime. Enhancements of the DART technology have allowed for the development of additional features providing: (i) advertisers with the ability to test the effectiveness of the creative content of an advertisement before launching an ad campaign by comparing click-through rates on alternative advertisements; (ii) advertisers with the opportunity to track a user to the advertiser's own Web site to determine what actions a user takes following a click-through; and (iii) Web publishers with the ability to accurately manage and record advertising activity and track related revenue over a network of affiliated Web sites. SERVICES DOUBLECLICK NETWORK Utilizing the Company's proprietary DART technology, the DoubleClick Network provides effective Internet advertising solutions to both advertisers and Web publishers. As of December 15, 1997, the DoubleClick Network consisted of over 60 Web sites grouped together by the Company in defined content categories. In November 1997, approximately 750 million ads were delivered on the DoubleClick Network. The Company pays each Web publisher whose Web sites are on the DoubleClick Network a service fee calculated as a percentage of the amount it charges advertisers for delivering advertisements on the DoubleClick Network. In addition, the Company is responsible for billing and collecting for ads delivered on the DoubleClick Network and typically assumes the risk of non-payment from advertisers. Since December 1996, the Company has derived substantially all of its revenues from advertisements delivered on the DoubleClick Network. Web publishers seeking to add their Web sites to the DoubleClick Network must meet defined inclusion and maintenance criteria based upon, among other things, the demographics of the particular Web site's users, the Web site's content quality and brand name recognition, the level of existing and projected traffic on the Web site, and the opportunity to provide sponsorship opportunities. By preserving the integrity of the DoubleClick Network through the maintenance of such defined criteria, the Company enhances an advertiser's ability to have its advertisements seen by the appropriate audience. In addition, the DoubleClick Network provides greater efficiencies to advertisers by allowing them to reach several different target audiences all through one ad purchase and ad campaign. The Company intends to continuously target Web publishers of high quality directories, search engines and premium Web sites for addition to the existing content categories in the DoubleClick Network and to expand into additional content categories based on advertisers' targeting needs. The 35 following table identifies the DoubleClick Network's content categories and their respective Web sites as of December 15, 1997: [LOGO] Over 800 advertisers from a variety of industries have utilized the DoubleClick Network, including many of the leading Internet advertisers. In certain instances, advertisers promote a number of products at one time. In turn, there may be a number of advertising campaigns being run simultaneously for each product, each with a number of advertisements. Further, many advertisers use advertising agencies to strategically place their advertisements. As a result, the Company maintains relationships with, and focuses its sales and marketing efforts on, both advertisers and advertising agencies. Set forth below is a list of certain advertisers that have delivered advertisements on the DoubleClick Network: Amazon.com inc. Intel AT&T Microsoft Bell South MonsterBoard CD Now Netscape Charles Schwab Prodigy Datek Online Quick & Reilly GTE 3Com IBM Ziff Davis Interactive
36 To take advantage of the global reach of the Internet, DoubleClick is establishing DoubleClick Networks in Europe, Asia and other international markets. DoubleClick currently has operations in Australia, Canada, and the United Kingdom, and through its business partners, in Japan, Iberoamerica and Scandinavia. The Company's international operations allow advertisers to target users in specific countries and worldwide and enables overseas advertisers to focus their advertising in their own domestic market, the United States market or globally. Further, by locating ad servers in foreign locations, the Company is seeking to facilitate the rapid delivery of Internet advertising in international markets. DART SERVICE Since January 1997, the DART Service has been provided as a comprehensive turnkey advertising solution to those Web publishers with internal sales forces that desire to take advantage of the Company's DART technology to facilitate and support their Internet ad placements. By utilizing the DART Service, a Web publisher is provided with all of the dynamic ad matching, targeting and delivering features of the DART technology, including the predictive modeling benefits enabled by the Company's continuous collection of information regarding users of the Web sites in the DoubleClick Network and the Web sites of other DART-enabled Web publishers. The DART Service acts as the Web publisher's ad server and can be easily linked to the Web publisher's server. The DART Service is generally offered to Web publishers pursuant to annual service contracts terminable by either party on 30 days prior written notice. As of November 1997, there were 20 Web publishers using the DART Service, including NBC, THE WALL STREET JOURNAL INTERACTIVE EDITION, RealNetworks, THE SPORTING NEWS, READER'S DIGEST, TEXAS MONTHLY and VARIETY. To date, the Company has not received significant revenues from the DART Service. DOUBLECLICK DIRECT Launched on a limited basis in the fourth quarter of 1997, DoubleClick Direct is a response-oriented Internet advertising service that provides direct marketers with the opportunity to conduct targeted advertising on a cost-per-action basis, paying only when users click on an ad placed on a Web site, fill out a lead form, download software, or buy a product. Web publishers, including those in the DoubleClick Network, may designate a selected portion of their previously unsold inventory on a monthly basis for such direct marketers. DoubleClick's DART technology analyzes which ads receive the best response on which Web sites and then selects the appropriate ad and places it on the Web sites and pages within the Web sites where the ad is expected to yield the best results. Further, DoubleClick Direct tracks and audits transactions in real time, while at the same time using the information to automatically enhance and update DoubleClick Direct. The Company expects direct marketers to utilize DoubleClick Direct pursuant to short-term contracts. DoubleClick Direct has initially been marketed to selected direct marketers on a limited basis and the Company is developing additional features to meet the evolving needs of direct marketers. To date, the Company has not received significant revenues from sales of DoubleClick Direct. The following illustration depicts DoubleClick Direct: [ILLUSTRATION DEPICTING THE DOUBLECLICK DIRECT ARCHITECTURE] 37 SALES AND MARKETING UNITED STATES The Company sells its solutions in the United States through a sales and marketing organization which consisted of an aggregate of 99 employees as of December 1, 1997. These employees are located at the Company's headquarters in New York, and in the Company's offices in Atlanta, Boston, Chicago, Dallas, Los Angeles and Silicon Valley. The sales organization is divided into three dedicated groups focused on sales of advertisements to be delivered on the DoubleClick Network, sales of the DART Service to Web publishers, and sales of DoubleClick Direct to direct marketers. Each of these groups employs an internal telesales force to solicit leads obtained from, and to respond to inbound inquiries stimulated by, the Company's marketing efforts. The Company has created business development subgroups for each of the DoubleClick Network's content categories to recruit Web publishers with high quality Web sites for inclusion in the DoubleClick Network. Business development salespeople are assigned to a particular content category in order to develop an in-depth understanding of the evolving needs of a particular content category and the Web publishers with Web sites within such content category. This expertise allows the Company to more effectively manage existing content categories and take advantage of opportunities to expand into additional content categories. To support its direct sales efforts and to actively promote the DoubleClick brand, the Company conducts comprehensive marketing programs, including public relations, print advertisements, online advertisements over the DoubleClick Network and on the Web sites of Web publishers unaffiliated with the DoubleClick Network, Web advertising seminars, trade shows and ongoing customer communications programs. INTERNATIONAL The Company has expanded its operations into Australia, Canada and the United Kingdom through the creation of a direct sales organization in each such location. In addition, the Company has entered into business relationships in Japan, Iberoamerica and Scandinavia to take advantage of the local marketplace knowledge of its business partners. As it continues to expand internationally, the Company intends to expand its direct sales and marketing capabilities to create direct sales organizations in certain international markets and, in other markets, to enter into business relationships with companies having knowledge of the particular marketplace. COMPETITION The markets for Internet advertising and related products and services are intensely competitive and such competition is expected to continue to increase. There are no substantial barriers to entry in this market and the Company believes that its ability to compete depends upon many factors within and beyond its control, including the timing and market acceptance of new solutions and enhancements to existing solutions developed by the Company and its competitors, customer service and support, sales and marketing efforts, and the ease of use, performance, price and reliability of the Company's solutions. The Company competes for Internet advertising revenues with large Web publishers and Web search engine companies, such as America Online, Yahoo!, Excite and Infoseek. Further, the DoubleClick Network competes with a variety of Internet advertising networks. In marketing the DoubleClick Network and its DART Service to Web publishers, the Company also competes with providers of ad servers and related services, including NetGravity. The Company also encounters competition from a number of other sources, including content aggregation companies, companies engaged in advertising sales networks, advertising agencies, and other companies which facilitate 38 Internet advertising. Many of the Company'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 the Company. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the Internet, in general, and the Company, specifically, also must compete for a share of advertisers' total advertising budgets with traditional advertising media, such as television, radio, cable and print. To the extent that the Internet is perceived to be a limited or ineffective advertising medium, advertisers may be reluctant to devote a significant portion of their advertising budget to Internet advertising, which could limit the growth of Internet advertising and would have a material adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors -- Competition". INTELLECTUAL PROPERTY The Company regards its intellectual property as critical to its success, and the Company relies upon patent, trademark, copyright and trade secret laws in the United States and other jurisdictions to protect its proprietary rights. The Company has filed one patent application with the United States Patent and Trademark Office to protect certain aspects of its DART technology. The Company pursues the protection of its trademarks by applying to register the trademarks in the United States and (based upon anticipated use) internationally, and is the owner of a registration for the DOUBLECLICK trademark in the United States. There can be no assurance that any of the Company's trademark registrations or patent applications will be approved or granted and, if they are granted, that they will not be successfully challenged by others or invalidated through administrative process or litigation. Further, if the Company's trademark registrations are not approved or granted due to the prior issuance of trademarks to third parties or for other reasons, there can be no assurance that the Company would be able to enter into arrangements with such third parties on commercially reasonable terms to allow the Company to continue to use such trademarks. Patent, trademark, copyright and trade secret protection may not be available in every country in which the Company's solutions are distributed or made available. In addition, the Company seeks to protect its proprietary rights through the use of confidentiality agreements with employees, consultants, advisors and others. There can be no assurance that such agreements will provide adequate protection for the Company's proprietary rights in the event of any unauthorized use or disclosure, that employees of the Company, consultants, advisors or others will maintain the confidentiality of such proprietary information, or that such proprietary information will not otherwise become known, or be independently developed, by competitors. The Company's DART technology collects and utilizes data derived from user activity on the DoubleClick Network and the Web sites of Web publishers using the Company's solutions. This data is used for ad targeting and predicting ad performance. Although the Company believes that it has the right to use such data and the compilation of such data in the Company's database, there can be no assurance that any trade secret, copyright or other protection will be available for such information or that others will not claim rights to such information. Further, pursuant to its contracts with Web publishers using the Company's solutions, the Company is obligated to keep certain information regarding the Web publisher confidential. The Company has licensed in the past, and expects that it may license in the future, elements of its trademarks, trade dress and similar proprietary rights to third parties, including in connection with the establishment of its international business relationships which may be controlled operationally by such third parties. While the Company attempts to ensure that the quality of its brand is maintained by such business partners, no assurances can be given that such partners will not take actions that could materially and adversely affect the value of the Company's proprietary rights or the reputation of its solutions and technologies. The Company currently licenses certain aspects of its predictive modeling technologies from a third party. The failure by the Company to maintain this license, or to find a 39 replacement for such technology in a timely and cost-effective manner, could have a material adverse effect on the Company's business, results of operations and financial condition. Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in Internet-related industries are uncertain and still evolving, and no assurance can be given as to the future viability or value of any proprietary rights of the Company or other companies within the industry. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that third parties will not infringe or misappropriate the Company's proprietary rights. Any such infringement or misappropriation, should it occur, could have a material adverse effect on the Company's business, results of operations and financial condition. Furthermore, there can be no assurance that the Company's business activities will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against the Company. From time to time the Company has been, and expects to continue to be, subject to claims in the ordinary course of its business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by the Company and its business partners. Although such claims have not resulted in litigation or had a material adverse effect on the Company's business, results of operations or financial condition, such claims and any resultant litigation, should it occur, could subject the Company to significant liability for damages and could result in invalidation of the Company's proprietary rights and, even if not meritorious, could be time-consuming and expensive to defend, and could result in the diversion of management time and attention, any of which could have a material adverse effect on the Company's business, results of operations and financial condition. EMPLOYEES As of December 1, 1997, the Company employed 171 persons, including 115 in sales, marketing and customer support (16 of whom serve the international marketplace), 26 in product development, and 30 in accounting, finance and administration. The Company is not subject to any collective bargaining agreements and believes that its relationship with its employees is good. FACILITIES The Company's principal executive offices are currently located in two separate facilities in New York, New York. Consisting of an aggregate of approximately 25,000 square feet, these facilities are currently leased to the Company under leases which expire in July 1999 and September 2002, respectively. The Company also leases space for its sales and marketing efforts in California, Georgia, Illinois, Massachusetts and Texas, as well as in Australia, Canada and the United Kingdom. The Company is considering the expansion of its New York facilities in the first half of 1998. The Company believes that suitable additional space will be available in the future on commercially reasonable terms. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. 40 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS AND OTHER KEY EMPLOYEES The executive officers and directors and other key employees of the Company, and their ages and positions are as follows:
NAME AGE POSITION - ----------------------------------------------------- ----- ----------------------------------------------------- Kevin J. O'Connor.................................... 36 Chief Executive Officer and Chairman of the Board of Directors Kevin P. Ryan........................................ 34 President and Chief Financial Officer Dwight A. Merriman................................... 29 Chief Technical Officer and Director Wenda Harris Millard................................. 43 Executive Vice President, Marketing and Sales Stephen R. Collins................................... 32 Controller and Assistant Secretary John L. Heider....................................... 40 Vice President of Engineering Barry M. Salzman..................................... 34 Vice President, International David N. Strohm(1)................................... 49 Director Mark E. Nunnelly(1).................................. 39 Director W. Grant Gregory(1).................................. 56 Director
- ------------------------ (1) Member of the Audit Committee and the Compensation Committee. Set forth below is certain information regarding the business experience during the past five years for each of the above-named persons. KEVIN J. O'CONNOR has served as the Company's Chief Executive Officer and Chairman of the Board of Directors since its inception in January 1996. From December 1995 until January 1996, Mr. O'Connor served as Chief Executive Officer of Internet Advertising Network ("IAN"), an Internet advertising company which he founded. From September 1994 to December 1995, Mr. O'Connor served as Director of Research for Digital Communications Associates, a data communications company (now Attachmate Corporation), and from April 1992 to September 1994, as its Chief Technical Officer and Vice President, Research. From its inception in May 1983 until its sale in April 1992, Mr. O'Connor served as Vice President, Research of Intercomputer Communications Corp., a software development company. Mr. O'Connor received his B.S. in Electrical Engineering from the University of Michigan. KEVIN P. RYAN has served as the Company's Chief Financial Officer since June 1996 and as President since July 1997. From January 1994 to June 1996, Mr. Ryan served as Senior Vice President, Business and Finance for United Media, a licensing and syndication company representing comics, columnists and wire services to over 2,000 newspapers around the world. From April 1991 to December 1993, Mr. Ryan served as Senior Manager, Finance for EuroDisney, and from August 1985 to September 1989, Mr. Ryan was an investment banker for Prudential Investment Corporation in both the United States and the United Kingdom. Mr. Ryan received his B.A. in Economics from Yale University and his M.B.A. from Insead. DWIGHT A. MERRIMAN has served as the Company's Chief Technical Officer since February 1996, and served as its Vice President, Engineering from the Company's inception in January 1996 until February 1996. Mr. Merriman has served as a Director of the Company since its inception. From December 1990 until August 1995, Mr. Merriman was a software engineer for Attachmate Corporation. Mr. Merriman received his B.S. in Systems Analysis from Miami (Ohio) University. WENDA HARRIS MILLARD has served as the Company's Executive Vice President, Marketing and Sales since October 1997, and served as the Company's Executive Vice President, Marketing and Programming from July 1996 to October 1997. From August 1994 to July 1996, Ms. Harris Millard served 41 as President and Group Publisher of SRDS, a marketing and media information company. From July 1993 to July 1994, Ms. Harris Millard served as Senior Vice President and Publisher of Family Circle Magazine. From June 1992 to July 1993, Ms. Harris Millard served as Senior Vice President and Group Publisher of Adweek Magazines, and from 1987 to June 1992, Ms. Harris Millard served as Publisher for Adweek Magazine. Ms. Harris Millard received her B.A. in English from Trinity College and her M.B.A. from Harvard University. STEPHEN R. COLLINS has served as the Company's Controller since January 1997 and as Assistant Secretary since June 1997. From October 1992 to January 1997, Mr. Collins served in a variety of financial positions for Colgate-Palmolive Company, a consumer products company, most recently as Associate Financial Director of Colgate-Palmolive Romania. From July 1988 to October 1992, Mr. Collins was an auditor for Price Waterhouse LLP, a public accounting firm. Mr. Collins received his B.S. in Accounting from the University of Alabama. BARRY M. SALZMAN has served as the Company's Vice President, International since February 1997. From August 1994 to January 1997, Mr. Salzman served as President of BMS Associates, Inc., a consulting firm. From June 1993 to July 1994, Mr. Salzman served as an associate for AEA Investors, Inc., a principal investment firm. From June 1989 to June 1993, Mr. Salzman served as an Engagement Manager for McKinsey & Company, a management consulting firm. Mr. Salzman received his B.S. in Business from the University of Cape Town and his M.B.A. from Harvard University. JOHN L. HEIDER has served as the Company's Vice President of Engineering since March 1996. From June 1989 to March 1996, Mr. Heider served in various engineering capacities, including Staff Engineer and Senior Engineer, for Attachmate Corporation. Mr. Heider received his B.A. in Fine Arts from Wright State University. DAVID N. STROHM has served as a Director of the Company since June 1997. Since 1980, Mr. Strohm has been an employee of Greylock Management Corporation, a venture capital group ("Greylock"), and he is a general partner of several venture capital funds affiliated with Greylock. Mr. Strohm currently serves as a director of Banyan Systems, Inc., a software and computer peripherals company, and Legato Systems, Inc., a data storage management software company. Mr. Strohm received his B.A. from Dartmouth and his M.B.A. from Harvard University. Mr. Strohm was named to the Board of Directors pursuant to an agreement which will terminate upon the closing of the offering. MARK E. NUNNELLY has served as a Director of the Company since June 1997. Since 1990, Mr. Nunnelly has served as a Managing Director of Bain Capital, a venture capital group. Mr. Nunnelly currently serves as a Director of Stream International Inc., a computer software and technical support company, E-data Systems, a digital commerce company, SR Research, a credit risk assessment technology company, The Learning Company, an educational software company, and Dade International, a health care company. Mr. Nunnelly received his B.A. from Centre College and his M.B.A. from Harvard University. Mr. Nunnelly was named to the Board of Directors pursuant to an agreement which will terminate upon the closing of the offering. W. GRANT GREGORY has served as a Director of the Company since its inception in January 1996. Since 1988, Mr. Gregory has served as Chairman of Gregory & Hoenemeyer, Inc., a merchant banking firm. In 1987, Mr. Gregory served as Chairman of the Board of Touche Ross & Company, an accounting firm (now Deloitte & Touche). Mr. Gregory currently serves as a director of AMBAC Financial Group, a financial services company, HCIA Inc., a health care information company, and Inacom Corporation, a technology management services company. Mr. Gregory received his bachelor's degree in Business Administration from the University of Nebraska. 42 CLASSES OF DIRECTORS Currently, all Directors hold office until the next annual meeting of stockholders or until their successors have been duly elected and qualified. Following the offering, the Board of Directors will be divided into three classes, each of whose members will serve for a staggered three-year term. Upon the expiration of the term of a class of directors, directors in such class will be elected for three-year terms at the annual meeting of stockholders in the year in which such term expires. EXECUTIVE OFFICERS Executive officers of the Company are elected by the Board of Directors on an annual basis and serve until the next annual meeting of the Board of Directors or until their successors have been duly elected and qualified. BOARD COMMITTEES The Audit Committee of the Board of Directors was established in July 1997 and reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the selection of the Company's auditors, the scope of the annual audits, fees to be paid to the auditors, the performance of the Company's independent auditors and the accounting practices of the Company. The Compensation Committee of the Board of Directors was established in July 1997 and determines the salaries and incentive compensation of the officers of the Company and provides recommendations for the salaries and incentive compensation of the other employees and the consultants of the Company. The Compensation Committee also administers the Company's various incentive compensation, stock and benefit plans. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee consists of Messrs. Strohm, Nunnelly and Gregory, none of whom has been an officer or employee of the Company at any time since the Company's inception. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. During 1996 and prior to the formation of the Compensation Committee, the Board of Directors as a whole made decisions relating to compensation of the Company's executive officers. Mr. O'Connor, the Company's Chief Executive Officer, and Mr. Merriman, the Company's Chief Technical Officer, participated in all such discussions and decisions concerning the compensation of executive officers of the Company, except that Messrs. O'Connor and Merriman were excluded from discussions regarding their own compensation. COMPENSATION OF DIRECTORS The Company does not currently compensate its directors for attending Board of Directors or committee meetings, but reimburses directors for their reasonable travel expenses incurred in connection with attending meetings of the Board of Directors or committees of the Board of Directors. Under the Company's 1997 Stock Incentive Plan, each individual who is serving as a non-employee member of the Board of Directors on the date that the Underwriting Agreement relating to the offering is executed will automatically receive an option grant on that date for 5,000 shares of Common Stock. Each individual who first becomes a non-employee member of the Board of Directors at any time thereafter will receive an option to purchase 25,000 shares on the date such individual joins the Board of Directors, provided such individual has not previously been an employee of the Company or any parent or subsidiary corporation. In addition, on the date of each annual stockholders' meeting beginning in 1999, each non- employee member of the Board of Directors will automatically be granted an option to purchase 5,000 shares of Common Stock provided such individual has served on the Board of Directors for at least six months. See "--Stock Plans". 43 EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth the compensation received by the Company's Chief Executive Officer and by the other four executive officers of the Company whose salary exceeded $100,000 in 1997 (the "Named Executive Officers") for services rendered in all capacities to the Company during 1997. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL AWARDS COMPENSATION(2) ------------------ ----------------- SHARES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION(1) SALARY OPTIONS COMPENSATION - ---------------------------------------------------------- ----------------- ------------------ -------------- Kevin J. O'Connor Chief Executive Officer................................. $ 126,250 -- $ 30,000(3) Kevin P. Ryan President and Chief Financial Officer................... 152,500 220,000 -- Wenda Harris Millard Executive Vice President, Marketing and Sales............................................... 180,000 -- -- John L. Heider Vice President of Engineering........................... 101,280 29,000 -- Barry M. Salzman Vice President, International........................... 105,136 52,500 --
- ------------------------ (1) David Henderson served as the Company's Vice President, North American Sales until his termination for misappropriation of the Company's trade secrets in September 1997. Prior to his termination, Mr. Henderson had earned $139,920 in salary during 1997. (2) In accordance with the rules of the Securities and Exchange Commission (the "Commission"), other compensation in the form of perquisites and other personal benefits has been omitted for each of the Named Executive Officers because the aggregate amount of such perquisites and other personal benefits constituted less than the lesser of $50,000 or 10% of the total of annual salary and bonuses for each of such Named Executive Officers in 1997. (3) Consists solely of reimbursement of certain relocation expenses. 44 OPTION GRANTS IN LAST YEAR The following table sets forth certain information regarding options granted to the Named Executive Officers during 1997. The Company has not granted any stock appreciation rights. OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ------------------------------------------------------------------- VALUE NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES SECURITIES OPTIONS OF STOCK APPRECIATION UNDERLYING GRANTED TO FOR OPTION TERM(3) OPTIONS EMPLOYEES EXERCISE MARKET EXPIRATION ------------------------ NAME GRANTED(1) IN 1997(2) PRICE PRICE DATE 0% 5% - ------------------------ ----------- --------------- ----------- ----------- ----------- ---------- ------------ Kevin J. O'Connor....... -- -- -- -- -- -- -- Kevin P. Ryan........... 220,000 19.7% $ 1.16 $ 4.00 7/31/07 $ 624,800 $ 2,058,227 Wenda Harris Millard.... -- -- -- -- -- -- -- John L. Heider.......... 10,000 0.9 0.28 0.50 2/28/07 2,200 10,345 29,000 2.5 3.00 6.16 9/10/07 91,640 382,626 Barry M. Salzman........ 47,500 4.3 0.28 0.50 2/28/07 10,450 49,136 52,500 4.7 3.00 6.16 9/10/07 165,900 692,685 NAME 10% - ------------------------ ------------ Kevin J. O'Connor....... -- Kevin P. Ryan........... $ 2,907,293 Wenda Harris Millard.... -- John L. Heider.......... 15,169 554,986 Barry M. Salzman........ 75,533 1,004,716
- ------------------------ (1) Each option represents the right to purchase one share of Common Stock. The options shown in this column are all incentive stock options granted pursuant to the Company's stock plans. The options shown in this table become exercisable in four equal annual installments commencing one year after the date of grant. To the extent not already exercisable, certain of these options may become exercisable in the event of a merger in which the Company is not the surviving corporation or upon the sale of substantially all of the Company's assets. See "--Stock Plans". (2) During 1997, the Company granted employees options to purchase an aggregate of 1,116,225 shares of Common Stock. (3) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The 0%, 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Commission and do not represent the Company's estimate or projection of the Company's future Common Stock prices. These amounts represent certain assumed rates of appreciation in the value of the Company's Common Stock from the fair market value on the date of grant. Actual gains, if any, on stock option exercises are dependent on the future performance of the Common Stock and overall stock market conditions. The amounts reflected in the table may not necessarily be achieved. 45 OPTION EXERCISES AND YEAR-END VALUES The following table sets forth certain information concerning options to purchase Common Stock exercised by the Named Executive Officers during 1997 and the number and value of unexercised options held by each of the Named Executive Officers at December 31, 1997. AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1997 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED DECEMBER 31, 1997 DECEMBER 31, 1997(1) ON VALUE ---------------------------- ----------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - --------------------------- ----------- ----------- ------------ -------------- ------------- -------------- Kevin J. O'Connor.......... -- -- 184,648 131,892 $ 2,374,574 $ 1,696,105 Kevin P. Ryan.............. 20,000 $ 100,396 -- 280,000 -- 3,376,388 Wenda Harris Millard....... 30,000 150,594 -- 90,000 -- 1,157,382 John L. Heider............. 9,000 52,853 -- 66,000 -- 764,760 Barry M. Salzman........... -- -- -- 100,000 -- 1,129,200
- ------------------------ (1) There was no public trading market for the Common Stock as of December 31, 1997. Accordingly, these values have been calculated on the basis of the assumed initial public offering price of $13.00 per share, less the applicable exercise price per share, multiplied by the number of shares underlying such options. STOCK PLANS 1997 STOCK INCENTIVE PLAN The Company's 1997 Stock Incentive Plan (the "1997 Plan") is intended to serve as the successor equity incentive program to the Company's 1996 Stock Option Plan (the "Predecessor Plan"). The 1997 Plan was adopted by the Board on November 7, 1997 and subsequently approved by the stockholders. The discretionary option grant and stock issuance programs under the 1997 Plan became effective immediately upon the Board of Directors' adoption of the Plan (the "Plan Effective Date"). The automatic option grant program will become effective on the date the Underwriting Agreement relating to the offering is executed. A total of 3,000,000 shares of Common Stock have been authorized for issuance under the 1997 Plan. Such share reserve consists of (i) the number of shares available for issuance under the Predecessor Plan on the Plan Effective Date, including the shares subject to outstanding options, and (ii) an additional 1,550,000 shares of Common Stock. In addition, the number of shares of Common Stock reserved for issuance under the 1997 Plan will automatically increase on the first trading day of each calendar year, beginning with the 1999 calendar year, by an amount equal to three percent (3%) of the total number of shares of Common Stock outstanding on the last trading day of the immediately preceding calendar year. To the extent any unvested shares of Common Stock issued under the 1997 Plan are subsequently repurchased by the Company, at the exercise price or direct issue paid per share, in connection with the holder's termination of service, those repurchased shares will be added to the reserve of Common Stock available for issuance under the 1997 Plan. In no event, however, may any one participant in the 1997 Plan receive option grants or direct stock issuances for more than 375,000 shares of Common Stock in the aggregate per calendar year. On the Plan Effective Date, outstanding options under the Predecessor Plan will be incorporated into the 1997 Plan, and no further option grants will be made under the Predecessor Plan. The incorporated options will continue to be governed by their existing terms, unless the 1997 Plan's administrator (the "Plan Administrator") elects to extend one or more features of the 1997 Plan to those options. 46 Except as otherwise noted below, the incorporated options have substantially the same terms as will be in effect for grants made under the discretionary option grant program of the 1997 Plan. The 1997 Plan is divided into three separate components: (i) a discretionary option grant program under which eligible individuals in the Company's employ or service (including officers, non-employee members of the Board of Directors and consultants) may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock at an exercise price not less than 85% of the fair market value of the Common Stock on the grant date, (ii) a stock issuance program under which such individuals may, at the Plan Administrator's discretion, be issued shares of Common Stock directly, through the purchase of such shares at a price not less than 100% of the fair market value at the time of issuance or as a bonus tied to the performance of services or the attainment of financial milestones, and (iii) an automatic option grant program under which option grants will automatically be made at periodic intervals to eligible non-employee members of the Board of Directors to purchase shares of Common Stock at an exercise price equal to 100% of the fair market value of the Common Stock on the grant date. The discretionary option grant program and the stock issuance program will be administered by the Compensation Committee. The Compensation Committee as Plan Administrator will have complete discretion to determine which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when such option grants or stock issuances are to be made, the number of shares subject to each such grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the Federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The automatic option grant program will be self-executing in accordance with the terms of that program, and neither the Compensation Committee nor the Board of Directors will exercise any administrative discretion with respect to option grants under that program. The exercise price for shares of Common Stock subject to option grants made under the 1997 Plan may be paid in cash or in shares of Common Stock valued at fair market value on the exercise date. The option may also be exercised through a same-day sale program without any cash outlay by the optionee. In addition, the Plan Administrator may provide financial assistance to one or more optionees in the exercise of their outstanding options or the purchase of their unvested shares by allowing such individuals to deliver a full-recourse, interest-bearing promissory note in payment of the exercise or purchase price and any associated withholding taxes incurred in connection with such exercise or purchase. The Plan Administrator will have the authority to effect the cancellation of outstanding options under the discretionary option grant program (including options incorporated from the Predecessor Plan) in return for the grant of new options for the same or different number of option shares with an exercise price per share based upon the fair market value of the Common Stock on the new grant date. In the event that the Company is acquired by merger or sale of substantially all of its assets or securities possessing more than 50% of the total combined voting power of the Company's outstanding securities, each outstanding option under the discretionary option grant program which is not to be assumed by the successor corporation or is otherwise to continue in effect pursuant to the express terms of the transaction will automatically accelerate in full, and all unvested shares under the discretionary option grant program and stock issuance program will immediately vest, except to the extent the Company's repurchase rights with respect to those shares are assigned to the successor corporation or are otherwise to continue in effect. The Plan Administrator will have complete discretion to grant one or more options under the discretionary option grant program which will become exercisable on an accelerated basis for all or part of the option shares upon (i) an acquisition of the Company, whether or not those options are assumed or continued in effect, or (ii) the termination of the holder's service within a designated period following an acquisition in which those options are assumed or continued in effect. The vesting of outstanding shares under the stock issuance program may be accelerated upon similar 47 terms and conditions. The options incorporated from the Predecessor Plan will terminate upon an acquisition of the Company by merger or asset sale, unless those options are assumed by the successor entity. However, the Plan Administrator will have the discretion to extend the acceleration provisions of the 1997 Plan to those options. Under the automatic option grant program, each individual who is serving as a non-employee member of the Board of Directors on the date the Underwriting Agreement for the offering is executed, will automatically receive an option grant on that date for 5,000 shares of Common Stock. Each individual who first becomes a non-employee member of the Board of Directors at any time thereafter will receive a 25,000-share option grant on the date such individual joins the Board of Directors, provided such individual has not previously been an employee of the Company or any parent or subsidiary corporation. In addition, on the date of each annual stockholders' meeting, beginning with the annual meeting to be held in the calendar year immediately following the execution date of the Underwriting Agreement, each non-employee member of the Board of Directors who is to continue to serve as non-employee member of the Board of Directors will automatically be granted an option to purchase 5,000 shares of Common Stock, provided such individual has served on the Board of Directors for at least six months. Each automatic grant for the non-employee members of the Board of Directors will have a term of 10 years, subject to earlier termination following the holder's cessation of Board of Directors service. Any unvested shares purchased under the option will be subject to repurchase by the Company, at the exercise price paid per share, should the holder cease Board of Directors service prior to vesting in those shares. Each automatic option will be immediately exercisable for all of the option shares. The shares subject to each 25,000-share automatic option grant will vest over a four-year period in successive equal annual installments upon the holder's completion of each year of Board of Directors service measured from the option grant date. Each 5,000-share automatic option grant will vest upon the holder's completion of one-year of Board of Directors service measured from the grant date. However, the shares subject to each automatic grant will immediately vest in full upon certain changes in control or ownership of the Company or upon the holder's death or disability while a member of the Board of Directors. The Board of Directors may amend or modify the 1997 Plan at any time, subject to any required stockholder approval. The 1997 Plan will terminate on the earliest of (i) November 6, 2007, (ii) the date on which all shares available for issuance under the 1997 Plan have been issued as fully-vested shares, or (iii) the termination of all outstanding options in connection with certain changes in control or ownership of the Company. 48 CERTAIN TRANSACTIONS At the time of the Company's formation in January 1996, the Company issued (i) 539,000 shares of its common stock, par value $.01 per share (the "Original Common Stock"), to Poppe Tyson in exchange for $500,000 and certain other assets, and (ii) 366,912 shares of Original Common Stock to Kevin J. O'Connor and Dwight A. Merriman (the "IAN Stockholders") in exchange for certain assets distributed to them by IAN, including $75,000 in cash. Poppe Tyson subsequently distributed its shares to Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E"). On August 28, 1996, the Company amended its Certificate of Incorporation to provide for four classes of common stock consisting of Original Common Stock, class A common stock (the "Class A Stock"), class B non-voting common stock (the "Class B Stock") and class C common stock (the "Class C Stock"). At such time, all outstanding shares of Original Common Stock were converted into an equal number of shares of Class A Stock. On May 14, 1997, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with DoubleClick Acquisition Corp. ("Newco"), BJK&E, all holders of the Company's capital stock, and Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP Associates, BCIP Trust Associates, L.P., Brookside Capital Partners Fund, L.P., Greylock Equity Limited Partnership, Greylock IX Limited Partnership and ABS Capital Partners II, L.P. (collectively, the "Initial Investors"). Canaan S.B.I.C., L.P., Canaan Equity, L.P., Canaan Capital Limited Partnership, Canaan Offshore Limited Partnership, Venrock Associates and Venrock Associates II, L.P. (collectively, the "Additional Investors") subsequently joined as parties to the Merger Agreement. Immediately prior to the Merger, the Initial Investors and the Additional Investors held all of the 36,667 shares of Newco common stock, par value $.001 per share (the "Newco Common Stock"), and Newco had assets of $36,667,000 in cash. In the Merger, each share of Newco Common Stock was converted into one share of the Company's Convertible Preferred Stock. Immediately prior to the closing of the Merger, the Company delivered to BJK&E $1,385,832 and a convertible promissory note in the principal amount of $5,000,000 in partial satisfaction of all working capital advances made by BJK&E to the Company. The Convertible Note bears interest per annum at a rate equal to the Federal Short-Term Rate. All unpaid principal, together with any and all accrued and unpaid interest, is due on June 4, 2000. At any time prior to such date, the Convertible Note is convertible, at the option of BJK&E, into such number of shares of the Company's Common Stock as is determined by dividing the unpaid principal balance by $6.42, subject to adjustment under certain circumstances. It is currently anticipated that BJK&E will convert the Convertible Note prior to the closing of the offering. To induce the Initial Investors to enter into the Merger Agreement, concurrently with the closing of the Merger, the Company undertook a recapitalization whereby each share of Class A Stock was converted into one share of the Company's Common Stock, each share of Class B Stock was converted into 0.28 shares of the Company's Common Stock plus cash in lieu of fractional shares equal to $4.64 per share, and each share of Class C Stock was converted into 0.28 shares of the Company's Common Stock plus cash in lieu of fractional shares equal to $4.64 per share. On June 10, 1997, WPG Enterprise Fund III, L.P., Weiss, Peck & Greer Venture Associates IV, L.P. and Weiss, Peck & Greer Venture Associates IV Cayman, L.P. purchased from the Company an aggregate of 3,333 shares of the Company's Convertible Preferred Stock in consideration for $3,333,000. For information regarding the grant of stock options to executive officers and directors, see "Management -- Compensation of Directors", "-- Executive Compensation", "-- Stock Plans" and "Principal Stockholders". 49 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Common Stock as of December 15, 1997 by (i) each person (or group of affiliated persons) who is known by the Company to beneficially own four percent or more of the Common Stock, (ii) each director and Named Executive Officer of the Company, and (iii) all directors and executive officers of the Company as a group.
PERCENT OF OWNERSHIP ---------------------------- VOTING SHARES PRIOR TO THE AFTER THE NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING - ----------------------------------------------------------------- --------------------- --------------- ----------- Kevin J. O'Connor(2)............................................. 2,654,248 21.2% 17.9% Bain Capital, Inc.(3)............................................ 2,182,060 17.7 14.9 Mark E. Nunnelly(4).............................................. 2,182,060 17.7 14.9 Voting Trustee Committee(5)...................................... 1,493,854 12.1 10.2 Greylock Management Corp.(6)..................................... 1,246,884 10.1 8.5 David N. Strohm(7)............................................... 1,246,884 10.1 8.5 ABS Capital Partners II, L.P.(8)................................. 1,246,883 10.1 8.5 Dwight A. Merriman(9)............................................ 1,219,692 9.8 8.3 Bozell, Jacobs, Kenyon & Eckhardt, Inc.(10)...................... 779,302 6.3 5.3 Canaan Partners(11).............................................. 519,640 4.2 3.6 Weiss, Peck & Greer, L.L.C.(12).................................. 519,484 4.2 3.6 Venrock Associates(13)........................................... 519,483 4.2 3.6 W. Grant Gregory(14)............................................. 494,949 4.0 3.4 Wenda Harris Millard(15)......................................... 30,000 * * Kevin P. Ryan(16)................................................ 20,000 * * John L. Heider(17)............................................... 9,000 * * Barry A. Salzman(18)............................................. -- * * All directors and executive officers as a group (10 persons)(19)................................................... 8,563,647 68.0 57.5
- ------------------------ * Less than one percent. (1) Gives effect to the shares of Common Stock issuable within 60 days of December 15, 1997 upon the exercise of all options and other rights beneficially owned by the indicated stockholders on that date. Beneficial ownership is determined in accordance with the rules of the Commission and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned. (2) Includes (i) 184,648 shares of Common Stock issuable upon the exercise of stock options and (ii) 3,920 shares of Common Stock held by Nancy O'Connor, Mr. O'Connor's wife. Does not include 131,892 shares of Common Stock issuable upon exercise of stock options that do not vest within 60 days of December 15, 1997. (3) Consists of (i) 368,766 shares of Common Stock held by Bain Capital Fund V, LP, (ii) 960,256 shares of Common Stock held by Bain Capital Fund V-B, LP, (iii) 268,548 shares of Common Stock held by BCIP Associates, (iv) 286,004 shares of Common Stock held by BCIP Trust Associates, LP, (v) 225,998 shares of Common Stock held by Brookside Capital Partners, LP, and (vi) 72,488 shares of Common Stock held by various persons and entities associated with Thomas M. Lee Company, over which shares Bain Capital, Inc. has voting power. The address of the entities associated with Bain Capital, Inc. is Two Copley Place, 7th Floor, Boston, Massachusetts 02116. 50 (4) Consists of 2,182,240 shares of Common Stock held by several entities associated with Bain Capital, Inc., of which Mr. Nunnelly is a Managing Director. Mr. Nunnelly disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. (5) The Voting Trustee Committee (the "Trust") was established pursuant to the Voting Trust Agreement, dated as of June 4, 1997, by and between the Company and certain stockholders of the Company. The shares of Common Stock held of record by the Trust are beneficially owned by approximately 180 individuals and entities. The address of the Trust is c/o Bozell, Jacobs, Kenyon & Eckhardt, Inc., 40 West 23rd Street, New York, New York 10010. (6) Consists of (i) 623,442 shares of Common Stock held by Greylock Equity Limited Partnership and (ii) 623,442 shares of Common Stock held by Greylock IX Limited Partnership. The address of the entities associated with Greylock Management Corp. is One Federal Street, Boston, Massachusetts 02110. (7) Consists of 1,246,884 shares of Common Stock held by several entities associated with Greylock Management Corp., of which Mr. Strohm is an employee. Mr. Strohm disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. (8) The address of ABS Capital Partners II, L.P. is 1 South Street, Baltimore, Maryland 21202. An affiliate of BT Alex. Brown Incorporated, one of the representatives of the Underwriters in the offering, is a limited partner of ABS Capital Partners II, L.P. In addition, another affiliate of BT Alex. Brown Incorporated is a non-managing member of ABS Partners II, LLC, the general partner of ABS Capital Partners II, L.P. (9) Includes 82,892 shares of Common Stock issuable upon the exercise of stock options. Does not include 59,209 shares of Common Stock issuable upon the exercise of stock options that do not vest within 60 days of December 15, 1997. (10) Consists of 779,302 shares of Common Stock issuable upon the conversion of the Convertible Note. The address of BJK&E is 40 West 23rd Street, New York, New York 10010. Mr. W. Grant Gregory, a director of the Company, is also a director of BJK&E. See "Certain Transactions". (11) Consists of (i) 246,883 shares of Common Stock held by Canaan, S.B.I.C., L.P., (ii) 259,820 shares of Common Stock held by Canaan Equity, L.P., (iii) 1,403 shares of Common Stock held by Canaan Capital Limited Partnership, and (iv) 11,534 shares of Common Stock held by Canaan Capital Offshore Limited Partnership, C.V. The address of the entities associated with Canaan Partners is 2884 Sand Hill Road, Menlo Park, California 94025. (12) Consists of (i) 230,362 shares of Common Stock held by WPG Enterprise Fund III, L.P., (ii) 255,923 shares of Common Stock held by Weiss, Peck & Greer Venture Associates IV, L.P., and (iii) 33,199 shares of Common Stock held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P. The address of the entities associated with Weiss, Peck & Greer, L.L.C. is 555 California Street, San Francisco, California 94104. (13) Consists of (i) 223,348 shares of Common Stock held by Venrock Associates and (ii) 296,135 shares of Common Stock held by Venrock Associates II, L.P. The address of the entities associated with Venrock Associates is 755 Page Mill Road, Suite A230, Palo Alto, California, 94304. (14) Includes 493,796 shares of Common Stock beneficially owned by DC Investment Corp, LLC, a Delaware limited liability company, of which Mr. Gregory is the Manager. Mr. Gregory is a director of BJK&E and disclaims beneficial ownership of the 779,302 shares of Common Stock issuable to BJK&E upon conversion of the Convertible Note. See "Certain Transactions." (15) Does not include 90,000 shares of Common Stock issuable upon the exercise of stock options that do not vest within 60 days of December 15, 1997. 51 (16) Does not include 280,000 shares of Common Stock issuable upon the exercise of stock options that do not vest within 60 days of December 15, 1997. (17) Does not include 66,000 shares of Common Stock issuable upon the exercise of stock options that do not vest within 60 days of December 15, 1997. (18) Does not include 100,000 shares of Common Stock issuable upon the exercise of stock options that do not vest within 60 days of December 15, 1997. (19) Includes 267,540 shares of Common Stock issuable upon the exercise of stock options that vest within 60 days of December 15, 1997. See notes 2 through 18. 52 DESCRIPTION OF SECURITIES The following description of the securities of the Company and certain provisions of the Company's Certificate of Incorporation (the "Certificate"), the Bylaws and the Convertible Note are summaries thereof and are qualified by reference to the Certificate, the Bylaws and the Convertible Note, copies of which have been filed with the Commission as exhibits to the Company's Registration Statement, of which this Prospectus forms a part. The descriptions of the Common Stock and Preferred Stock reflect changes to the Company's capital structure that will occur upon the receipt of the requisite Board of Directors and stockholder approvals and upon the closing of the offering in accordance with the terms of the Certificate. The authorized capital stock of the Company consists of 60,000,000 shares of Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred Stock, par value $.001 per share. COMMON STOCK As of September 30, 1997, there were 12,306,343 shares of Common Stock outstanding and held of record by 54 stockholders. Based upon the number of shares outstanding as of that date and giving effect to the issuance of the 2,300,000 shares of Common Stock offered by the Company hereby, there will be 14,606,343 shares of Common Stock outstanding upon the closing of the offering. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor, subject to any preferential dividend rights of any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding Preferred Stock. Holders of the Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares offered by the Company in the offering will be, when issued in consideration for payment thereof, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. Upon the closing of the offering, there will be no shares of Preferred Stock outstanding. PREFERRED STOCK Upon the closing of the offering, the Board of Directors will be authorized, without further stockholder approval, to issue from time to time up to an aggregate of 5,000,000 shares of Preferred Stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. The Company has no present plans to issue any shares of Preferred Stock. See " -- Anti-Takeover Effects of Certain Provisions of Delaware Law and the Company's Certificate of Incorporation and Bylaws". OPTIONS As of September 30, 1997, options to purchase a total of 1,813,155 shares ("Option Shares") of Common Stock were outstanding, approximately 1,165,930 of which are subject to lock-up agreements 53 entered into with the Underwriters. Beginning 90 days after the date of this Prospectus, approximately 268,313 Option Shares which are not subject to lock-up agreements will be eligible for sale in reliance on Rule 701 promulgated under the Securities Act. The total number of shares of Common Stock that may be subject to the granting of options under the 1997 Plan shall be equal to: (i) 3,000,000 shares, plus (ii) the number of shares with respect to options previously granted under the 1997 Plan that terminate without being exercised, expire, are forfeited or canceled, (iii) an amount equal to, on the first trading day of each year, three percent (3%) of the total number of shares of Common Stock outstanding on the last trading day of the immediately preceding calendar year, and (iv) the number of shares of Common Stock that are surrendered in payment of any options or any tax withholding requirements. See "Management -- Stock Plans" and "Shares Eligible for Future Sale". REGISTRATION RIGHTS Pursuant to the terms of the Stockholders Agreement, after the closing of the offering the holders of 6,234,434 shares of Common Stock will be entitled to certain demand registration rights with respect to the registration of such shares under the Securities Act. The holders of 50% or more of such shares are entitled to demand that the Company register their shares under the Securities Act, subject to certain limitations. The Company is not required to effect more than two such registrations pursuant to such demand registration rights and not more than one in any 12 month period. In addition, pursuant to the terms of the Stockholders Agreement, after the closing of the offering the holders of 11,552,658 shares of Common Stock will be entitled to certain piggyback registration rights with respect to the registration of such shares of Common Stock under the Securities Act. In addition, pursuant to the terms of the Stockholders Agreement, the holders of 2,048,105 Option Shares will be entitled to certain piggyback registration rights with respect to the registration of such shares under the Securities Act. In the event that the Company proposes to register any shares of Common Stock under the Securities Act, either for its account or for the account of other security holders, the holders shares having piggyback rights are entitled to receive notice of such registration and are entitled to include their shares therein, subject to certain limitations. Further, at any time after the Company becomes eligible to file a registration statement on Form S-3 certain holders may require the Company to file registration statements under the Securities Act on Form S-3 with respect to their shares of Common Stock. These registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares of Common Stock held by security holders with registration rights to be included in such registration. The Company is generally required to bear all of the expenses of all such registrations, except underwriting discounts and commissions. Registration of any of the shares of Common Stock held by security holders with registration rights would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of such registration. ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS The Company is subject to the provisions of Section 203 of the Delaware General Corporation Law (as amended from time to time, the "DGCL"). Subject to certain exceptions, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the interested stockholder attained such status with the approval of the board of directors or unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, fifteen percent (15%) or more of the corporation's voting stock. This statute could prohibit or delay the accomplishment of mergers or 54 other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. In addition, certain provisions of the Certificate and Bylaws, which provisions will be in effect upon the closing of the offering and are summarized in the following paragraphs, may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders. CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors will be divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the Board of Directors will be elected each year. These provisions, when coupled with the provision of the Certificate authorizing the Board of Directors to fill vacant directorships or increase the size of the Board of Directors, may deter a stockholder from removing incumbent directors and simultaneously gaining control of the Board of Directors by filling the vacancies created by such removal with its own nominees. STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The Certificate provides that stockholders may not take action by written consent, but only at duly called annual or special meetings of stockholders. The Certificate further provides that special meetings of stockholders of the Company may be called only by the Chairman of the Board of Directors or a majority of the Board of Directors. ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. The Bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Company, not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company's notice of annual meeting provided with respect to the previous year's annual meeting of stockholders; provided, that if no annual meeting of stockholders was held in the previous year or the date of the annual meeting of stockholders has been changed to be more than 30 calendar day earlier than or 60 calendar days after such anniversary, notice by the stockholder, to be timely, must be so received not more than 90 days nor later than the later of (i) 60 days prior to the annual meeting of stockholders or (ii) the close of business on the 10th day following the date on which notice of the date of the meeting is given to stockholders or made public, whichever first occurs. The Bylaws also specify certain requirements as to the form and content of a stockholder's notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders. AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of Common Stock and Preferred Stock are available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of the Company by means of a proxy contest, tender offer, merger or otherwise. The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws, unless a corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Certificate provides that, except to the extent prohibited by DGCL, the Company's directors shall not be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as directors of the Company. Under the DGCL, the directors have a fiduciary duty to the 55 Company which is not eliminated by this provision of the Certificate 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 Company, for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or which involves intentional misconduct, or 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 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 Company 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 a 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 the corporation's bylaws, any agreement, a vote of stockholders or otherwise. The Certificate eliminates the personal liability of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL and provides that the Company 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 Company, or is or was serving at the request of the Company 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. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under the Certificate. The Company is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Stock Transfer and Trust Company, New York, New York. 56 SHARES ELIGIBLE FOR FUTURE SALE Upon the closing of the offering, the Company will have an aggregate of 14,631,968 shares of Common Stock outstanding, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options to purchase Common Stock. Of these shares, the 2,300,000 shares sold in the offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by "affiliates" of the Company, as that term is defined in Rule 144 promulgated under the Securities Act, may generally only be sold in compliance with the limitations described below. The remaining 12,331,968 shares of Common Stock will be deemed "restricted securities" as defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market (subject in the case of shares held by affiliates to compliance with certain volume restrictions) as follows: (i) 155,250 shares will be eligible for sale 90 days after the date of this Prospectus, and (ii) 12,180,571 shares will be eligible for sale upon the expiration of lock-up agreements 180 days after the date of this Prospectus, including 783,163 shares issuable upon the exercise of outstanding stock options. In general, under Rule 144, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares for at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this Prospectus, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock (approximately 146,320 shares immediately after the offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of such sale is filed, subject to certain restrictions. In addition, a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. To the extent that shares were acquired from an affiliate of the Company, such affiliates' holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate. Rule 701 promulgated under the Securities Act provides that shares of Common Stock acquired pursuant to written plans such as the 1997 Plan may be resold by persons other than affiliates, beginning 90 days after the date of this Prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates, beginning 90 days after the date of this Prospectus, subject to all provisions of Rule 144 except its one-year minimum holding period. After the date of this Prospectus, the Company intends to file a Form S-8 registration statement under the Securities Act to register all shares of Common Stock issuable under the Stock Plans. Such registration statement is expected to become effective immediately upon filing, and shares covered by that registration statement will thereupon be eligible for sale in the public markets, subject to certain lock-up agreements and Rule 144 limitations applicable to affiliates. See "Management--Compensation of Directors" and "--Stock Plans". Prior to the offering, there has not been any public market for the Common Stock of the Company, and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of shares for sale will have on the market price of the Common Stock prevailing from time to time. Nevertheless, sales of substantial amounts of Common Stock in the public market could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through the sale of its equity securities. 57 All directors and officers and certain stockholders of the Company (holding an aggregate of 11,506,201 shares of Common Stock) have agreed that they will not, without the prior written consent of the representatives of the Underwriters, sell or otherwise dispose of any shares of Common Stock or options to acquire shares of Common Stock during the 180-day period following the date of this Prospectus. See "Underwriting". The Company has agreed not to sell or otherwise dispose of any shares of Common Stock during the 180-day period following the date of the Prospectus, except the Company may issue, and grant options to purchase, shares of Common Stock under the Stock Plans. In addition, the Company may issue shares of Common Stock in connection with any acquisition of another company if the terms of such issuance provide that such Common Stock shall not be resold prior to the expiration of the 180-day period referenced in the preceding sentence. See "Risk Factors--Shares Eligible for Future Sale". LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, New York, New York. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Hale and Dorr LLP, Boston, Massachusetts. EXPERTS The consolidated financial statements of the Company as of December 31, 1996 and for the period from January 23, 1996 (inception) through December 31, 1996 included in this Prospectus have been included in reliance on the report of Price Waterhouse LLP, the Company's independent accountants, given on the authority of such firm as experts in auditing and accounting. CHANGE IN ACCOUNTANTS On July 24, 1997, the Company dismissed KPMG Peat Marwick LLP and engaged Price Waterhouse LLP as its independent accountants to audit its financial statements as of, and for the period ended, December 31, 1996. The decision to change independent accountants from KPMG Peat Marwick LLP to Price Waterhouse LLP was approved by the Company's Board of Directors. The Company believes, and has been advised by KPMG Peat Marwick LLP that it concurs in such belief, that, for the period from January 23, 1996 (inception) through December 31, 1996, the Company and KPMG Peat Marwick LLP did not have any disagreement on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of KPMG Peat Marwick LLP would have caused it to make reference in connection with its report on the Company's financial statements to the subject matter of the disagreement. The report of KPMG Peat Marwick LLP on the Company's financial statements for the period from January 23, 1996 (inception) through December 31, 1996 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During that year there were no "reportable events" within the meaning of Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities Act. 58 ADDITIONAL INFORMATION The Company has filed with the Commission a registration statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the offer and sale of Common Stock pursuant to the Prospectus. This Prospectus, filed as part of the Registration Statement, does not contain all the information set forth in the Registration Statement or the exhibits thereto in accordance with the rules and regulations of the Commission, and reference is hereby made to such omitted information. Statements made in this Prospectus concerning the contents of any contract, agreement or other document filed as an exhibit to the Registration Statement are summaries of the terms of such contracts, agreements or documents and are not necessarily complete. Reference is made to each such exhibit for a more complete description of the matters involved, and such statements shall be deemed qualified by such reference. The Registration Statement and the exhibits thereto filed with the Commission may be inspected, without charge, and copies may be obtained at prescribed rates, at the public reference facility maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Registration Statement and other information filed by the Company with the Commission also are available at the Web site maintained by the Commission on the World Wide Web at http://www.sec.gov. For further information pertaining to the Company and the Common Stock offered by this Prospectus, reference is hereby made to the Registration Statement. 59 DOUBLECLICK INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- Report of Price Waterhouse LLP, Independent Accountants.............................. F-2 Consolidated Balance Sheet as of December 31, 1996 and September 30, 1997 (unaudited)........................................................................ F-3 Consolidated Statement of Operations for the period from January 23, 1996 (inception) to December 31, 1996, for the period from January 23, 1996 (inception) to September 30, 1996 (unaudited), and for the nine months ended September 30, 1997 (unaudited)........................................................................ F-4 Consolidated Statement of Changes in Stockholders' (Deficit) Equity for the period from January 23, 1996 (inception) to December 31, 1996, and for the nine months ended September 30, 1997 (unaudited)............................................... F-5 Consolidated Statement of Cash Flows for the period from January 23, 1996 (inception) to December 31, 1996, for the period from January 23, 1996 (inception) to September 30, 1996 (unaudited), and for the nine months ended September 30, 1997 (unaudited)........................................................................ F-6 Notes to Consolidated Financial Statements........................................... F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of DoubleClick Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of DoubleClick Inc. and its subsidiary at December 31, 1996, and the results of their operations and their cash flows for the period from January 23, 1996 (inception) to December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /S/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP NEW YORK, NEW YORK DECEMBER 15, 1997 F-2 DOUBLECLICK INC. CONSOLIDATED BALANCE SHEET
PRO FORMA CONVERSION OF CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE NOTE PAYABLE (NOTE 1) DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1996 1997 1997 -------------- -------------- -------------------- (UNAUDITED) (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents.................................. $ -- $ 4,639,741 Short-term investments..................................... -- 8,099,686 Accounts receivable, less allowance for doubtful accounts of $150,000 at December 31, 1996 and $362,075 at September 30, 1997....................................... 4,078,837 7,464,036 Prepaid expenses and other current assets.................. -- 79,026 -------------- -------------- Total current assets................................... 4,078,837 20,282,489 Property and equipment, net................................ 445,794 1,660,605 Investments, at cost....................................... -- 254,926 Other assets............................................... 900 65,455 -------------- -------------- Total assets........................................... $ 4,525,531 $ 22,263,475 -------------- -------------- LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES: Accounts payable........................................... $ 1,948,714 $ 5,536,597 Accrued expenses........................................... 1,097,418 2,570,057 Deferred revenues.......................................... 733,433 864,342 Deferred license and service fees.......................... -- 112,500 Due to related party....................................... 3,337,736 -- -------------- -------------- Total current liabilities.............................. 7,117,301 9,083,496 Convertible note payable to related party.................. -- 5,000,000 $ -- Deferred license and service fees.......................... -- 337,500 STOCKHOLDERS' (DEFICIT) EQUITY: Convertible preferred stock, par value $.001; 40,000 shares authorized; issued and outstanding; 40,000 at September 30, 1997; none pro forma................................. -- 40 -- Common stock, par value $.001; 40,000,000 shares authorized; issued and outstanding 9,059,120 shares at December 31, 1996; 5,292,607 at September 30, 1997; 12,306,343 pro forma..................................... 9,059 5,293 12,306 Additional paid-in capital................................. 590,941 41,988,800 46,981,827 Deferred compensation...................................... -- (1,350,994) (1,350,994) Accumulated deficit........................................ (3,191,770) (32,800,660) (32,800,660) -------------- -------------- -------------------- Total stockholders' (deficit) equity................... (2,591,770) 7,842,479 $ 12,842,479 -------------- -------------- -------------------- -------------------- Commitments (Note 8) Total liabilities and stockholders' (deficit) equity... $ 4,525,531 $ 22,263,475 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 DOUBLECLICK INC. CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM PERIOD FROM JANUARY 23, 1996 JANUARY 23, 1996 NINE MONTHS (INCEPTION) THROUGH (INCEPTION) THROUGH ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1996 1996 1997 -------------------- -------------------- -------------- (UNAUDITED) (UNAUDITED) Revenues.............................................. $ 6,514,087 $ 2,664,549 $ 19,657,224 Cost of revenues...................................... 3,780,133 1,178,645 13,047,902 -------------------- -------------------- -------------- Gross profit........................................ 2,733,954 1,485,904 6,609,322 -------------------- -------------------- -------------- Operating expenses Sales and marketing................................. 3,079,305 1,473,537 6,606,238 General and administrative.......................... 2,144,312 1,127,004 3,607,248 Product development................................. 618,251 336,858 1,014,792 -------------------- -------------------- -------------- Total operating expenses.......................... 5,841,868 2,937,399 11,228,278 -------------------- -------------------- -------------- Loss from operations.................................. (3,107,914) (1,451,495) (4,618,956) Interest income....................................... 7,234 4,991 271,799 Interest expense...................................... (91,090) (44,720) (265,286) -------------------- -------------------- -------------- Net loss.............................................. $ (3,191,770) $ (1,491,224) $ (4,612,443) -------------------- -------------------- -------------- -------------------- -------------------- -------------- Pro forma net loss per share.......................... $ (0.24) $ (0.32) -------------------- -------------- -------------------- -------------- Pro forma weighted average shares used in per share calculation......................................... 13,403,048 14,449,177 -------------------- -------------- -------------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 DOUBLECLICK INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY (UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
COMMON CLASS A COMMON CLASS B COMMON CLASS C COMMON STOCK ------------------------ ------------------------- ------------------------ ----------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES ----------- ----------- ------------ ----------- ----------- ----------- ----------- Capitalization at inception.... 9,059,120 $ 9,059 Exchange of Class A shares for Class B and Class C shares... (5,118,230) (5,118) 5,118,228 $ 5,117 2 $ 1 Net loss....................... ----------- ----------- ------------ ----------- ----- ----- ----------- Balance at December 31, 1996... 3,940,890 3,941 5,118,228 5,117 2 1 -- Class A shares issued upon excercise of stock options...................... 28,750 29 Issuance of Convertible Preferred Stock, net of issuance costs of $168,006..................... Exchange of Class A shares for Class B shares............... (271,770) (272) 271,770 272 Exchange of Class A, B and C shares for Common shares................ (3,697,870) (3,698) (1,493,861) (1,494) (1) 5,191,732 Class B and C shares redeemed..................... (3,896,137) (3,895) (1) (1) Common shares issued for stock options...................... 100,875 Deferred compensation.......... Amortization of deferred compensation................. Net loss....................... ----------- ----------- ------------ ----------- ----- ----- ----------- Balance at September 30, 1997 (unaudited).................. -- $ -- -- $ -- -- $ -- 5,292,607 ----------- ----------- ------------ ----------- ----- ----- ----------- ----------- ----------- ------------ ----------- ----- ----- ----------- CONVERTIBLE PREFERRED STOCK ------------------------ ADDITIONAL DEFERRED ACCUMULATED AMOUNT SHARES AMOUNT PAID-IN CAPITAL COMPENSATION DEFICIT ----------- --------- ------------- --------------- --------------- -------------- Capitalization at inception.... $ 590,941 Exchange of Class A shares for Class B and Class C shares... Net loss....................... $ (3,191,770) ----------- --------- --- --------------- --------------- -------------- Balance at December 31, 1996... $ -- -- $ -- 590,941 $ -- (3,191,770) Class A shares issued upon excercise of stock options...................... 3,637 Issuance of Convertible Preferred Stock, net of issuance costs of $168,006..................... 40,000 $ 40 39,831,954 Exchange of Class A shares for Class B shares............... Exchange of Class A, B and C shares for Common shares................ 5,192 Class B and C shares redeemed..................... (24,996,447) Common shares issued for stock options...................... 101 15,196 Deferred compensation.......... 1,547,072 (1,547,072) Amortization of deferred compensation................. 196,078 Net loss....................... (4,612,443) ----------- --------- --- --------------- --------------- -------------- Balance at September 30, 1997 (unaudited).................. $ 5,293 40,000 $ 40 $ 41,988,800 $ (1,350,994) $(32,800,660) ----------- --------- --- --------------- --------------- -------------- ----------- --------- --- --------------- --------------- -------------- TOTAL STOCKHOLDERS' (DEFICIT) EQUITY ---------------- Capitalization at inception.... $ 600,000 Exchange of Class A shares for Class B and Class C shares... Net loss....................... (3,191,770) ---------------- Balance at December 31, 1996... (2,591,770) Class A shares issued upon excercise of stock options...................... 3,666 Issuance of Convertible Preferred Stock, net of issuance costs of $168,006..................... 39,831,994 Exchange of Class A shares for Class B shares............... Exchange of Class A, B and C shares for Common shares................ Class B and C shares redeemed..................... (25,000,343) Common shares issued for stock options...................... 15,297 Deferred compensation.......... -- Amortization of deferred compensation................. 196,078 Net loss....................... (4,612,443) ---------------- Balance at September 30, 1997 (unaudited).................. $ 7,842,479 ---------------- ----------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 DOUBLECLICK INC. CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM PERIOD FROM JANUARY 23, 1996 JANUARY 23, 1996 NINE MONTHS (INCEPTION) THROUGH (INCEPTION) THROUGH ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1996 1996 1997 -------------------- -------------------- -------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net loss............................................ $ (3,191,770) $ (1,491,224) $ (4,612,443) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization................... 45,932 30,094 236,317 Amortization of deferred compensation expense... -- -- 196,078 Provision for bad debts......................... 150,000 150,000 212,075 Changes in operating assets and liabilities: Accounts receivable........................... (4,228,837) (2,523,951) (3,597,273) Prepaid expenses and other current assets..... (900) (45,236) (143,581) Accounts payable.............................. 1,948,714 742,013 3,587,883 Accrued expenses.............................. 1,097,418 430,327 1,472,639 Deferred revenues............................. 733,433 308,520 580,909 -------------------- -------------------- -------------- Net cash used in operating activities....... (3,446,010) (2,399,457) (2,067,396) -------------------- -------------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments................. -- -- (8,099,686) Purchases of property and equipment................. (491,726) (314,023) (1,451,129) Investments......................................... -- -- (254,926) -------------------- -------------------- -------------- Net cash used in investing activities....... (491,726) (314,023) (9,805,741) -------------------- -------------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock.............. 600,000 600,000 -- Proceeds from exercise of common stock options...... -- -- 18,963 Proceeds from issuance of preferred stock, net...... -- -- 39,831,994 Redemption of common stock.......................... -- -- (25,000,343) Advances from related party......................... 3,337,736 2,113,480 3,048,096 Repayment of advances to related party.............. -- -- (1,385,832) -------------------- -------------------- -------------- Net cash provided by financing activities... 3,937,736 2,713,480 16,512,878 -------------------- -------------------- -------------- Net increase in cash and cash equivalents............. -- -- 4,639,741 Cash and cash equivalents at beginning of period...... -- -- -- -------------------- -------------------- -------------- Cash and cash equivalents at end of period............ $ -- $ -- $ 4,639,741 -------------------- -------------------- -------------- -------------------- -------------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF OPERATIONS DoubleClick Inc. and subsidiary (the "Company") is a leading provider of comprehensive Internet advertising solutions for advertisers and Web publishers. The Company's DART technology and media expertise enable it to dynamically deliver highly targeted, measurable and cost-effective Internet advertising for advertisers, increase ad sales and improve ad space inventory management for Web publishers. The Company was organized as a Delaware corporation on January 23, 1996 and commenced operations on that date. Inherent in the Company's business are various risks and uncertainties, including its limited operating history, unproven business model and the limited history of commerce on the Internet. The Company's success may depend in part upon the emergence of the Internet as a communications medium, prospective product development efforts, and the acceptance of the Company's solutions by the marketplace. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, DoubleClick Canada Network Inc. All significant intercompany transactions and balances have been eliminated. Investments in less than 20% owned business partners, for which the Company does not have the ability to exercise significant influence and there is not a readily determinable market value, are accounted for using the cost method of accounting. Dividends and other distributions of earnings from investees, if any, are included in income when declared. INTERIM FINANCIAL STATEMENTS (UNAUDITED) In the opinion of the Company's management, the September 30, 1996 and 1997 unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation. PRO FORMA CONVERSION OF PREFERRED STOCK AND CONVERTIBLE NOTE PAYABLE (UNAUDITED) On November 7, 1997, the Board of Directors of the Company authorized management to pursue an initial public offering of the Company's common stock. Upon closing of the Company's proposed initial public offering, the Company's Convertible Preferred Stock will automatically convert into 6,234,434 shares of Common Stock. In addition, it is anticipated that, prior to the closing of the Company's proposed initial public offering, the holder of the Convertible Note Payable will exercise its conversion feature and receive 779,302 shares of Common Stock upon conversion thereof. The pro forma effect of the conversion of the Convertible Preferred Stock and the Convertible Note Payable on stockholders' equity has been presented as a separate column in the Company's consolidated balance sheet assuming the conversions had occurred on September 30, 1997. F-7 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) MANAGEMENT'S USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all short-term investments with a remaining contractual maturity at date of purchase of three months or less to be cash equivalents. The Company classifies its short-term investments as available-for-sale. Accordingly, these investments, primarily corporate bonds with maturities ranging from four to eight months, are carried at fair value. At September 30, 1997, the fair value of such securities approximated cost and there were no unrealized holding gains or losses. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided using the straight line method over the estimated useful life of the assets. Leasehold improvements are amortized over the terms of the leases. REVENUE RECOGNITION Revenues are derived primarily from the delivery of advertising impressions through third-party Web sites comprising the DoubleClick Network (the "Network"). Revenues are recognized in the period the advertising impressions are delivered provided collection of the resulting receivable is probable. The Company becomes obligated to make payments to third-party Web sites, which have contracted with the Company to be part of the Network, in the period the advertising impressions are delivered. Such expenses are classified as cost of revenues in the consolidated statement of operations. From time-to-time during the period ended December 31, 1996, and to a lesser extent during the period ended September 30, 1997, the Company arranged for the placement of advertising on certain third-party Web sites for which it received commissions and fees. For such transactions, the advertisers were responsible for making payments directly to the Web sites. Commissions and fees derived from such transactions totaled $1,073,745 for the period from January 23, 1996 (inception) to December 31, 1996 and $1,009,987 and $137,064 for the period from January 23, 1996 (inception) to September 30, 1996 and for the nine months ended September 30, 1997, respectively, and are classified as revenues in the consolidated statement of operations. Deferred license and service fees represent payments received in advance from third parties or affiliated companies for use of the Company's trademarks, access to the Company's proprietary technology, and certain personnel during fixed periods of time which range from two to four years. Such fees will be recognized as revenues ratably over the terms of the applicable agreements. The Company is F-8 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) obligated to provide any enhancements or upgrades it develops and other support over the term of the applicable agreements. PRODUCT DEVELOPMENT COSTS Product development costs and enhancements to existing products are charged to operations as incurred. Software development costs are required to be capitalized when a product's technological feasibility has been established by completion of a working model of the product and ending when a product is available for general release to customers. To date, completion of a working model of the Company's products and general release have substantially coincided. As a result, the Company has not capitalized any software development costs since such costs have not been significant. ADVERTISING EXPENSES The Company expenses the cost of advertising and promoting its services as incurred. Such costs are included in sales and marketing on the consolidated statement of operations and totaled $217,546 for the period from January 23, 1996 (inception) through December 31, 1996, and $12,138 and $453,080, for the period from January 23, 1996 (inception) through September 30, 1996, and the nine months ended September 30, 1997, respectively. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK The Company's financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accrued expenses and a convertible note payable to a related party. At December 31, 1996 and September 30, 1997 the fair value of these instruments approximated their financial statement carrying amount. At September 30, 1997, the fair value of the convertible note payable approximated its financial statement carrying amount based on the variable nature of its interest rate and the estimated fair value of the common stock issuable upon conversion of the note. Credit is extended to customers based on an evaluation of their financial condition, and collateral is not required. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts. Revenues derived from customers outside the United States have not been significant. The Company is subject to concentrations of credit risk and interest rate risk related to its short-term investments. The Company's credit risk is managed by limiting the amount of investments placed with any one issuer, investing in money market funds, short term commercial paper, and A1 rated corporate bonds with an average days to maturity of 129 days at September 30, 1997. During the periods presented in the consolidated statement of operations, the Company derived substantially all of its revenues from the delivery of advertisements on Web sites that are part of the Network. In December 1996, the Company entered into a Procurement and Trafficking agreement (the "Agreement") with Digital Equipment Corporation to deliver advertising to users of the AltaVista Web site. Under the terms of the Agreement, the Company is the exclusive representative for the delivery of advertisements on certain pages within the AltaVista Web site, subject to certain exceptions. While the agreement terminates in December 1998, either party may terminate the agreement upon 90 days' prior F-9 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) written notice. AltaVista is a significant part of the Network and is expected to account for a significant portion of the Company revenues for the next few years. The loss of AltaVista as part of the Network, any reduction in traffic on the AltaVista Web site, or a termination of AltaVista's contract with the Company, would have a material adverse effect on the Company's business, results of operations and financial condition. In addition, given the short-term nature of the AltaVista contract, as is the case with most of the Company's advertiser and Web publisher contracts, the Company will have to negotiate new contracts or renewals which may have terms that are not as favorable to the Company as the existing contracts, which could have a material adverse effect on the Company's business, results of operations and financial condition. Net revenues derived from advertising impressions delivered to users of the AltaVista Web site represented 0% and 42.8% of the Company's total revenues for the periods ended December 31, 1996 and September 30, 1997, respectively. No other Web site on the Network was responsible for 10% or more of the Company's total revenues during the periods presented in the consolidated statement of operations. Revenues associated with major advertising customers, as a percentage of revenues, are as follows:
FOR THE PERIOD FROM ---------------------------------------- JANUARY 23, JANUARY 23, 1996 (INCEPTION) 1996 (INCEPTION) NINE MONTHS THROUGH THROUGH ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, CUSTOMER 1996 1996 1997 - ---------- ------------------- ------------------- ------------------- A 7% 7% 10% B 9 19 -- C 10 24 --
Accounts receivable regarding significant customers, as a percentage of total accounts receivable, are as follows:
DECEMBER 31, SEPTEMBER 30, CUSTOMER 1996 1997 - ---------- ------------------- ------------------- A 9% 11% B 2 -- C 10 --
INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that includes the enactment date. F-10 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EQUITY BASED COMPENSATION The Company accounts for its employee stock option plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense related to employee stock options is recorded only if, on the date of grant, the fair value of the underlying stock exceeds the exercise price. The Company adopted the disclosure-only requirements of SFAS No. 123 Accounting for Stock-Based Compensation, which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and provide pro forma net income and pro forma earnings per share disclosures for employee stock grants made in 1996 and future years as if the fair-value-based method of accounting in SFAS No. 123 had been applied to these transactions. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the amount by which the carrying amount of the assets exceeds the fair value of the assets. PRO FORMA NET LOSS PER SHARE Pro forma net loss per share is computed by dividing the net loss by the sum of the weighted average number of shares of common stock and common stock equivalents outstanding during each period and the shares resulting from the assumed conversion of all outstanding shares of Convertible Preferred Stock. Common stock equivalents include all stock options that would have a dilutive effect, applying the treasury stock method. Additionally, common and common equivalent shares issued during the twelve months immediately preceding the initial filing of a registration statement for the Company's initial public offering have been included in the calculation of common and common equivalent shares as if they were outstanding for all periods presented, including years where the impact of incremental shares is antidilutive, using the treasury stock method and an assumed initial public offering price of $13.00 per share. Due to the significant impact of the assumed conversion of the Convertible Preferred Stock upon closing of an initial public offering, historical net loss per share is not meaningful, and therefore, is not presented. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, Earnings Per Share (Statement 128). Statement 128 establishes standards for the computation, presentation and disclosure of earnings per share (EPS), replacing the presentation of currently required Primary EPS with a presentation of Basic EPS. It also requires dual presentation of Basic EPS and Diluted EPS on the face of the income statement for entities with complex capital structures. Basic EPS is based on the weighted average number of common shares outstanding during the period. Diluted EPS is based on the potential dilution that would occur on exercise or conversion of securities into common stock using the treasury stock method. Statement 128 is effective for periods ending after December 15, 1997, F-11 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) including interim periods; earlier application is not permitted. When adopted, the Company will be required to restate its EPS for all periods presented. The Company does not expect the impact of the adoption of Statement 128 to be material to its reported EPS amounts. In February 1997, the FASB issued SFAS No. 129, Disclosure of Information about Capital Structure. This statement establishes standards for disclosing information about an entity's capital structure. Adoption of SFAS No. 129 will have no impact on the Company's existing disclosures. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income (Statement 130). Statement 130 establishes standards for reporting and disclosure of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Statement 130, which is effective for fiscal years beginning after December 15, 1997, requires reclassification of financial statements for earlier periods to be provided for comparative purposes. The Company anticipates that implementing the provisions of Statement 130 will not have a significant impact on the Company's existing disclosures. In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information (Statement 131). Statement 131 establishes standards for the way that public business enterprises report information about operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Statement 131 is effective for fiscal years beginning after December 15, 1997. In the initial year of application, comparative information for earlier years must be restated. The Company anticipates that implementing the provisions of Statement 131 will not have a significant impact on the Company's existing disclosures. NOTE 2--PROPERTY AND EQUIPMENT
ESTIMATED DECEMBER 31, SEPTEMBER 30, USEFUL LIFE 1996 1997 ----------- -------------- -------------- Computer equipment.................................................. 1-3 years $ 471,366 $ 1,474,709 Furniture and fixtures.............................................. 5 years 20,360 148,003 Leasehold improvements.............................................. 1-5 years -- 320,142 -------------- -------------- 491,726 1,942,854 Less accumulated depreciation and amortization...................... 45,932 282,249 -------------- -------------- $ 445,794 $ 1,660,605 -------------- -------------- -------------- --------------
NOTE 3--INVESTMENTS In August 1997, the Company purchased 10% voting interests in each of DoubleClick Japan Inc. and DoubleClick Iberoamerica, S.L. for $154,926 and $100,000, respectively. The Company has the option to purchase an additional 12% voting interest in DoubleClick Japan Inc. for the then current value as defined. The Company also has the option to purchase a 39% voting interest in DoubleClick Iberoamerica, S.L. at the adjusted book value as defined. These business partners were formed to F-12 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 3--INVESTMENTS (CONTINUED) establish networks similar to the Network and to provide comprehensive Internet advertising solutions for advertisers, and has publishers in Japan, Spain and Portugal, and all of Latin America. The Company also entered into agreements to provide the business partners with use of the Company's trademarks and the right to access the Company's proprietary technology and certain personnel during the term of the agreements, which range from two to four years. As of September 30, 1997, the Company had received $450,000 from DoubleClick Japan Inc. which is presented in the consolidated balance sheet as deferred license and service fees. The Company has agreed to provide the business partners with any product enhancements and upgrades it develops, technical support, and maintenance. Further, the Company and the business partners have agreed to certain arrangements whereby each party shall be paid a commission for the sale of advertising impressions to be delivered on the other parties' networks. NOTE 4--INCOME TAXES No provision for federal or state income taxes has been recorded as the Company incurred net operating losses for all periods presented. At December 31, 1996, the Company had approximately $2,900,000 of federal net operating loss carryforwards available to offset future taxable income; such carryforwards expire in 2011. The Company has recorded a full valuation allowance against its deferred tax assets since management believes that, after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, it is not more likely than not that these assets will be realized. No income tax benefit has been recorded for all periods presented because of the valuation allowance. The tax effects of temporary differences and tax loss and credit carryforwards that give rise to significant portions of federal deferred tax assets (liabilities) are comprised of the following:
DECEMBER 31, SEPTEMBER 30, 1996 1997 -------------- -------------- Deferred tax assets Net operating loss carryforwards..................................... $ 989,000 $ 2,234,000 Deferred revenues, license and service fees.......................... -- 153,000 Other................................................................ 96,000 266,000 -------------- -------------- Gross deferred tax assets.............................................. 1,085,000 2,653,000 Valuation allowance.................................................... 1,085,000 2,653,000 -------------- -------------- Net deferred tax assets................................................ $ -- $ -- -------------- -------------- -------------- --------------
NOTE 5--STOCKHOLDERS' EQUITY The Company's Certificate of Incorporation, as initially filed, authorized 40,000,000 shares of $.001 par value common stock designated as Class A, B, C, or Common Stock. The rights and privileges of the Company's four classes of common stock are generally similar, although Class C common stockholders have certain super-voting privileges, and Class B shares are non-voting. F-13 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED) In September 1996, the Company exchanged 5,118,230 shares of Class A common stock for 5,118,228 shares of Class B common stock and 2 shares of Class C common stock. The exchanges were effected at par value. In June 1997, the Company authorized and issued 40,000 shares, $.001 par value, of Convertible Preferred Stock. The shares were issued for $1,000 per share. The shares of Convertible Preferred Stock have certain rights, preferences, and restrictions with respect to conversion, liquidation and voting as follows: - Each share of Convertible Preferred Stock is convertible, at the option of the holder, at any time into 155.86 shares of Common Stock, subject to certain antidilution provisions. - Conversion of Convertible Preferred Stock into Common Stock is automatic upon (i) the closing of a public or private offering of the Company's common stock when at least $20,000,000 is raised, and the offering is executed at a pre-money valuation of the Company of at least $100,000,000, or (ii) the Company meets or exceeds 90% of agreed-upon projections for each of 1997 and 1998. - Upon dissolution, sale, or liquidation, as defined, the holders of Convertible Preferred Stock are entitled to (i) a proportionate share of proceeds, assuming all Convertible Preferred Stock is converted into common stock if the value of the Company exceeds $70,000,000, (ii) $40,000,000 if the value of Company is more than $50,000,000 and less than $70,000,000, or (iii) 75% of the total proceeds to all stockholders if the value of the Company is less than $50,000,000. - The holders of Convertible Preferred Stock are entitled to vote on an as converted basis with the holders of Common Stock. Concurrent with the issuance of Convertible Preferred Stock, the Company effected an exchange and redemption of its outstanding Class A, B, and C common stock. Pursuant to the exchange, the stockholders of Class A, B, and C common shares received 1, .28, and .28 shares, respectively, of newly issued Common Stock for each share exchanged. Holders of the Class B and C common shares redeemed their remaining shares for $4.64 per share, or $25,000,343 in the aggregate. Holders of Common Stock are subject to substantial restrictions on transfer and also have certain "piggyback" and demand registration rights which, with certain exceptions, require the Company to use its best efforts to include in any of the Company's registration statements any shares requested to be so included. Further, the Company will pay all expenses directly incurred on its behalf in connection with such registration. STOCK OPTION PLAN The 1997 Stock Option Plan (the "1997 Plan") serves as the successor to the Company's 1996 Stock Option Plan (the "Predecessor Plan"). The 1997 Plan was adopted by the Board of Directors on November 7, 1997 and was subsequently approved by the stockholders. The 1997 Plan became effective immediately upon the Board of Directors' adoption of the Plan (the "Plan Effective Date"). Under the 1997 Plan, 3,000,000 shares of Common Stock are reserved for the issuance of incentive and nonqualified stock options. Such share reserve consists of (i) the number of shares available for issuance under the Predecessor Plan on the Plan Effective Date including the shares subject to outstanding options, and (ii) an additional 1,550,000 shares of Common Stock. In addition, the number of shares of Common Stock reserved for issuance under the 1997 Plan will automatically increase on the F-14 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED) first trading day of each calendar year, beginning with the 1999 calendar year, by an amount equal to (3%) of the total number of shares of Common Stock outstanding on the last trading day of the immediately preceding calendar year. To the extent any unvested shares of Common Stock issued under the 1997 Plan are subsequently repurchased by the Company, at the exercise price or direct issue paid per share, in connection with the holder's termination of service, those repurchased shares will be added to the reserve of Common Stock available for issuance under the 1997 Plan. In no event, however, may any one participant in the 1997 Plan receive option grants or direct stock issuances for more than 375,000 shares of Common Stock in the aggregate per calendar year. On the Plan Effective Date, outstanding options under the Predecessor Plan were incorporated into the 1997 Plan, and no further option grants will be made under the Predecessor Plan. The incorporated options will continue to be governed by their existing terms, unless the 1997 Plan Administrator elects to extend one or more features of the 1997 Plan to those options. The options have substantially the same terms as will be in effect for grants made under the 1997 Plan. Generally, options granted under the Plan vest ratably over a period of three to four years from the date of grant and expire 10 years from the date of grant and terminate, to the extent not exercised, upon termination of employment. A summary of stock option activity from inception is as follows:
OUTSTANDING OPTIONS ------------------------------ WEIGHTED NUMBER OF AVERAGE SHARES EXERCISE PRICE ------------- --------------- Options granted............................................... 1,363,380 $ 0.16 Options exercised............................................. -- -- Options canceled.............................................. (2,000) 0.12 ------------- ----- Balance at December 31, 1996.................................. 1,361,380 0.16 Options granted............................................... 744,650 1.40 Options exercised............................................. (129,625) 0.14 Options canceled.............................................. (163,250) 0.18 ------------- ----- Balance at September 30, 1997................................. 1,813,155 0.66 ------------- ----- Exercisable at September 30, 1997............................. 348,147 $ 0.14 ------------- ----- ------------- -----
During the nine months ended September 30, 1997, deferred compensation of $1,547,072 was recorded for options granted of which $196,078 was amortized to compensation expense. The remaining deferred compensation will be amortized over the balance of the four year vesting period of the stock options. Had the Company determined compensation cost of employee stock options based on the minimum value of the stock options at the grant date, consistent with the guidelines of SFAS 123 (which F-15 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED) excludes any volatility factor), the Company's net loss would have been increased to the pro forma amounts indicated below:
PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, 1996 1997 ----------------- -------------------- Net loss: As reported............................................................ $ 3,191,770 $ 4,612,443 Pro forma per SFAS 123................................................. 3,201,393 4,833,481 Pro forma net loss per share: As reported............................................................ $ (0.24) $ (0.32) Pro forma per SFAS 123................................................. (0.24) (0.34)
The per share weighted average fair value of options granted during the period from inception to December 31, 1996 and for the nine months ended September 30, 1997 was $0.03 and $2.39, respectively, on the date with the following weighted average assumptions:
PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, 1996 1997 ----------------- ------------------- Expected dividend yield.................................................. 0% 0% Risk-free interest rate.................................................. 5.6% 6.1% Expected life............................................................ 4 years 4 years
NOTE 6--RELATED PARTY TRANSACTIONS During the period from January 23, 1996 (inception) through March 31, 1997, 1996 the Company received certain administrative and support services from a stockholder (the "related party"). The Company reimbursed the related party for administrative and support services at amounts which approximated the fair market value of such services. In addition, the related party advanced the Company amounts required to fund operations and investing activities. The advances were unsecured and bore interest at the 30-day LIBOR rate plus 2.5% (8.3% at December 31, 1996). Amounts due to the related party reflect the following activities: Administrative and support services charges during 1996........................ $ 462,817 Cash advances during 1996...................................................... 2,874,919 ----------- Balance due to related party at December 31, 1996............................ 3,337,736 Cash advances during the three months ended March 31, 1997..................... 3,048,096 Repayment of advances.......................................................... (1,385,832) Conversion of advances into convertible note payable........................... (5,000,000) ----------- Balance due to related party at September 30, 1997............................. $ -- ----------- -----------
Effective April 1, 1997 the related party ceased providing such administrative and support services to the Company. F-16 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997) NOTE 6--RELATED PARTY TRANSACTIONS (CONTINUED) On June 4, 1997, the Company converted advances from the related party into a $5,000,000, convertible note. Principal is payable, with any and all accrued and unpaid interest, on June 4, 2000. The note bears interest at a per annum rate equal to the "Federal Short Term Rate" (5.81% as of September 30, 1997) and is payable quarterly. At the option of the holder, the note is convertible into shares of the Company's common stock at a conversion price of $6.42 per share of Common Stock. Such conversion price is subject to certain antidilution provisions. NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosure of cash flow information:
PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH ------------------------------ NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1996 1996 1997 -------------- -------------- ------------------- Cash paid for interest: $ 91,090 $ 44,720 $ 72,339 -------------- -------------- -------- -------------- -------------- --------
Non-cash financing activity: On June 4, 1997, the Company converted $5.0 million of advances from the related party into a $5.0 million convertible note. NOTE 8--COMMITMENTS LEASES The Company leases facilities under operating lease agreements expiring through 2002. Future minimum lease payments under these leases are as follows:
Years ending December 31: FUTURE MINIMUM LEASE PAYMENTS ---------------- 1997............................................................................................ $ 381,000 1998............................................................................................ 451,000 1999............................................................................................ 360,000 2000............................................................................................ 318,000 2001 and thereafter............................................................................. 478,000
Rent expense totaled approximately $163,195 for the period from January 23, 1996 (inception) to December 31, 1996, and $57,425 and $267,330 for the period from January 23, 1996 (inception) to September 30, 1996, and for the nine months ended September 30, 1997, respectively. NOTE 9--SUBSEQUENT EVENT On December 15, 1997, the Company's stockholders ratified a one-for-two reverse stock split of all issued and outstanding Common Stock of the Company. All share and per share amounts affecting net loss per share, weighted average number of Common and Common equivalent shares outstanding, Common Stock issued and outstanding, Additional paid-in capital and all other stock transactions presented in these consolidated financial statements and related notes have been restated to reflect the one-for-two reverse stock split. F-17 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company has agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co., BT Alex. Brown Incorporated and Cowen & Company are acting as representatives, has severally agreed to purchase from the Company, the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES OF UNDERWRITER COMMON STOCK - ------------------------------------------------------------------------- ------------------- Goldman, Sachs & Co...................................................... BT Alex. Brown Incorporated.............................................. Cowen & Company.......................................................... ---------- Total................................................................ 2,300,000 ---------- ----------
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the initial public offering price and other selling terms may from time to time be varied by the representatives. The Company has granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of 345,000 additional shares of Common Stock to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the 2,300,000 shares of Common Stock offered. The Company, its directors and officers, and certain of its stockholders have agreed that, subject to certain exceptions, during the period beginning from the date of this Prospectus and continuing to and including the date 180 days after the date of the Prospectus, they will not offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or of any other securities of the Company (other than, in the case of the Company, pursuant to stock incentive plans existing on the date of this Prospectus) which are substantially similar to the shares of Common Stock or which are convertible or exchangeable into securities which are substantially similar to the shares of Common Stock without the prior written consent of the representatives, except for the shares of Common Stock offered in connection with the offering. In addition, the Company may issue shares of Common Stock in connection with any acquisition of another company if the terms of such issuance provide that such Common Stock shall not be resold prior to the expiration of the 180-day period referenced in the preceding sentence. Prior to the offering, there has been no public market for the shares of Common Stock. The initial public offering price will be negotiated among the Company and the representatives. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the Company's management and the consideration of the above factors in relation to market valuation of companies in related businesses. U-1 The representatives of the Underwriters have informed the Company that they do not expect sales to accounts over which the Underwriters exercise discretionary authority to exceed 5% of the total number of shares of Common Stock offered by them. In connection with the offering, the Underwriters may purchase and sell Common Stock in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created by the Underwriters in connection with the offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the Common Stock; and syndicate short positions created by the Underwriters involve the sale by the Underwriters of a greater number of shares of Common Stock than they are required to purchase from the Company in the offering. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the securities sold in the offering for their account may be reclaimed by the syndicate if such shares of Common Stock are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Common Stock, which may be higher than the price that might otherwise prevail in the open market. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise, and these activities, if commenced, may be discontinued at any time. The Company intends to apply for quotation of the Common Stock on the Nasdaq National Market under the symbol "DCLK". The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. An affiliate of BT Alex. Brown Incorporated, one of the representatives of the Underwriters in the offering, is a limited partner of ABS Capital Partners II, L.P., a stockholder of the Company. In addition, another affiliate of BT Alex. Brown Incorporated is a non-managing member of ABS Partners II, LLC, the general partner of ABS Capital Partners II, L.P. U-2 [AN ILLUSTRATION NAMING THE WEB SITES CURRENTLY ON THE DOUBLECLICK NETWORK] - --------------------------------------------- --------------------------------------------- - --------------------------------------------- --------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. -------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary................................ 3 Risk Factors...................................... 6 Use of Proceeds................................... 17 Dividend Policy................................... 17 Capitalization.................................... 18 Dilution.......................................... 19 Selected Consolidated Financial Data.............. 20 Management's Discussion And Analysis Of Financial Condition And Results Of Operations.............. 21 Business.......................................... 28 Management........................................ 41 Certain Transactions.............................. 49 Principal Stockholders............................ 50 Description of Securities......................... 53 Shares Eligible for Future Sale................... 57 Legal Matters..................................... 58 Experts........................................... 58 Change in Accountants............................. 58 Additional Information............................ 59 Index to Consolidated Financial Statements........ F-1 Underwriting...................................... U-1
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2,300,000 SHARES DOUBLECLICK INC. COMMON STOCK (PAR VALUE $.001 PER SHARE) -------------- [LOGO] -------------- GOLDMAN, SACHS & CO. BT ALEX. BROWN COWEN & COMPANY REPRESENTATIVES OF THE UNDERWRITERS - --------------------------------------------- --------------------------------------------- - --------------------------------------------- --------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than the underwriting discount, payable by the Registrant in connection with the sale of Common Stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fees and the Nasdaq National Market listing fee.
AMOUNT TO BE PAID ------------- SEC registration fee........................................................... $ 12,553 NASD filing fee................................................................ 4,203 Nasdaq National Market listing fee............................................. 50,000 Printing and engraving......................................................... 175,000 Legal fees and expenses........................................................ 300,000 Accounting fees and expenses................................................... 150,000 Blue sky fees and expenses (including legal fees).............................. 15,000 Transfer agent fees............................................................ 5,000 Miscellaneous.................................................................. 38,244 ------------- Total...................................................................... $ 750,000 ------------- -------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's Certificate of Incorporation (the "Certificate") provides that, except to the extent prohibited by the Delaware General Corporation Law (the "DGCL"), the Registrant's directors shall not be personally liable to the Registrant or its stockholders for monetary damages for any breach of fiduciary duty as directors of the Registrant. Under the DGCL, the directors have a fiduciary duty to the Registrant which is not eliminated by this provision of the Certificate 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 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 a 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 the corporation's bylaws, any agreement, a vote of stockholders or otherwise. The Certificate 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 II-1 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. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under the Certificate. The Registrant is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The Registrant has sold and issued the following securities since January 23, 1996 (inception): In January 1996, the Registrant issued an aggregate of 905,912 shares of its common stock, par value $.01 per share ("Original Common Stock"), to two entities in exchange for $575,000 in cash and certain other assets. Such shares of Original Common Stock were sold in reliance upon an exemption from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof. In August 1996, all outstanding shares of Original Common Stock were converted into shares of class A common stock. In June 1997, the DoubleClick Acquisition Corp. ("Newco") merged with and into the Registrant (the "Merger"). As a result of the Merger, the Registrant issued 36,667 shares of its Convertible Preferred Stock, par value $.001 per share, to the holders of common stock of Newco. In addition, as part of the Registrant's recapitalization, 7,395,740 shares of class A common stock were converted into 7,395,740 shares of Common Stock and 10,780,000 shares of class B common stock were converted into 2,987,721 shares of Common Stock. Also in June 1997, the Registrant sold 3,333 shares of its Convertible Preferred Stock to certain investors for $3,333,000. Such shares of Convertible Preferred Stock were sold in reliance upon an exemption from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof. The Registrant from time to time has granted stock options to employees in reliance upon an exemption under the Securities Act of 1933 pursuant to Rule 701 promulgated thereunder. The following table sets forth certain information regarding such grants:
RANGE OF NUMBER OF EXERCISE SHARES PRICES ------------- ----------------- January 23, 1996 (inception) through December 31, 1996................ 1,363,380 $0.14- 0.28 January 1, 1997 through December 15, 1997............................. 1,016,225 0.28-13.00
The above securities were offered and sold by the Registrant in reliance upon exemptions from registration pursuant to either (i) Section 4(2) of the Securities Act, as transactions not involving any public offering, or (ii) Rule 701 under the Securities Act. No underwriters were involved in connection with the sales of securities referred to in this Item 15. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
NUMBER DESCRIPTION - ------------- ------------------------------------------------------------------------------------------------------ 1.1* Form of Underwriting Agreement. 3.1 Restated Certificate of Incorporation. 3.2 Amendment to Restated Certificate of Incorporation. 3.3* Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of the initial public offering. 3.4 Bylaws. 3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of the initial public offering. 4.1* Specimen Common Stock certificate. 4.2 See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the Certificate of Incorporation and Bylaws of the Registrant defining the rights of holders of Common Stock of the Registrant. 4.3 Convertible Promissory Note held by Bozell, Jacobs, Kenyon & Eckhardt, Inc. 5.1* Opinion of Brobeck, Phleger & Harrison LLP. 10.1 1996 Stock Option Plan. 10.2 1997 Stock Incentive Plan. 10.3 [Reserved] 10.4 Stockholders Agreement, dated as of June 4, 1997. 10.5 Sublease dated August 1996, between Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. and the Registrant. 10.6 Lease dated July 1997, between Investment Properties Associates and the Registrant. 10.7+ Procurement and Trafficking Agreement, dated December 1996, by and between Registrant and Digital Equipment Corporation. 11.1 Statement re: Computation of Per Share Earnings. 16.1 Letter from KPMG Peat Marwick LLP. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Price Waterhouse LLP. 23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1). 24.1 Powers of Attorney (see Signature Page). 27.1 Financial Data Schedule.
- ------------------------ * To be supplied by amendment. + Confidential treatment to be requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act. (b) Financial Statement Schedules. None. II-3 ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriter at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. 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 Delaware General Corporation Law, the Certificate of Incorporation of the Registrant, the Underwriting Agreement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of 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. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424 (b) (1) or (4), or 497 (h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in The City of New York, State of New York, on this 15th day of December, 1997. DOUBLECLICK INC. By: /s/ KEVIN J. O'CONNOR ------------------------------------------ Kevin J. O'Connor Chief Executive Officer POWER OF ATTORNEY We, the undersigned directors and/or officers of DoubleClick Inc. (the "Company"), hereby severally constitute and appoint Kevin J. O'Connor, Chief Executive Officer, and Kevin P. Ryan, President and Chief Financial Officer, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on December 15, 1997:
SIGNATURE TITLE(S) ------------------------------------------------------ -------------------------------------------------- Chief Executive Officer and Chairman of the Board /s/ KEVIN J. O'CONNOR Directors (Principal Executive Officer) ------------------------------------------- Kevin J. O'Connor President and Chief Financial Officer (Principal /s/ KEVIN P. RYAN Financial Officer) ------------------------------------------- Kevin P. Ryan /s/ DWIGHT A. MERRIMAN Chief Technology Officer and Director ------------------------------------------- Dwight A. Merriman /s/ STEPHEN R. COLLINS Controller (Principal Accounting Officer) ------------------------------------------- Stephen R. Collins /s/ DAVID N. STROHM Director ------------------------------------------- David N. Strohm /s/ MARK E. NUNNELLY Director ------------------------------------------- Mark E. Nunnelly /s/ W. GRANT GREGORY Director ------------------------------------------- W. Grant Gregory
II-5 INDEX TO EXHIBITS
NUMBER DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------------- 1.1* Form of Underwriting Agreement. 3.1 Restated Certificate of Incorporation. 3.2 Amendment to Restated Certificate of Incorporation. 3.3* Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of the initial public offering. 3.4 Bylaws. 3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of the initial public offering. 4.1* Specimen Common Stock certificate. 4.2 See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the Certificate of Incorporation and Bylaws of the Registrant defining the rights of holders of Common Stock of the Registrant. 4.3 Convertible Promissory Note held by Bozell, Jacobs, Kenyon & Eckhardt, Inc. 5.1* Opinion of Brobeck, Phleger & Harrison LLP. 10.1 1996 Stock Option Plan. 10.2 1997 Stock Incentive Plan. 10.3* [Reserved] 10.4 Stockholders Agreement, dated as of June 4, 1997. 10.5 Sublease dated August 1996, between Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. and the Registrant. 10.6 Lease dated July 1997, between Investment Properties Associates and the Registrant. 10.7+ Procurement and Trafficking Agreement, dated December 1996, by and between Registrant and Digital Equipment Corporation. 11.1 Statement re: Computation of Per Share Earnings. 16.1 Letter from KPMG Peat Marwick LLP. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Price Waterhouse LLP. 23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1). 24.1 Powers of Attorney (See Signature Page). 27.1 Financial Data Schedule.
- ------------------------ * To be supplied by amendment. + Confidential treatment to be requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act. EX-3.1 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE ______________________________ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF "DOUBLECLICK INC.", FILED IN THIS OFFICE ON THE FOURTH DAY OF JUNE, A.D. 1997, AT 9 O'CLOCK A.M. /s/ Edward J. Freel -------------------------------------- Edward J. Freel, Secretary of State 2581969 8100 AUTHENTICATION: 8494828 971181934 DATE: 06-04-97 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 06/04/1997 971181508 - 2581969 RESTATED CERTIFICATE OF INCORPORATION OF DOUBLECLICK INC. DoubleClick Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby certifies as follows: 1. The name of this corporation is DoubleClick Inc. This corporation's original name was DoubleClick Incorporated. The date of filing of the corporation's original Certificate of Incorporation in the Office of the Secretary of State of the State of Delaware was January 23, 1996. A Certificate of Amendment to the Certificate of Incorporation was filed with the Office of the Secretary of State of the State of Delaware on each of May 14, 1996, August 28, 1996 and September 13, 1996. 2. This Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Corporation's Certificate of Incorporation, which amendments have been approved by the stockholders of the Corporation by written consent. This Restated Certificate of Incorporation has been adopted by the Board of Directors and the stockholders of the Corporation in accordance with Sections 245(b) and 242 of the General Corporation Law of the State of Delaware, and written notice of consent has been given to all stockholders who have not consented in writing to this Restated Certificate of Incorporation. 3. The text of this Restated Certificate of Incorporation is as follows: ARTICLE I NAME The name of the Corporation is DoubleClick Inc. -1- ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT The registered office of the Corporation in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street in the City of Wilmington, State of Delaware 19801, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Corporation. ARTICLE III CORPORATE PURPOSES The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware and to do all things and exercise all powers, rights and privileges which a business corporation may now or hereafter be organized or authorized to do or to exercise under the laws of the State of Delaware. ARTICLE IV Capital Stock, Voting Rights and Preferences The total number of shares of capital stock that the Corporation has authority to issue as follows: (a) forty million (40,000,000) shares of Common Stock, par value $.001 per share ("COMMON STOCK"); and (b) forty thousand (40,000) shares of Convertible Preferred Stock, par value $.001 per share ("PREFERRED STOCK"). As of the Effective Time of this Restated Certificate of Incorporation, each share of every class and series of capital stock of the Corporation authorized immediately prior to the effective time of this Restated Certificate of Incorporation shall be automatically converted into Common Stock of the Corporation as provided in the Certificate of Merger filed contemporaneously with this Restated Certificate of Incorporation. The Board of Directors of this Corporation may, at any time, and subject to the provisions in Section 2.6.6 below, without any vote of the holders of this Corporation's capital stock, issue all or any part of the unissued capital stock of this Corporation from time to time authorized under this Restated Certificate of Incorporation and may determine, subject to any requirements of law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus. -2- The powers, designations, voting rights, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions of each class and series of the Corporation's stock are as follows: A. Common Stock. 1.1 VOTING RIGHTS. Subject to the powers, preferences and rights of any class of stock (or any series thereof) having any preference or priority over, or rights superior to, the Common Stock that the Corporation may hereafter become authorized to issue, to the fullest extent permitted by applicable law, except as otherwise provided in this Article Fourth, the holders of the Common Stock shall have and possess all powers and voting and other rights pertaining to the stock of the Corporation. Each holder of record of a share or shares of Common Stock shall have the right to one vote per share. Except as otherwise provided in this Article Fourth or as otherwise required by applicable law, all holders of Common Stock shall vote together as a single class. 1.2 SHARES IDENTICAL. Except as otherwise provided in this Article Fourth, for purposes of this Article Fourth, all shares of Common Stock shall, to the fullest extent permitted by applicable law, be identical in all respects and shall entitle the holders thereof to the same rights, privileges and preferences and shall be subject to the same qualifications, limitations and restrictions. Without limiting the foregoing, no distribution (whether in cash, securities or otherwise) shall be made in respect of any class of Common Stock unless an equivalent distribution is made with respect to each outstanding share of each class of Preferred Stock, treating each share of Preferred Stock as the number of shares of Common Stock into which it is then convertible. B. Preferred Stock. 2.1 DEFINITIONS. As used in this Article Fourth, the following terms have the following definitions: 2.1.1 "AFFILIATE" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person, including effective control by virtue of a contractual relationship such as a management agreement or stockholder transfer or designation or similar agreement other than a management or similar agreement which does not, alone or together with related agreements, result in the control of such Person. 2.1.2 "AFFILIATED FUND" shall mean any limited partnership or other Person formed for the purpose of investing in other companies or businesses and for which (a) an Investor or any Affiliate of an Investor acts as a general partner or otherwise has the right to direct the voting of shares of corporations in which such limited partnership or other Person invests or (b) any Investor, or any of their respective Affiliates provides management services. -3- 2.1.3 "BOARD OF DIRECTORS" shall mean the Board of Directors of the Corporation. 2.1.4 "CLOSING DATE" shall mean the first date on which the Corporation issues any shares of Preferred Stock. 2.1.5 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. 2.1.6 "INVESTOR" shall mean Bain Capital Fund V, L.P., a Delaware limited partnership, Bain Capital Fund V-B, L.P., a Delaware limited partnership, BCIP Associates, a Delaware general partnership, BCIP Trust Associates, L.P., a Delaware limited partnership, Brookside Capital Partners Fund, L.P., a Delaware limited partnership, Greylock Equity Limited Partnership, a Delaware limited partnership, Greylock IX Limited Partnership, a Delaware limited partnership, ABS Capital Partners, II, L.P., a Delaware limited partnership or any other purchaser who becomes party to the Merger Agreement by signing a joinder agreement pursuant to Section 1.9 of the Merger Agreement. 2.1.7 "LIQUIDATION EVENT" shall have the meaning specified in Section 2.1 of this Article IV. 2.1.8 "MERGER AGREEMENT" shall mean the Agreement and Plan of Merger dated as of May 14, 1997 by and among the Corporation, DoubleClick Acquisition Corp., a Delaware corporation, and certain other parties thereto. 2.1.9 "LIQUIDATION EVENT VALUE" shall mean the aggregate amount that would be payable to holders of all outstanding capital stock of the Corporation upon a Liquidation Event had all outstanding shares of Preferred Stock been converted into shares of Common Stock pursuant to Section 2.3.1 of this Article immediately prior to such Liquidation Event. 2.1.10 "PERSON" shall mean any individual, partnership, corporation, association, trust, joint venture, unincorporated organization or other entity. 2.1.11 "PUBLIC EVENT" shall mean any transaction or other event (including, without limitation, a merger with a public corporation) after or in connection with which shares of capital stock of the Corporation or any of its Subsidiaries or any successor arc registered under the Securities Act or listed on a "national securities exchange" as defined in the Exchange Act or the subject of a price quotation through the Nasdaq Stock Market. 2.1.12 "PUBLIC OFFERING" shall mean the closing of a public offering of the Corporation's capital stock which is registered under the Securities Act. 2.1.13 "QUALIFIED PRIVATE OFFERING" shall mean the closing of a sale of securities of the Corporation that is not registered under the Securities Act meeting the following -4- conditions: (i) the aggregate net proceeds of the sale of such securities by the Corporation equals or exceeds $20,000,000 and (ii) the valuation of the total equity of the Corporation, on an as converted basis (based upon the price and other terms of, but before giving effect to the issuance of, the securities by the Corporation in the Qualified Private Offering), is at least $100,000,000. 2.1.14 "QUALIFIED PUBLIC OFFERING" shall mean the closing of a Public Offering meeting the following conditions: (i) the aggregate net proceeds of the sale of shares of capital stock in such Public Offering by the Corporation and any stockholder of the Corporation equals or exceeds $20,000,000; (ii) such Public Offering is subject to a firm commitment underwriting conducted by a nationally recognized underwriter selected by the Board of Directors and reasonably acceptable to the holders of the Preferred Stock (or such other securities into which the Preferred Stock has been converted); and (iii) the price to the public per share multiplied by the number of shares outstanding on an as-converted and fully diluted basis (before giving effect to the securities to be issued by the Corporation in the Public Offering or any related transaction) is at least $100,000,000. 2.1.15 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. 2.1.16 "STOCK" shall mean, collectively, Common Stock and Preferred Stock. 2.1.17 "STOCKHOLDER AGREEMENT" shall mean the Stockholder Agreement dated June _, 1997 by and among the corporation, the Investors, Bozell, Jacobs, Kenyon & Eckhardt, Inc. and certain other stockholders of the Corporation 2.1.18 "SUBSIDIARY" shall mean any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. 2.2 DIVIDENDS AND DISTRIBUTIONS 2.2.1 DIVIDENDS. Subject to the provisions of law and this Certificate of Incorporation, the holders of shares of Preferred Stock, in preference to the holders of shares of Common Stock and of any other capital stock of the Corporation ranking junior to the Preferred Stock as to payment of dividends, shall be entitled to receive dividends when, if and as declared by the Board of Directors, out of funds legally available therefor, 2.2.2 RECORD DATE FOR DIVIDENDS. The Board of Directors of the Corporation may fix a record date for the determination of holders of shares of Common Stock or Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall be no more than 60 days and no less than 10 days prior to the date fixed for the payment thereof. -5- 2.3 LIQUIDATION, DISSOLUTION OR WINDING- UP. 2.3.1 PREFERRED STOCK PREFERENCE. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation (each, along with any event treated as a liquidation, dissolution or winding-up of the Corporation pursuant to Section 2.3.2, a "Liquidation Event"), the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made to the holders of the Common Stock by reason of their ownership thereof, an amount as follows: (i) if the Liquidation Event Value is $70 million or more, such amount per share as would have been payable had such share been converted into Common Stock pursuant to the provisions of Section 2.6 of this Article immediately prior to such Liquidation Event plus all accrued, but unpaid dividends on the Preferred Stock; (ii) if the Liquidation Event Value is more than $50 million but less than $70 million, $1,000 per share of Preferred Stock (subject to equitable adjustment in the event of any stock dividend, stock split, combination, reorganization, recapitalization, reclassification, or other similar event affecting such shares) plus all accrued but unpaid dividends, on the Preferred Stock or (iii) if the Liquidation Event Value is $50 million or less, an amount per share of Preferred Stock equal to the Liquidation Event Value divided by 49,333. 2.3.2 TREATMENT OF MERGERS, CONSOLIDATIONS, AND SALES OF ASSETS OR STOCK. Each of (i) the merger or consolidation of the Corporation into or with another corporation (other than one in which the holders of the capital stock of the Corporation immediately prior to the merger or consolidation continue to hold, directly or indirectly more than 50% of the voting power of the capital stock of the surviving corporation) and (ii) the sale, lease, exchange, or other conveyance of all or substantially all the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding-up of the Corporation for purposes of this Section 2.3, in which case the holder of Preferred Stock shall be entitled to receive the amount payable to such holders pursuant to Section 2.3.1 above. 2.3.3 DISTRIBUTIONS OTHER THAN CASH. The amount deemed distributed to the holders of Preferred Stock upon any Liquidation Event shall be the cash or the fair market value of the property, rights, or securities distributed to such holders by the acquiring person, firm, or other entity. The value of such property, rights, or other securities shall be determined in good faith by the Board of Directors of the Corporation. 2.4 VOTING RIGHTS. The holders of the Preferred Stock shall be entitled to receive notice of any stockholders' meeting and, except as otherwise required by law or as provided in Section 2.5 hereof, to vote as a class with holders of Common Stock on any matters on which the Common Stock may be voted. Each share of Preferred Stock shall be entitled to a number of votes equal to the number of whole shares of Common Stock into which such share of Preferred Stock is then convertible (as adjusted from time to time in the manner set forth herein). -6- 2.5 RESTRICTIONS AND LIMITATIONS. 2.5.1 VOTE REQUIRED. Except as expressly provided herein or required by law, for so long as at least 18,500 shares of Preferred Stock remain outstanding (subject to appropriate adjustment for any stock dividend, stock split, combination, or other similar recapitalization affecting such shares), then without the approval by vote or written consent of the holders of at least fifty percent (50%) of the voting power of the then outstanding shares of Preferred Stock, the Corporation shall not, and shall not permit any Subsidiary, to do any of the following: (a) Redeem, purchase, or otherwise acquire for value (or pay into or set aside for a sinking fund for such purchases) any capital stock of the Corporation, except as is contemplated in this Certificate, and except for the repurchase of shares of Common Stock held by employees, consultants, directors, or officers of the Corporation that are subject to stock repurchase agreements and, if such repurchases would exceed $100,000 for any such employee, consultant, director or officer, that have been approved by the vote or written consent of the holders of at least fifty percent of the voting power of the then outstanding shares of Preferred Stock in the event of termination of employment or the termination of the consulting relationship; (b) Authorize or issue, or obligate itself to authorize or issue, (i) any other equity security having any preference or priority over, or ranking senior to or on parity with, the Preferred Stock with respect to dividends or rights upon liquidation, dissolution, or winding-up, (ii) other than (A) securities issuable upon conversion of the Preferred Stock or (B) Common Stock issuable pursuant to stock options permitted to be granted by the Corporation consistent with its contractual obligations, or (C) securities issuable in a Qualified Private Offering or a Qualified Public Offering, any other equity security ranking junior to the Preferred Stock with respect to dividends or rights upon liquidation, dissolution or winding-up or (iii) any security convertible into a security described by clause (i) or (ii); (c) Alter or change the powers, preferences or rights of the Preferred Stock, or the qualifications, limitations or restrictions thereof; (d) Increase or decrease (other than by conversion or as otherwise required or permitted hereby) the total number of authorized shares of Preferred Stock; -7- (e) Effect any merger, consolidation, reorganization, amalgamation, liquidation, winding up, dissolution or sale, transfer or other action otherwise disposing of or voluntarily parting with the control of (whether in one transaction or a series of transactions) of all or substantially all of the property, business or assets of the Corporation or its Subsidiaries other than (i) a merger or consolidation of a Subsidiary with the Corporation or any other Subsidiary of the Corporation provided that, in the case of any such merger or consolidation, the person formed by such merger or consolidation shall be a wholly owned Subsidiary of the Corporation and (ii) any sale, lease, assignment, pledge, transfer or other conveyance of all or a substantial portion of the assets of the Corporation solely as security for institutional indebtedness approved by the Corporation's Board of Directors; or (f) Amend its Certificate of Incorporation or by-laws. The holders of the Preferred Stock shall vote as a separate class with respect to any matter or proposed action as to which applicable law or this Certificate of Incorporation require the vote, consent, or approval of the holders of the Preferred Stock. 2.6 CONVERSION OF PREFERRED STOCK. The holders of the Preferred Stock shall have conversion rights as follows: 2.6.1 RIGHT OF PREFERRED STOCK TO CONVERT. Each issued and outstanding share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance and without the payment of any additional consideration therefor, into that number of fully paid and nonassessable shares of Common Stock as is determined by dividing $1,000 by the Conversion Price (as defined below) in effect at the time of conversion. The "Conversion Price" at which shares of Common Stock shall be deliverable upon conversion of Preferred Stock shall initially be $3.208 per share. Conversion Price shall be subject to adjustment (in order to adjust the number of shares of Common Stock into which the Preferred Stock is convertible) as hereinafter provided. 2.6.2 FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to the product of such fraction multiplied by the then effective Conversion Price. 2.6.3 MECHANICS OF CONVERSION. (a) In order for a holder of Preferred Stock to convert shares of Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates -8- for such shares of Preferred Stock, at the office of the transfer agent for the Preferred Stock (or at the principal office the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Preferred Stock represented by such certificate or certificates. Such notice shall state such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued and the number of shares of Preferred Stock to be converted. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date (the "Conversion Date") and the conversion shall be deemed effective as of the close of business on the Conversion Date. The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver at such office to such holder of Preferred Stock, or to his or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. If Common Stock is issued to a person other than the holder of Preferred Stock, such person shall pay any applicable stock transfer taxes. (b) The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-existing par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation shall take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. (c) Upon any such conversion, no adjustment to the Conversion Price shall be made for any declared and unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion. (d) All shares of Preferred Stock surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices, to vote and to accrual of dividends shall immediately cease and terminate at the close of business on the Conversion Date (except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive unpaid dividends accrued prior to -9- conversion) and any shares of Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Corporation from time to time shall take appropriate action to reduce the authorized Preferred Stock accordingly. 2.5.4 ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES: (a) SPECIAL DEFINITIONS. For the purposes of this Section 2.6, the following definitions shall apply: (i) "OPTION" means any outstanding right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities excluding rights, warrants and options granted on or after the Closing Date, to employees, officers, directors or consultants of the Corporation of any subsidiary thereof pursuant to any stock option plan or agreement adopted by the Board of Directors (ii) "CONVERTIBLE SECURITIES" means any evidences of indebtedness, shares (other than Common Stock or Preferred Stock), or other securities directly or indirectly convertible into or exchangeable for Common Stock. (iii) "ADDITIONAL SHARES OF COMMON STOCK" means all shares of Common Stock issued (or, pursuant to Section 2.6.4(c), deemed to be issued) by the Corporation after the Closing Date, other-than shares of Common Stock issued or issuable: (A) upon conversion of shares of Preferred Stock; (B) as a dividend or distribution on Preferred Stock; (C) by reason of a dividend, stock split split-up or other distribution on shares of Common Stock; (D) upon the exercise of options to employees, officers or directors excluded from the definition of "Option" in Section 2.6.4(a)(i); or (E) upon the exercise, at any time from and after the Closing Date, of Options granted or issued on or before the Closing Date. (iv) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock issuable at such time upon conversion of Preferred Stock, and any other Convertible Securities then outstanding, plus the number of shares of Common Stock issuable at any time upon the exercise of all then outstanding Options. (b) NO ADJUSTMENT OF PREFERRED STOCK CONVERSION PRICE. No adjustment shall be made in the Conversion Price as the result of the issuance of Additional Shares of Common Stock or otherwise, unless the consideration per share determined pursuant to Section 2.6.4(e) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect -10- on the date of, and immediately prior to, the issue for such series of such Additional Shares of Common Stock. (c) ISSUE OF OPTIONS AND CONVERTIBLE SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. If the Corporation at any time or from time to time shall issue any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities; then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, PROVIDED, that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share determined pursuant to Section 2.6.4(e) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and PROVIDED, FURTHER, that in any such case in which Additional Shares of Common Stock are deemed to be issued: (i) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such options or the right of conversion or exchange under such Convertible Securities. (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if: (A) in the case of Convertible Securities or Options for -11- Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation determined pursuant to Section 2.6.4(e) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (iv) no recomputation pursuant to the preceding clauses (ii) and (iii) shall have the effect of increasing the Conversion Price to an amount that exceeds the lower of (x) the Conversion Price on the original adjustment date with respect to the original issuance of such Options or Convertible Securities, or (y) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date with respect to the original issuance of such Options or Convertible Securities and such recomputation date; (v) in the case of any Options which expire by their term; not more than thirty (30) days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (iii) above; and (vi) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2.6.4(c) as of the actual date of their issuance. (d) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND SUBDIVISIONS. In the event the Corporation at any time or from time to time after the Closing Date shall declare -12- or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (i) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (ii) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective. If such record date shall have been fixed and such dividend shall not have been fully paid on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2.6.4(d) as of the time of actual payment of such dividend. (e) ADJUSTMENT OF CONVERSION PRICE UPON CERTAIN EVENTS. If the Corporation shall issue Additional Shares of Common Stock, including Additional Shares of Common Stock deemed to be issued pursuant to Section 2.6.4(c) hereof, but excluding Additional Shares of Common Stock issued pursuant to Section 2.6.4(d), which event is dealt with in Section 2.6.4(g), without consideration or for a consideration per share less than the Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue in order to increase the number of shares of Common Stock into which the Preferred Stock is convertible, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction (x) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Options or Convertible Securities), plus (B) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common stock so issued would purchase at such Conversion Price, and (y) the denominator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Options or Convertible Securities), plus (B) the number of such Additional Shares of Common Stock so issued, provided that the Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amounts so carried forward, shall aggregate $.01 or more. -13- (f) DETERMINATION OF CONSIDERATION. For purposes of this Section 2.6.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (i) CASH AND PROPERTY: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in the foregoing clauses (A) and (B), as determined in good faith by the Board of Directors. (ii) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 2.6.4(c), relating to Options and Convertible Securities, shall be determined by dividing: (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration until such subsequent adjustment occurs) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number until such subsequent adjustment occurs) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (g) ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS, SUBDIVISIONS, COMBINATIONS OR CONSOLIDATION OF COMMON STOCK. In the event the outstanding shares of Common Stock shall be split, subdivided, combined or consolidated, by reclassification or otherwise, into a greater or lesser number of shares of Common Stock, and in the event that the Corporation shall issue shares of Common Stock by way of a stock dividend or other distribution to the holders of Common Stock, the Conversion Price in effect immediately prior to such split, subdivision, stock dividend, combination or consolidation shall, concurrently with the effectiveness of such -14- split, subdivision, stock dividend, combination or consolidation, be increased or decreased proportionately. 2.6.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 2.6, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a similar certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price then in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property that then would be received upon the conversion of Preferred Stock. 2.6.6 MERGER OR SALE OF ASSETS. If at any time or from time to time there shall be a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the assets of the Corporation to any other corporation (collectively, an "Acquisition"), then, as a part of such Acquisition, provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock, the number of shares of stock or other securities or property of the Corporation, or of the successor corporation resulting from such Acquisition, to which a holder of Common Stock issuable upon conversion would have been entitled on such Acquisition. In any such case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions of this Section 2.6 with respect to the rights and interest thereafter of the holders of the preferred Stock after the Acquisition to the end that the provisions of this Section 2.6 (including adjustment of the Conversion Price then in effect and the number of shares acquirable upon conversion of the Preferred Stock) shall be applicable after the Acquisition in as nearly equivalent a manner as may be practicable. Each holder of Preferred Stock upon the occurrence of a capital reorganization or Acquisition, shall have the option of electing treatment of his shares of Preferred Stock under either this Section 2.6.6 or Section 2.3.2, notice of which election shall be submitted in writing the Corporation at its principal offices no later than five (5) days before the effective date of such event. 2.6.7 NOTICE OF RECORD DATE. In the event that there occurs any of the following events: (a) the Corporation declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Corporation; (b) the Corporation subdivides or combines its outstanding shares of Common Stock; (c) there occurs or is proposed to occur any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any -15- consolidation or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation, or (d) the involuntary or voluntary liquidation, dissolution, or winding-up of the Corporation; then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Preferred Stock, and shall cause to be mailed to the holders of the Preferred Stock at their addresses as shown on the records of the Corporation or such transfer agent, at least ten days prior to the record date specified in (i) below or twenty days before the date specified in (ii) below, a notice stating the following information: (i) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision, or combination are to be determined, or (ii) the date on which such reclassification, consolidation, merger, sale, liquidation, dissolution, or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, liquidation, dissolution, or winding-up. 2.6.8 AUTOMATIC CONVERSION OF PREFERRED STOCK. (a) All outstanding shares of Preferred Stock shall be deemed to be automatically converted into shares of Common Stock at the then effective Conversion Price upon (i) the closing of Qualified Public Offering or (ii) the Corporation's meeting or exceeding the projections for each of 1997 and 1998 contained in EXHIBIT B to the Stockholder Agreement or (iii) upon the closing of a Qualified Private Offering (each such event being referred to herein as an "Automatic Conversion Event"); PROVIDED, HOWEVER that if the securities issued in the Qualified Private Offering are not shares of Common Stock, the Preferred Stock shall be deemed to be automatically converted into the same class of securities that are issued in such Qualified Private Offering, but at the Conversion Price then applicable to the Preferred Stock, appropriately adjusted on a Common Stock equivalent basis. (b) On or after the date of occurrence of an Automatic Conversion Event, and in any event within 10 days after receipt of notice, by mail, postage prepaid from the Corporation of the occurrence of such event, each holder of record of shares of Preferred Stock being converted shall surrender such holder's certificates evidencing such shares at the principal office of the Corporation or at such other place as the Corporation shall designate, and shall thereupon be entitled to receive -16- certificates evidencing the number of shares of Common Stock (or other securities) into which such shares of Preferred Stock are converted and cash as provided in Section 2.6.2 in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion. On the date of the occurrence of an Automatic Conversion Event, each holder of record or shares of Preferred Stock shall be deemed to be the holder of record of the Common Stock (or other securities) issuable upon such conversion, notwithstanding that the certificates representing such shares of Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Preferred Stock, or that the certificates evidencing such shares of Common Stock (or other securities) shall not then be actually delivered to such holder. (c) All certificates evidencing shares of Preferred Stock that are required to be surrendered for conversion in accordance with the provisions hereof, from and after the date such certificates arc so required to be surrendered shall be deemed to have been retired and canceled and the shares of Preferred Stock represented thereby converted into Common Stock (or other securities) for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. The Corporation from time to time thereafter shall take appropriate action to reduce the authorized Preferred Stock accordingly. 2.6.9 NO IMPAIRMENT. The Corporation will not, by amendment of this Certification of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 2.6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment. 2.7 REPLACEMENT. Upon receipt of an affidavit of the registered owner of one or more shares of any class of Stock (or such other evidence as may be reasonably satisfactory to the Corporation) with respect to the ownership and the loss, theft, destruction or mutilation of any certificate evidencing such shares of Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (it being understood that if the holder is an Investor or an Affiliated Fund, or any ether holder of shares of Stock of the Corporation which is an entity regularly engaged in the business of investing in companies and meets such requirements of creditworthiness as may reasonably be imposed by the Corporation in connection with the provisions of this paragraph, its own agreement will be satisfactory), or, in the case of any such mutilation upon surrender of such certificate the Corporation shall execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. -17- 2.8 AMENDMENT; WAIVER. No amendment or waiver of any provision of this Article Fourth shall be effective without the prior written consent of the holders of a majority of the then outstanding shares of the Preferred Stock voting as a single class and no amendment or waiver of any provision of this Article Fourth which adversely affects the holders of Common Stock or increases the rights of the Preferred Stock shall be effective without the prior written consent of the holders of a majority of the then outstanding shares of the Common Stock voting as a single class; PROVIDED, HOWEVER, that as stipulated in Section 242(b)(2) of the Delaware General Corporation Law no amendment to any class of Common Stock that alters or changes the powers, preferences or special rights of such class of Common Stock so as to affect them adversely shall be effective without the prior consent of the holders of a majority of the then outstanding shares of such class of Common Stock. ARTICLE V Except to the extent that the General Corporation Law of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. ARTICLE VI 1.1 ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify each 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 (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person or on such person's behalf in connection with such action, suit or proceeding and any appeal therefrom, if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. Notwithstanding anything to the contrary in this Article, except -18- as set forth in Section 1.7 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. Notwithstanding anything to the contrary in this Article, the Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement. 1.2 ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by such person or on such person's behalf in connection with such action, suit or proceeding and any appeal therefrom, if such person acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware shall deem proper. 1.3 INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1.1 and 1.2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, the Indemnitee shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe the Indemnitee's conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. -19- 1.4 NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to the right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving the Indemnitee for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 1.4. The Indemnitee shall have the right to employ the Indemnitee's own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 1.5 ADVANCE OF EXPENSES. Subject to the provisions of Section 1.6 below, in the event that the Corporation does not assume the defense pursuant to Section 1.4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; PROVIDED, HOWEVER, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking shall be accepted without reference to the financial ability of the Indemnitee to make such repayment. 1.6 PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or advancement of expenses pursuant to Section 1.1, 1.2, 1.3 or 1.5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1. 1, 1.2 or 1.5 the Corporation -20- determines within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), whether or not a quorum, (b) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, (c) independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation), or (d) a court of competent jurisdiction. 1.7 REMEDIES. The right to indemnification as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 1.6. Unless otherwise required by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 1.6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing the Indemnitee's right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 1.8 SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 1.9 OTHER RIGHTS. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving -21- the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 1.10 PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by such person or on such person's behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 1.11 INSURANCE. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. 1.12 MERGER OR CONSOLIDATION. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. 1.13 SAVINGS CLAUSE. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall nor have been invalidated and to the fullest extent permitted by applicable law. 1.14 DEFINITIONS. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 1.15 SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. -22- ARTICLE VII The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. 4. Effective upon the filing of the aforesaid Restated Certificate of Incorporation, each authorized share of (i) Class A Common Stock, par value $.001 per share ("Class A Stock"), (ii) Class B Common Stock, par value $.001 per share ("Class B Stock") and (iii) Class C Common Stock, par value $.001 per share (together with the Class A Stock and the Class B Stock, "Old Common Stock") shall be changed into Common Stock, $.001 par value per share, as provided in the Certificate of Merger filed contemporaneously herewith whether or not certificates representing issued and outstanding shares of Old Common Stock are surrendered, and the persons who are record holders of the shares of Old Common Stock of the Corporation as of the effective date of this Restated Certificate of Incorporation shall be treated for all purposes as the record holders of the shares of Common Stock into which such shares were changed. -23- IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its President this 4th day of June 1997. DOUBLECLICK INC. By /s/ Kevin O'Connor ---------------------------- Name: Kevin O'Connor Title: President -24- EX-3.2 3 AMEND. TO THE CERT. OF INCORP. CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF DOUBLECLICK INC. PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE ------------------------------------------ DoubleClick Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY: FIRST: That Article FOURTH of the Restated Certificate of Incorporation of the Corporation, stating the total number of shares the Corporation is authorized to issue, is hereby amended to include the following paragraph (c): Each two (2) shares of the Corporation's Common Stock, par value $.001 per share, issued and outstanding immediately prior to 6:00 P.M. on December __, 1997, shall be converted and reclassified automatically effective as of December __, 1997 at 6:00 P.M., Delaware time, into one (1) share of the Corporation's Common Stock, par value $.001 per share, so that each share of the Corporation's Common Stock issued and outstanding is hereby converted and reclassified. No fractional interests resulting from such conversion shall be issued but, in lieu thereof, the Corporation will round the number of shares of the Corporation's Common Stock issuable to each holder up to the nearest whole share of Common Stock. SECOND: That the foregoing amendment has been duly adopted in accordance with the provisions of Section 242 of the DGCL. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Kevin O'Connor, its Chief Executive Officer and Chairman of the Board of Directors, this __th day of December, 1997. By: /s/ Kevin O'Connor ------------------------------- Kevin O'Connor, Chief Executive Officer ATTEST: /s/ Stephen Collins ----------------------------------- Stephen Collins, Assistant Secretary EX-3.4 4 BYLAWS Exhibit 3.4 BY-LAWS OF DOUBLECLICK INC. Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS 1.1 These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to law, the certificate of incorporation and by-laws mean the law, the provisions of the certificate of incorporation and the by-laws as from time to time in effect. Section 2. STOCKHOLDERS 2.1 ANNUAL MEETING. The annual meeting of stockholders shall be held at such place, on such date, and at such time as the board of directors shall each year fix, which date shall be within thirteen months subsequent to the later of the last annual meeting of stockholders, at which meeting they shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may properly come before the meeting . 2.2 SPECIAL MEETINGS. A special meeting of the stockholders may be called at any time by the chairman of the board, if any, the president or the board of directors. A special meeting of the stockholders shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by an assistant secretary or some other officer, upon application of a majority of the directors. Any such application shall state the purpose or purposes of the proposed meeting. Any such call shall state the place, date, hour, and purposes of the meeting. 2.3 PLACE OF MEETING. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place within or without the State of Delaware as may be determined from time to time by the chairman of the board, if any, the president or the board of directors. Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment. 2.4 NOTICE OF MEETINGS. Except as otherwise provided by law, a written notice of each meeting of stockholders stating the place, day and hour thereof and, in the case of a special meeting, the purposes for which the meeting is called, shall be given not less then ten nor more than sixty days before the meeting, to each stockholder entitled to vote thereat, and to each stockholder who, by law, by the certificate of incorporation or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the secretary, or by an officer or person designated by the board of directors, or in the case of a special meeting by the officer calling the meeting. As to any adjourned session of any meeting of stockholders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described. No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjourned session by such stockholder, is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice. 2.5 QUORUM OF STOCKHOLDERS. At any meeting of the stockholders a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, except where a larger quorum is required by law, by the certificate of incorporation or by these bylaws. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. If a quorum is present at an original meeting, a quorum need not be present at an adjourned session of that meeting. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of any corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 2.6 ACTION BY VOTE. When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 2.7 ACTION WITHOUT MEETINGS. Unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken by stockholders for or in connection with any corporate action may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Each such written consent shall bear the date of signature of each stockholder who signs the consent. No written -2- consent shall be effective to take the corporate action referred to therein unless written consents signed by a number of stockholders sufficient to take such action are delivered to the corporation in the manner specified in this paragraph within sixty days of the earliest dated consent so delivered. If action is taken by consent of stockholders and in accordance with the foregoing, there shall be filed with the records of the meetings of stockholders the writing or writings comprising such consent. If action is taken by less than unanimous consent of stockholders, prompt notice of the taking of such action without a meeting shall be given to those who have not consented in writing and a certificate signed and attested to by the secretary that such notice was given shall be filed with the records of the meetings of stockholders. In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the General Corporation Law of the State of Delaware, if such action had been voted upon by the stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning a vote of stockholders, that written consent has been given under Section 228 of said General Corporation Law and that written notice has been given as provided in such Section 228. 2.8 PROXY REPRESENTATION. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof. 2.9 INSPECTORS. The directors or the person presiding at the meeting may, and shall if required by applicable law, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine -3- all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matte determined by them and execute a certificate of any fact found by them. 2.10 LIST OF STOCKHOLDERS. The secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting. Section 3. BOARD OF DIRECTORS 3.1 NUMBER. The corporation shall have one or more directors, the number of directors to be determined from time to time by vote of a majority of the stockholders entitled to vote. Except in connection with the election of directors at the annual meeting of stockholders, the number of directors may be decreased only to eliminate vacancies by reason of death, resignation or removal of one or more directors. No director need be a stockholder. 3.2 TENURE. Except as otherwise provided by law, by the certificate of incorporation or by these by-laws, each director shall hold office until the next annual meeting and until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified. 3.3 POWERS. The business and affairs of the corporation shall be managed by or under the direction of the board of directors who shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. 3.4 VACANCIES. Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of the holders of the particular class or series of stock entitled to elect such director at a meeting called for the purpose, or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, in each case elected by the particular class or series of stock entitled to elect such directors. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, who were elected by the particular class or series of stock entitled to elect such resigning director or directors shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions. -4- 3.5 COMMITTEES. The board of directors may, by vote of a majority of the whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of business by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request. 3.6 REGULAR MEETINGS. Regular meetings of the board of directors may be held without call or notice at such places within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders. 3.7 SPECIAL MEETINGS. Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the chairman of the board, if any, the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the chairman of the board, if any, the president or any one of the directors calling the meeting. 3.8 NOTICE. It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. -5- 3.9 QUORUM. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 3.10 ACTION BY VOTE. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. 3.11 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the board of directors or a committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the board or of such committee. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be. 3.12 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the board of directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting. 3.13 COMPENSATION. In the discretion of the board of directors, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses incurred in the performance of his duties as director as the board of directors from time to time may determine. Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor. 3.14 INTERESTED DIRECTORS AND OFFICERS. (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, -6- and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. Section 4. OFFICERS AND AGENTS 4.1 ENUMERATION; QUALIFICATION. The officers of the corporation shall be a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation a chairman of the board, one or more vice presidents and a controller. The corporation may also have such agents, if any, as the board of directors from time to time may in its discretion choose. Any officer may be but none need be a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 4.2 POWERS. Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 4.3 ELECTION. The officers may be elected by the board of directors at their first meeting following the annual meeting of the stockholders or at any other time. At any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents. 4.4 TENURE. Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes -7- disqualified. Each agent shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power. 4.5 CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND VICE PRESIDENT. The chairman of the board, if any, shall have such duties and powers as shall be designated from time to time by the board of directors. Unless the board of directors otherwise specifies, the chairman of the board, or if there is none the chief executive officer, shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors. Unless the board of directors otherwise specifies, the president shall be the chief executive officer and shall have direct charge of all business operations of the corporation and, subject to the control of the directors, shall have general charge and supervision of the business of the corporation. Any vice presidents shall have such duties and powers as shall be set forth in these bylaws or as shall be designated from time to time by the board of directors or by the president. 4.6 TREASURER AND ASSISTANT TREASURERS. Unless the board of directors otherwise specifies, the treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the board of directors or by the president. If no controller is elected, the treasurer shall, unless the board of directors otherwise specifies, also have the duties and powers of the controller. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer. 4.7 CONTROLLER AND ASSISTANT CONTROLLERS. If a controller is elected, he shall, unless the board of directors otherwise specifies, be the chief accounting officer of the corporation and be in charge of its books of account and accounting records, and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the board of directors, the president or the treasurer. Any assistant controller shall have such duties and powers as shall be designated from time to time by the board of directors, the president, the treasurer or the controller. 4.8 SECRETARY AND ASSISTANT SECRETARIES. The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all actions by written consent of stockholders or directors. In the absence of the secretary from any meeting, an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the -8- name of each stockholder. He shall have such other duties and powers as may from time to time be designated by the board of directors or the president. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary. Section 5. RESIGNATIONS AND REMOVALS 5.1 Any director or officer may resign at any time by delivering his resignation in writing to the chairman of the board, if any, the president, or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in either case the necessity of its being accepted unless the resignation shall so state. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, a director (including persons elected by stockholders or directors to fill vacancies in the-board) may be removed from office with or without cause by the vote of the holders of a majority of the issued and outstanding shares of the particular class or series entitled to vote in the election of such directors. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. Section 6. VACANCIES 6.1 If the office of the president or the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that officer may choose a successor. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary until his successor is chosen and qualified or in each case until he sooner dies, resigns, is removed or becomes disqualified. Any vacancy of a directorship shall be filled as specified in Section 3.4 of these by-laws. Section 7. CAPITAL STOCK 7.1 STOCK CERTIFICATES. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by the chairman or vice chairman of the board, if any, or the president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary. Any of or all the signatures on the certificate may be a facsimile. In case an officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. -9- 7.2 LOSS OF CERTIFICATES. In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation against any claim on account thereof, as the board of directors may prescribe. Section 8. TRANSFER OF SHARES OF STOCK 8.1 TRANSFER ON BOOKS. Subject to the restrictions, if any, stated or noted on the stock certificate, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as. the board of directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. It shall be the duty of each stockholder to notify the corporation of his post office address. 8.2 RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no such record date is fixed by the board of directors, the record date for determining the stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no such record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior -10- action by the board of directors is required by the General Corporation Law of the State of Delaware, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the General Corporation Law of the State of Delaware, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such payment, exercise or other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 9. CORPORATE SEAL 9.1 Subject to alteration by the directors, the seal of the corporation shall consist of a flat-faced circular die with the word "Delaware" and the name of the corporation cut or engraved thereon, together with such other words, dates or images as may be approved from time to time by the directors. Section 10. EXECUTION OF PAPERS 10.1 Except as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the chairman of the board, if any, the president, a vice president or the treasurer. Section 11. FISCAL YEAR 11.1 The fiscal year of the corporation shall end on the December 31. Section 12. AMENDMENTS 12.1 These by-laws may be adopted, amended or repealed by vote of a majority of the directors then in office or by vote of a majority of the voting power of the stock outstanding and -11- entitled to vote. Any by-law, whether adopted, amended or repealed by the stockholders or directors, may be amended or reinstated by the stockholders or the directors. -12- EX-4.3 5 CONVERTIBLE PROMISSORY NOTE HELD BY BOZELL, JACOBS Exhibit 4.3 CONVERTIBLE PROMISSORY NOTE $5,000,000 June 4, 1997 New York, New York FOR VALUE RECEIVED, DoubleClick Inc., a Delaware corporation (the "Maker"), promises to pay to the order of Bozell, Jacobs, Kenyon & Eckhardt, Inc., a Delaware corporation (the "Holder"), the principal amount of FIVE MILLION DOLLARS ($5,000,000) plus interest on such principal amount at the interest rate, in the manner and at the times set forth below. 1. Interest Rate. The Maker hereby agrees to pay interest to the Holder in respect of the unpaid principal balance of this Note at a per annum rate equal to the "Federal Short-Term Rate" (as defined in Section 1274(d) of the Internal Revenue Code of 1986, as amended from time to time, and as published from time to time by the Department of the Treasury, Internal Revenue Service in the Internal Revenue Bulletin) (the "Interest Rate"). Any change in the Interest Rate resulting from a change in the Federal Short-Term Rate shall be automatically effective on the effective date (rather than the publication date) of each such change in the Federal Short-Term Rate. Such interest shall accrue on the unpaid principal balance of this Note from and after the date hereof and shall be payable quarterly with the first quarterly interest payment due on September 30, 1997 and succeeding quarterly interest payments due on the last Business Day of each December, March, June and September thereafter (each an "Interest Payment Date"). All computations of interest hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) occurring in the period for which such interest is payable. 2. Term. The term of this Note shall be three years from the date hereof. All unpaid principal, together with any and all accrued and unpaid interest, shall be due and payable on June___, 2000 (the "Maturity Date"). 3. Payment. Any payment hereunder shall be applied first to the payment of costs and charges of collection, if any, then to accrued interest, and the balance, if any, shall be then applied to reduction of principal. Principal and interest are payable only in lawful money of the United States of America. 4. Late Payment. The Maker agrees that if for any reason it fails to pay any amount due at any Interest Payment Date, at the Maturity Date or upon the occurrence of an Event of Default, within five (5) business days after such date, the Holder shall be entitled to damages for the detriment caused thereby, the extent of which damages are extremely difficult and impractical to ascertain. The Maker therefore agrees to pay default interest on such delinquent amount at a per annum rate equal to the Federal Short Term Rate plus 1%. Acceptance of such default interest by the Holder shall in no event constitute a waiver of the Makers' default with respect to such overdue amount nor prevent the Holder from exercising any of the other rights and remedies granted hereunder. Acceptance by the Holder of any payment under this Note after the date that such payment is due shall not constitute a waiver of the right to declare a default as herein provided for any failure to so pay. 5. Subordination. (a) The payment of principal of and interest under this Note is subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the payment of all Senior Indebtedness. These subordination provisions are made for the benefit of all parties who, in reliance upon such provisions, are holders of, become holders of or continue to hold Senior Indebtedness, and they or any of them may proceed to enforce such provisions against the Holder without the necessity of joining the Maker as a party. The Holder and any transferee of the Note agree to confirm in writing to any holder of Senior Indebtedness or any prospective holder of Senior Indebtedness identified to the Holder or such transferee by the Company the subordination provisions set forth in this Section 5. (b) The term "Senior Indebtedness" as used herein means and includes indebtedness of the Maker, including interest and penalties thereon, for money borrowed by the Maker from any commercial lender or institutional investor, whether outstanding on the date hereof or thereafter created or incurred, which is not by its terms subordinate and junior to or ranking pari passu with this Note. (c) In the event of any distribution of assets upon any dissolution, winding up, liquidation, or reorganization of the Maker (whether in bankruptcy, insolvency, or receivership proceedings), or upon any assignment for the benefit of creditors, all Senior Indebtedness shall first be paid in full before any payment shall be made by the Maker in respect of the principal of or interest then owed under this Note. Any such payment or distribution which, but for the provisions hereof, would be payable or deliverable in respect of the Note, shall be paid or delivered directly to the holders of Senior Indebtedness or their representatives, in the proportions in which they hold the same, until all Senior Indebtedness shall have been paid in full, and the Holder and any transferee of the Note by becoming a holder thereof shall be deemed to have designated and appointed each holder or holders of Senior Indebtedness (and their duly authorized representatives) as it agents and attorneys-in-fact to file any necessary proof of claim not otherwise filed. (d) During the periods specified below, no payment of principal, premium or interest on the Note shall be made by the Maker or accepted by the Holder who has received notice from a holder of Senior Indebtedness of a default under the terms of such Senior Indebtedness: (i) for a 180-day period commencing upon default in the payment of any principal or interest on the Senior Indebtedness held by such holder, but any such period shall end earlier upon payment or the curing or written waiver of the default or (ii) during any period which such holder of Senior Indebtedness is prosecuting judicial proceedings to collect any principal or interest on such Senior Indebtedness. -2- (e) If in violation of the terms of this subordination, any Holder or transferee of the Note receives payment before all Senior Indebtedness is paid in full, such payment shall be held in trust for and paid ratably to the holder of Senior Indebtedness or their representatives until all Senior Indebtedness shall have been paid in full. (f) Upon the payment in full of all Senior Indebtedness, the Holder or transferee of the Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Maker applicable to Senior Indebtedness. No such payments or distributions applicable to the Senior Indebtedness shall, as between the Maker, its creditors (other than holders of Senior Indebtedness) and the holder of the Note shall be deemed to be a payment by the Maker to or on account of the Note. 6. Default/Acceleration. If any one or more of the following events shall occur (hereinafter called an "Event of Default"), namely: (i) the Maker shall become insolvent, or shall be unable to pay its debts as they mature; or shall admit in writing its inability to pay its debts as they mature; or shall make an assignment for the benefit of its creditors; or shall file or commence or have filed or commenced against it any proceeding for any relief under any bankruptcy or insolvency law or any law or laws relating to the relief of debtors which is not dismissed or stayed within 60 days of the filing or commencement thereof, readjustment of indebtedness, reorganizations, compositions or extensions, or a receiver or trustee shall be appointed for the undersigned; (ii) the Maker shall dissolve, or otherwise wind-up its affairs; or (iii) the Maker shall enter into any transaction of merger or consolidation into or with another corporation, THEN, upon the occurrence of any such Event of Default, or upon the expiration of the term of this Note, the Holder at its election, and without presentment, demand, notice of any kind, all of which are expressly waived by the Maker, may declare the entire outstanding balance of principal and interest thereon immediately due and payable, together with all costs of collection, including attorneys' fees, or may exercise upon or enforce its rights, to the fullest extent permitted by applicable law. 7. No Waiver By Holder. The acceptance by the Holder of any payment under this Note after the date such payment is due, or the failure to declare an Event of Default as herein provided, shall not constitute a waiver of any of the terms of this Note or the right to require the prompt payment when due of future or succeeding payments or to declare an Event of Default for any failure to so pay or for any other default. 8. Attorney's Fees And Costs. In the event the Holder takes any action to enforce any provision of this Note, either through legal proceedings or otherwise, the Maker promises to immediately reimburse the Holder for reasonable attorneys' fees and all other costs and expenses so incurred. The Maker shall also reimburse Holder for all attorneys' fees and costs reasonably incurred in the representation of the Holder in any bankruptcy, insolvency, reorganization or other debtor-relief proceeding of or relating to the Maker, or for any action to enforce any judgment rendered hereon or relating to enforcement hereof. -3- 9. Waivers. The Maker of this Note hereby waives diligence, demand, presentment, notice of non-payment, protest and notice of protest and expressly agrees that this Note, or any payment hereunder, may be renewed, modified or extended from time to time and at any time, all without in any way affecting its liability. 10. Prepayment. (a) The Maker may voluntarily prepay this Note in whole or in part on any Prepayment Date without premium or penalty. (b) Following the receipt by the Maker of cash proceeds referred to in this subpart (b), the Maker shall prepay the principal amount of this Note in an amount equal to 30% of the cash proceeds to the Maker from any sale or issuance by the Maker of shares of its capital stock after the date hereof; provided, that prepayment under this subpart (b) shall only be required if the product of (i) the price per share of capital stock paid in consideration of such sale or issuance and (ii) the number of shares of capital stock then outstanding on a fully-diluted basis (assuming conversion of all convertible shares and exercise of all options to purchase capital stock) is $70,000,000 or more. Any prepayment pursuant to this subpart (b) must take place on a Prepayment Date. (c) Following the date of any voluntary or involuntary liquidation, dissolution or winding-up or sale of substantially all the assets or capital stock of the Maker it shall prepay the principal amount of this Note in an amount equal to any assets which are available for distribution to its holders of capital stock to the extent such assets exceed $70,000,000. Any prepayment pursuant to this subpart (c) must take place on a Prepayment Date. (d) In no event shall the amount required to be prepaid under subparts (b) and (c) above exceed an amount equal to the sum of (i) unpaid principal and accrued and unpaid interest evidenced hereby and (ii) costs and charges payable hereunder. 11. Conversion. (a) At any time prior to the Maturity Date, the unpaid principal balance of this Note shall be convertible, at the option of the Holder, and without payment of any additional consideration therefor, into that number of fully paid and nonassessable shares of Common Stock as is determined by dividing the unpaid principal balance of this Note by the Conversion Price in effect at the time of such conversion. The "Conversion Price" shall initially be $3.208 and shall be subject to adjustment (in order to adjust the number of shares of Common Stock into which the unpaid principal balance of this Note is convertible) as hereinafter provided. (b) In order for the Holder to convert the unpaid principal balance of this Note into shares of Common Stock, the Holder must surrender this Note to the Maker, at the Maker's Notice Address, together with written notice that the Holder elects to convert the unpaid principal balance of this Note into Common Stock. Such notice shall state the Holder's name or the names of nominees as the name or names in which the Holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Maker, upon surrender, this Note shall be endorsed or accompanied by a written instrument or instruments of transfer, -4- in form reasonably satisfactory to the Maker, duly executed by the Holder or its attorney duly authorized in writing. The date of receipt by the Maker of this Note and above-described notice shall be the conversion date (the "Conversion Date") and the conversion shall be deemed effective as of the close of business on the Conversion Date. No fractional shares of Common Stock shall be issued upon conversion of the unpaid principal balance of this Note. The Maker shall, as soon as practicable, and no more than five Business Days, after the Conversion Date, issue and deliver to the Holder, or to its nominees, a certificate or certificates for the number of shares of Common Stock to which the Holder shall be entitled, together with an amount of cash in lieu of any fraction of a share (to which the Holder would otherwise be entitled but for the preceding sentence) which shall be equal to the product of such fraction multiplied by the Conversion Price. If Common Stock is to be issued to a person other than the Holder, such person or the Holder shall pay all applicable stock transfer taxes. (c) The Maker shall at all times prior to the Maturity Date, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of this Note, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all this Note into Common Stock pursuant to this Section 11. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-existing par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Maker shall take any corporate action that may, in the opinion of its counsel, be necessary in order that the Maker may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. (d) Upon surrender of this Note for conversion as herein provided, this Note shall no longer be deemed to be outstanding and all rights of the Holder with respect to this Note shall immediately cease and terminate at the close of business on the Conversion Date (except the right of the Holder to receive (i) shares of Common Stock in exchange therefor (ii) unpaid interest accrued prior to conversion and (iii) any costs and charges payable hereunder). (e) No adjustment shall be made in the Conversion Price as the result of the issuance of Additional Shares of Common Stock or otherwise, unless the consideration per share determined pursuant to subpart (h) of this Section 11 for an Additional Share of Common Stock issued or deemed to be issued by the Maker is less than the Conversion Price in effect on the date of, and immediately prior to, the issuance of such Additional Shares of Common Stock. (f) If the Maker at any time or from time to time shall issue any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided, that Additional -5- Shares of Common Stock shall not be deemed to have been issued unless the consideration per share determined pursuant to subpart (h) of this Section 11 of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued: (i) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Maker, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the right of conversion or exchange under such Convertible Securities. (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if: (A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Maker for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Maker upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Maker upon such conversion or exchange and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Maker for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Maker for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Maker determined pursuant to subpart (h) of this Section 11 upon the issue of the Convertible Securities with respect to which such Options were actually exercised; -6- (iv) no recomputation pursuant to the preceding clauses (ii) and (iii) shall have the effect of increasing the Conversion Price to an amount that exceeds the lower of (x) the Conversion Price on the original adjustment date with respect to the original issuance of such Options or Convertible Securities, or (y) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date with respect to the original issuance of such Options or Convertible Securities and such recomputation date; (v) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (iii) above; and (vi) if such record date have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this subpart (f) as of the actual date of their issuance. (g) In the event the Maker at any time or from time to time after the date hereof shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (i) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (ii) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective. If such record date shall have been fixed and such dividend shall not have been fully paid on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this subpart (g) as of the time of actual payment of such dividend. (h) If the Maker shall issue Additional Shares of Common Stock, including Additional Shares of Common Stock deemed to be issued pursuant to subpart (f) of this Section 11, but excluding Additional Shares of Common Stock issued pursuant to subpart (g) of this Section 11, which event is dealt with in subpart (j) of this Section 11, without consideration or for a consideration per share less than the Conversion Price in effect on the date of and immediately prior to such issuer, then and in such event, such Conversion Price shall be reduced, concurrently with such issue in order to increase the number of shares of Common Stock into -7- which this Note is convertible, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction (x) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Options or Convertible Securities), plus (B) the number of shares of Common Stock which the aggregate consideration received by the Maker for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price, and (y) the denominator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Options or Convertible Securities), plus (B) the number of such Additional Shares of Common Stock so issued, provided that the Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $.001, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amounts so carried forward, shall aggregate $.001 or more. (i) For purposes of this subpart (i), the consideration received by the Maker for the issue of any Additional Shares of Common Stock shall be computed as follows: (i) Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate of cash received by the Maker, excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Maker; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Maker for consideration which covers both, be the proportion of such consideration so received, computed as provided in the foregoing clauses (A) and (B), as determined in good faith by the Board of Directors of the Maker. (ii) The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section subpart (f) of this Section 11, relating to Options and Convertible Securities, shall be determined by dividing: (A) the total amount, if any, received or receivable by the Maker as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration until such subsequent adjustment occurs) payable to the Maker upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities and the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (B) the maximum -8- number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number until such subsequent adjustment occurs) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (j) In the event the outstanding shares of Common Stock shall be split, subdivided, combined or consolidated, by reclassification or otherwise, into a greater or lesser number of shares of Common Stock, and in the event that the Maker shall issue shares of Common Stock by way of stock dividend or other distribution to the holders of Common Stock, the Conversion Price in effect immediately prior to such split, subdivision, stock dividend, combination or consolidation shall, concurrently with the effectiveness of such split, subdivision, stock dividend, combination or consolidation, be increased or decreased proportionately. (k) Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 11, the Maker at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Maker shall, upon the written request at any time of the Holder, furnish or cause to be furnished to the Holder a similar certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price then in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property that then would be received upon the conversion of this Note. (l) If at any time or from time to time there shall be a merger or consolidation of the Maker with or into another corporation, or the sale of all or substantially all of the assets of the Maker to any other corporation (collectively, an "Acquisition"), then, as a part of such Acquisition, provision shall be made so that the Holder shall thereafter be entitled to receive upon conversion of this Note, the number of shares of stock or other securities or property of the Maker, or of the successor corporation resulting from such Acquisition, to which a holder of Common Stock issuable upon conversion would have been entitled on such Acquisition. In any such case, appropriate adjustment (as determined by the Board of Directors of the Maker) shall be made in the application of the provisions of this Section 11 with respect to the rights and interest thereafter of the Holder after the Acquisition to the end that the provisions of this Section 11 (including adjustment of the Conversion Price then in effect and the number of shares acquirable upon conversion of this Note) shall be applicable after the Acquisition in as nearly equivalent a manner as may be practicable. The Holder upon the occurrence of an Acquisition, shall have the option of electing to exercise its rights under either this Section 11 or Section 5, notice of which election shall be submitted in writing to the Maker at the Maker's Notice Address no later than five days before the effective date of such Acquisition. (m) In the event that there occurs any of the following events: -9- (i) the Maker declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Maker; (ii) the Maker subdivides or combines its outstanding shares of Common Stock; (iii) there occurs or is proposed to occur any reclassification of the Common Stock of the Maker (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any consolidation or merger of the Maker into or with another corporation, or of the sale of all or substantially all of the assets of the Maker; or (iv) the involuntary or voluntary liquidation, dissolution, or winding-up of the Maker. then the Maker shall cause to be mailed to the Holder, at the Holder's Notice Office, at least ten days prior to the record date specified in (A) below or twenty days before the date specified in (B) below, a notice stating the following information: (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision, or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, liquidation, dissolution, or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, liquidation, dissolution, or winding-up. (n) The Maker will not, by amendment of its Certification of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Maker but will at all times in good faith assist in the carrying out of all the provisions of this Section 11 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holder against impairment. (o) All shares of Common Stock received upon the conversion of this Note shall be deemed "Group B Shares" under the Stockholders Agreement dated as of June ___, 1997, among the Maker, the Holder and the stockholders of the Maker party thereto (the "Stockholders Agreement"). If this Note is held by a party other than the original Holder, no conversion of this Note into Common Stock shall be effective until such party delivers to the Maker a written -10- acknowledgement and agreement in form and substance reasonably satisfactory to the Maker that any shares of Common Stock of the Maker received upon the conversion of this Note shall be deemed "Group B Shares" and that such party shall be deemed a "Group B Stockholder" under the Stockholders Agreement. 12. Cancellation of Note. Upon the consummation of a Liquidation Event (as defined in the Maker's Amended and Restated Certificate of Incorporation) with a Liquidation Event Value (as defined in the Maker's Amended and Restated Certificate of Incorporation) of less than $70,000,000, this Note shall be immediately cancelled and all of Maker's obligations hereunder extinguished. 13. Defined Terms. As used in this Note the following terms shall have the following meanings (such meanings equally applicable to both the singular and the plural forms of the terms so defined): "Additional Shares of Common Stock" means, for purposes of Section 11 of this Note, all shares of Common Stock issued (or, pursuant to subpart (f) of Section 11 of this Note, deemed to be issued) by the Maker after the date hereof, other than shares of Common Stock issued or issuable: (A) upon conversion of shares of this Note; (B) by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock; (C) upon the exercise of options to employees, officers or directors excluded from the definition of "Option" hereunder; or (D) upon the exercise, at any time from and after the date hereof, of Options granted or issued on or before the date hereof. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Common Stock" shall mean the Common Stock of the Maker, par value $.001. "Common Stock Deemed Outstanding" means, for purposes of Section 11 of this Note, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock issuable at such time upon conversion of this Note, and any other Convertible Securities then outstanding, plus the number of shares of Common Stock issuable at any time upon the exercise of all then outstanding Options. "Conversion Date" shall have the meaning provided in Section 1l(b) of this Note. "Conversion Price" shall have the meaning provided in Section 11 of this Note. "Convertible Securities" means, for purposes of Section 11 of this Note, any evidences of indebtedness, shares (other than Common Stock), or other securities directly or indirectly convertible into or exchangeable for Common Stock. -11- "Event of Default" shall have the meaning provided in Section 6 of this Note. "Federal Short Term Rate" shall have the meaning provided in Section 1 of this Note. "Holder" shall have the meaning provided in the first paragraph of this Note. "Holder's Notice Address" shall mean the following address or such other address as the Holder may from time to time designate in a written notice to the Maker at the Maker's Notice Address: Bozell, Jacobs, Kenyon & Eckhardt, Inc. 40 West 23rd Street New York, New York 10010 Attention: Valentine Zammit "Interest Payment Date" shall have the meaning provided in Section 1 of this Note. "Interest Rate" shall have the meaning provided in Section 1 of this Note. "Maker" shall have the meaning provided in the first paragraph of this Note. "Maker's Notice Address" shall mean the address of the Maker set forth opposite the Maker's signature line at the end of this Note or such other address as the Maker may from time to time designate in a written notice to the Holder at the Holder's Notice Address. "Maturity Date" shall have the meaning provided in Section 2 of this Note. "Notice of Prepayment" shall mean prior written notice of any prepayment to be made under subpart (a), (b) or (c) hereof which is mailed, delivered by hand or delivered by overnight courier to the Holder at the Holder's Notice Address. If mailed, a Notice of Prepayment shall be deemed to have been given 3 Business Days after it is deposited in the mails, certified, return receipt requested. If sent by overnight courier, a Notice of Prepayment shall be deemed to have been given one Business Day following its delivery to such overnight courier service. If hand delivered, a Notice of Prepayment shall be deemed to have been given when delivered. A Notice of Prepayment shall specify (i) the Prepayment Date on which such prepayment is to be made, (ii) the amount of such prepayment, (iii) whether such prepayment is being made pursuant to subpart (a), (b) or (c) hereof and (iv) with respect to any prepayment pursuant to subpart (b) or (c) hereof, in reasonable detail, the facts giving rise to such prepayment. "Option" means, for purposes of Section 11 of this Note, any outstanding right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible -12- Securities excluding rights, warrants and options granted on or after the date hereof, to employees, officers, directors or consultants of the Maker or any subsidiary thereof pursuant to any stock option plan or agreement adopted by the Board of Directors of the Maker. "Prepayment Date" shall mean any Business Day on which the Maker makes a prepayment of all or any portion of this Note which shall be not less than 10 and not more than 30 Business Days after the giving of a Notice of Prepayment in connection therewith (excluding the date on such Notice of Prepayment is given). "Senior Indebtedness" shall have the meaning provided in Section 5(b) of this Note. 14. Right of Set-Off. This Note is made pursuant to the Agreement and Plan of Merger dated as of May 14, 1997 (the "Merger Agreement") by and among (i) the Maker, (ii) DoubleClick Acquisition Corp., a Delaware corporation, (iii) the Holder, each holder of shares of Class C Common Stock of the Maker and each other holder of capital stock of the Maker listed on the signature pages of the Merger Agreement, and (iv) each of Bain Capital Fund V, L.P., a Delaware limited partnership, Bain Capital Fund V-B, L.P., a Delaware limited partnership, BCIP Associates, a Delaware general partnership, BCIP Trust Associates, L.P., a Delaware limited partnership, Brookside Capital Partners Fund, L.P., a Delaware limited partnership, Greylock Equity Limited Partnership, a Delaware limited partnership, Greylock IX Limited Partnership, a Delaware limited partnership and ABS Capital Partners II, L.P., a Delaware limited partnership, and is subject to all rights the Maker has to set-off and withholding as set forth in Section 9.12 of the Merger Agreement. Any transferee of the Note or Common Stock issuable upon conversion thereof shall be bound by the obligations of the Holder set forth in Section 9.12 of the Merger Agreement. 15. Miscellaneous. The terms of this Note shall inure to the benefit of and bind the parties hereto and their successors and assigns. The obligations of this Note shall not be assignable by the Maker except to an affiliate of the Maker with the prior written consent of the Holder. 16. Governing Law. This Note shall be governed by and construed under the laws of the State of New York, without regard to the conflict of laws rules thereof. DOUBLECLICK INC. DoubleClick Inc. By: 41 Madison Avenue /s/ Kevin O'Connor 32nd Floor -------------------- New York, New York 10010 Name: Kevin O'Connor Attention: President Title: CEO -13- EX-10.1 6 1996 STOCK OPTION PLAN Exhibit 10.1 DOUBLECLICK INCORPORATED 1996 STOCK OPTION PLAN ARTICLE I GENERAL PROVISIONS 1.1 PURPOSE. The DOUBLECLICK INCORPORATED 1996 STOCK OPTION PLAN (the "Plan") has been established by DoubleClick Incorporated, a Delaware corporation (the "Company"), to secure for the Company and its stockholders the benefits arising from capital stock ownership by those employees and officers of the Company who will be responsible for its future growth and continued success. The Plan will provide a means whereby such employees and officers may purchase shares of the common stock, $.001 par value, of the Company ("Common Stock") pursuant to options granted hereunder ("Options"). In so doing, it is intended that the Plan serve to help the Company attract and retain such employees and officers by making it possible to offer them an increased incentive to join, or continue in the service of, the Company and to increase their efforts for its welfare. 1.2 ADMINISTRATION. The Plan will be administered and interpreted by the Company's Board of Directors or by such committee of directors or administrator to whom the Board of Directors may delegate such authority and responsibility (the "Committee/Administrator"). In any event, administration will be subject in all respects to the supervisory prerogative of the Company's Board of Directors. The Committee/Administrator will have complete discretion within the authority delegated by the Board of Directors to control the operation of the Plan, including participation in the Plan. Members of the Committee or the Administrator shall not be liable for any action or determination made in good faith and permitted by the terms of the Plan. 1.3 PARTICIPATION. Subject to the terms of the Plan, and, in the case of Incentive Stock Options (as described in Article II), subject to the requirements for qualification as such under Section 422 of the 1986 Internal Revenue Code, as amended, (the "Code") and any successor provision, the Committee/Administrator shall determine and designate, from time to time, the employees and officers of the Company and its subsidiaries, including employees and officers of the Company and its subsidiaries who are directors of the Company and its subsidiaries, to whom Options are to be granted (the "Participants"), the number of shares of Common Stock that shall be subject to Options granted to each Participant, the terms and conditions of each Option, the voting and transfer restrictions to which the shares of Common Stock obtainable upon exercise of each Option shall be subject, and whether each Option shall constitute an Incentive Stock Option, a Non-Qualified Option (as described in Article III), or some combination of the foregoing. 1.4 SHARES SUBJECT TO THE PLAN. The shares of stock that may be subject to Options under the Plan shall be unissued shares of Common Stock and shares of Common Stock held in treasury. All shares of stock that may be subject to Options under the Plan shall be subject to the provisions of the Securityholders Agreement dated as of January 26, 1996, among the Company, Poppe Tyson, Inc. and the other persons executing that agreement as Securityholders, as the same may be amended from time to time (the "Securityholders Agreement"). The aggregate number of shares of Common Stock for which Options may be granted under the Plan shall not exceed 2,277,180 shares, subject to such adjustments as may take place in accordance with Section 1.12. If, as to any number of shares, any Option granted pursuant to the Plan expires or terminates while the Plan remains in effect, such number of shares shall again be available for grant under the Plan. 1.5 OPTION PRICE. The price at which a share of Common Stock may be purchased pursuant to the exercise of an Option under the Plan shall be fixed by the Committee/Administrator on the date the Option is granted, and in the case of Incentive Stock Options, shall be as set forth in Section 2.1. 1.6 OPTION EXPIRATION DATE. The "Expiration Date" with respect to an Option granted to a Participant under the Plan means the earlier of (i) the date established by the Committee/Administrator as the date on which the maximum period of time of such Option would elapse (but in no event shall such period of time be longer than ten years, measured from the date on which the Option is granted), or (ii) the date specified in Section 1.8 or 4.2. 1.7 EXERCISE OF OPTION. Each Option shall be exercisable at such time or times as shall be established hereunder. The Committee/Administrator may, in its discretion, accelerate the exercisability of any one or more Options at any time and for any reason, provided that, if the exercisability of any Incentive Stock Options is accelerated in a way that causes them no longer to comply with the provisions of Article II below, then such Incentive Stock Options shall automatically become Non-Qualified Options as defined in Article III below to such extent as may be necessary to preserve the qualification of the maximum number of Options for treatment as Incentive Stock Options (and such recharacterization shall be effected in the reverse order in which such Options were granted, such that the most recently granted Incentive Stock Options shall be recharacterized as Non-Qualified Options first). A Participant may exercise an Option by giving written notice (the "Exercise Notice") thereof prior to the Option's Expiration Date to the Secretary or other designated officer of the Company at the Company's corporate headquarters. The full purchase price of the shares purchased pursuant to the exercise of an Option shall be paid, in cash, or, if permitted by the Committee/Administrator, by tender of stock certificates in proper form for transfer to the Company representing shares of Common Stock valued at the Fair Market Value (as described in Article II) of the Common Stock on the preceding business day, or by any combination of the foregoing, contemporaneously with the giving of the Exercise Notice. In addition, the Participant shall pay to the Company at -2- the time of exercise, or shall otherwise make arrangements satisfactory to the Committee/Administrator regarding payment of, any additional amount that the Committee/Administrator deems necessary to satisfy the Company's liability to withhold federal, state or local income or other taxes incurred by reason of exercise of the Option. 1.8 TERMINATION OF EMPLOYMENT. The Committee/Administrator shall have the power to specify, with respect to the Options granted to any particular Participant the effect upon such Participant's right to exercise an Option of the termination of such Participant's employment under various circumstances, which effect may include immediate or deferred termination of such Participant's rights under an Option, or acceleration of the date at which an Option may be exercised in full; provided, however, that Incentive Options shall be subject to the provisions of Section 2.3. In the event of exercise of any Option after the termination of employment (including by reason of death or disability), the Participant may exercise the Option only with regard to the shares that could have been obtained under Options exercisable on the date of termination of employment. 1.9 COMPLIANCE WITH APPLICABLE LAWS. Notwithstanding any other provision of the Plan, the Company shall not be obligated to issue any shares of Common Stock under the Plan unless such issuance is in compliance with all applicable laws and any applicable requirements of any securities exchange on which the Common Stock is traded. Prior to the issuance of any shares of Common Stock under the Plan, the Company may require a written statement from the recipient as evidence of such compliance, including an acknowledgment by the recipient that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares. 1.10 TRANSFERABILITY AND RESTRICTIONS UPON TRANSFER AND VOTING. Options under the Plan are not transferable except by will or under the laws of descent and distribution. Options may be exercised during the lifetime of the Participant only by the Participant. As provided in Section 1.4, shares of Common Stock received upon exercise of Options granted under the Plan shall be subject to the provisions of the Securityholders Agreement. Certificates representing such shares shall bear a legend referring to such Agreement. Shares of Common Stock received upon exercise of Options granted under the Plan may, in addition, be subject to such voting and transfer restrictions as the Committee/Administrator in its sole discretion shall establish at the time such Options are granted. If the transfer or voting of shares obtained upon exercise of an Option is restricted, certificates representing such shares may also bear a legend referring to such restrictions. 1.11 EMPLOYMENT AND STOCKHOLDER STATUS. This Plan, any document describing this Plan, the grant of any Option hereunder, and any agreement evidencing the grant of such Option shall not be construed to give any Participant or any other employee a right to continued employment by the Company or affect the right of the Company to terminate the employment of any such person with or without cause. The grant of an Option under the Plan shall not confer upon the holder thereof any right as a stockholder of the Company. No person entitled to exercise any Option granted under the Plan shall have any of -3- the rights or privileges of a stockholder of record with respect to any shares of Common Stock issuable upon exercise of such Option until such Option is exercised and certificates representing such shares have been issued and delivered. 1.12 ADJUSTMENTS AND OWNERSHIP CHANGES. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend, stock split, or similar corporate change involving the Common Stock, the aggregate number and kind of shares subject to Options outstanding or to be granted under the Plan shall be proportionately adjusted or modified, and the terms of any outstanding Option shall be adjusted or modified accordingly. In the event of any merger, consolidation, reorganization, division or other corporate transaction in which the Common Stock is converted into another security or into the right to receive securities or property of the Company or of any other entity (an "Ownership Change"), the Company shall have the right, at its discretion, to provide for the assumption or substitution of comparable stock options in place of the Options theretofore granted hereunder. In the event such an Ownership Change takes place and provision is not made for such assumption or substitution, or in the event that the Company sells all or substantially all of its assets, or engages in a liquidation of all or substantially all of its assets (a "Termination Event"), the Committee/Administrator may, in its discretion, accelerate the exercisability of any one or more Options in accordance with Section 1.7. It is the policy of the Company that the decision whether to accelerate the exercisablity of outstanding Options take into account such factors as the profitability of the transaction giving rise to the Termination Event to the stockholders of the Company, the likelihood that the business of the Company will substantially continue under the same, different or changed ownership following such transaction, the tenure and performance of individual Participants, the possibility that some or all of the Participants receive or are invited to participate in benefits or benefit plans if they continue as employees of the successor to the Company's business or other consideration in connection with such transaction, and any other factors that may be appropriate within the scope of their business judgment. Whether or not such an acceleration occurs, all outstanding exercisable and non-exercisable Options shall be cancelled to the extent they remain unexercised at the time such transaction is consummated. The determination of the Committee/Administrator in its sole discretion with respect to all such matters shall be final and binding. In no event shall any fraction of a share of stock be issued upon the exercise of an Option. 1.13 AGREEMENT WITH COMPANY. At the time of a grant of an Option, the Committee/Administrator shall require a Participant to enter into a written agreement with the Company in a form specified by the Committee/Administrator. Such agreement shall reflect the Participant's agreement to the terms and conditions of the Plan and to such -4- additional terms and conditions, not inconsistent with the Plan, as the Committee/Administrator may, in its sole discretion, prescribe. No Option purported to be granted pursuant to the Plan shall be valid or binding on the Company unless evidenced by a written agreement and approved by the Committee/Administrator. ARTICLE II INCENTIVE STOCK OPTIONS In addition to the requirements of Articles I and IV, Incentive Stock Options shall be subject to the following provisions: 2.1 EXERCISE PRICE. The exercise price of an Incentive Stock Option shall not be less than the Fair Market Value of the Common Stock at the time such Option is granted. For purposes of this Plan" Fair Market Value" shall mean (a) the closing sales price of the Common Stock, regular way, first preceding the time at which Fair Market Value is to be determined, on the national securities exchange having the greatest volume of trading in the Common Stock during the thirty-day period preceding the day the value is to be determined; or (b)if the Common Stock is not traded on any national securities exchange, the closing sales price of the Common Stock first preceding the time at which Fair Market Value is to be determined, as reported on the National Association of Securities Dealers Automated Quotation System (NASDAQ) National Market System, or any successor system; or (c) if the trading of the Common Stock is not reported by the NASDAQ National Market System, the average of the closing bid and asked prices of the Common Stock on the over-the-counter market first preceding the time at which Fair Market Value is to be determined, as reported by NASDAQ, or any other national quotation service; or (d) if the Common Stock is not traded on a national exchange nor on the over-the-counter market, the fair market value as determined by the Board of Directors or the Committee/Administrator based on such relevant facts as may be available to it, which may include the price at which securities of reasonably comparable corporations in the same industry are being traded (subject to appropriate adjustments for the absence of a public market and other dissimilarities between the Company and such corporations), the earnings history, book value and prospects of the Company in light of market conditions generally, the prices for recent sales of the Common Stock, opinions of independent experts, and such other evidence as the Board of Directors or the Committee/Administrator, as the case may be, determines it may rely on in making a good faith valuation. The closing sales prices and closing bid and asked prices in clauses (a), (b) and (c) shall be those published in THE WALL STREET JOURNAL. If such prices are not reported for the day Fair Market Value is to be determined, prices reported for the first preceding day for which such information is available shall be used. -5- 2.2 LIMITATION ON OPTIONS. The aggregate Fair Market Value of all shares of Common Stock (determined at the time the Incentive Stock Option is granted) that are subject to Incentive Stock Options granted by the Company to a Participant under the Plan and any other similar plans, including plans of a subsidiary, then in effect, and that become exercisable for the first time during any calendar year, may not exceed $100,000. 2.3 CONTINUED EMPLOYMENT. No Option granted under the Plan shall qualify as an Incentive Stock Option unless at all times during the period beginning on the date of the granting of the Option and ending on the day three months before the date of exercise of the Option, the Participant is an employee of either the Company, a parent or subsidiary corporation of the Company, or a corporation or a parent or subsidiary corporation of such corporation issuing or assuming a stock Option in a transaction to which Section 424(a) of the Code applies (subject to such exceptions provided by the Code and applicable Treasury Regulations). Whether military, government or other service or other leave of absence of a Participant shall constitute a termination of employment for such purposes and whether the requirements of this section are otherwise satisfied, shall be determined in each case by the Committee/Administrator in accordance with the principles and requirements of Sections 421, 422 and 424 of the Code and applicable Treasury Regulations. 2.4 SPECIAL RULE FOR TEN PERCENT STOCKHOLDER. If at the time an Incentive Stock Option is granted, a Participant owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, as determined using the attribution rules of Section 424(d) of the Code, then the terms of the Incentive Stock Option shall specify that the exercise price shall be at least 110% of the Fair Market Value of the shares of Common Stock that are subject to the Incentive Stock Option, and such Incentive Stock Option shall not be exercisable after the expiration of five years from the date such Incentive Stock Option is granted. 2.5 INTERPRETATION. In interpreting this Article II of the Plan and the provisions of individual Option agreements, the Committee/Administrator shall be governed by the principles and requirements of Sections 421, 422 and 424 of the Code, and applicable Treasury Regulations. -6- ARTICLE III NONQUALIFIED STOCK OPTIONS In addition to the requirements of Articles I and IV, Nonqualified Stock Options shall be subject to the following provisions: 3.1 EXERCISE PRICE. The Company may elect to grant Nonqualified Stock Options at a price less than the Fair Market Value of the Common Stock at the time such Option is granted. 3.2 SECTION 83(B) ELECTION. The Company recognizes that Participants who receive Nonqualified Stock Options may be subject to restrictions regarding their right to trade Common Stock under applicable securities laws, the Securityholders Agreement or other transfer restrictions imposed by agreement with the Company. Such may cause such Participant's exercising such Options not to be taxable under the provisions of Section 83(a) and/or (c) of the Code. Accordingly, Participants exercising such Nonqualified Stock Options may consider making an election to be taxed upon exercise of such Options under Section 83(b) of the Code. To effect such election (if made by the Participant), the Company will file such election with the Internal Revenue Service within thirty (30) days of exercise of the Option and otherwise in accordance with applicable Treasury Regulations. ARTICLE IV ADDITIONAL PROVISIONS 4.1 STOCKHOLDER APPROVAL. The Plan shall be submitted for the approval of the stockholders of the Company no later than one year after its approval by the Board of Directors. If at said meeting or during such period the stockholders of the Company do not approve the Plan, then no Incentive Stock Options may be granted under the Plan, and all Options previously granted shall be nonqualified. 4.2 FORFEITURE FOR COMPETITION. If an Optionee provides services to a competitor of the Company or any of its subsidiaries, whether as an employee, officer, director, independent contractor, consultant, agent or otherwise, such services being of a nature that can reasonably be expected to involve the skills and experience used or developed by the Optionee while an employee of the Company, then that Optionee's rights under any Options outstanding hereunder shall be forfeited and terminated, subject to a determination to the contrary by the Committee/Administrator. -7- 4.3 EFFECTIVE DATE. The Plan shall become effective as of February 1, 1996 subject, with respect to Incentive Stock Options, to stockholder approval pursuant to Section 4.1 (the "Effective Date") and shall expire on the date falling ten years after the Effective Date. No Options may be granted under the Plan after ten years after the Effective Date, but Options granted on or before that date may be exercised according to the terms of the Option agreements and shall continue to be governed by and interpreted consistent with the terms hereof. 4.4 AMENDMENT AND TERMINATION OF PLAN. Subject to any approval of the stockholders of the Company as may be required by law, the Board of Directors of the Company may at any time amend, suspend or terminate the Plan. No amendment, suspension or termination of the Plan (other than in connection with such actions as are expressly authorized in the Plan) shall adversely affect or impair any Option previously granted under the Plan without the consent of the holder thereof. 4.5 GOVERNING LAW. This Plan shall be governed by and construed according to the laws of the State of Delaware, without regard to the conflicts of law rules thereof. APPROVED BY THE STOCKHOLDERS ON MARCH 1, 1996. -8- EX-10.2 7 1997 STOCK INCENTIVE PLAN Exhibit 10.2 DOUBLECLICK, INC. 1997 STOCK INCENTIVE PLAN ARTICLE ONE GENERAL PROVISIONS I. PURPOSE OF THE PLAN This 1997 Stock Incentive Plan is intended to promote the interests of DoubleClick, Inc., a Delaware corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation. Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. II. STRUCTURE OF THE PLAN A. The Plan shall be divided into three separate equity programs: (i) the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, (ii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary), and (iii) the Automatic Option Grant Program under which eligible non-employee Board members shall automatically receive option grants at periodic intervals to purchase shares of Common Stock. B. The provisions of Articles One and Five shall apply to all equity programs under the Plan and shall govern the interests of all persons under the Plan. III. ADMINISTRATION OF THE PLAN A. Prior to the Section 12 Registration Date, the Discretionary Option Grant and Stock Issuance Programs shall be administered by the Board. Beginning with the Section 12 Registration Date, the Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. B. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board's discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer those programs with respect to all such persons. C. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee. D. Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or any option grants or stock issuance thereunder. E. Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan. F. Administration of the Automatic Option Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to any option grants or stock issuances made under that program. IV. ELIGIBILITY A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows: (i) Employees, (ii) non-employee members of the Board or the board of directors of any Parent or Subsidiary, and 2. (iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). B. Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive stock issuances, the time or times when such issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration for such shares. C. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. D. The individuals who shall be eligible to participate in the Automatic Option Grant Program shall be limited to (i) those individuals serving as non-employee Board members on the Underwriting Date, (ii) those individuals who first become non-employee Board members after the Underwriting Date, whether through appointment by the Board or election by the Corporation's stockholders, and (iii) those individuals who continue to serve as non-employee Board members at one or more Annual Stockholder Meetings held in calendar years following the calendar year of the Underwriting Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to receive an option grant under the Automatic Option Grant Program at the time he or she first becomes a non-employee Board member, but shall be eligible to receive periodic option grants under the Automatic Option Grant Program while he or she continues to serve as a non-employee Board member. V. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock initially reserved for issuance over the term of the Plan shall not exceed 6,000,000 shares. Such authorized share reserve is comprised of (i) the number of shares which remain available for issuance, as of the Plan Effective Date, under the Predecessor Plan as last approved by the Corporation's stockholders, 3. including the shares subject to the outstanding options to be incorporated into the Plan and the additional shares which would otherwise be available for future grant, plus (ii) an additional increase of approximately 3.1 million shares authorized by the Board but subject to stockholder approval prior to the Section 12 Registration Date. B. The number of shares of Common Stock available for issuance under the Plan shall automatically increase on the first trading day of each calendar year during the term of the Plan, beginning with the 1999 calendar year, by an amount equal to three percent (3%) of the shares of Common Stock outstanding on the last trading day of the immediately preceding calendar year. No Incentive Options may be granted on the basis of the additional shares of Common Stock resulting from such annual increases. C. No one person participating in the Plan may receive options and direct stock issuances for more than 750,000 shares of Common Stock in the aggregate per calendar year, beginning with the 1998 calendar year. D. Shares of Common Stock subject to outstanding options (including options incorporated into this Plan from the Predecessor Plan) shall be available for subsequent issuance under the Plan to the extent (i) those options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with cancellation-regrant provisions of Article Two. Unvested shares issued under the Plan and subsequently cancelled or repurchased by the Corporation, at the original exercise or issue price paid per share, pursuant to the Corporation's repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan. However, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the stock issuance, and not by the net number of shares of Common Stock issued to the holder of such option or stock issuance. E. If any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities for which any one person may be granted stock options and direct stock issuances under this Plan per calendar year, (iii) the number and/or class of securities for which grants are subsequently to be made under the Automatic Option Grant Program to new and continuing non-employee Board members, (iv) the number and/or class of securities and the exercise price per share in effect under each outstanding option under the Plan and (v) the number and/or class of securities and price per share in effect 4. under each outstanding option incorporated into this Plan from the Predecessor Plan. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. 5. ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM I. OPTION TERMS Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. A. Exercise Price. 1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Five and the documents evidencing the option, be payable in cash or check made payable to the Corporation. Should the Common Stock be registered under Section 12 of the 1934 Act at the time the option is exercised, then the exercise price may also be paid as follows: (i) in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or (ii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions (A) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (B) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. 6. B. Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date. C. Effect of Termination of Service. 1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: (i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. (ii) Any option exercisable in whole or in part by the Optionee at the time of death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. (iii) Should the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding. (iv) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares. 2. The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: 7. (i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service. D. Stockholder Rights. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. E. Repurchase Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. Prior to the Section 12 Registration Date, the Plan Administrator may not impose a vesting schedule upon any option grant or the shares of Common Stock subject to that option which is more restrictive than twenty percent (20%) per year vesting, with the initial vesting to occur not later than one (1) year after the option grant date. However, such limitation shall not be applicable to any option grants made to individuals who are officers of the Corporation, non-employee Board members or independent consultants. F. Limited Transferability of Options. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, a Non-Statutory Option may, in connection with the Optionee's estate plan, be assigned in whole or in part during the Optionee's lifetime to one or more members of the Optionee's immediate family or to a trust established exclusively for one or more such family members. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. 8. II. INCENTIVE OPTIONS The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II. A. Eligibility. Incentive Options may only be granted to Employees. B. Exercise Price. The exercise price per share shall not be less than the Fair Market Value per share of Common Stock on the option grant date. C. Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. D. 10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. III. CHANGE IN CONTROL A. Each option outstanding at the time of a Change in Control but not otherwise fully exercisable shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable for all of the shares of Common Stock at the time subject to that option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall not become exercisable on such an accelerated if and to the extent: (i) such option is, in connection with the Change in Control, to be assumed or otherwise continued in full force or effect by the successor corporation (or parent thereof) pursuant to the terms of the Change in Control transaction, (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Corporate Transaction on the shares of Common Stock for which the option is not otherwise at that time exercisable and provides for subsequent payout in accordance with the same vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. 9. B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. C. Immediately following the consummation of the Change in Control, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise expressly continued in full force and effect pursuant to the terms of the Change in Control transaction. D. Each option which is assumed (or is otherwise to continue in effect) in connection with a Change in Control shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments to reflect such Change in Control shall also be made to (i) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan and (iii) the maximum number and/or class of securities for which any one person may be granted stock options and direct stock issuances under the Plan per calendar year. E. The Plan Administrator shall have full power and authority exercisable, either at the time the option is granted or at any time while the option remains outstanding, to provide for the accelerated vesting, in whole or in part, of one or more outstanding options under the Discretionary Option Grant Program automatically upon the occurrence of a Change in Control, whether or not those options are to be assumed or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction. In addition, the Plan Administrator may structure one or more of the Corporation's repurchase rights under the Discretionary Option Grant Program so that those rights shall immediately terminate, in whole or in part, at the time of a Change in Control and shall not be assignable to the successor corporation (or parent thereof), and the shares subject to those terminated repurchase rights shall accordingly vest in full at the time of such Change in Control. F. The Plan Administrator shall have full power and authority exercisable, either at the time the option is granted or at any time while the option remains outstanding, to provide for the accelerated vesting, in whole or in part, of one or more outstanding options under the Discretionary Option Grant Program upon the Involuntary Termination of the Optionee's Service within a designated period (not to exceed twelve (12) months) following the effective date of any Change in Control in which those options do not otherwise accelerate. In addition, the Plan Administrator may structure one or more of the Corporation's repurchase rights under 10. the Discretionary Option Grant Program so that those rights will immediately terminate at the time of such Involuntary Termination, and the shares subject to those terminated repurchase rights shall accordingly vest in full at that time. G. The portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. H. The outstanding options shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program (including outstanding options incorporated from the Predecessor Plan) and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new grant date. 11. ARTICLE THREE STOCK ISSUANCE PROGRAM V. STOCK ISSUANCE TERMS Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients to receive those shares upon the attainment of designated performance goals. A. Purchase Price. 1. The purchase price per share of Common Stock subject to direct issuance shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the issuance date. 2. Shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, or (ii) past services rendered to the Corporation (or any Parent or Subsidiary). B. Vesting/Issuance Provisions. 1. The Plan Administrator may issue shares of Common Stock under the Stock Issuance Program which are fully and immediately vested upon issuance or which are to vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. Alternatively, the Plan Administrator may issue share right awards under the Stock Issuance Program which shall entitle the recipient to receive a specified number of shares of Common Stock upon the attainment of one or more performance goals established by the Plan Administrator. Upon the attainment of such performance goals, fully-vested shares of Common Stock shall be issued in satisfaction of those share right awards. However, prior to the Section 12 Registration Date, the Plan Administrator may not impose a vesting schedule upon any stock issuance or share rights award effected under the Stock Issuance Program which is more restrictive than twenty percent (20%) per year vesting, with initial vesting to occur not later than one (1) year after the issuance date. Such limitation shall not apply to any 12. Common Stock issuances made to the officers of the Corporation, non-employee Board members or independent consultants. 2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to his or her unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. 4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to the surrendered shares. 5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the cessation of the Participant's Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives. 6. Outstanding share right awards under the Stock Issuance Program shall automatically terminate, and no shares of Common Stock shall actually be issued in satisfaction of those awards, if the performance goals established for such awards are not attained. The Plan Administrator, however, shall have the discretionary authority to issue shares of Common Stock in satisfaction of one or more outstanding share right awards as to which the designated performance goals are not attained. 13. VI. CHANGE IN CONTROL A. All of the Corporation's outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control, except to the extent (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) or are otherwise to continue in full force and effect pursuant to the express terms of the Change in Control transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement. B. The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation's repurchase rights remain outstanding under the Stock Issuance Program, to provide that those rights shall automatically terminate in whole or in part upon the occurrence of a Change in Control and shall not be assignable to the successor corporation (or parent thereof), and the shares of Common Stock subject to those terminated rights shall immediately vest at the time of such Change in Control. C. The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation's repurchase rights remain outstanding under the Stock Issuance Program, to provide that those rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest upon the Involuntary Termination of the Participant's Service within a designated period (not to exceed twelve (12) months) following the effective date of any Change in Control in which those repurchase rights are assigned to the successor corporation (or parent thereof), VII. SHARE ESCROW/LEGENDS Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. 14. ARTICLE FOUR AUTOMATIC OPTION GRANT PROGRAM I. OPTION TERMS A. Grant Dates. Option grants shall be made on the dates specified below: 1. Each individual serving as a non-employee Board member on the Underwriting Date shall automatically be granted at that time a Non-Statutory Option to purchase 10,000 shares of Common Stock. 2. Each individual who is first elected or appointed as a non-employee Board member at any time after the Underwriting Date shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase 50,000 shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary. 3. On the date of each Annual Stockholders Meeting, beginning with the Annual Meeting held in the first calendar year after the calendar year of the Underwriting Date, each individual who is to continue to serve as an Eligible Director, whether or not that individual is standing for re-election to the Board at that particular Annual Meeting, shall automatically be granted a Non-Statutory Option to purchase 10,000 shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months. There shall be no limit on the number of such 10,000-share option grants any one Eligible Director may receive over his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) shall be eligible to receive one or more such annual option grants over their period of continued Board service. B. Exercise Price. 1. The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. C. Option Term. Each option shall have a term of ten (10) years measured from the option grant date. 15. D. Exercise and Vesting of Options. Each option shall be immediately exercisable for any or all of the option shares. However, any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares. Each initial 50,000-share grant shall vest, and the Corporation's repurchase right shall lapse, in a series of four (4) successive equal annual installments upon the Optionee's completion of each year of Board service over the four (4)-year period measured from the option grant date. Each annual 10,000- share grant shall vest, and the Corporation's repurchase right shall lapse, upon the Optionee's completion of one (1) year of Board service measured from the automatic grant date. E. Termination of Board Service. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee ceases to serve as a Board member: (i) The period of exercising the option shall be limited to a twelve (12)-month period measured from the date of the Optionee's cessation of Board service. (ii) During the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of shares of Common Stock in which the Optionee is vested at time of his or her cessation of Board service. (iii) Should the Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of Board service, be exercised for all or any portion of those shares as fully-vested shares of Common Stock. (iv) In no event shall the option remain exercisable after the expiration of the option term. (v) Upon the expiration of the twelve (12)-month exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Board service for any reason other than death or Permanent Disability, terminate and cease to be outstanding for any and all option shares in which the Optionee is not otherwise at that time vested. 16. II. CHANGE IN CONTROL A. The shares of Common Stock at the time subject to each option outstanding at the time of a Change in Control but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Immediately following the consummation of the Change in Control, each automatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). B. Each option which is assumed in connection with a Change in Control shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. C. The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. III. REMAINING TERMS The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. 17. ARTICLE FIVE MISCELLANEOUS I. FINANCING The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price of shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares (less the par value of those shares) plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. II. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of options or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvested shares of Common Stock under the Plan with the right to use shares of Common Stock in satisfaction of all or part of the Taxes incurred by such holders in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats: Stock Withholding: The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. Stock Delivery: The election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option exercise or share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. 18. III. EFFECTIVE DATE AND TERM OF THE PLAN A. The Discretionary Option Grant and Stock Issuance Programs shall become effective immediately upon the Plan Effective Date. However, the Automatic Option Grant Program shall not become effective until the Underwriting Date. Options may be granted under the Discretionary Option Grant Program at any time on or after the Plan Effective Date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's stockholders. If such stockholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. B. The Plan shall serve as the successor to the Predecessor Plan, and no further option grants or direct stock issuances shall be made under the Predecessor Plan after the Plan Effective Date. All options outstanding under the Predecessor Plan on the Plan Effective Date shall be incorporated into the Plan at that time and shall be treated as outstanding options under the Plan. However, each outstanding option so incorporated shall continue to be governed solely by the terms of the documents evidencing such option, and no provision of the Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of Common Stock. C. One or more provisions of the Plan, including (without limitation) the option/vesting acceleration provisions of Article Two relating to Changes in Control, may, in the Plan Administrator's discretion, be extended to one or more options incorporated from the Predecessor Plan which do not otherwise contain such provisions. D. The Plan shall terminate upon the earliest of (i) November 6, 2007, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares or (iii) the termination of all outstanding options in connection with a Change in Control. Upon such plan termination, all outstanding option grants and unvested stock issuances shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances. IV. AMENDMENT OF THE PLAN A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to stock options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations. 19. B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. V. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. VI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it. B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading. VII. NO EMPLOYMENT/SERVICE RIGHTS Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. 20. APPENDIX The following definitions shall be in effect under the Plan: A. Automatic Option Grant Program shall mean the automatic option grant program in effect under the Plan. B. Board shall mean the Corporation's Board of Directors. C. Change in Control shall mean any of the following transactions: (i) a merger or consolidation approved by the Corporation's stockholders in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, (ii) any stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation, or (iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders. In no event shall any of the following transactions be deemed to constitute a Change in Control: - the initial public offering of the Common Stock or any secondary offerings of the Common Stock in the open market; or - any other direct issuance of securities by the Corporation effected primarily for the purpose of raising additional capital or funding for the business operations of the Corporation or any Parent or Subsidiary. D. Code shall mean the Internal Revenue Code of 1986, as amended. E. Common Stock shall mean the Corporation's common stock. A-1. F. Corporation shall mean DoubleClick, Inc., a Delaware corporation, and its successors. G. Discretionary Option Grant Program shall mean the discretionary option grant program in effect under the Plan. H. Eligible Director shall mean a non-employee Board member eligible to participate in the Automatic Option Grant Program in accordance with the eligibility provisions of Article One. I. Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. J. Exercise Date shall mean the date on which the Corporation shall have received written notice of the option exercise. K. Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be deemed equal to the closing selling price per share of Common Stock on the date in question, as such price is reported on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be deemed equal to the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) For purposes of any option grants made on the Underwriting Date, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is to be sold in the initial public offering pursuant to the Underwriting Agreement. A-2. (iv) For purposes of any option grants made prior to the Underwriting Date, the Fair Market Value shall be determined by the Plan Administrator, after taking into account such factors as it deems appropriate. L. Incentive Option shall mean an option which satisfies the requirements of Code Section 422. M. Involuntary Termination shall mean the termination of the Service of any individual which occurs by reason of: (i) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or (ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. N. Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary). O. 1934 Act shall mean the Securities Exchange Act of 1934, as amended. P. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422. Q. Optionee shall mean any person to whom an option is granted under the Discretionary Option Grant and Automatic Option Grant Program. A-3. R. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. S. Participant shall mean any person who is issued shares of Common Stock under the Stock Issuance Program. T. Permanent Disability or Permanently Disabled shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Option Grant Program, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. U. Plan shall mean the Corporation's 1997 Stock Incentive Plan, as set forth in this document. V. Plan Administrator shall mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction. W. Plan Effective Date shall mean November 7, 1997, the date on which the Plan was adopted by the Board. X. Predecessor Plan shall mean the Corporation's pre-existing 1996 Stock Option Plan in effect immediately prior to the Plan Effective Date hereunder. Y. Primary Committee shall mean the committee of two (2) or more non-employee Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. Z. Secondary Committee shall mean a committee of one (1) or more Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders. AA. Section 12 Registration Date shall mean the date on which the Common Stock is first registered under Section 12 of the 1934 Act. A-4. AB. Section 16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act. AC. Service shall mean the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. AD. Stock Exchange shall mean either the American Stock Exchange or the New York Stock Exchange. AE. Stock Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program. AF. Stock Issuance Program shall mean the stock issuance program in effect under the Plan. AG. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. AH. Taxes shall mean the Federal, state and local income and employment tax liabilities incurred by the holder of Non-Statutory Options or unvested shares of Common Stock in connection with the exercise of those options or the vesting of those shares. AI. 10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). AJ. Underwriting Agreement shall mean the agreement between the Corporation and the underwriter or underwriters managing the initial public offering of the Common Stock. AK. Underwriting Date shall mean the date on which the Underwriting Agreement is executed and priced in connection with an initial public offering of the Common Stock. A-5. EX-10.4 8 STOCKHOLDERS AGREEMENT (6/4/97) Exhibit 10.4 EXECUTION COPY - -------------------------------------------------------------------------------- DOUBLECLICK INC. ----------------- STOCKHOLDERS AGREEMENT ----------------- Dated as of June 4, 1997 - -------------------------------------------------------------------------------- DOUBLECLICK INC. Stockholders Agreement June __, 1997 INDEX Page 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- 1.1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . -1- 1.2. Certain Matters of Construction. . . . . . . . . . . . . . . . . . -6- 1.3. Cross Reference Table. . . . . . . . . . . . . . . . . . . . . . . -6- 2. TERMINATION OF PRIOR STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7- 3. VOTING AGREEMENT; RIGHT TO ACCESS; CERTAIN ACTIVITIES. . . . . . . . . . -7- 3.1. Election of Directors. . . . . . . . . . . . . . . . . . . . . . . -7- 3.2. Nominating Committee . . . . . . . . . . . . . . . . . . . . . . . -8- 3.3. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8- 3.4. Vacancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8- 3.5. Voting Rights Upon Certain Liquidation Events. . . . . . . . . . . -8- 3.6. Access. etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . -9- 3.7. Certain Activities . . . . . . . . . . . . . . . . . . . . . . . . -9- 3.8. Voting Rights Upon Certain Liquidation Events. . . . . . . . . . . -9- 3.9. Access. etc. . . . . . . . . . . . . . . . . . . . . . . . . . . .-10- 3.10. Certain Activities . . . . . . . . . . . . . . . . . . . . . . . .-10- 3.11. Certain Actions of the Board . . . . . . . . . . . . . . . . . . .-12- 3.12. Changes in Company Strategy. . . . . . . . . . . . . . . . . . . .-12- 3.13. Qualified Offerings. . . . . . . . . . . . . . . . . . . . . . . .-13- 4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS . . . . . . . . . . . . . . . .-13- 4.1. Transfers of Management Shares and Group B Shares to Immediate Family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-13- 4.2. Transfer of Management Shares or Group B Shares Upon Death . . . .-13- 4.3. Transfer Among Group B Stockholders. . . . . . . . . . . . . . . .-14- 4.4. Transfer of Investor Shares. . . . . . . . . . . . . . . . . . . .-14- 5. OPTIONS TO PURCHASE MANAGEMENT SHARES; GROUP B SHARES. . . . . . . . . .-14- 5.1. Call Options . . . . . . . . . . . . . . . . . . . . . . . . . . .-14- 5.2. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . .-14- i 6. "TAKE ALONG" RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . .-14- 6.1. Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-15- 6.2. Certain Legal Requirements . . . . . . . . . . . . . . . . . . . .-15- 6.3. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . .-16- 6.4. Cloning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-16- 7. CO-SALE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-16- 7.1. Tag Along. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-16- 7.2. Excluded Transactions. . . . . . . . . . . . . . . . . . . . . . .-18- 8. CERTAIN ISSUANCES AND TRANSFERS, ETC.. . . . . . . . . . . . . . . . . .-19- 9. REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . .-19- 9.1. Piggyback Registration Rights. . . . . . . . . . . . . . . . . . .-20- 9.2. Demand Registration Rights . . . . . . . . . . . . . . . . . . . .-21- 9.3. Obligations of the Company . . . . . . . . . . . . . . . . . . . .-22- 9.4. Indemnification and Contribution . . . . . . . . . . . . . . . . .-24- 9.5. Selection of Underwriter . . . . . . . . . . . . . . . . . . . . .-26- 9.6. Lock-up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-26- 9.7. Limitations on Other Registration Rights . . . . . . . . . . . . .-27- 9.8. Availability of Information. . . . . . . . . . . . . . . . . . . .-27- 10. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-27- 10.1. Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-27- 10.2. Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-27- 11. LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-28- 12. AMENDMENT, TERMINATION, ETC. . . . . . . . . . . . . . . . . . . . . . .-29- 12.1. No Oral Modifications. . . . . . . . . . . . . . . . . . . . . . .-29- 12.2. Written Modifications. . . . . . . . . . . . . . . . . . . . . . .-29- 12.3. Automatic Partial Termination. . . . . . . . . . . . . . . . . . .-29- 13. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-29- 13.1. Authority: Effect. . . . . . . . . . . . . . . . . . . . . . . . .-29- 13.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-30- 13.3. Binding Effect etc . . . . . . . . . . . . . . . . . . . . . . . .-33- 13.4. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . .-33- 13.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .-33- 13.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .-34- 13.7. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . .-34- ii STOCKHOLDERS AGREEMENT This Stockholders Agreement (the "Agreement") is made as of June _ , 1997 by and among (i) DoubleClick Inc., a Delaware corporation (the "Company"), (ii) each of Bain Capital Fund V, L.P., a Delaware limited partnership, Bain Capital Fund V-B, L.P., a Delaware limited partnership, BCIP Associates, a Delaware general partnership, BCIP Trust Associates, L.P., a Delaware limited partnership, Brookside Capital Partners Fund, L.P., a Delaware limited partnership, Greylock Equity Limited Partnership, a Delaware limited partnership, Greylock IX Limited Partnership, a Delaware limited partnership, and ABS Capital Partners II, L.P., a Delaware limited partnership, any person or entity who becomes a "Purchaser" under the Merger Agreement pursuant to Section 1.9 thereof (collectively, the "Initial Investors," and each an "Initial Investor") and each of the other Additional Investors from time to time party hereto, (iii) each Management Stockholder from time to time party hereto, (iv) each of Each Jacobs, Kenyon & Eckhardt, Inc., a Delaware corporation ("Bozell") and each other Group B Stockholder from time to time party hereto and (v) other stockholders from time to time party hereto. The Investors, the Management Stockholders and the Group B Stockholders and such other stockholders are sometimes referred to herein collectively as the "Stockholders -The parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement: 1.1. CERTAIN DEFINITIONS. The following terms shall have the following meanings. 1.1.1. "AFFILIATE" shall mean, with respect to any specified Person, any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, the Person specified including effective control by virtue of a contractual relationship such as a management agreement or a stockholder transfer or designation or similar agreement other than a management or similar agreement which does not, alone or together with related agreements, result in control of such Person. 1.1.2. "AFFILIATED FUND" shall mean any limited partnership or other Person formed for the purpose of investing in other companies or businesses and for which (a) Bain Capital Fund V, L.P., a Delaware limited partnership, Bain Capital Fund V-B, L.P., a Delaware limited partnership, BCIP Associates, a Delaware general partnership, BCIP Trust Associates, L.P., a Delaware limited partnership, Brookside Capital Partners Fund, L.P., a Delaware limited partnership, Greylock Equity Limited Partnership, a Delaware limited partnership, Greylock IX Limited Partnership, a Delaware limited partnership, ABS Capital Partners II, L.P., a Delaware limited partnership, any person or entity who becomes a '"Purchaser" under the Merger Agreement pursuant to Section 1.9 thereof, or any "Affiliate" of any of them, acts as a general partner or otherwise has the right to direct the voting of shares of corporations in which such limited partnership or other Person invests or (b) Bain Capital, Inc., Greylock Management Corporation, Capital Partners Management Company, any person or entity who becomes a "Purchaser" under the Merger Agreement pursuant to Section 1.9 thereof, or any of their respective Affiliates provides management services. 1.1.3. "BOARD" shall mean the Board of Directors of the Company. 1.1.4. "CAUSE" shall mean, in the context of termination of the employment of any Management Stockholders, any of the following events or conditions: (i) such person's willful and continued failure to perform substantial duties and responsibilities to the Company which failure causes material injury to the Company (other than any such failure resulting from such person's incapacity due to physical or mental illness or injury and other than any such failure after termination of such person's employment without cause or after such person's resignation) after demand for substantial performance is delivered in writing by the Company that specifically identifies the manner in which the Company believes such person has not substantially performed his or her duties, which demand is not satisfied or failure cured within 14 days after receipt of such written demand, or (ii) such person's conviction of, or plea of nolo contendere to, any felony or any other crime involving willful fraud, dishonesty or moral turpitude which causes criminal or material civil liabilities to the Company or its Subsidiaries. 1.1.5. "COMMON STOCK" shall mean the Company's Common Stock, $.001 par value per share. 1.1.6. "COST" shall mean, in the context of the Cost of securities subject to the provisions of Section 5, (i) in the case of Shares, the amount (in the form of subscription price or exercise price or otherwise) paid to the Company upon issuance of such Shares; provided, however, that if such Shares were issued in connection with the merger contemplated by the Merger Agreement, "Cost" shall mean the amount (in the form of subscription price or exercise price or otherwise) paid to the Company upon issuance of the shares of capital stock of the Company that were exchanged in the merger "Pre-Merger Shares") for the Shares and, in the case of the Class B Common Stock and Class C Common Stock, $2.319 in cash per each such Pre-Merger Share, multiplied by 100% if such Pre-Merger Shares were Class A Common Stock, by 27.715414% if such Pre-Merger Shares were Class B Common Stock and by 27.715414% if such Pre-Merger Shares were Class C Common Stock and (ii) in the case of Options, an amount equal to the value of the consideration paid therefor as determined by the Board; in each case adjusted appropriately to take account of any stock splits, stock dividends, conversions or consolidations of stock or substantially similar reorganizations of the Company's capital stock. 1.1.7. "EFFECTIVE TIME" shall mean the time of the Closing (as defined in the Merger Agreement). -2- 1.1.8. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. 1.1.9. "FAIR MARKET VALUE" shall mean, as of any date, the fair value of any Share as of the applicable date, as determined pursuant to Section 5.3. 1.1.10. "FULLY DILUTED" shall mean at any time the amount adjusted to reflect all Common Stock outstanding and all Options granted. 1.1.11. "GROUP B MAJORITY HOLDERS" shall mean, as of any date, the holders of a majority of the Group B Shares outstanding on such date. 1.1.12. "GROUP B SHARES" shall mean all Shares originally issued to (or issued upon conversion of or otherwise with respect to Shares originally issued to) or held by the Group B Stockholders. 1.1.13. "GROUP B STOCKHOLDER" shall mean Each or any stockholder of Each who currently holds, or who from time to time acquires, Shares and becomes party to this Agreement by executing and delivering to the Company an instrument in form satisfactory to the Company and the Investors pursuant to which such stockholder agrees to be bound by the terms of this Agreement applicable to Group B Stockholders. 1.1.14. "INVESTOR" shall mean (i) any Initial Investor and (ii) any Affiliated Fund which, from time to time, acquires Shares and becomes party to this Agreement by executing and delivering to the Company an instrument in form satisfactory to the Company pursuant to which such stockholder agrees to be bound by the terms of this Agreement to the same extent as a Initial Investor. 1.1.15. "INVESTOR INITIAL SHARES" shall mean all Shares originally issued to the Investors at the Effective Time. 1.1.16. "INVESTOR MAJORITY HOLDERS" shall mean, as of any date, the holders of a majority of the Investor Shares outstanding on such date. 1.1.17. "INVESTOR SHARES" shall mean all Shares originally issued to (or issued upon conversion of or otherwise with respect to Shares or Options issued to) or held by the Investors whenever issued. 1.1.18. "MAJORITY STOCKHOLDERS" shall mean, as a of any date, the holders of a majority of the Shares outstanding on such date. 1.1.19. "MANAGEMENT HOLDERS" shall mean, as of any date, the holders of a majority of the Management Shares outstanding on such date. -3- 1.1.20. "MANAGEMENT SHARES" shall mean all Shares originally issued to (or issued upon conversion of or otherwise with respect to Shares originally issued to) or held by the Management Stockholders, whenever issued, including without limitation all Shares issued pursuant to the exercise of any Options, whenever issued; it being understood that Management Shares shall include any shares held by Members of the Immediate Family of Kevin O'Connor on the date hereof. 1.1.21. "MANAGEMENT STOCKHOLDER" shall mean any officer or employee of the Company or any of its subsidiaries who currently holds, or who from time to time acquires, Shares or Options and becomes party to this Agreement by executing and delivering to the Company an instrument in form satisfactory to the Company and the Investors pursuant to which such stockholder agrees to be bound by the terms of this Agreement applicable to Management STOCKHOLDERS 1.1.22. "MEMBERS OF THE IMMEDIATE FAMILY" shall mean, with respect to any individual, each spouse, parent, brother' sister or child of such individual, each spouse of any such Person, each child of any of the aforementioned Persons, each trust or family partnership created solely for the benefit of one or more of the aforementioned Persons and each custodian or guardian of any property of one or more of the aforementioned Persons in his capacity as such custodian or guardian. 1.1.23. "MERGER "AGREEMENT" shall mean the Agreement and Plan of Merger dated as of May 14, 1997 by and among the Company, DoubleClick Acquisition Corp., a Delaware corporation, and certain other parties thereto. 1.1.24. "OPTIONS" shall mean any options, warrants or similar rights to subscribe for, purchase or otherwise acquire Shares, including, without limitation, any and all options issued pursuant to the Company's 1996 Stock Option Plan or any similar plan. 1.1.25. "PERMITTED TRANSFEREE" shall mean as to each Management Share and Group B Share, a transferee of such Management Share or Group B Share in compliance with Section 4.1, 4.2 or 4.3. Members of the Immediate Family of Kevin O'Connor who hold Shares on the date hereof shall be deemed Permitted Transferees of Kevin O'Connor with respect to such Shares. 1.1.26. "PERSON" shall mean any individual, partnership, corporation, company, association, trust, joint venture, unincorporated organization or other entity, or any government, department or agency or political subdivision thereof. 1.1.27. "PREFERRED STOCK" shall mean the Company's Convertible Preferred Stock, $.001 par value per share. -4- 1.1.28. "PUBLIC EVENT" shall mean any transaction or other event (including, without limitation, a merger with a public company) after or in connection with which shares of common stock of the Company or any successor are registered under the Securities Act or listed on a "national securities exchanger as defined in the Exchange Act or the subject of price quotation through the Nasdaq National Market. 1.1.29. "PUBLIC OFFERING" shall mean the closing of an offering of Shares of the Company registered under the Securities Act. 1.1.30. "QUALIFIED PUBLIC OFFERING" shall mean the closing of a Public Offering meeting the following conditions: (i) the aggregate net proceeds of the sale of Shares in such Public Offering by the Company and any stockholder of the Company equals or exceeds $20,000,000; (ii) such Public Offering is subject to a firm commitment underwriting conducted by a nationally recognize underwriter selected by the Board and reasonably acceptable to the Investors; and (iii) the price to the public per Share multiplied by the number of Shares outstanding on an as-converted and Fully Diluted basis (before giving effect to the securities to be issued by the Company in the Public Offering or any related transaction) is at least $100,000,000. 1.1.31. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as from time to time in effect. 1.1.32. "SHARES" shall mean all shares of any class of capital stock of the Company, and all Shares of capital stock issued with respect to, in exchange for or upon conversion of any such shares. 1.1.33. "TRANSFER" shall mean to sell, assign, pledge, grant a participation interest in, encumber, or otherwise dispose of any Shares to any other Person whether directly, indirectly, voluntarily, involuntarily, by operation of law, pursuant to judicial process (including, without limitation, divorce decree) or otherwise. 1.1.34. "UNDERLYING SHARES" shall mean the (i) Shares issuable upon exercise of any Option, (ii) without duplication, any Shares issued upon the conversion of such Shares referred to in clause (i) above and (iii) any Shares issued or issuable with respect to the securities referred to in clauses (i) or (ii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, any Person who holds Options shall be deemed to be the holder of the Underlying Shares obtainable upon exercise of the Options in connection with the transfer thereof or otherwise regardless of any restriction or limitation on the exercise of the Options. As to any particular Underlying Shares, such shares shall cease to be Underlying Shares when they have been (a) registered under the Securities Act and disposed of in accordance with the registration -5- statement covering them or (b) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act or any similar provision then in force as the requirements of which may be modified by Rule 701 "Rule 144") in each case in compliance with any applicable provisions of this Agreement. 1.2. CERTAIN MATTERS OF CONSTRUCTION. In addition to the definitions referred to as set forth in Section 1.1: (a) The words "hereof", "herein", "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any particular Section or provision of this Agreement, and reference to a particular Section of this Agreement shall include all subsections thereof; (b) Definitions shall be equally applicable to both the singular and plural forms of the terms defined; and (c) The masculine, feminine and neuter genders shall each include the other. 1.3. CROSS REFERENCE TABLE. The following terms defined elsewhere in this Agreement in the Sections set forth below shall have the respective meanings therein defined: TERM DEFINITION "Agreement" Preamble "Bozell" Preamble "Callable Shares" Section 5.1.1 "Callable Options Options" Section 5.1.2 "Call Option" Section 5.1 "Call Stockholder Group" Section 5.1 "Come Along Notice" Section 6.1 Company Preamble "Covered Person" Section 9.4 "Fair Market Value" Section 5.3 "Group B Director" Section 3.1 "Indemnified Party" Section 9.4 "Indemnifying Party" Section 9.4 "Initial Investor" Preamble "Initiating Holders" Section 9.2 "Majority Requesting Holders" Section 9.2 "Management Directors" Section 3.1 "Non-Complying Stockholder" Section 10.2 -6- "Outside Directors" Section 3.1 "Participating Seller" Section 6. 1; 7.1 "Preferred Directors"- Section 3.1 "Pre-Merger Shares" Section 1. 1.8 "Proposed Buyer" Section 6; 7.1 "Proposed Investor Seller" Section 6 "Proposed Seller" Section 7.1 "Public Offering" . Section 9.1 "Registrable Investor Securities" Section 9.2 "Registrable Securities" Section 9.2 "Rule 144" Section 1.1.34 "Sale" Section 6; 7.1 "Sale Percentage" Section 6; 7.1 "Stockholders" Preamble "Tag Along Notice" Section 7.1 "Tag Along Offerees" Section 7.1 2. TERMINATION OF PRIOR STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT. By the execution and delivery hereof by certain parties hereto, the Securityholders Agreement dated January 26, 1996 among the Company and the Securityholders (as defined therein), as amended by an Amendment dated as of August 20, 1996, the Registration Rights Agreement dated as of August 27, 1996 between the Company and Each and any agreement to which any Stockholder hereto is a party which provides for the right to register any securities of the Company under the Securities Act and related rights, including without limitation any preemptive rights, are terminated and superseded by this Agreement. 3. VOTING AGREEMENT; RIGHT TO ACCESS; CERTAIN ACTIVITIES. 3.1. ELECTION OF DIRECTORS. At each annual meeting of the stockholders of the Company, or at any special meeting of stockholders of the Company at which directors are to be elected, and at any other time at which stockholders of the Company have the right to vote for or give their written consent to the election of directors, each Stockholder agrees (a) to vote its Shares to fix the number of directors at seven and (b) to vote all Shares owned by such Stockholder to elect and maintain in office as directors (i) two individuals who are designated to serve on the Board by the chief executive officer of the Company (the "Management Directors"), provided, however, that if the chief executive officer shall not be a "Management Stockholder after the date of this Agreement, then the Management Director shall be designated by the Management Majority Holders; (ii) for so long as the Investors hold equity securities of the Company representing at least 20% of all outstanding Common Stock on a Fully Diluted and as-converted basis, two individuals designated to serve on the Board by the Investors (the "Preferred Directors"), or, if the Investors hold equity securities of the Company representing between 10% and 20% of all outstanding Common Stock on a Fully Diluted and as-converted basis, one such Preferred Director; (iii) for so long as the Group B Stockholders collectively -7- hold equity securities of the Company representing at least 10% of all outstanding Common Stock on a Fully Diluted and as-converted basis, one-individual designated to serve on the Board by Each (the "Group B Director"); and (iv) two individuals nominated by the Nominating Committee of the Board (the "Outside Directors"), and approved by a majority of those directors who are not members of the Nominating Committee, such approval not to be unreasonably withheld. For so long as any Investor or Each holds equity securities of the Company and such Investor or Each does not have a representative on the Board, such investor or Each shall have the right to designate a representative to attend all meetings of the Board in a non-voting observer capacity, to receive notice of such meetings and to receive the information provided by the Company to the Board; provided, however, that the Company may require as a condition precedent to the Investors' and Bozell's rights set forth in this sentence that each person proposing to attend any meeting of the Board and each person to have access to any of the information provided by the Company to the Board shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so received during such meetings or otherwise. 3.2. NOMINATING COMMITTEE. The Company agrees to cause the Nominating Committee of the Board to consist initially of the Preferred Directors, and, upon the election of Outside Directors, to consist of the Preferred Directors and the Outside Directors. If, pursuant to Section 3.1, the number of Preferred Directors shall be one, then one Management Director shall be added to the Nominating Committee. If pursuant to Section 3.1, the number of Preferred Directors shall be zero, the Nominating Committee shall be the Board. 3.3. REMOVAL. No Preferred Director may be removed without the consent of the Investor Majority Holders. No Management Director may be removed without the consent of the Management Majority Holders. No Group B Director may be removed without the consent of the Group B Majority Holders. 3.4. VACANCY. Any vacancy in the Board of Directors shall be filled by the nominee of the Persons who would be entitled to designate a director pursuant to Section 3.1. Each holder of Shares shall, upon receipt of notice identifying such nominee, promptly take all action necessary to cause the appointment of such nominee to the Board of Directors pursuant to the Company's Restated Certificate of Incorporation and By-laws. 3.5. VOTING RIGHTS UPON CERTAIN LIQUIDATION EVENTS. Each of Bozell and the other Group B Stockholders hereby grants to the Investors an irrevocable proxy, which is coupled with an interest, to vote all Shares held by such Stockholder with respect to all matters as to which the holders of such Shares are entitled to vote, from and after the occurrence of a Liquidation Event (as defined in the Company's Restated Certificate of Incorporation) giving rise to a Liquidation Event Value (as deemed in the Company's Restated Certificate of Incorporation) of 570 million or less. -8- 3.6. ACCESS. ETC. From time to time upon request of any partner, designee or officer of any Investor so long as such Investor holds any equity securities of the Company representing at least 50% of the Investor Initial Shares of-the respective Investor, the Company will furnish to such partner, designee or officer, and their representatives (including without limitation their accountants and legal counsel), such information regarding the business of the Company and its Subsidiaries (including materials furnished to the directors of the Company and its subsidiaries at or in connection with board meetings) as such partner, designee or officer may reasonably request. Each such partner, designee or officer, and their representatives (including without limitation their accountants and legal counsel), shall have the right during normal business hours and upon reasonable notice to make an independent examination of the books and records of the Company and any of its subsidiaries, to make copies, notes and abstracts therefrom, and to discuss their business, affairs and financial condition with the officers and accountants of the Company. Each such representative will sign a confidentiality agreement, in a form reasonably acceptable to the Investors, if so requested by the Chief Executive Officer or the Board. Each such partner, designee or officer shall have the right during normal business hours to consult with the directors and executive officers of the Company and its subsidiaries and to advise such directors and officers on corporate issues; provided, however, that no such partner, designee or officer shall thereby have any right to direct the management or policies of the Company or any of its subsidiaries; 3.7. CERTAIN ACTIVITIES. Except as expressly provided herein or in the Company's Restated Certificate of Incorporation or as required by law, for so long as the Investors continue to hold any equity securities representing at least 50% of the Investor Initial Shares, then without the approval by vote or written consent of the Investor Majority Holders, the Company shall not, and shall not permit any Subsidiary, to do any of the following: (a) Redeem, purchase, or otherwise acquire for value (or pay into or set aside for a sinking fund for such purchases) any capital stock of the Company, and except for the repurchase of shares of Common Stock held by employees, consultants, directors, or officers of the Company that are subject to stock repurchase agreements and, if such repurchases would exceed $100,000 for any such employee, consultant, director or officer, that have been approved by the vote or written consent of the Investor Majority Holders in the event of termination of employment or the termination of the consorting relationship: (b) Authorize or issue, or obligate itself to authorize or issue, (i) any other equity security having any preference or priority over, or ranking senior to or on parity with, the Preferred Stock with respect to dividends or rights upon liquidation, dissolution, or winding-up, (ii) other than (A) securities issuable on conversion of the Preferred Stock or (B) Common Stock issuable pursuant to stock options permitted to be granted by Company consistent with its contractual obligations, any other equity security ranking junior to the Preferred Stock with respect to dividends or rights upon liquidation, dissolution or winding-up or (iii) any -9- security convertible into a security described in clauses (i) or (ii); provided that the Investors shall comply with the requirements of Section 3.10 of this Agreement; (c) Alter or change the powers, preferences or rights of the Preferred Stock, or the qualifications, limitations or restrictions thereof; (d) Increase or decrease (other than by conversion or as otherwise required or permitted hereby) the total number of authorized shares of Preferred Stock; (e) Sell, assign, license, or otherwise dispose of or voluntarily part with control of (or agree to do any of these) any of the Company's material intellectual property rights to any other person, other than in connection with ordinary customer sales, except as approved by the Board; Effect any merger, consolidation, recapitalization, reorganization, amalgamation, liquidation, winding up, dissolution or sale, transfer or other action otherwise disposing of or voluntarily parting with the control of (whether in one transaction or a series of transactions) of all or substantially all of the property, business or assets of the Company or its subsidiaries other than (i) a merger or consolidation of a subsidiary with the Company or any other subsidiary of the Company provided that, in the case of any such merger or consolidation, the person formed by such merger or consolidation shall be a wholly owned subsidiary of the Company and (ii) any sale, lease, assignment, pledge, transfer or other conveyance of all or a substantial portion of the assets of the Company solely as security for institutional indebtedness approved by the Board; (g) Amend its Restated Certificate of Incorporation or by-laws; (h) Declare or distribute any dividend (other than a stock dividend) in respect of capital stock, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such, or issue or sell any capital stock or any warrants, rights or options to acquire such capital stock other than pursuant to stock options issued pursuant to plans or agreements in an aggregate amount not to exceed 4,488,827 shares of Common Stock (subject to appropriate adjustment for any stock dividend, stock split, combination, or other similar recapitalization affecting such shares); (i) Enter into any agreement, contract, commitment or understanding with any Person for the acquisition of any business or assets other than acquisitions not in excess of $3,000,000 in any one year; -10- (j) Materially change the nature of its business, taken as a whole on a consolidated basis as described in the principal business plan of the Company as carried on at the date hereof and reasonable extensions thereof; or (k) Enter into any transaction with any Affiliate or any officer, director or holder of more than 5 % of the outstanding capital stock of the Company which is not on terms comparable to an arms-length transaction. 3.8. CERTAIN ACTIONS OF THE BOARD. The Company and the Stockholders agree to cause the Company and the respective directors of the Company designated by them to act in accordance with the determination of the Preferred Directors with respect to any actions described by paragraphs (b) or (f) of Section 3.7 and, where necessary, to recommend action by the Stockholders of the Company in accordance with such determination, and the Stockholders hereby agree to vote in favor of such actions. In addition, in the event that the Company does not meet or exceed the projections for either 1997 or 1998 set forth in Exhibit hereto, the following items shall be added to the list of activities set forth in the preceding sentence and as to which the Company, the directors of the Company and the Shareholders shall act in accordance with the determination of the Preferred Directors pursuant to this first sentence of this Section 3.8 until March 31, 1999: (a) Retain or dismiss the services of the Chief Executive Officer or the Chief Financial Officer of the Company (it being understood that the mere fact of the failure to meet the projections set forth in Exhibit A hereto shall not be a factor in the determination of whether such termination of employment is termination of employment without cause or termination of employment with cause and that such determination shall be made solely by reference to the definition of "Cause" set forth in Section 1.1.4 hereof); (b) Approve budgets, capital expenditures, financial statements or selection of accountants; or (c) Approve business and strategic plans. 3.9.CHANGES IN COMPANY STRATEGY. In the event that the Company makes a strategic change in the direction of its business, and its financial outlook is likely to change as a result, the parties agree to negotiate in good faith any appropriate modifications to the projections for 1997 and 1998 set forth in Exhibit A and Exhibit B hereto, and such modified projections, upon their approval by the Preferred Directors (which approval shall not be unreasonably withheld), shall be the new Exhibit A and Exhibit B for purposes of this Agreement and the Company's Restated Certificate of Incorporation, respectively. 3.10.QUALIFIED OFFERINGS. The Investors hereby agree to consider in good faith any request by the Company to issue Common Stock notwithstanding the fact that the proposed -11- issuance would satisfy the valuation and proceeds requirements for automatic conversion of Preferred Stock set forth in Section 2.6.8 of the Restated Certificate of Incorporation of the Company dated as of June _, 1997. 4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS. No holder of Management Shares or Group B Shares shall Transfer any of such Shares to any other Person, except as permitted by Sections 4.1, 4.2, 4.3 and 7, or as required by Sections 5 or 6. Any attempted Transfer of Management Shares or Group B Shares not so permitted or required by such Sections shall be null and void, and the Company shall not in any way give effect to any such impermissible Transfer. All permitted transfers shall be further subject to the requirements of Section 8. Notwithstanding any contrary provision of this Agreement, any Management Stockholder or Group B Stockholder may Transfer any or all Options or Shares held by such Stockholder: (i) to the Company or any subsidiary of the Company in one or more transactions approved by the Board, (ii) to any Investor, or (iii) on the terms and subject to the conditions of Section 5, 6 or 7. 4.1. TRANSFERS OF MANAGEMENT SHARES AND GROUP B SHARES TO IMMEDIATE FAMILY. Any holder of Management Shares or Group B Shares may Transfer any or all of such Shares to a Member of the Immediate Family of such holder; provided, however, that no such Transfer shall be effective until such Member of the Immediate Family has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received by such Member of the Immediate Family are subject to all the provisions of this Agreement applicable thereto prior to such Transfer and that such Member of the Immediate Family is bound hereby and a party hereto to the same extent as a Management Stockholder or Group B Stockholder, as the case may be. 4.1. Transfer of Management Shares or Group B Shares Upon Death Upon the death of any holder of Management Shares or Group B Shares such Shares held by such holder may be distributed by will or other instrument taking effect at death or by applicable laws of descent and distribution to such holder's estate, executors, administrators and personal representatives, and then to such holder's heirs, legatees or distributees, whether or not such recipients are Members of the Immediate Family of such holder; provided, however, that no such Transfer shall be effective until the recipient has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received by such recipient are subject to all the provisions of this Agreement applicable thereto prior to such Transfer and that such recipient is bound hereby and a party hereto to the same extent as a Management Stockholder or Group B Stockholder, as the case may be. 4.2. TRANSFER AMONG GROUP B STOCKHOLDERS. Any holder of Group B Shares may Transfer any or all of such Shares to any other holder of Group B Shares; provided, however, that no such Transfer shall be at a price higher than Fair Market Value as determined pursuant -12- to Section 5.3 hereof; and provided further that solely for the purposes of this Section 4.3, Valentine J. Zammit and David Harkin shall be deemed to be holders of Group B Shares. 4.3. TRANSFER OF INVESTOR SHARES. No Transfer of Investor Shares shall be effective until the recipient has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received by such recipient are subject to all the provisions of this Agreement applicable thereto prior to such Transfer and that such recipient is bound hereby and a party to the same extent as an Investor. 5. OPTIONS TO PURCHASE MANAGEMENT SHARES; GROUP B SHARES. 5.1. CALL OPTIONS. Upon any termination of the employment by the Company, or in the case of an employee of a subsidiary of the Company, termination by such subsidiary of a holder of Management Shares, the Company (or its designee) shall have the right to purchase Callable Shares (as defined in Section 5.1.1 hereof) held by such holder or originally issued to such holder but held by one or more Permitted Transferees of such holder (collectively, the "Call Stockholder Group") and Options held by the Call Stockholder Group and exercisable at the time of such termination on the following terms (the "Call Option"); it being understood that all Options not exercisable at the time of such termination of employment will be terminated pursuant to the option plan pursuant to which such Option was issued. 5.1.1. Callable Shares shall include: (i) all Shares held by the Call Stockholder Group which were originally issued to a Management Stockholder pursuant to the exercise of any Options granted on or after the date hereof, whenever issued; and (ii) during the time periods as indicated below, and in the case of termination for cause, termination without cause, or n the case only of Kevin O'Connor or Dwight Merriman, termination as a result of resignation as described below, the following percentages of Shares (excluding those Shares described in the foregoing clause (i) of this Section 5.1.1 and Shares issued pursuant to the exercise of any Options prior to the date hereof, whenever issued) held by a Management Stockholder or originally issued to a Management Stockholder but held by a Permitted Transferee of such holder: -13- Time Period Percentage of Shares Termination for Termination Cause or Resignation Without Cause -------------------- ------------- June 4, 1997 to June 4, 1998 45% 0% June 4, 1998 to June 4, 1999 30% 0% June 4, 1999 to June 4, 2000 15% 0% June 4, 2000 and thereafter 0% 0% 5.2. TERMINATION BY THE COMPANY WITHOUT CAUSE. If such termination is the result of termination of such holder's employment by the Company or any subsidiary thereof without Cause or as a result of the death or disability of such holder, the Company (or its designee), upon written notice delivered within 90 days of termination, may purchase all or any portion of the Callable Shares and Callable Options then held by the applicable Call Stockholder Group at a price equal to the Fair Market Value of such securities. "Callable Options" means any Options granted on or after the date hereof. 5.3. TERMINATION BY COMPANY FOR CAUSE. If such termination is the result of termination of such holder's employment by the Company, its Subsidiaries or any Affiliate thereof for Cause, the Company (or its designee) may, upon written notice delivered within 90 days of termination, purchase all or any portion of the Callable Shares and Callable Options then held by the applicable Call Stockholder Group at a price equal to the lower of the Cost (without any rate of return) or the then Fair Market Value of such securities. 5.4. TERMINATION BY HOLDER THROUGH RESIGNATION. If such termination is the result of holder's resignation, the Company (or its designee) may, upon written notice delivered within 90 days of termination, purchase all or any portion of the Callable Shares and Callable Options then held by the applicable Call Stockholder Group at a price equal to the then Fair Market Value of such securities. 5.5. CLOSING: ASSIGNABILITY COMPANY PURCHASE RIGHTS: RELATED MATTERS. The closing of any purchase pursuant to the exercise of any Call Options pursuant to this Section 5 shall take place as soon as reasonably practicable at the principal office of the Company, or at such other time and location as the parties to such purchase may mutually determine. Fair Market Value shall be determined as of the date of the applicable date of termination. At the closing of any purchase and sale pursuant to this Section 5, the holder of securities to be sold shall deliver to the Company a certificate or certificates representing the Shares and Options to be purchased by the Company duly endorsed, or with stock powers or other appropriate instruments duly endorsed, for transfer with signature guaranteed, free and clear of any lien or encumbrance, with any necessary stock transfer tax stamps affixed, and the Company shall pay to such holder by -14- Company check or wire transfer of immediately available funds the purchase price of the securities being purchased by the Company. The delivery of a certificate or certificates for Shares or Options by any Person selling securities pursuant to this Section 5 shall be deemed a representation and warranty by such Person that: (i) such Person has full right, title and interest in and to such securities; (ii) such Person has all necessary power and authority and has taken all necessary action to sell such securities as contemplated; and (iii) such securities are free and clear of any and all liens or encumbrances. The Company shall have the right, but no obligation, to assign to any holder of Investor Shares all or any portion of its right to purchase any securities pursuant to this Section 5. 5.6. DETERMINATION OF FAIR MARKET VALUE. (a) For purposes of this Section 5, the term "Fair Market Value" shall mean, as of any date, the fair value of any Share as of the applicable date on the basis of a sale of such Share in an arms length private sale between a willing buyer and a willing seller, neither acting under compulsion (or, in the case of an Option, the fair value of the Shares that may then be purchased by the holder of such Option upon exercise thereof, determined as described in this Section 5.3, minus the exercise price applicable thereto), as determined by the Board; (b) at any time when more than 15 % of the Shares then outstanding has been offered and sold pursuant to one or more Public Offerings, the Fair Market Value of any Share shall be equal to the average of the sum of the closing prices of the Shares for the 30 trading days immediately prior to the date on which Shares becomes subject to repurchase under this Section 5. In determining Fair Market Value, the Board shall (a) consider, in addition to other factors that it determines in good faith to be relevant, the purchase price of the Shares in recent (i) arms-length sales of Shares by the Company, (ii) transfers of Shares by a Stockholder in an arms-length transaction and (b) not give effect to any discount which may otherwise be attributable to the fact that such Shares which are the subject of such valuation constitute less than a majority of the Shares outstanding. 5.7. CALL UPON CERTAIN LIQUIDATION EVENTS. In the event of the occurrence of a Liquidation Event (as defined in the Company's Restated Certificate of Incorporation) that 5.8. VOTING RIGHTS UPON CERTAIN LIQUIDATION EVENTS. Each of Bozell and the other Group B Stockholders hereby grants to the Investors an irrevocable proxy, which is coupled with an interest, to vote all Shares held by such Stockholder with respect to all matters as to which the holders of such Shares are entitled to vote, from and after the occurrence of a Liquidation Event (as defined in the Company's Restated Certificate of Incorporation) giving rise to a Liquidation Event Value (as defined in the Company's Restated Certificate of Incorporation) of $70 million or less. 5.9. ACCESS. ETC. From time to time upon request of any partner, designee or officer of any Investor so long as such Investor holds any equity securities of the Company representing at least 50% of the Investor Initial Shares of the respective Investor, the Company will furnish to such partner, designee or officer, and their representatives (including without limitation their accountants and legal counsel), such information regarding the business of the Company and its -15- Subsidiaries (including materials furnished to the directors of the Company and its subsidiaries at or in connection with board meetings) as such partner, designee or officer may reasonably request. Each such partner, designee or officer, and their representatives (including without limitation their accountants and legal counsel), shall have the right during normal business hours and upon reasonable notice to make an independent examination of the books and records of the Company and any of its subsidiaries, to make copies, notes and abstracts therefrom, and to discuss their business, affairs and financial condition with the officers and accountants of the Company. Each such representative will sign a confidentiality agreement, in a form reasonably acceptable to the Investors, if so requested by the Chief Executive Officer or the Board. Each such partner, designee or officer shall have the right during normal business hours to consult with the directors and executive officers of the Company and its subsidiaries and to advise such directors and officers on corporate issues; provided, however, that no such partner, designee or officer shall thereby have any right to direct the management or policies of the Company or any of its subsidiaries: 5.10. CERTAIN ACTIVITIES. Except as expressly provided herein or in the Company's Restated Certificate of Incorporation or as required by law, for so long as the Investors continue to hold any equity securities representing at least 50% of the Investor Initial Shares, then without the approval by vote or written consent of the Investor Majority Holders, the Company shall not, and shall not permit any Subsidiary, to do any of the following: (a) Redeem, purchase, or otherwise acquire for value (or pay into or set aside for a sinking fund for such purchases) any capital stock of the Company, and except for the repurchase of shares of Common Stock held by employees, consultants, directors, or officers of the Company that are subject to stock repurchase agreements and, if such repurchases would exceed $100,000 for any such employee, consultant, director or officer, that have been approved by the vote or written consent of the Investor Majority Holders in the event of termination of employment or the termination of the consulting relationship; (b) Authorize or issue, or obligate itself to authorize or issue, (i) any other equity security having any preference or priority over, or ranking senior to or on parity with, the Preferred Stock with respect to dividends or rights upon liquidation, dissolution, or winding-up, (ii) other than (A) securities issuable on conversion of the Preferred Stock or (B) Common Stock issuable pursuant to stock options permitted to be granted by Company consistent with its contractual obligations, any other equity security ranking junior to the Preferred Stock with respect to dividends or rights upon liquidation, dissolution or winding-up or (iii) any security convertible into a security described in clauses (i) or (ii); provided that the -16- Investors shall comply with the requirements of Section 3.10 of this Agreement; (c) Alter or change the powers, preferences or rights of the Preferred Stock, or the qualifications, limitations or restrictions thereof; (d) Increase or decrease (other than by conversion or as otherwise required or permitted hereby) the total number of authorized shares of Preferred Stock; (e) Sell, assign, license, or otherwise dispose of or voluntarily part with control of (or agree to do any of these) any of the Company's material intellectual property rights to any other person, other than in connection with ordinary customer sales, except as approved by the Board; (f) Effect any merger, consolidation, recapitalization, reorganization, amalgamation, liquidation, winding up, dissolution or sale, transfer or other action otherwise disposing of or voluntarily parting with the control of (whether in one transaction or a series of transactions) of all or substantially all of the property, business or assets of the Company or its subsidiaries other than (i) a merger or consolidation of a subsidiary with the Company or any other subsidiary of the Company provided that, in the case of any such merger or consolidation, the person formed by such merger or consolidation shall be a wholly owned subsidiary of the Company and (ii) any sale, lease, assignment, pledge, transfer or other conveyance of all or a substantial portion of the assets of the Company solely as security for institutional indebtedness approved by the Board; (g) Amend its Restated Certificate of Incorporation or by-laws; (h) or distribute any dividend (other than a stock dividend) in respect of capital stock, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such, or issue or sell any capital stock or any warrants, rights or options to acquire such capital stock other than pursuant to stock options issued pursuant to plans or agreements in an aggregate amount not to exceed 4,488,827 shares of Common Stock (subject to appropriate adjustment for any stock dividend, stock split, combination, or other similar recapitalization affecting such shares); (i) Enter into any agreement, contract, commitment or understanding with any Person for the acquisition of any business or assets other than acquisitions not in excess of $3,000,000 in any one year; -17- (j) Materially change the nature of its business, taken as a whole on a consolidated basis as described in the principal business plan of the Company as carried on at the date hereof and reasonable extensions thereof; or (k) Enter into any transaction with any Affiliate or any officer, director or holder of more than 5 % of the outstanding capital stock of the Company which is not on terms comparable to an arms-length transaction. 5.11. CERTAIN ACTIONS OF THE BOARD. The Company and the Stockholders agree to cause the Company and the respective directors of the Company designated by them to act in accordance with the determination of the Preferred Directors with respect to any actions described by paragraphs (b) or (f) of Section 3.7 and, where necessary, to recommend action by the Stockholders of the Company in accordance with such determination, and the Stockholders hereby agree to vote in favor of such actions. In addition, in the event that the Company does not meet or exceed the projections for either 1997 or 1998 set forth in Exhibit A hereto, the following items shall be added to the list of activities set forth in the preceding sentence and as to which the Company, the directors of the Company and the Shareholders shall act in accordance with the determination of the Preferred Directors pursuant to this first sentence of this Section 3.8 until March 31, 1999: (a) Retain or dismiss the services of the Chief Executive Officer or the Chief Financial Officer of the Company (it being understood that the mere fact of the failure to meet the projections set forth in Exhibit A hereto shall not be a factor in the determination of whether such termination of employment is termination of employment without cause or termination of employment with cause and that such determination shall be made solely by reference to the definition of "Cause" set forth in Section 1.1.4 hereof); (b) Approve budgets, capital expenditures, financial statements or selection of accountants; or (c) Approve business and strategic plans. 5.12. CHANGES IN COMPANY STRATEGY. In the event that the Company makes a strategic change in the direction of its business, and its financial outlook is likely to change as a result the parties agree to negotiate in good faith any appropriate modifications to the projections for 1997 and 1998 set forth in Exhibit A and Exhibit B hereto, and such modified projections, upon their approval by the Preferred Directors (which approval shall not be unreasonably withheld), shall be the new Exhibit A and Exhibit for purposes of this Agreement and the Company's Restated Certificate of Incorporation, respectively. -18- 5.13. QUALIFIED OFFERINGS. The Investors hereby agree to consider in good faith any request by the Company to issue Common Stock notwithstanding the fact that the proposed issuance would satisfy the valuation and proceeds requirements for automatic conversion of Preferred Stock set forth in Section 2.6.8 of the Restated Certificate of Incorporation of the Company dated as of June _, 1997. 6. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS. No holder of Management Shares or Group B Shares shall Transfer any of such Shares to any other Person, except as permitted by Sections 4.1, 4.2, 4.3 and 7, or as required by Sections 5 or 6. Any attempted Transfer of Management Shares or Group B Shares not so permitted or required by such Sections shall be null and void, and the Company shall not in any way give effect to any such impermissible Transfer. All permitted transfers shall be further subject to the requirements of Section 8. Notwithstanding any contrary provision of this Agreement, any Management Stockholder or Group B Stockholder may Transfer any or all Options or Shares held by such Stockholder: (i) to the Company or any subsidiary of the Company in one or more transactions approved by the Board, (ii) to any Investor, or (iii) on the terms and subject to the conditions of Section 5, 6 or 7. 6.1. TRANSFERS OF MANAGEMENT SHARES AND GROUP B SHARES TO IMMEDIATE FAMILY. Any holder of Management Shares or Group B Shares may Transfer any or all of such Shares to a Member of the Immediate Family of such holder; provided, however that no such Transfer shall be effective until such Member of the Immediate Family has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received by such Member of the Immediate Family are subject to all the provisions of this Agreement applicable thereto prior to such Transfer and that such Member of the Immediate Family is bound hereby and a party hereto to the same extent as a Management Stockholder or Group B Stockholder, as the case may be. 6.2. TRANSFER OF MANAGEMENT SHARES OR GROUP B SHARES UPON DEATH. Upon the death of any holder of Management Shares or Group B Shares such Shares held by such holder may be distributed by will or other instrument taking effect at death or by applicable laws of descent and distribution to such holder's estate, executors, administrators and personal representatives, and then to such holder's heirs, legatees or distributees, whether or not such recipients are Members of the Immediate Family of such holder; PROVIDED, HOWEVER, that no such Transfer shall be effective until the recipient has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received by such recipient are subject to all the provisions of this Agreement applicable thereto prior to such Transfer and that such recipient is bound hereby and a party hereto to the same extent as a Management Stockholder or Group B Stockholder, as the case may be. 6.3. TRANSFER AMONG GROUP B STOCKHOLDERS. Any holder of Group B Shares may Transfer any or all of such Shares to any other holder of Group B Shares; provided, however, that no such Transfer shall be at a price higher than Fair Market Value as determined pursuant -19- to Section 5.3 hereof; and PROVIDED FURTHER, that solely for the purposes of this Section 4.3, Valentine J. Zammit and David Harkin shall be deemed to be holders of Group B Shares. 6.4. TRANSFER OF INVESTOR SHARES. No Transfer of Investor Shares shall be effective until the recipient has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received by such recipient are subject to all the provisions of this Agreement applicable thereto prior to such Transfer and that such recipient is bound here by and a party to the same extent as an Investor. 7. OPTIONS TO PURCHASE MANAGEMENT SHARES; GROUP B SHARES. 7.1. CALL OPTIONS. Upon any termination of the employment by the Company, or in the case of an employee of a subsidiary of the Company, termination by such subsidiary of a holder of Management Shares, the Company (or its designee) shall have the right to purchase Callable Shares (as defined in Section 5.1.1 hereof) held by such holder or originally issued to such holder but held by one or more Permitted Transferees of such holder (collectively, the "CALL STOCKHOLDER GROUP") and Options held by the Call Stockholder Group and exercisable at the time of such termination on the following terms (the "CALL OPTION"); it being understood that all Options not exercisable at the time of such termination of employment will be terminated pursuant to the option plan pursuant to which such Option was issued. 7.1.1. CALLABLE SHARES shall include: results in a Liquidation Event Value (as defined in the Company's Restated Certificate of Incorporation) of $70 million or less, the Company (or its designee) shall have the right to purchase Shares held by Bozell and any other Group B Stockholder or originally issued to any such holder but held by one or more Permitted Transferees of such holder for an aggregate purchase price of one dollar (51.00), the closing of such purchase to take place as soon as reasonably practicable at the principal office of the Company. 7.2. CONSTRUCTION. The foregoing provisions of this Section 5 are not intended, and shall not be construed, to eliminate, waive or otherwise affect the restrictions on transfer, vesting requirements or termination provisions which may apply to any Share or Option by its terms or under provisions of the Company's 1996 Stock Option Plan or other equity or option plan pursuant to which such Share or Option was granted or other governing documentation. 8. "TAKE ALONG" RIGHTS. Each holder of Shares or Options hereby agrees, if requested by the Investor Majority Holders (which request shall be made to all holders of shares), to Transfer for value (for purposes of this Section 6, a "Sale") a specified percentage (for purposes of this Section 6, the "SALE PERCENTAGE") of the securities then owned by such holder to a third party which is not an Investor or an Affiliate of any Investor Majority Holder (for purposes of this Section 6, the "PROPOSED BUYER") in the manner and on the terms set forth in this Section 6 in connection with the Sale by such Investor (collectively, the "PROPOSED INVESTOR SELLER") of the Sale Percentage of the total number of Investor Shares held by all holders of Investor Shares -20- on a Fully Diluted basis to the Proposed Buyer, PROVIDED, however, that the Sale Percentage shall be equal to or greater than 50%. 8.1. PROCEDURE. If the Investor Majority Holders elect to exercise their rights under this Section 6, a notice (the "COME ALONG NOTICE") shall be furnished by the Proposed Investor Seller to each holder of Shares and Options. The Come Along Notice shall set forth the principal terms of the proposed Sale insofar as it relates to the Shares, including the Sale Percentage and the purchase price. If the Investor Majority Holders consummate the Sale referred to in the Come Along Notice, each other holder of Shares or Options (each a "PARTICIPATING SELLER") shall be bound and obligated to Sell the Sale Percentage of the Shares and Options in the Sale on the same terms and conditions with respect to each Share sold, as the Investor shall Sell each Investor Share in the Sale, and, in the case of Options, have the opportunity to either (i) exercise such Options (if then exercisable) and participate in such sale as holders of Shares issuable upon such exercise or (ii) upon the consummation of the Sale, receive in exchange for such Options (to the extent exercisable at the time of such Sale) consideration equal to the amount determined by multiplying (1) the same amount of consideration per Share received by the holders of the Shares of the same class of common stock for which the Option is exercisable in connection with the Sale less the exercise price per share of such Option by (2) the number of Shares of such class represented by such rights. If at the end of the one hundred twentieth (120th) day following the date of the effectiveness of the Come Along Notice the Proposed Investor Seller has not completed the Sale, each Participating Seller shall be released from his obligation under the Come Along Notice, the Come Along Notice shall be null and void, and it shall be necessary for a separate Come Along Notice to have been furnished and the terms and provisions of this Section 6 separately complied with, in order to consummate such Sale pursuant to this Section 6, unless the failure to complete such Sale resulted from any failure by any Participating Seller to in any material respect with the terms of this Section 6. 8.2. CERTAIN LEGAL REQUIREMENTS. In the event the consideration to be paid in exchange for Shares in the proposed Sale pursuant to Section 6.1 includes any securities and the receipt thereof by any Stockholder as a Participating Seller would require under applicable law (i) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities or (ii) the provision to any participant in the Sale of any information other than such information as would be required under Regulation D of the Securities and Exchange Commission or similar rule then in effect in an offering made pursuant to said Regulation D-solely to "accredited investors" as defined in said Regulation D, the Proposed Investor Seller may, but shall not be obligated to, cause to be paid to such Participating Seller in lieu of such Securities, against surrender of the Shares and Options (in accordance with Section 6.4 hereof which would have otherwise been Sold by such Participating Seller to the Proposed Buyer in the Sale, an amount in cash equal to the fair market value of the securities which such Participating Seller would otherwise receive, as determined in good faith by the Board. Any attempt by the Proposed Investor Seller to permit a Participating Seller to receive such securities may be conditioned on such Participating Seller executing such documents and instruments, and taking such other actions (including without limitation, if required by the -21- Proposed Investor Seller, agreeing to be represented during the course of such transaction by a "purchaser representative" (as defined in Regulation D) in connection with evaluating the merits and risks of the prospective investment and acknowledging that he was so represented, provided, however, that any fees or expenses payable to a "purchaser representative" shall be paid by the Proposed Investor Seller), as the Proposed Investor Seller shall reasonably request in order to permit such legal requirements to have been complied with. 8.3. FURTHER ASSURANCES. Each Participating Seller and each Stockholder to whom the Shares held by such Participating Seller (or Options to purchase such Shares) were originally issued, shall take or cause to be taken all such actions as may be reasonably requested in order expeditiously to consummate each Sale pursuant to Section 6.1. Each such Participating Seller or Stockholder agrees (i) to vote all Shares with respect to which he holds power to vote in favor of any proposal to stockholders in connection with the Sale which is approved by the holders of a majority of the outstanding Shares entitled to vote with respect to such matter and (ii) to execute and deliver such agreements as may be necessary for the Participating Seller to be subject to the same terms and conditions with respect to the Sale as apply to the Proposed Investor Seller, including without limitation, an agreement by such Participating Seller to be subject to such purchase price escrow or adjustment provisions as may apply to Stockholders generally and to be liable in respect of any individual representations, warranties, agreements and indemnities to be given by selling Stockholders in the Sale. 8.4. CLONING. The closing of a Sale pursuant to Section 6.1 shall take place at such time and place as the Investor Majority Holders shall specify by notice to each Participating Seller") At the closing of any Sale under this Section 6, each Participating Seller shall deliver the certificates evidencing the Shares or Options to be sold by such Participating Seller, duly endorsed, or with stock powers or other appropriate instruments duly endorsed, for transfer with signature guaranteed, free and clear of any liens or encumbrances, with any stock transfer tax stamps affixed, against delivery of the applicable consideration. 9. CO-SALE RIGHTS. 9.1. TAG ALONG. No holder or holders of Shares (for purposes of this Section 7, collectively, the "PROPOSED SELLER") shall Transfer (for purposes of this Section 7, a "Sale") any Shares to any other Person (the "PROPOSED BUYER") except in the manner and on the terms set forth in this Section 7 and attempted Transfers in violation of this Section 7 shall be null and void. 9.1.1. OFFER. A written notice (the "TAG ALONG NOTICE") shall be furnished by the Proposed Seller to each holder of Shares or Options (collectively, the "TAG ALONG OFFEREES") at least 30 days prior to a Transfer. The Tag Along Notice shall include: (a) The principal terms of the proposed Sale insofar as it relates to the Shares, including the percentage of the total number of Shares held by all -22- Proposed Seller holders of Shares which are proposed to be sold (for purposes of this Section 7, the "Sale Percentage") and the purchase price; and (b) An offer by the Proposed Seller to include, at the option of each Tag Along Offeree, in the Sale to the Proposed Buyer such number of Shares and Underlying Shares (not in any event to exceed the Sale Percentage of the total number of Shares and Underlying Shares held by such Tag Along Offeree) owned by each Tag Along Offeree, determined in accordance with Section 7.1.2 hereof, on the same terms and conditions, with respect to each Share Sold, as the Proposed Seller shall Sell each of his, her or its Shares. 9.1.2. EXERCISE. Each Tag Along Offeree, desiring to accept the offer contained in the Tag Along Notice shall send a written commitment to the Proposed Seller specifying the number of Shares and Underlying Shares (not in any event to exceed the Sale Percentage of the total number of Shares and Underlying Shares held by such Tag Along Offeree, which such Tag Along Offeree, desires to have included in the Sale within 30 days after the effectiveness of the Tag Along Notice (each a "PARTICIPATING SELLER"). Each Tag Along Offeree, who has not so accepted such offer shall be deemed to have waived all of his or her rights with respect to the Sale, and the Proposed Seller and the Participating Sellers shall thereafter be free to Sell to the Proposed Buyer, at a price no greater than 105% of the price set forth in the Tag Along Notice and otherwise on terms not more favorable in any material respect to them than those set forth in the Tag Along Notice, without any further obligation to such non-accepting Tag Along Offerees. If, prior to consummation, the terms of such proposed Sale shall change with the result that the price shall be greater than 105 % of the price set forth in the Tag Along Notice or the other terms shall be more favorable in any material respect hen as set forth in the Tag Along Notice, it shall be necessary for a separate Tag Along Notice to have been furnished, and the terms and provisions of this Section 7 separately complied with, in order to consummate such proposed Sale pursuant to this Section 7. The acceptance of each Participating Seller shall be irrevocable except as hereinafter provided, and each such Participating Seller shall be bound and obligated to Sell in the Sale, on the same terms and conditions specified in the Tag Along Notice with respect to each of the Shares to be sold (including Underlying Shares), and on the same terms and conditions as apply to each of the Shares sold by the Proposed Seller, such number of Shares (including any Underlying Shares) as such Participating Seller shall have specified in such Participating Seller's written commitment. In the event the Proposed Seller shall be unable (otherwise than by reason of the circumstances described in Section 7.2) to obtain the inclusion in the Sale of all Shares (including Underlying Shares) which the Proposed Seller and each Participating Seller desires to have included in the Sale (as evidenced in the case of the Proposed Seller by the Tag Along Notice and -23- in the case of each Participating Seller by such Participating Seller's written commitment), the number of Shares (including Underlying Shares) to be sold in the Sale by the Proposed Seller and each Participating Seller shall be reduced on a pro rata basis according to the proportion which the number of Shares (including Underlying Shares) which each such Seller desires to have included in the Sale bears to the total number of Shares desired (including Underlying Shares) by all such Sellers to have included in the Sale. If at the end of the 90th day following the date of the effectiveness of the Tag Along Notice the Proposed Seller has not completed the Sale as provided in the foregoing provisions of this Section 7.1, each Participating Seller shall be released from his obligations under his written commitment, the Tag Along Notice shall be null and void, and it shall be necessary for a separate Tag Along Notice to have been furnished, and the terms and provisions of this Section 7 separately complied with, in order to consummate such Sale pursuant to this Section 7, unless the failure to complete such Sale resulted from any failure by any Tag Along Offeree, to comply in any material respect with the terms of this Section 7. 9.2. EXCLUDED TRANSACTIONS. Notwithstanding the preceding provisions of this Section 7 and subject to the provisions of Section 7 and Section 8 below, the preceding provisions of this Section 7 shall not restrict any Transfer pursuant to the provisions of Section 6 or 7 of this Agreement, and no holder of Shares shall have pursuant to the provisions of this Section 7 any right of participation or otherwise with respect to any Transfer of Shares: (a) to an Investor; (b) to an Affiliated Fund which either (i) is regularly engaged in the business of investing in the equity of companies or (ii) is reasonably acceptable to the Company; (c) by an Investor or an Affiliated Fund: (i) to any director, officer or employee of the Company or its principal subsidiary; (ii) to any trust established for the benefit of its investors or partners or pro rata to its investors or partners; (iii) to its investors or partners in connection with any termination, liquidation, dissolution, reorganization or winding up of such Investor or any Affiliated Fund or (iv) up until the date which is two months from the date hereof, to other persons or entities, as selected by the Investors, which either (A) are regularly engaged in the business of investing in the equity of companies and are of creditworthiness comparable to that such Investor or Affiliated Fund or (B) are reasonably acceptable to the Company; -24- (d) in a Public Offering or other Public Event or to the public under Rule 144; (e) in a Transfer permitted by Section 4; or (f) in a Transfer by a holder of Shares in one or more transactions of an aggregate amount less than 1% of the aggregate capital stock outstanding at such time; PROVIDED (except with respect to Section 7.2(d)) that such transferee shall have executed and delivered to the Company an agreement to be bound by this Agreement to the same extent as the transferor and provided that no such transfer shall result in the Company being required to register the transfer of such Shares or other securities under the Securities Act or Exchange Act or any similar state law. 10. CERTAIN ISSUANCES AND TRANSFERS, ETC. Each holder of Shares agrees that it will not transfer any Shares to any Person unless the transferee has delivered to the Company a written acknowledgment and agreement that the Shares to be received by such transferee are subject to all of the provisions of this Agreement (as Investor Shares in the case of a transfer from a holder of Investor Shares, as Management Shares in the case of a transfer from a holder of Management Shares, and as Group B Shares in the case of a transfer from a holder of Group B and that such transferee is bound by and a party to this Agreement to the same extent as if it were an original signatory hereto as a Stockholder hereunder; provided, however, notwithstanding any other provision of this Agreement, (i) Shares transferred pursuant to and in accordance with Section 6 or 7 to any Proposed Buyer (as defied in such Sections) hereof or in a Public Offering or to the public under Rule 144 shall be conclusively deemed thereafter not to be Shares under this Agreement and not to be subject to any of the provisions hereof or entitled to the benefit of any of the provisions hereof, and (ii) any Shares acquired by a holder of Investor Shares shall upon such acquisition be deemed to be Investor Shares for purposes of Sections 6, 9 and 10 hereof. Without limiting the generality of the foregoing, in the event that an Investor transfers Shares, in accordance with the provisions of this Section 8, to any Affiliated Fund. such Affiliated Fund shall be deemed for all purposes hereunder to be an Investor with all of the rights and obligations of an Initial Investor hereunder. 11. REGISTRATION RIGHTS. The Company will perform and comply, and cause each of its subsidiaries to perform and comply, with such of following provisions as are applicable to it. Each holder of Shares will perform and comply with such of the following provisions as are applicable to such holder. 11.1. PIGGYBACK REGISTRATION RIGHTS. 11.1.1. ELECTION. Whenever the Company proposes to register any shares of its Common Stock for its own or others' account under the Securities Act for a public -25- offering (each a "PUBLIC OFFERING"), the Company shall furnish each holder of Shares prompt written notice of its intent to do so. Upon the request of any such holder given by notice in writing to the Company within twenty (20) days after he effectiveness of such notice from the Company setting forth the number of Shares proposed to be included in such registration, the Company will use its reasonable efforts to cause to be included in such registration all of the Shares which such holder requests. Notwithstanding the foregoing provisions of this Section 9.1.1, if the Company is advised in writing in good faith by any managing underwriter of the securities being offered pursuant to any Public Offering under this Section 9.1 (including, without limitation, Sections 9.2.1 and 9.2.2) that the number of shares to be sold by Persons other than the Company in such Public Offering is greater than the number of such shares which can be included in such Public Offering without adversely affecting such Public Offering, the Company may reduce pro rata (based upon the number of Shares requested to be included by such Persons other than the Company) the number of Shares offered for the accounts of such Persons other than the Company to a number of Shares deemed satisfactory by such managing underwriter; PROVIDED, HOWEVER, if the Board determines in good faith that a Public Offering would not be in the best interest of the Company, it may terminate or delay such offering as it sees fit. 11.1.2. FURTHER ASSURANCES. Holders of Shares participating in any Public Offering shall take all such actions and execute all such documents and instruments that are reasonably requested by the Company to effect the sale of their Shares in such Public Offering, including without limitation being parties to the underwriting agreement entered into by the Company arid any other selling stockholders in connection therewith (and being liable in respect of the representations and warranties made by such holder in respect of its legal capacity or due organization, authority to sell Shares being registered by such holder and ownership (free and clear of liens) of such Shares), and any indemnification agreements or "lock-up" agreements for the benefit of the underwriters in such underwriting agreement; PROVIDED, HOWEVER, that the aggregate amount of such liability shall not exceed the net proceeds to such holder from the disposition of such Shares. 11.1.3. EXPENSES. The Company shall pay all expenses of the holders of Shares participating in any Public Offering pursuant to this Section 9.1, other than underwriting discounts and commissions, if any, applicable transfer taxes, if any, and fees and charges of any attorneys or other advisors (other than attorneys and advisors retained by the Company to advise it in connection with such Public Offering) retained by any such holders. B 11.1.4. EXCLUDED TRANSACTIONS. Notwithstanding the preceding provisions of this Section 9.1, no holder of Shares shall have any right of participation or otherwise with respect to the following Public Offerings: -26- (a) Any Public Offering relating to employee benefit plans on Form S-8 or any similar form then in effect. (b) Any Public Offering relating to the acquisition after the date hereof by the Company or any of its subsidiaries of any businesses. 11.2. DEMAND REGISTRATION RIGHTS. 11.2.1. REGISTRATION ON REQUEST OF HOLDERS OF INVESTOR SHARES. One or more holders of Investor Shares that wish to register securities representing at least fifty percent (50%) of the sum of the total number of Investor Shares then outstanding requested to be registered pursuant to this Section 9.2.1 "INITIATING HOLDERS") may, by notice to the Company specifying the intended method or methods of disposition, request that the Company effect the registration under the Securities Act of all or a specified part of the Registrable Securities held by such Initiating Holders. For purposes of this Agreement, the term "REGISTRABLE SECURITIES" shall mean, at any time, Shares that have not previously been sold in a Public Offering or in a "brokers transaction" within the meaning of Rule 144 and "REGISTRABLE INVESTOR SECURITIES" shall mean Registrable Securities constituting Investor Shares. The Company will then use its reasonable efforts to effect the registration under the Securities Act of the Registrable Securities which the Company has been requested to register by such Initiating Holders. 11.2.2. FORM. Each registration requested pursuant to this Section 9.2 shall be effected by the filing of a registration statement on Form S-1 (or any other form which includes substantially the same information as would be required to be included in a registration statement on such form as currently constituted), unless the use of a different form has been agreed to in writing by holders of at least a majority of the Registrable Securities initially requesting such registration (the "MAJORITY REQUESTING HOLDERS"). 11.2.3. REGISTRATIONS PURSUANT TO SECTION 9.2. In the case of a registration pursuant to Section 9.2 hereof, whenever the Majority Requesting Holders shall request that such registration shall be effected pursuant to an underwritten offering, such registration shall be so effected, and all Registrable Investor Securities to be included in such registration shall be included in such underwritten offering. If requested by such underwriters, the Company will enter into an underwriting agreement with such underwriters for such offering containing such representations and warranties by the Company and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, customary indemnity and contribution provisions. -27- 11.2.4. NUMBER. The Company is obligated to effect only a total of two such registrations pursuant to this Section 9.2 and no more than one such registration in any twelve-month period. 11.3. OBLIGATIONS OF THE COMPANY. Whenever required under this Section 9 to use its reasonable efforts to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective, and, upon the request of the holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective until the Holders have informed the Company in writing that the distribution of their securities has been completed, provided that the Company shall not be required to keep any registration statement which is not a shelf registration or similar registration (including any successor thereto such as a Company registration) effective for a period of more than 30 days; and shall: (a) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement, and use its reasonable efforts to cause each such amendment to become effective, as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (b) Furnish to the Holders such reasonable number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the public offering of Registrable Securities owned by them. (c) Use its reasonable efforts to register or qualify the securities covered by such registration statement under such securities or Blue Sly laws of such jurisdictions as shall be reasonably requested by the Holders provided that the Company shall not be required to register in any jurisdictions which require it, in connection therewith or as a condition thereto, to qualify to do business or to file a general consent to service of process or to subject itself to taxation in any such states or jurisdiction. (d) In the event of any underwritten public offering, enter into-and perform its obligations under an Underwriting Agreement, in which the Company addresses its representations and warranties to the underwriters. Each Holder participating in such underwriting shall also enter into and perform its obligations under such Underwriting Agreement, including furnishing any opinion of counsel or entering into a lock-up and indemnification agreement reasonably requested by the managing underwriter. -28- (e) Notify each Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and promptly file such amendments and supplements which may be required pursuant to subparagraph (b) of this Section 9.3 on account of such event and use its reasonable efforts to cause each such amendment and supplement to become effective. (f) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 9, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 9, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters on the date that the registration statement with respect to such securities becomes effective, (i) an opinion or opinions, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a comfort letter dated such date, from the independent certified public accountant of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any. (g) Apply for listing and use its reasonable efforts to list the Registrable Securities being registered on any national securities exchange on which a class of the Company's equity securities is listed or, if the Company does not have a class of equity securities listed on a national securities exchange, apply for qualification and use its reasonable efforts to qualify the Registrable Securities being registered for inclusion on the Nasdaq B National Market. (h) Without in any way limiting the types of registrations to which this Section 9 shall apply, in the event that the Company shall effect a "shelf registration" under Rule 415 promulgated under the Securities Act, the Company shall take all necessary action, including, without limitation, the filing of post-effective amendments, to permit the Holders, who have exercised their rights under Section 9.1, to maintain the inclusion of their -29- Registrable Securities in such registration in accordance with the terms of this Section 9. 11.4. INDEMNIFICATION AND CONTRIBUTION. 11.4.1. INDEMNITIES OF THE COMPANY. In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Section 9, and in connection with any registration statement or any other disclosure document produced by or on behalf of the Company pursuant to which securities of the Company are sold (whether or not for the account of the Company), the Company will, and hereby does, indemnify and hold harmless each seller of Registrable Securities, any other holder of securities who is or might be deemed to be a controlling Person of the Company within the meaning of Section 15 of the Securities Act, their respective direct and indirect partners, advisory board members, directors, officers and stockholders, and each other Person, if any, who controls any such seller or any such holder within the meaning of Section 15 of the Securities Act (each such person being referred to herein as a "COVERED PERSON") against any losses, claims, damages or liabilities, joint or several, and reasonable expenses (including, without limitation, reasonable legal and other fees and expenses incurred by any Covered Person in defending or investigating any action or claim in respect-thereof) to which such Covered Person may be or become subject under the Securities Act, any other securities or other law of any jurisdiction, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any registration statement under the Securities Act, any preliminary prospectus or final prospectus included therein, or any related summary prospectus, or any amendment or supplement thereto, or any document incorporated by reference therein, or any other such disclosure document, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such Covered Person for any legal or any other expenses incurred by it in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the Company shall not be liable to any Covered Person in any such case to the extent that any such loss, claim, damage, liability, action or proceeding arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, incorporated document or other such disclosure document in reliance upon and in conformity with information furnished to the Company by such Covered Person. The indemnities of the Company-and of its subsidiaries contained in this Section 9.4.1 shall remain in full force and effect regardless of any investigation made by or on behalf of such Covered Person and shall survive any transfer of securities. -30- 11.4.2. INDEMNITIES TO THE COMPANY. The Company may require, as a condition to including any. securities in any registration statement filed pursuant to this Section 9, that the Company shall have received an undertaking satisfactory to it from each prospective seller of such securities, to indemnify and hold harmless the Company, each director of the Company, each officer of the Company who shall sign such registration statement and each other Person (other than such seller), if any, who controls the Company within the meaning of Section 15 of the Securities Act, with respect to any statement in or omission from such registration statement, any preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto; or any document incorporated therein, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, or incorporated document. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive any transfer of securities. 11.4.3. THIRD PARTY CLAIMS. Each party entitled to indemnification under this Agreement (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 9. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified. Party and any other party represented by such counsel-in such proceeding. The Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, shall not consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. 11.4.4. CONTRIBUTION. If the indemnity provided for in Sections 9.4.1 or 9.4.2 is available, each indemnified party will be indemnified thereunder to the full extent provided in such section without regard to the relative fault of the indemnifying -31- party or the indemnified party or the other equitable considerations referenced in this , Section 9.4.4. If the indemnification provided for in Sections 9.4.1 or 9.4.2 hereof is unavailable to a party that would have been an indemnified party under any such Section in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each party that would have been an indemnifying party thereunder shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of such indemnifying party on the one hand and such indemnified party on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof). The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or such indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just or equitable if contribution pursuant to this Section 9.4.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentence. The amount paid or payable by a contributing party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 9.4.4 shall include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not gully of such fraudulent misrepresentation. 11.4.5. LIMITATION ON LIABILITY OF HOLDERS OF REGISTRABLE SECURITIES. The liability of each holder of Registrable Securities in respect of any indemnification or contribution obligation of such holder arising under this Section 9.4 shall not in any event exceed an amount equal to the net proceeds to such holder from the disposition of the Registrable Securities disposed of by such holder pursuant to such registration. 11.5. SELECTION OF UNDERWRITER. Any and all underwriters to be engaged in connection with any public offering of Shares pursuant to a registration effected pursuant to Section 9.2 shall be selected by the Board and shall be reasonably acceptable to the Investors. 11.6. LOCK-UP. Each holder of Shares (including Underlying Shares) agrees that upon the request of the underwriters managing any underwritten Public Offering, it shall not Transfer any Shares (including Underlying Shares) for a period beginning not more than seven days immediately preceding and ending not more than 180 days following any Public Offering without the prior written consent of the underwriters, if any, managing the offering. -32- 11.7. LIMITATIONS ON OTHER REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the holders of a majority of the Investor Shares then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company relating to registration rights unless such agreement includes to the extent the agreement would allow such holder or prospective holder to include such securities in any registration filed under Section 9.1 or 9.2 hereof, a provision that such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not reduce the amount of the Registrable Securities, and the amount of the Registrable Investor Securities of the Holders and the Investors which would otherwise be included and does otherwise not diminish the rights provided in this Section 9 above. In the event of any conflict between this Section 9 and any agreement to which the Company or its subsidiaries is a party or by which any of them are bound, the provisions of this Section 9 shall govern. 11.8. AVAILABILITY OF INFORMATION. If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act, the Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act and shall comply with all other public information reporting requirements of the Commission (including Rule 144 promulgated by the Commission under the Securities Act) from time to time in effect and relating to the availability of an exemption from the Securities Act for the sale of any Shares. The Company shall also cooperate with each holder of any Shares in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Shares. 12. REMEDIES. 12.1. GENERALLY. The Company, the holders of Investor Shares, the holders of the Management Shares, the holders of Group B Shares and all other Stockholders shall have all remedies available at law, in equity or otherwise in the event of any breach or violation of this Agreement or any default hereunder by the Company or any holder of Shares, Warrants or Options. The parties acknowledge and agree that in the event of any breach of this Agreement, in addition to any other remedies which may be available, each of the parties hereto shall be entitled to specific performance of the obligations of the other parties hereto and, in addition, to such other equitable remedies (including, without limitation, preliminary or temporary relief) as may be appropriate in the circumstances. 12.2. DEPOSIT. Without limiting the generality of Section 10.1 and to the extent permitted by Delaware General Corporate Law, if any Stockholder (a "NON-COMPLYING STOCKHOLDER") fails to deliver any certificate or certificates evidencing Shares or Options that may be required to be sold pursuant to any provision of this Agreement in accordance with the terms hereof, the Company or other Person entitled to purchase such securities may, at its option, in -33- addition to all other remedies it may have, deposit the purchase price for such Shares with any national bank or trust company having combined capital, surplus and undivided profits in excess of one hundred million dollars (100,000,000) and which has agreed to act as escrow agent in the manner contemplated by this Section 10.2 and shall furnish or make available to all interested Persons satisfactory evidence of such deposit and thereupon the Company shall cancel on its books the certificate or certificates representing such securities and, in the case of any such purchase of securities by a Person other than the Company issue, in lieu thereof and in the name of such Person, a new certificate or certificates representing such securities, and thereupon all of the Non-Complying Stockholder's rights in and to such securities shall terminate. Thereafter, upon delivery to the Company by such Non-Complying Stockholder the certificate or certificates evidencing such securities (duly endorsed, or with stock powers or other appropriate instruments of transfer duly endorsed, for transfer, with signature guaranteed, free and clear of any liens or encumbrances, and with any stock transfer tax stamps affixed), the Company shall instruct the escrow agent referred to above to deliver the purchase price (without any interest from the date of the closing to the date of such delivery, any such interest to accrue to the Person who deposited the purchase price for such securities) to such Non-Complying Stockholder. 13. LEGENDS. Each certificate representing Shares shall have the following legend endorsed conspicuously thereupon: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER, THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED." "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND REQUIREMENTS OF SALE AND VOTING SET FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS OF JUNE 4, 1997, AS AMENDED AND IN EFFECT FROM TIME TO TIME. THE COMPANY WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST." Each certificate representing Management Shares shall have the following legend endorsed conspicuously thereupon: "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED TO, OR ISSUED WITH RESPECT TO SHARES ORIGINALLY ISSUED TO, THE FOLLOWING MANAGEMENT STOCKHOLDERS: __________________." Each certificate representing Group B Shares shall have the following legend endorsed conspicuously thereupon: -34- "THE SHARES OF STOCK REPRESENTED BY, THIS CERTIFICATE WERE ORIGINALLY ISSUED TO, OR ISSUED WITH RESPECT TO SHARES ORIGINALLY ISSUED TO THE FOLLOWING GROUP B STOCKHOLDER:___________________." Any person who acquires Shares which are not subject to all or part of the terms of this Agreement shall have the right to have such legends (or the applicable portion thereof) removed from certificates representing such Shares. The Company shall have the right to waive any requirement of delivery of a legal opinion with respect to exemption from registration requirements under the Securities Act. 14. AMENDMENT, TERMINATION, ETC. 14.1. NO ORAL MODIFICATIONS. Agreement may not be orally amended, modified, extended or terminated, nor shall any oral waiver of any of its terms be effective. 14.2. WRITTEN MODIFICATIONS. This Agreement may be amended, modified, extended or terminated, and the provisions hereof may be waived, by an agreement in writing signed by holders of a majority of all Shares then outstanding and subject to this Agreement; and each such amendment, modification, extension, termination and waiver shall be binding upon each party hereto and each holder of Shares subject hereto; provided, however, that no such amendment, modification, extension, termination or waiver which amends, modifies, extends, terminates or waives any of the provisions of Sections 5, 6, 7, 9 or 12 hereof will be effective with respect to those holders of Shares other than the Investors unless and until the consent of the a majority of the holders of such Shares has been obtained. In addition, each party hereto and each holder of Shares subject hereto may waive any of its rights hereunder by an instrument in writing signed by such party or holder. 14.3. AUTOMATIC PARTIAL TERMINATION. The provisions of Sections 3, 4, 5, 6 and 7 of this Agreement shall terminate and be of no further force or effect upon the closing of a Qualified Public Offering; provided, however, that no such termination shall relieve any Person of liability for any breach of such sections prior to such termination. 15. MISCELLANEOUS. 15.1. AUTHORITY: EFFECT. Each party hereto represents and warrants to and agrees with each other party that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on behalf of such party and do not violate any agreement or other instrument applicable to such party or by which its assets are bound. This Agreement does not, and shall not be construed to, give rise to the creation of a partnership among any of the parties hereto, or to constitute any of such parties members of a joint venture or other association. -35- 15.2. NOTICES. Notices and other communications provided for in this Agreement shall be in writing and shall be effective (i) when one full day shall have elapsed (exclusive of Saturdays, Sundays and banking holidays in the City of Boston or the city of New York) from their deposit for overnight delivery with Federal Express or other bonded courier (charges prepaid), addressed to the party or parties sought to be charged with notice of the same at the respective addresses set forth or referred to below, subject to written notice of change of address given by any party to each other party, or (ii) if earlier, upon receipt. -36- If to the Company, to it at: DoubleClick Inc. 41 Madison Avenue New York, NY 10010 Attention: President with a copy to: White & Case 1155 Avenue of the Americas New York, NY 10036 Attention: Kevin Keogh, Esq. If to Bozell, to it at: Bozell, Jacobs, Kenyon & Eckhardt, Inc. 40 West 23rd Street New York, NY 10010 Attention: Valentine Zammit with a copy to: Gregory & Hoenemeyer 666 Steamboat Road Greenwich, CT 06830 Attention: W. Grant Gregory If to the Initial Investors, to them at: Bain Capital Fund V, L.P. Bain Capital Fund V-B, L.P. BCIP Trust Associates, L.P. BCIP Associates Brookside Capital Partners Fund, L.P. c/o Bain Capital, Inc. Two Copley Place, 7th Floor Boston, MA 02116 Attention: Mark E. Nunnelly and Greylock Equity Limited Partnership Greylock IX Limited Partnership -37- c/o Greylock Management Corp. One Federal Street Boston, MA 02110 Attention: William W. Helman and Greylock Equity Limited Partnership Greylock IX Limited Partnership c/o Greylock Management Corp. 755 Page Mill Road Building A, Suite 100 Palo Alto, CA 94304 Attention: David Strohrn and ABS Capital Partners II, L.P. 1 South Street Baltimore, MD 21202 Attention: Donald B. Hebb, Jr. and Venrock Associates Venrock Associates II, L.P. 30 Rockefeller Plaza, Room 5508 New York, NY 10112 Attention: Ray Rothroch and WPG Enterprise Fund III, L.P. Weiss, Peck & Greer, LLC Weiss, Peck & Greer Venture Associates IV, L.P. 555 California Street, Suite 3130 San Francisco, CA 94104 Attention: Peter Nieh Weiss, Peck & Greer Associates IV Cayman, L.P. c/o BankAmerica Trust & Banking Corporation (Cayman) Limited P.O. Box 1092 BankAmerica House, Fort Street -38- George Town, Grand Cayman Cayman Islands, British West Indies Attn: Mr. Patrick Keating and Canaan S.B.I.C., L.P. Canaan Capital Limited Partnership Canaan Capital Offshore Limited Partnership, C.V. Canaan Equity, L.P. c/o Deepak Kamra Canaan Partners 2884 Sand Hill Road, Suite 115 Menlo Park, CA 94025 with a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: David B. Walek, Esq. If to a Stockholder other than an Initial Investor, to him or her at the address set forth in the stock record book of the Company. Notice to the holder of record of any shares of capital stock shall be deemed to be notice to the holder of such shares for all purposes hereof. 15.3. BINDING EFFECT ETC. This Agreement constitutes the entire agreement of the parties with respect to its subject matter, supersedes all prior or contemporaneous oral or written agreements or discussions with respect to such subject matter, and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, successors and assigns. 15.4. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are for convenience of reference only, are not to be considered a part hereof and shall not be construed to define or limit any of the terms or provisions hereof. 15.5. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one instrument. -39- 15.6. SEVERABILITY. If in any judicial proceedings a court shall refuse to enforce any provision of this Agreement, then such unenforceable provision shall be deemed eliminated from this Agreement for the purpose of such proceedings to the extent necessary to permit the remaining provisions to be enforced. To the full extent, however, that the provisions of any applicable law may be waived, they are hereby waived to the end that this Agreement be deemed to be valid and binding agreement enforceable in accordance with its terms, and in the event that any provision hereof shall be found to be invalid or unenforceable, such provision shall be construed by limiting it so as to be valid and enforceable to the maximum extent consistent with and possible under applicable law. 15.7. GOVERNING LAW. Except to the extent that any provision of this Agreement is contrary to any mandatory provision of the General Corporation Law of the State of Delaware (in which case such mandatory statutory provision shall apply), this Agreement shall be governed by and construed in accordance with the domestic substantive laws of the State of Delaware without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. -40- IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement (or caused this Agreement to be executed on its behalf by its officer or representative thereunto duly authorized) under seal as of the date first above written. THE COMPANY: DOUBLECLICK INC. By: /s/ Kevin O'Connor ------------------------------ Title: CEO BOZELL: BOZELL, JACOBS, KENYON & ECKHARDT, INC. By: ------------------------------ Title: -41- BOZELL, JACOBS, KENYON & ECKHARDT, INC. By: ------------------------------ Title: -42- THE INITIAL INVESTORS: BAIN CAPITAL FUND V, L.P. By Bain Capital Partners V, L.P. By Bain Capital Investors V, Inc. By: /s/ Mark Nunnelly ------------------------------ Managing Director BAIN CAPITAL FUND V-B, L.P. By Bain Capital Partners V, L.P. By Bain Capital Investors V, |nc. By: /s/ Mark Nunnelly ------------------------------ Managing Director BCIP ASSOCIATES By: /s/ Mark Nunnelly ------------------------------ Name: Title: BCIP TRUST ASSOCIATES, L.P. By: /s/ Mark Nunnelly ------------------------------ Title: BROOKSIDE CAPITAL PARTNERS FUND, L.P. By Brookside Capital Investors, L.P. By Brookside Capital Investors, Inc. By: /s/ (signature illegible) ------------------------------ Title: -43- GREYLOCK EQUITY LIMITED PARTNERSHIP By: Greylock Equity GP Limited Partnership, its general partner By: ------------------------------ Title: General Partner GREYLOCK IX LIMITED PARTNERSHIP By: Greylock IX GP Limited Partnership, its general partner By: ------------------------------ Title: General Partner ABS CAPITAL PARTNERS II, LAP. By: ABS PARTNERS II, L.L.C., its general partner By: /s/ D. Hebb Jr. ------------------------------ Title: Managing Member -44- GREYLOCK EQUITY LIMITED PARTNERSHIP By: Greylock Equity GP Limited Partnership, its general partner By: ------------------------------ Title: General Partner GREYLOCK IX LIMITED PARTNERSHIP By: Greylock IX GP Limited Partnership, its general partner By: ------------------------------ Title: General Partner ABS CAPITAL PARTNERS II, L.P. By: ABS PARTNERS II, L.L.C., its general partner By: ------------------------------ Title: Managing Member -45- VENROCK ASSOCIATES By: ------------------------------ Title: General Partner VENROCK ASSOCIATES II, L.P. By: ------------------------------ Title: General Partner -46- CANAAN S.B.I.C., L.P. BY: CANAAN SBIC PARTNERS, L.P. By: /s/ Deepak Kamra ------------------------------ CANAAN CAPITAL LIMITED PARTNERSHIP By: Canaan Capital Management L.P., General Partner By: Canaan Capital Partners L.P., General Partner By: /s/ Deepak Kamra ------------------------------ General Partner CANAAN CAPITAL OFFSHORE LIMITED PARTNERSHIP C.V. By: Canaan Capital Management L.P., General Partner By: Canaan Capital Partners L.P. General Partner By: /s/ Deepak Kamra ------------------------------ General Partner CANAAN EQUITY, L.P. By: Canaan Equity Partners, L.L.C. By: /s/ Deepak Kamra ------------------------------ General Partner -47- WPG ENTERPRISE FUND III, L.P. By: WPG Venture Partners IV, L.L.C., General Partner By: ------------------------------- Title: Managing Member WEISS, PECK & GREER VENTURE ASSOCIATES IV, L.P. By: WPG Venture Partners IV, L.L.C., General Partner By: ------------------------------- Title: Managing Member WEISS, PECK & GREER VENTURE ASSOCIATES IV CAYMAN, L.P. By: WPG Venture Advisers, Ltd., Administrative General Partner By: /s/ Peter Nieh ------------------------------- Title: Director -48- WPG ENTERPRISE FUND III, L.P. By: WPG Venture Partners IV, L.L.C., General Partner By: ------------------------------- Title: Managing Member WEISS, PECK & GREER VENTURE ASSOCIATES IV, L.P. By: WPG Venture Partners IV, L.L.C., General Partner By: ------------------------------- Title: Managing Member WEISS, PECK & GREER VENTURE ASSOCIATES IV CAYMAN, L.P. By: WPG Venture Advisers, Ltd., Administrative General Partner By: ------------------------------- Title: Director -49- MANAGEMENT STOCKHOLDERS: ---------------------------------------- Dwight Merriman /s/ Kevin O'Connor ---------------------------------------- Kevin O'Connor ---------------------------------------- Albert O'Connor ---------------------------------------- Joan O'Connor /s/ Nancy O'Connor ---------------------------------------- Nancy O'Connor ---------------------------------------- Scott Leonard ---------------------------------------- David Nadel For the Group B Stockholders Party to the Voting Trust Agreement: By: ----------------------------------- Leo Arthur Kelmenson, as Voting Trustee By: ----------------------------------- Charles D. Peebler, Jr. as Voting Trustee By: ----------------------------------- Valentine J. Zammit, as Voting Trustee -50- MANAGEMENT STOCKHOLDERS: ---------------------------------------- Kevin O'Connor ---------------------------------------- Albert O'Connor ---------------------------------------- Joan O'Connor ---------------------------------------- Nancy O'Connor ---------------------------------------- Scott Leonard ---------------------------------------- David Nadel For the Group B Stockholders Party to the Voting Trust Agreement: By: ----------------------------------- Leo Arthur Kelmenson, as Voting Trustee By: ----------------------------------- Charles D. Peebler, Jr. as Voting Trustee By: ----------------------------------- Valentine J. Zammit, as Voting Trustee -51- MANAGEMENT STOCKHOLDERS: ---------------------------------------- Dwight Merriman ---------------------------------------- Kevin O'Connor ---------------------------------------- Albert O'Connor ---------------------------------------- Joan O'Connor ---------------------------------------- Nancy O'Connor ---------------------------------------- Scott Leonard ---------------------------------------- David Nadel For the Group B Stockholders Party to the Voting Trust Agreement: By: ----------------------------------- Leo Arthur Kelmenson, as Voting Trustee By: ----------------------------------- Charles D. Peebler, Jr. as Voting Trustee By: ----------------------------------- Valentine J. Zammit, as Voting Trustee -52- GROUP B STOCKHOLDERS: For the Group B Stockholders Party to the Voting Trust Agreement By: /s/ Leo Arthur Kelmenson ----------------------------------- Leo Arthur Kelmenson as Voting Trustee By: ----------------------------------- Charles D. Peebler, Jr. as Voting Trustee By: /s/ Valentine J. Zammit ----------------------------------- Valentine J. Zammit as Voting Trustee -53- GROUP B STOCKHOLDERS: For the Group B Stockholders Party to the Voting Trust Agreement By: ----------------------------------- Leo Arthur Kelmenson as Voting Trustee By: ----------------------------------- Charles D. Peebler, Jr. Voting Trustee By: /s/ Valentine J. Zammit ----------------------------------- Valentine J. Zammit as Voting Trustee -54- GROUP B STOCKHOLDERS: For the Group B Stockholders Party to the Voting Trust Agreement By: ----------------------------------- Leo Arthur Kelmenson as Voting Trustee By: ----------------------------------- Charles D. Peebler, Jr. as Voting Trustee By: ----------------------------------- Valentine J. Zammit as Voting Trustee -55- EXHIBIT A PROJECTIONS FOR SECTION 3.8 OF THE STOCKHOLDERS AGREEMENT --------------------------------------------------------- Net Revenue Operating Profits 1997 $8,000,000 ($5,200,000) 1998 $15,400,000 $1,500,000 -56- EXHIBIT B PROJECTIONS FOR SECTION 2.6.8 OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION DATED JUNE _. 1997 -------------------------------------------------------- Net Revenue Operating Profits 1997 $14,300,000 ($2,900,000) 1998 $27,700,000 $2,700,000 -57- EX-10.5 9 SUBLEASE (8/27/92) Exhibit 10.5 SUBLEASE AGREEMENT ------------------ THIS SUBLEASE AGREEMENT ("Sublease") is made as of the _ day of August, 1996 between MARTIN, MARSHALL, JACCOMA & MITCHELL ADVERTISING, INC., a New York corporation d/b/a Marshall Jaccoma Mitchell Advertising ("Sublandlord") and DOUBLECLICK, INC., a Delaware corporation ( "Subtenant"). R E C I T A L S - - - - - - - - 41 Madison Company ("Landlord"), as landlord and Sublandlord, as tenant, did enter into that certain lease agreement, dated August 26, 1992 (the "Lease"), for the lease by Sublandlord of certain space located in the building (the "Building") known as 41 Madison Avenue, New York, New York. The space leased in the Building by Sublandlord pursuant to the Lease is hereinafter referred to as the "Premises". Sublandlord and Subtenant desire to enter into this Sublease, pursuant to the terms of which Subtenant will lease from Sublandlord and Sublandlord will lease to Subtenant the entire Premises. NOW, THEREFORE, for and in consideration of the mutual covenants and obligations set forth in this Sublease, Sublandlord and Subtenant do hereby agree as follows: 1. SUBLEASED PREMISES. Sublandlord does hereby lease to Subtenant, and Subtenant does hereby lease from Sublandlord, that portion of the Building, consisting of the entire 32nd floor and a portion of the basement therein, being the entire Premises leased by Sublandlord from Landlord at the Building (the "Subleased Premises"). 2. TERM. The term of this Sublease (the "Sublease Term") shall begin on the date hereof (the "Commencement Date"). The Sublease Term shall expire at 12:00 midnight on September 29, 2002. 3. RENT. Subtenant shall pay to Sublandlord, throughout the Sublease Term, all rent and additional rent due under the Lease as and when the same become due and payable. Appropriate prorations shall be made with respect to any partial calendar months and/or years included in the Sublease Term. The rent and additional rent payable under this Sublease are collectively referred to in this Sublease as "Rent." 4. RELATIONSHIP TO LEASE. This Sublease and all of Subtenant's rights hereunder are expressly subject and subordinate to all of the terms of the Lease. Sublandlord hereby represents that it has delivered a true and complete copy of the Lease to Subtenant. Sublandlord agrees not to do or fail to do anything that would cause a default to occur under the Lease. Sublandlord hereby assigns to Subtenant all of Sublandlord's rights and remedies under the Lease and agrees to use its best efforts to enforce all of the provisions of the Lease for Subtenant's benefit. 5. USE. Subtenant's use of the Subleased Premises shall be strictly in accordance with the use and all other provisions of the Lease. 6. DEFAULT. Any failure by Subtenant to (i) pay Rent when due (and the continuance of such failure for ten (10) days following notice from Sublandlord to Subtenant) or, (ii) perform any other obligations required under this Sublease within twenty (20) days following notice from Sublandlord to Subtenant except if the nature of the default is such that it cannot, with the exercise of reasonable diligence, be cured within said twenty (20) day period, Subtenant's failure to commence to cure the default within said twenty (20) day period and thereafter diligently and in good faith prosecute such cure to completion, shall be a default hereunder. 7. QUIET ENJOYMENT. Subtenant shall have the quiet enjoyment of the Subleased Premises without interference by Sublandlord or anyone claiming by, through or under Sublandlord 8. NOTICES. Notices by Sublandlord and Subtenant shall be given to each other in the same manner provided by the Lease at the following addresses: Sublandlord Marshall Jaccoma Mitchell Advertising c/o Frankfurt Garbus Klein & Selz 488 Madison Avenue 9th Floor Attention: Robert Wise, Esq. Subtenant: DoubleClick, Inc. 41 Madison Avenue, 32nd Floor New York, New York Attention: Mr. Kevin Ryan Chief Financial Officer 9. NET WORTH STATEMENTS. Subtenant agrees, on an annual basis, to provide Sublandlord with a statement of Subtenant's net worth. In addition, Subtenant agrees to promptly notify Sublandlord when and if Subtenant's net worth reaches Five Million Dollars. 2 10. SECURITY DEPOSIT. Upon the delivery to Subtenant of the "Consent" and the "Certification" (as such quoted terms are hereinafter defined), Subtenant shall deposit the sum of $20,000 with Sublandlord to be held by Sublandlord as a security deposit under this Sublease to secure the performance by Subtenant of the covenants of Subtenant hereunder. 11. MISCELLANEOUS. This Sublease shall be governed by the laws of the State of New York. This Sublease supersedes all prior discussions and agreements between the parties. 12. LANDLORD'S CONSENT. This Sublease is hereby made contingent upon the receipt by Subtenant of (i) the Landlord's written consent (the "Consent") hereto and, (ii) a written certification of the Landlord (the "Certification") stating that all Rent has been paid under the Lease and that to the best of the Landlord's knowledge no default exists under the Lease and no condition exists that with notice, the passage of time or both, would be a default under the Lease. In the event the Consent and/or the Certification is not received by Subtenant on or before August 19, 1996, then, in such event, Subtenant shall have the option of terminating this Sublease. IN WITNESS WHEREOF, the parties hereto have executed this Sublease, as of the day and year first above written. SUBLANDLORD: MARTIN, MARSHALL, JACCOMA & MITCHELL ADVERTISING, INC. New York corporation By: ---------------------------- SUBTENANT: DOUBLECLICK, INC., a Delaware corporation By: ---------------------------- 3 Dated: August__, 1996 Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. 41 Madison Avenue - 32nd Floor New York, New York 10010 Re: Lease dated as of August 26, 1992 between 41 Madison Company, as landlord (referred to as "Owner"), and Martin. Marshall, Jaccoma & Mitchell Advertising, Inc. d/b/a Marshall Jaccoma Mitchell Advertising (referred to as "Tenant"), affecting the entire thirty-second (32nd) floor and a portion of the basement (the "Demised Premises") in the building known as 41 Madison Avenue, in the Borough of Manhattan, City of New York for a term to expire on September 31, 2002 (said lease, as modified by various written agreements, if any, is referred to as the "Lease and the premises demised in the Lease is referred to herein as the "Demised Premises") Gentlemen: In accordance with your request, Owner hereby grants to Tenant permission to sublet to DOUBLECLICK, INC., a Delaware corporation, having an office at 41 Madison Avenue, New York, New York (referred to herein as "Subtenant") the Demised Premises (said space is referred to herein as the "Sublet Space") for a term of approximately six years, two (2) months, commencing on the execution and delivery of this agreement and expiring on September 29, 2002, at the same rental rate and additional rent due under the Lease with the same escalation provisions as are contained in the Lease, which subletting, however, shall be subject to the following terms and conditions which shall be deemed controlling over any contrary terms and conditions contained in the Lease or in the sublease evidencing such subletting (referred to herein as the "Sublease"): (1) Neither this agreement, nor the Sublease, nor any acceptance of rent by Owner from Subtenant, shall operate to waive, modify, release or in any manner affect Tenant's liability under the Lease. No other or further sublease of all or of any part of the Premises shall be made by Tenant without the prior written approval of Owner. 1 (2) Subtenant Will use and occupy the Sublet Space for Subtenant's executive and general offices and for no other use or purpose whatsoever. Subtenant shall not use or occupy or permit the use or occupancy of the Sublet Space or any part thereof for any purpose other than the purpose specifically set forth above, or in any manner which, in Owner's reasonable judgment, shall adversely affect or interfere with any services required to be furnished by Owner to Tenant or to any other tenant or occupant of the Building or with the proper and economical rendition of any such service, or with the use or enjoyment of any part of the Building by any other tenant or occupant. (3) If, at any time prior to the expiration of the term of the Sublease, the term of the Lease shall terminate or be terminated for any reason including, but not limited to, termination by operation of the Articles 9, 10, 16 or 17 of the Lease or any other provisions of the Lease or by operation of law, the Sublease and the term thereby granted shall terminate, and, on or prior to the date of such termination of the Sublease, Subtenant, at Subtenant's sole cost and expense, (i) shall quit and surrender the Sublet Space to Owner, broom clean and in good order and condition, ordinary wear and damage by fire or other casualty excepted, and (ii) shall remove all of Subtenant's personal property and all other property and effects of Subtenant and all persons claiming through or under Subtenant from the Sublet Space and the Building, and (iii) shall repair all damage to the Sublet Space occasioned by such removal. Owner shall have the right to retain any property and effects which shall remain in the Sublet Space after such termination, and any net proceeds from the sale thereof, without waiving Owner's rights with respect to any default by Subtenant under the foregoing provisions of this paragraph. Subtenant expressly waives, for itself and for any person claiming through or under Subtenant, any rights which Subtenant or any such persons may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules and of any successor law of like import then in force, in connection with any holdover summary proceedings which Owner may institute to enforce the foregoing provisions of this paragraph. If the date of such termination shall fall on a Sunday or holiday, then Subtenant's obligations under the first sentence of this paragraph shall be performed on or prior to the Saturday or business day immediately preceding such Sunday or holiday. Subtenant's obligations under this paragraph shall survive the expiration or sooner termination of the terms of the Lease and the Sublease. Notwithstanding the foregoing provisions of this paragraph, in the event that the Subtenant shall be required to attorn pursuant to the provisions of paragraph (4) of this agreement, the foregoing provisions of this paragraph shall have no force or effect. (4) If at any time prior to the expiration of the term of the Sublease, the term of the Lease shall terminate or be terminated for any reason including, but not limited to, termination by operation of Articles 9, 10, 16 or 17 of the Lease or any other provisions of the Lease, or by operation of law, Subtenant agrees, at the election and upon demand of the Owner or any other owner of the Real Property (as defined in the Lease) or of the holder of any mortgage in possession of the Real Property or the Building, or of any lessee under any lease to which the Sublease shall be subject and subordinate to attorn from 2 time to time, to Owner or any such owner, holder or lessee, upon the then executory terms and conditions set forth in the Sublease for the remainder of the term demised in the Sublease, provided that Owner or such owner, holder or lessee, as the case may be, shall then be entitled to possession of the Sublet Space. The foregoing provisions of this paragraph shall enure to the benefit of any such owner, holder or lessee and shall apply notwithstanding that, as a matter of law, the Sublease may terminate upon the termination of the Lease, shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Upon demand of Owner or any such owner, holder or lessee, Subtenant agrees however, to execute, from time to time, instruments in confirmation of the foregoing provisions of this paragraph, reasonably satisfactory to Owner or any such owner, holder or lessee, in which Subtenant shall acknowledge such attornment and shall set forth the terms and conditions of its tenancy. Nothing contained in this paragraph shall be construed to impair any right otherwise exercisable by Owner or any such owner, holder or lessee. Upon request of Owner or any such owner, holder or lessee, whether or not made prior to such termination, Tenant and Subtenant shall deliver an executed counterpart of the Sublease to the Owner. (5) Subtenant shall attempt to obtain and maintain throughout the term of the Sublease, in Subtenant's fire insurance policies covering Subtenant's property in the Sublet Space; and Subtenant's use and occupancy of the Sublet Space, and/or Subtenant's profits (and shall cause any other permitted occupants of the Sublet to attempt to obtain and maintain, in similar policies), provisions to the effect that such policies shall not be invalidated should the insured waive, in writing prior to a loss, any or all right of recovery against any party for loss occasioned by fire or other casualty which is an insured risk under such policies. In the event that at any time the fire insurance carriers issuing such policies shall exact an additional premium for the inclusion of such or similar provisions, Subtenant shall give Owner and Tenant notice thereof. In such event, if either Owner or Tenant requests, Subtenant shall require the inclusion of such similar provisions by such fire insurance carriers and Tenant shall reimburse Subtenant for such additional premium for the remainder of the term of the Sublease. As long as such or similar provisions are included in such fire insurance policies then in force, Subtenant hereby waives (and agrees to cause any other permitted occupants of the Sublet Space to execute and deliver to Owner written instruments waiving) any right of recovery against Owner, Tenant, any lessors under any ground or underlying leases, any other tenants and occupants of the Building, and any servants, employees, agents or contractors of Owner, Tenant or of any such lessor, or of any such other tenants or occupants, for any loss occasioned 3 by fire or other casualty which is an insured risk under such policies. In the event that at any time any such fire insurance carriers shall not include such or similar provisions in any such fire insurance policy, the waiver set forth in the foregoing sentence shall, upon notice given by Subtenant to Owner and Tenant, be deemed of no further force or effect from and after the giving of such notice. During any period while the foregoing waiver of right of recovery is in effect, Subtenant, or any other permitted occupant of the Sublet Space, as the case may be, shall look solely to the proceeds of such policies to compensate Subtenant or such other permitted occupants for any loss occasioned by fire or other casualty which is an insured risk under such policies. Subtenant shall maintain comprehensive public liability insurance against any claims by reason of personal injury, death and property damage occurring in or about the Sublet Space covering without limitation. the operation of any private air conditioning equipment and any private elevators, escalators or conveyors, in or serving the Sublet Space or any part thereof, whether installed by Owner, Tenant, Subtenant or others, and shall furnish the Owner and Tenant duplicate original policies of such insurance at least ten (10) days prior to the commencement of the term of the Sublease and at least ten (10) days prior to the expiration of the term of any such policy previously furnished by Tenant in which policies Owner, Tenant, their agents and any lessor under any ground or underlying lease shall be named as parties insured, which policies shall be issued by companies, and shall be in form and amounts, satisfactory to Owner. (6) Except as otherwise set forth herein, Subtenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors, and assigns, covenants that, without the prior consent of Owner in each instance, it shall not (i) assign, mortgage or encumber its interest in the Sublease, or (ii) sublet, or permit the subletting of, the Sublet Space or any part thereof, or (iii) permit the Sublet Space or any part thereof to be occupied, or used for desk space, mailing privileges or otherwise, by any person other than Subtenant. The sale, pledge, transfer or other alienation (other than through a so-called "initial public offering") of (a) any of the issued and outstanding capital stock of any corporate Subtenant (unless such stock is publicly traded on any recognized security exchange or over-the-counter market): or (b) any interest in any partnership or joint venture Subtenant, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions shall be deemed for the purposes of this paragraph as an assignment of the Sublease which shall require the prior consent of Owner in each instance. (7) As long as Subtenant is not in default under any of the terms, covenants or conditions of the Lease, the Sublease or this agreement on Subtenant s part to be observed and performed beyond the applicable grace period permitted in the applicable instrument for the curing of such default, Subtenant shall have the right without the prior consent of Owner, to assign its interest in the Sublease and this agreement, to any subsidiary or affiliate of Subtenant, for the use permitted in the Lease, the Sublease and this agreement, provided that such subsidiary or affiliate is in the same general line of business as Subtenant and only for such period as it shall remain such subsidiary or affiliate and in the same general line of business as Subtenant. For the purposes of this paragraph (a) a "subsidiary" of Subtenant shall mean any corporation not less than fifty-one (51%) percent of whose outstanding voting stock at the time shall be owned by Subtenant named herein, and (b) an "affiliate" of Subtenant shall mean any corporation, partnership or other business entity which controls or is controlled by, or is under common control with Subtenant. For the purpose of the definition of "affiliate" the word "control" (including, "controlled by" and "under common control with") as used with respect to any corporation, partnership or other business entity, shall mean the possession of the power to direct or cause the direction of the management and policies of such corporation partnership or other business entity, whether 4 through the ownership of voting securities or contract. However, no such assignment shall be valid unless, within ten (10) business days after the execution thereof, Subtenant shall deliver to Owner and Tenant (i) a duplicate original instrument of assignment in form and substance reasonably satisfactory to Owner and Tenant duly executed by Subtenant, and (ii) an instrument in form and substance reasonably satisfactory to Owner and Tenant, duly executed by the assignee, in which such assignee shall assume observance and performance of and agree to be bound by, all of the terms, covenants and conditions of the Lease, the Sublease and this agreement on Subtenant's part to be observed and performed from and after the effective date of such assignment. (8) As long as Subtenant is not in default under any of the terms, covenants or conditions of the Lease, the Sublease or this agreement on Subtenant's part to be observed and performed beyond the applicable grace period permitted in the applicable instrument for the curing of such default, Subtenant shall have the right without the prior consent of Owner, to sublet to, or permit the use or occupancy of, all or any part of the Sublet Space by any subsidiary or affiliate of Subtenant, for the use permitted in the Lease, the Sublease and this agreement, provided that such subsidiary or affiliate is in the same general line of business as Subtenant and only for such period as it shall remain such subsidiary or affiliate and in the same general line of business as Subtenant. For the purposes of this paragraph (a) a "subsidiary" of Subtenant shall mean any corporation not less than fifty-one (51%) percent of whose outstanding voting stock at the time shall be owned by Subtenant and (b) an "affiliate" of Subtenant shall mean any corporation, partnership or other business entity which controls or is controlled by, or is under common control with Subtenant. For the purpose of the definition of "affiliate" the word "control" (including, "controlled by" and "under common control with") as used with respect to any corporation, partnership or other business entity, shall mean the possession of the power to direct or cause the direction of the management and policies of such corporation, partnership or other business entity, whether through the ownership of voting securities or contract. However, no such sub-subletting shall be valid unless, prior to the execution thereof, Subtenant shall give notice to Owner of the proposed sub-subletting, and within ten (10) business days prior to the commencement of said sub-subletting, Subtenant shall deliver to Owner and Tenant an agreement, in form and substance satisfactory to Owner, duly executed by Subtenant and said sub-subtenant, in which said sub-subtenant shall assume performance of and agree to be personally bound by (or primarily bound by if such sub-subtenant is a corporation) all of the terms, covenants and conditions of the Lease, the Sublease and this agreement which are applicable to said subtenant and such sub-subletting. Subtenant shall give prompt notice to Owner and Tenant of any such use or occupancy of all or any pat of the Sublet Space and such use and occupancy shall be subject and subordinate to all of the terms, covenants and conditions of the Lease, Sublease and this agreement. No such use or occupancy shall operate to vest in the user or occupant any right or interest in the Lease, the Sublease, this agreement or the Sublet Space. For the purposes of determining the number of subtenants or occupants in the Sublet Space, the occupancy of any such permitted subsidiary or affiliate of Subtenant and such subsidiary or affiliate shall not be counted as a subtenant or occupant for the 5 purposes of Section 11.0, of the Lease and the provisions of Section 11.03 of the Lease relating to Owner s option to terminate the Lease and the provisions of Section 11.03 of the Lease relating to Subletting Profits shall not be applicable to any proposed subletting to any such subsidiary or affiliate of Subtenant pursuant to the provisions of this paragraph (8). (9) Tenant and Subtenant represent and warrant to Owner that no broker is responsible for bringing about the Sublease and the transaction as set forth in this agreement. (10) The Sublease is subject and subordinate in all respects to the Lease and to all of the terms, covenants and conditions thereof. Subtenant shall not violate or permit the violation of any of the terms, covenants and conditions of the Lease including, but not limited to, the Building Rules. Subtenant shall not pay to Tenant any security (other than the security set forth in paragraph (11) herein) or more than one (1) month's rent in advance. The principal terms and conditions of the Sublease as set forth above in this agreement shall not be modified without the prior written consent of Owner. No party hereto shall be bound by any modifications to this agreement to which such party has not agreed in writing If Tenant shall terminate or shall give any notice to Subtenant terminating the Sublease, Tenant shall notify Owner thereof promptly thereafter. Any notices, demands, requests or other communications given or required to be given under this letter agreement shall be effective only if given in writing, sent by registered or certified mail (return receipt requested optional). Tenant agrees to pay to Owner upon demand, as additional rent, Owner's reasonable counsel fees incurred in connection with the preparation and execution of this agreement. (11) Simultaneously with the execution and delivery of this agreement, Subtenant shall deposit with Tenant the sum of TWENTY THOUSAND AND 00/100 ($20,000.00) DOLLARS representing the security deposit under the Sublease and Tenant shall deliver to Subtenant the notice required pursuant to the General Obligations Law in connection with such security. (12) All obligations of Tenant under this letter agreement shall be deemed obligations of Tenant under the Lease and Owner shall have the same remedies under the Lease with respect to any default in the performance of such obligations as if such obligations were specifically set forth in the Lease. All obligations of Subtenant under this letter agreement shall be deemed obligations of Tenant under the Lease and Owner shall, in addition to having the right to enforce such obligations directly against Subtenant, have the same remedies under the Lease with respect to any default in the performance of such obligations as if such obligations were specifically set forth in the Lease. All obligations of Subtenant under this letter agreement shall be deemed obligations of Subtenant under the Sublease and Tenant shall have the same remedies under the Sublease with respect to any default in the performance of such obligations as if such obligations were specifically set forth in the Sublease. 6 (13) In the event that there shall be any conflict between the terms, covenants and conditions of this agreement and the terms, covenants and conditions of the Sublease, then the terms, covenants and conditions of this agreement shall prevail in each instance and any conflicting terms, covenants or conditions of the Sublease shall be deemed modified to conform with the terms, covenants and conditions of this agreement. (14) Except as herein expressly modified, the Lease is hereby ratified in all respects. Your signature and that of the Subtenant at the foot of this letter will constitute a record of the foregoing understanding. Very truly yours, 41 MADISON COMPANY By: ----------------------------- Owner APPROVED AND AGREED: MARTIN, MARSHALL, JACCOMA & MITCHELL ADVERTISING, INC. D/B/A MARTIN MARSHALL JACCOMA MITCHELL ADVERTISING, INC. By: ------------------------------------- Tenant DOUBLECLICK, INC. By: /s/ Kevin P. Ryan ------------------------------------- Subtenant 7 STATE OF ) : ss.: COUNTY OF ) On this ___ day of July, 1996, before me personally came ______, to me known, who being by me duly sworn did depose and say that he resides at ________, that he is the ________ of MARTIN, MARSHALL JACCOMA, MITCHELL ADVERTISING, INC., the corporation described in and which executed the foregoing instrument, as Tenant,; and that he signed his name thereto by authority of the Board of Directors of said corporation. ------------------------------------- Notary Public STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On this 5th day of August, 1996, before me personally came Kevin P. Ryan, to me known, who being by me duly sworn did depose and say that he resides at 28 West 23rd Street, New York, New York, that he is the Chief Financial Officer of DOUBLECLICK INC., the corporation described in and which executed the foregoing instrument, as Tenant,; and that he signed his name thereto by authority of the Board of Directors of said corporation. ------------------------------ Notary Public 8 EX-10.6 10 LEASE EXHIBIT 10.6 Lease made as of the day of July, 1997, between Investment Properties Associates hereinafter referred to as "Landlord" or "Lessor", and DoubleClick, Inc. hereinafter referred to as "Tenant" or "Lessee". Witnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from Landlord Room 401-2 (said space is hereinafter called the "premises") in the building known as 245 Fifth Avenue ("the building") in the County of New York, City of New York, for a term of Two (2) years to commence on the 1st day of August 1997, and to expire on the 31st day of July 1999, or until such term shall sooner end as in Article 12 and elsewhere herein provided, both dates inclusive, at a fixed annual rental (subject to Articles 23 and 41) at the annual rate of $135,219.00 per annum (8/1/97 - 7/31/99) payable in equal monthly installments in advance on the first day of each month, except that the first installment of rent due under this lease shall be paid by Tenant upon its execution of this lease, unless this lease be a renewal. Landlord and Tenant covenant and agree: PURPOSE. 1. Tenant shall use and occupy the premises only for offices relating to Tenant's business, and for no other purpose, general & executive offices. RENT AND ADDITIONAL RENT. 2. Tenant agrees to pay rent as herein provided at the office of Landlord or such other place as Landlord may designate, payable in United States legal tender, by cash, or by good and sufficient check drawn on a New York City Clearing House Bank. and without any set off or deduction whatsoever. Any sum other than fixed rent payable hereunder shall be deemed additional rent and due on demand. ASSIGNMENT. 3. Neither Tenant nor Tenant's legal representatives or successors in interest by operation of law or otherwise, shall assign, mortgage or otherwise encumber this lease, or sublet or permit all or part of the premises to be used by others, without the prior written consent of Landlord in each instance. The transfer of a majority of the issued and outstanding capital stock of any corporate tenant or sublessee of this lease or a majority of the total interest in any partnership tenant or sublessee, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions, and the conversion of a tenant or sublessee entity to either a limited liability company or a limited liability partnership shall be deemed an assignment of this lease or of such sublease, The merger or consolidation of a corporate tenant or sublessee where the net worth of the resulting corporation is less than the net worth of the tenant or sublessee immediately prior to such merger or consolidation shall be deemed an assignment of this lease or of such sublease, If without Landlord's written consent this lease is assigned, or the premises are sublet or occupied by anyone other than Tenant, Landlord may accept the rent from such assignee, subtenant or occupant, and apply the net amount thereof to the rent herein reserved, but no such assignment, subletting, occupancy or acceptance of rent shall be deemed a waiver of this covenant. Consent by Landlord to an assignment or subletting shall not relieve Tenant from the obligation to obtain Landlord's written consent to any further assignment or subletting, In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Landlord's prior written consent in each instance. A modification, amendment or extension of a sublease shall be deemed a sublease. DEFAULT. 4. Landlord may terminate this lease on three (3) days' notice: (a) if rent or additional rent is not paid within five (5) days after written notice from Landlord; or (b) if Tenant shall have failed to cure a default in the performance of any covenant of this lease (except the payment of rent), or any rule or regulation hereinafter set forth, within ten (10) days after written notice thereof from Landlord, or if default cannot be completely cured in such time, if Tenant shall not promptly proceed to cure such default within said ten (10) days, or shall not complete the curing of such default with due diligence; or (c) when and to the extent permitted by law, if a petition in bankruptcy shall be filed by or against Tenant or if Tenant shall make a general assignment for the benefit of creditors, or receive the benefit of any insolvency or reorganization act; or (d) if a receiver or trustee is appointed for any portion of Tenant's property and such appointment is not vacated within twenty (20) days; or (e) if an execution or attachment shall be issued under which the premises shall be taken or occupied or attempted to be taken or occupied by anyone other than Tenant: or (f) if the premises become and remain vacant or deserted for a period of ten (10) days: or (g) if Tenant shall default beyond any grace period under any other lease between Tenant and Landlord; At the expiration of the three (3) day notice period, this lease and any rights of renewal or extension thereof shall terminate as completely as if that were the date originally fixed for the expiration of the [Illegible] lease [Illegible] Tenant shall remain liable as hereinafter provided, RELETTING, ETC. 5. If Landlord shall re-enter the premises on the default of Tenant, by summary proceedings or otherwise: (a) Landlord may re-let the premises or any part thereof as Tenant's agent, in the name of Landlord, or otherwise for a term shorter or longer than the balance of the term of this lease, and may grant concessions or free rent. (b) Tenant shall pay Landlord any deficiency between the rent hereby reserved and the net amount of any rent collected by Landlord for the remaining term of this lease, through such reletting. Such deficiency shall become due and payable monthly, as it is determined. Landlord shall have no obligation to re-let the premises, and its failure or refusal to do so, or failure to collect rent on re-letting, shall not affect Tenant's liability hereunder. In computing the net amount of rent collected through such re-letting, Landlord may deduct all reasonable expenses incurred in obtaining possession or re-letting the premises, including reasonable legal expenses and fees, brokerage fees, the cost of restoring the premises to good order, and the cost of all alterations and decorations deemed necessary by Landlord to effect re-letting, In no event shall Tenant be entitled to a credit or repayment for rerental income which exceeds the sums payable by Tenant hereunder or which covers a period after the original term of this lease (c) Tenant hereby expressly waives any right of redemption granted by any present or future law, "Re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning, In the event of a breach or threatened breach of any of the covenants or provisions hereof Landlord shall have the right of injunction, Mention herein of any particular remedy shall not preclude Landlord from any other available remedy, (d) Landlord shall recover as liquidated damages, in addition to accrued rent and other charges, if Landlord's re-entry is the result of Tenant's bankruptcy, insolvency. or reorganization, the full rental for the maximum period allowed by any act relating to bankruptcy, insolvency or reorganization. If Landlord re-enters the premises for any cause, or if Tenant abandons or vacates the premises, and after the expiration of the term of this lease, any property left in the premises by Tenant shall be deemed to have been abandoned by Tenant, and Landlord shall have the right to retain or dispose of such property in any manner without any obligation to account therefor to Tenant. If Tenant shall at any time default hereunder, and Landlord shall institute an action or summary proceedings against Tenant based upon such default, then Tenant will reimburse Landlord for the reasonable legal expenses and fees thereby incurred by Landlord. LANDLORD MAY CURE DEFAULTS. 6. If Tenant shall default in performing any covenant or condition of this lease, Landlord may, after giving Tenant three (3) days prior written notice thereof, perform the same for the account of Tenant, and Landlord, in connection therewith, or in connection with any default by Tenant, makes any expenditures or incurs any obligations for the payment of money, including but not limited to attorney's fees, such sums so paid of obligations incurred shall be deemed to be additional rent hereunder, and shall be paid by Tenant to Landlord within five (5) days of rendition of any bill or statement therefor, and if Tenant's lease term shall have expired, the time of the making of such expenditures or incurring of such obligations, such sums shall be recoverable by Landlord as damages. ALTERATIONS. 7. Tenant shall make no decoration, alteration, addition or improvement in the premises, without the prior written consent of Landlord, and then only by contractors or mechanics and in such manner and with such materials as shall be approved by Landlord. All alterations, additions or improvements to the premises, including window and central air conditioning equipment and duct work, except movable office furniture and equipment installed at the expense of Tenant, shall, unless Landlord elects otherwise in writing, become the property of Landlord, and shall be surrendered with the premises at the expiration or sooner termination of the term of this lease. Any such alterations, additions and improvements which Landlord shall designate, shall be removed by Tenant and any damage repaired, at Tenant's expense, prior to the expiration of the term of this lease. LIENS. 8. Prior to commencement of its work in the demised premises, Tenant shall obtain and deliver to Landlord a written letter of authorization, in form satisfactory to Landlord's counsel, signed by architects. engineers and designers to become involved in such work, which shall confirm that any of their drawings or plans are to be removed from any filing with governmental authorities. on request of Landlord, in the event that said architect. engineer, or designer thereafter no longer is providing services with respect to the demised premises. With respect to contractors, subcontractors, materialmen and laborers, and architects, engineers and designers, for all work or materials to be furnished to Tenant as the premises, Tenant agrees to obtain and deliver to Landlord written and unconditional waiver of mechanics liens upon the premises or the building, after payments to the contractors, etc., subject so any then applicable provisions of the Lien law. Notwithstanding the foregoing, Tenant at its expense shall cause any lien filed against the premises or the building, for work or materials claimed to have been, furnished to Tenant, to be discharged of record within twenty (20) days after notice thereof. REPAIRS. 9. Tenant shall take good care of the premises and the fixtures and appurtenances therein, and shall make all repairs necessary to keep them in good working order and condition, including structural repairs when those are necessitated by the negligence of Tenant or its agents, employees or invitees. During the term of this lease, Tenant may have the use of any air-conditioning equipment located in the premises and Tenant, at its own cost and expense, shall maintain and repair any such equipment serving only the premises and shall reimburse Landlord, in accordance with Article 41 of this lease, for electricity consumed by the equipment. The exterior walls of the building, the windows and the portions of all window sills outside same and areas above any hung ceiling are not part of the premises demised by this lease, and Landlord hereby reserves all rights to such parts of the building. DESTRUCTION. 10. If the premises shall be partially damage4 by fire or other casualty, the damage shall be repaired at the expense of Landlord, but without prejudice to the rights of subrogation, if any, of Landlord's insurer. Landlord shall not be required to repair or restore any of Tenant's property or any alteration or leasehold improvement made by or for Tenant at Tenant's expense. The rent shall abate in proportion to the portion of the premises not usable by Tenant. Landlord shall not be liable to Tenant for any delay in restoring the premises, Tenant's sole remedy being the right to an abatement of rent, as above provided. If the premises are rendered wholly untenantable by fire or other casualty and if Landlord shall decide not to restore the premises. or if the building shall be so damaged that Landlord shall decide to demolish it or to rebuild it (whether or not the premises have been damaged), Landlord may within ninety (90) days after such fire or other cause give written notice to Tenant of its election that the term of this lease shall automatically expire no less than ten (10) days after such notice is given. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law. Landlord and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance and also, provided that such a policy can be obtained without additional premiums. Tenant hereby expressly waives the provisions of Section 227 of the Real Property law and agrees that the foregoing provisions of this Article shall govern and control in lieu thereof. END OF TERM. 11. Tenant shall surrender the premises to Landlord at the expiration or sooner termination of this lease in good order and condition except for reasonable wear and tear and damage by fire or other casualty, or damage for which Tenant is not responsible and Tenant shall remove all of its property. Tenant agrees that if possession of the premises is not surrendered to Landlord within one (1) day after the date of the expiration or sooner termination of the term of this lease, then Tenant will pay Landlord as liquidated damages for each month and for each portion of any month during which Tenant holds over in the premises after expiration or termination of the term of this lease, a sum equal to 1.5 times the average rent and additional rent which was payable per month under this lease during the last six months of Use term thereof. The aforesaid obligations shall survive the expiration or sooner termination of the term of this lease. At any time during the term of this lease, Landlord may upon reasonable prior notice to Tenant exhibit the premises to prospective purchasers or mortgagees of Landlord's interest therein. During the last four months of the term of this lease, Landlord may upon reasonable prior notice to Tenant exhibit the premises to prospective tenants. SUBORDINATION AND ESTOPPEL, ETC. 12. This lease is and shall be subject and subordinate to all ground and underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which the premises form a part, and to all renewals, modifications, consolidations, replacements and extensions thereof. This Article shall be self-operative and no further instrument of subordination shall be necessary. In confirmation of such subordination, Tenant shall execute promptly any certificate that Landlord may request. Tenant hereby appoints Landlord as tenant's irrevocable attorney-in-fact to execute any document of subordination on behalf of Tenant. In the event that any ground or underlying lease is terminated or any mortgage foreclosed, this lease shall not terminate or be terminable by Tenant unless Tenant was specifically named in any termination or foreclosure judgment or final order. In the event that any ground or underlying lease is terminated as aforesaid, or expires (as hereinafter provided), or if the interests of Landlord under this lease are transferred by reason of or assigned in lieu of foreclosure or other proceedings for enforcement of any mortgage, or if the holder of my mortgage acquires a lease in substitution therefor, then tenant will, at the option to be exercised in writing by such purchaser, assignee or lessee, as the case may be, (i) attorn to it and will perform for its benefit all the terms, covenants and conditions of this lease on the Tenant's part to be performed with the same force and effect as if said landlord or such purchaser, assignee or lessee, were the landlord originally named in this lease, or (ii) enter into a new lease with said lessor or such purchaser, assignee or lessee, as landlord, for the remaining term of this lease and otherwise on the same terms, conditions and rentals as herein provided. From time to time, Tenant, on at least ten (10) days' prior written request by Landlord will deliver to Landlord a statement in writing certifying that this lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modification) and the dates to which the rent and other charges have been paid and stating whether or not the Landlord is in default in performance of any covenant, agreement or condition contained in this lease and, if so, specifying each such default of which Tenant may have knowledge. CONDEMNATION. 13. If the whole or any substantial part of the premises shall be condemned by eminent domain or acquired by private purchase in lieu thereof for any public or quasi-public purpose, this lease shall terminate on the date of the vesting of title through such proceeding or purchase. and Tenant shall have no claim against Landlord for the value of any unexpired portion of the term of this lease, nor shall Tenant be entitled to any pan of the condemnation award or private purchase price. If less than a substantial part of the premises is condemned, this lease shall not terminate, but rent shall abate in proportion to the portion of the premises condemned. REQUIREMENTS OF LAW. 14. (a) Tenant at its expense shall comply with all laws, orders and regulations of any governmental authority having or asserting jurisdiction over the premises, which shall impose any violation, order or duty upon Landlord or Tenant with respect to Tenant's particular manner or use of the premises including, without limitation, compliance in the premises with all City, State and Federal laws, rules and regulations on the disabled or handicapped, on fire safety and on hazardous materials. The foregoing shall not require Tenant to do structural work. (b) Tenant shall require every person engaged by him to clean any window in the premises from the outside, to use the equipment and safety devices required by Section 202 of the labor law and the rules of any governmental authority having or asserting jurisdiction. (c) Tenant at its expense shall comply with all requirements of the New York Board of Fire Underwriters, or any other similar body affecting the premises and shall not use the premises in a manner which shall increase the rate of fire insurance of Landlord or of any other tenant, over that in effect prior to this lease. If Tenant's particular manner of use of the premises increases the fire insurance rate, Tenant shall reimburse Landlord for all such increased costs. That the premises are being used for the purpose set forth in Article 1 hereof shall not relieve Tenant from the foregoing duties, obligations and expenses. CERTIFICATE OF OCCUPANCY. 15. Tenant will at no time use or occupy the premises in violation of the certificate of occupancy issued for the building, The statement in this lease of the nature of the business to be conducted by Tenant shall not be deemed to constitute a representation or guaranty by Landlord that such use is lawful or permissible in the premises under the certificate of occupancy for the building. POSSESSION. 16. If Landlord shall be unable to give possession of the premises on the commencement date of the term because of the retention of possession of any occupant thereof alteration or construction work, or for any other reason except as hereinafter provided, Landlord shall not be subject to any liability for such failure. In such event, this lease shall stay in full force and effect, without extension of its term. However, the rent hereunder shall not commence until the premises are available for occupancy by Tenant. If delay in possession is due to work, changes or decorations being made by Tenant, or is otherwise caused by Tenant. there shall be no rent abatement and the rent shall commence on the date specified in this lease. If permission Is given to Tenant to occupy the demised premises or other premises prior to the date specified as the commencement of the term, such occupancy shall be deemed to be pursuant to the terms of this lease, except that the parties shall separately agree as to the obligation of Tenant to pay rent for such occupancy. The provisions of this Article are intended to constitute an "express provision to the contrary" within the meaning of Section 223(a), New York Real Property Law. QUIET ENJOYMENT. 17. Landlord covenants that if Tenant pays the rent and performs all of Tenant's other obligations under this lease, Tenant may peaceably and quietly enjoy the demised premises, subject to the terms, covenants and conditions of this lease and to the ground leases, underlying leases and mortgages hereinbefore mentioned. RIGHT OF ENTRY. 18. Tenant shall permit Landlord to erect and maintain pipes and conduits in and through the premises. Landlord or its agents shall have the right to enter or pass through the premises at all times, by master key, by reasonable force or otherwise, to examine the same, and to make such repairs, alterations or additions as it may deem necessary or desirable to the premises or the building, and to make all material into and upon the premises that may be required therefor. Such entry and work shall not constitute an eviction of Tenant in whole or in part, shall not be grounds for any abatement of rent, and shall impose no liability on Landlord by reason of inconvenience or injury to Tenant's business. Landlord shall have the right at any time, without the same constituting an actual or constructive eviction, and without incurring any liability to Tenant, to change the arrangement and/or location of entrances or passageways, windows, corridors, elevators, stairs, toilets, or other public parts of the building, and to change the name or number by which the building is known. VAULT SPACE. 19. Anything contained in any plan or blueprint to the contrary notwithstanding, no vault or other space not within the building property line is demised hereunder. Any use of such space by Tenant shall be deemed to be pursuant to a license, revocable at will by Landlord, without diminution of the rent payable hereunder, If Tenant shall use such vault space, any fees taxes or charges made by any governmental authority for such space shall be paid by Tenant. INDEMNITY. 20. Tenant shall indemnify, defend and save Landlord harmless from and against any liability or expense arising from the use or occupation of the premises by Tenant, or anyone on the premises with Tenant's permission, or from any breach of this lease. LANDLORD'S LIABILITY. 21. This lease and the obligations of Tenant hereunder shall in no way be affected because Landlord is unable to fulfill any of its obligations or to supply any service, by reason of strike or other cause not within Landlord's control. Landlord shall have the right, without incurring any liability to Tenant, to stop any service because of accident or emergency, or for repairs, alterations or improvements, necessary or desirable in the judgment of Landlord, until such repairs, alterations or improvements shall have been completed. Landlord shall not be liable to Tenant or anyone else, for any loss or damage to person, property or business, unless due to the negligence of Landlord, its agents, employees or invitees nor shall Landlord be liable for any latent defect in the premises or the building. Tenant, during the term of this lease, shall carry public liability and property damage insurance, from a company authorized to do business in New York. with limitations acceptable to Landlord, which policy or policies shall name the Landlord and its designees as additional insureds. Evidence of the policies, and of their timely renewal, shall be delivered to Landlord. All such insurance shall contain an agreement by the insurance company that the policy or policies will not be cancelled or the coverage changed, without thirty (30) days' prior written notice to the Landlord. Tenant agrees to look solely to Landlord's estate and interest in the land and building, or the lease of the building or of the land and building, and the demised premises, for the satisfaction of any right or remedy of Tenant for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord, in the event of any liability by Landlord. and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this lease. the relationship of landlord and tenant hereunder, or Tenant's use and occupancy of the demised premises or any other liability of Landlord to Tenant (except for negligence). CONDITION OF PREMISES. 22. Tenant acknowledges that Landlord has made no representation or promise, except as herein expressly set forth. Tenant agrees to accept the premises "as is", except for any work which Landlord has expressly agreed in writing to perform. COST OF LIVING ADJUSTMENTS. 23. The fixed annual rent reserved in this lease and payable hereunder shall be adjusted, as of the times and in the manner set forth in this Article: (a) Definitions: For the purposes of this Article, the following definitions shall apply: (i) The term "Base Year" shall mean the full calendar year 1997. (ii) The term "Price Index" shall mean the "Consumer Price Index" published by the Bureau of Labor Statistics of the U.S. Department of Labor. All Items. New York, N.Y.--Northeastern, N.J., all urban consumers (presently denominated "CPI-U"), or a successor or substitute index appropriately adjusted. (iii) the term "Price Index for the Base Year" shall mean the average of the monthly All Items Price Indexes for each of the 12 months of the Base Year. (b) Effective as of each January and July subsequent to the Base Year, there shall be made a cost of living adjustment of the fixed annual rental rate payable hereunder. The July adjustment shall be based on the percentage difference between the Price Index for the preceding month of June and the Price Index for the Base Year. The January adjustment shall be based on such percentage difference between the Price Index for the preceding month of December and the Price Index for the Base Year. (i) In the event the Price Index for June in any calendar year during the term of this lease reflects an increase over the Price Index for the Base Year, then the fixed annual rent herein provided to be paid as of the July 1st following such month of June (unchanged by any adjustments under this Article) shall be multiplied by the percentage difference between the Price Index for June and the Price Index for the Base Year, and the resulting sum shall be added to such fixed annual rent, effective as of such July 1st. Said adjusted fixed annual rent shall thereafter be payable hereunder, in equal monthly installments, until it is readjusted pursuant to the terms of this lease. (ii) In the event the Price Index for December in any calendar year during the term of this lease reflects an increase over the Price Index for the Base Year, then the fixed annual rent herein provided to be paid as of the January 1st following such month of December (unchanged by any adjustments under this Article) shall be multiplied by the percentage difference between the Price Index for December and the Price Index for the Base Year, and the resulting sum shall be added to such fixed annual rent effective as of such January 1st. Said adjusted fixed annual rent shall thereafter be payable hereunder, in equal monthly installments, until it is readjusted pursuant to the terms or this lease. The following illustrates the intentions of the parties hereto as to the computation of the aforementioned cost of living adjustment in the annual rent payable hereunder Assuming that said fixed annual rent is $10,000, that the Price Index for the Base Year was 102.0 and that the Price Index for the month of June in a calendar year following the Base Year was 105.0 then the percentage increase thus reflected, i.e. 2.94l% (3.0/102.0) would be multiplied by $10,000, and said fixed annual rent would be increased by $294.10 effective as of July 1st of said calendar year. In the event that the Price Index ceases to use 1982-84=100 as the basis of calculation, or if a substantial change is made in the terms or number of items contained in the Price Index, then the Price Index shall be adjusted to the figure that would have been arrived at had the manner of computing the Price Index in effect at the date of this lease not been altered. In the event such Price Index (or a successor or substitute index) is not available, a reliable governmental or other non-partisan publication evaluating the information theretofore used in determining the Price Index shall be used. (c) Landlord will cause statements of the cost of living adjustments provided for in subdivision (b) to be prepared in reasonable detail and delivered to Tenant. (d) In no event shall the fixed annual rent originally provided to be paid under this lease (exclusive of the adjustments under this Article) be reduced by virtue of this Article. (e) Any delay or failure of Landlord, beyond July or January of any year, computing or billing for the rent adjustments hereinabove provided shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such rent adjustments hereunder. (f) Notwithstanding any expiration or termination of this lease prior to the lease expiration date (except in the case of a cancellation by mutual agreement) Tenant's obligation to pay rent as adjusted under this Article shall continue and shall cover all periods up to the lease expiration date, and shall survive any expiration or termination of this lease. (g) Notwithstanding any provision to the contrary, the cost of living adjustments to the fixed annual rental rate for any calendar year are limited in an amount equal to 3% of the fixed annual rental payable under this lease as of December 1st of the immediately preceeding calendar year, including any adjustments under this article. TAX ESCALATION. 24. Tenant shall pay to Landlord, as additional rent, tax escalation in accordance with this Article: (a) For purposes of this lease the rentable square foot area of the presently demised premises shall be deemed to be 6439 square feet. (b) Definitions: For the purpose of this Article, the following definitions shall apply: (i) The term "base tax year" as hereinafter set forth for the determination of real estate tax escalation, shall mean the New York City real estate tax year commencing July 1, 1997 and ending Jun 30, 1998 (ii) The term "The Percentage", for purposes of computing tax escalation, shall mean .00232 percent (2.32%). The Percentage has been computed on the basis of a fraction, the numerator of which is the rentable square foot area of the demised premises and the denominator of which is the total rentable square foot area of the office and commercial space in the building project. The parties acknowledge and agree that the total rentable square foot area of the office and commercial space in the building project shall be deemed to be 277155 sq. ft. (iii) The term "the building project" shall mean the aggregate combined parcel of land on a portion of which are the improvements of which the demised premises form a part, with all the improvements thereon, said improvements being a part of the block and lot for tax purposes which are applicable to the aforesaid land. (iv) The term "comparative year" shall mean the twelve (12) months following the base tax year, and each subsequent Period of twelve (12) months (or such other Period of twelve (12) months occurring during the term of this lease as hereafter may be duly adopted as the tax year for real estate tax purposes by the City of New York). (v) The term "real estate taxes" shall mean the total of all taxes and special or other assessments levied, assessed or imposed at any time by any governmental authority upon or against the building project, and also any tax or assessment levied, assessed or imposed at any time by any governmental authority in connection with the receipt of income or rents from said building project to the extent that same shall be in lieu of all or a portion of any of the aforesaid taxes or assessments, or additions or increases thereof, upon or against said building project. If, due to a future change in the method of taxation or in the taxing authority, or for any other reason, a franchise, income, transit, profit or other tax or governmental imposition, however designated, shall be levied against landlord in substitution in whole or in part for the real estate taxes, or in lieu of additions to or increases of said real estate taxes, then such franchise, income, transit, profit or other tax or governmental imposition shall be deemed to be included within the definition of "real estate taxes" for the purposes hereof. As to special assessments which are payable over a period of time extending beyond the term of this lease, only a pro rata portion thereof covering the portion of the term of this lease unexpired at the time of the imposition of such assessment, shall be included in "real estate taxes". If by law, any assessment may be paid in installments, then, for the purposes hereof (a) such assessment shall be deemed to have been payable in the maximum number of installments permitted by law and (b) there shall be included in real estate taxes, for each comparative year in which such installments may be paid, the installments of such assessment so becoming payable during such comparative year, together with interest payable during such comparative year. (vi) Where more than one assessment is imposed by the City of New York for any tax year, whether denominated an "actual assessment" or a "transitional assessment" or otherwise, then the phrases herein "assessed value" and "assessments" shall mean whichever of the actual, transitional or other assessment is designated by the City of New York as the taxable assessment for that tax year. (vii) The phrase "real estate taxes payable during the base tax year" shall mean that amount obtained by multiplying the assessed value of the land and buildings of the building project for the base tax year by the tax rate for the base tax year for each $100 of such assessed value. (c) 1. In the event that the real estate taxes payable for any comparative year shall exceed the amount of the real estate taxes payable during the base tax year, tenant shall pay to landlord, as additional rent for such comparative year, an amount equal to The Percentage of the excess. Before or after the start of each comparative year, Landlord shall furnish to Tenant a statement of the real estate taxes payable for such comparative year, and a statement of the real estate taxes payable during the base tax year. If the real estate taxes payable for such comparative year exceed the real estate taxes payable during the base tax year, additional rent for such comparative year, in an amount equal to The Percentage of the excess, shall be due from Tenant to Landlord, and such additional rent shall be payable by Tenant to Landlord within ten (10) days after receipt of the aforesaid statement. The benefit of any discount for any earlier payment or prepayment of real estate taxes shall accrue solely to the benefit of Landlord, and such discount shall not be subtracted from the real estate taxes payable for any comparative year. Additionally, Tenant shall pay to Landlord, on demand, a sum equal to The Percentage of any business improvement district assessment payable by the building project. 2. Should the real estate taxes payable during the base tax year be reduced by final determination of legal proceedings, settlement or otherwise, then, the real estate taxes payable during the base tax year shall be correspondingly revised, the additional rent theretofore paid or payable hereunder for all comparative years shall be recomputed on the basis of such reduction, and tenant shall pay to Landlord as additional rent, within ten (10) days after being billed therefor, any deficiency between the amount of such additional rent as theretofore computed and the amount thereof due as the result of such recomputations. Should the real estate taxes payable during the base tax year be increased by such final determination of legal proceedings, settlement or otherwise, then appropriate recomputation and adjustment also shall be made. 3. If after Tenant shall have made a payment or additional rent under this subdivision (c), Landlord shall receive a refund of any portion of the real estate taxes payable for any comparative year after the base tax year on which such payment of additional rent shall have been based, as a result of a reduction of such real estate taxes by final determination of legal proceedings, settlement or otherwise, Landlord shall within ten (10) days after receiving the refund pay to Tenant The Percentage of the refund less The Percentage of expenses (including attorneys, and appraisers' fees) incurred by Landlord in connection with any such application or proceeding. If prior to the payment of taxes for any comparative year, Landlord shall have obtained a reduction of that comparative year's assessed valuation of the building project, and therefore of said taxes, then the term "real estate taxes" for that comparative year shall be deemed to include the amount Landlord's expenses in obtaining such reduction in assessed valuation, including attorneys' and appraisers' fees. 4. The statements of the real estate taxes to be furnished by Landlord as provided above shall be certified by Landlord and shall constitute a final determination as between Landlord and Tenant of the real estate taxes for the Periods represented thereby, unless Tenant within thirty (30) days after they are furnished shall give a written notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate. Tenant shall so dispute said statement then, pending the resolution of such dispute, tenant shall pay the additional rent to Landlord in accordance with the statement furnished by Landlord. 5. In no event shall the fixed annual rent under this lease (exclusive of the additional rents under this Article) be reduced by virtue of this Article. 6. If the commencement date of the term of this lease is not the first day of the first comparative year, then the additional rent due hereunder for such first comparative year shall be a proportionate share of said additional rent for the entire comparative year, said proportionate share to be based upon the length of time that the lease term will be in existence during such first comparative year. Upon the date of any expiration or termination of this lease (except termination because of Tenant's default) whether the same be the date hereinabove set forth for the expiration of the term, or any prior or subsequent date, a proportionate share of said additional rent for the comparative year during which such expiration or termination occurs shall immediately become due and payable by Tenant to Landlord, if it was not theretofore already billed and paid. The said proportionate share shall be based upon the length of time that this lease shall have been in existence during such comparative year. Landlord shall promptly cause statements of said additional rent for that comparative year to be prepared and furnished to lessee. Landlord and Tenant shall thereupon make appropriate adjustments of amounts then owing. 7. Landlord's and Tenant's obligations to make the adjustments referred to in subdivision (6) above shall survive any expiration or termination of this lease. 8. Any delay or failure of lessor in billing any tax escalation hereinabove provided shall not constitute a waiver of or in any way impair the continuing obligation of lessee to pay such tax escalation hereunder. JURY WAIVER. 26. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim involving any matter whatsoever arising out of or in any way connected with this lease, the relationship of landlord and tenant, Tenant's use or occupancy of the premises (except for personal injury or property damage) or involving the right to any statutory relief or remedy. Tenant will not interpose any counterclaim of any nature in any summary proceeding. NO WAIVER, ETC. 27. No act or omission of Landlord or its agents shall constitute an actual or constructive eviction, unless Landlord shall have first received written notice of Tenant's claim and shall have had a reasonable opportunity to verify such claim (Not to exceed two days). In the event that any payment herein provided for by Tenant to Landlord shall become overdue for a period in excess of ten (10) days after written notice by Landlord, then at landlord's option a "late charge" shall become due and payable to Landlord, as additional rent, from the date it was due until payment is made at the following rates: for individual and partnership Tenants, said late charge shall be computed at the maximum legal rate of interest; for corporate or governmental entity Tenants the late charge shall be computed as two percent per month unless there is an applicable maximum legal rate of interest which then shall be used. No act or omission of Landlord or its agents shall constitute an acceptance of a surrender of the premises, except a writing signed by Landlord. The delivery of keys to Landlord, or its agents shall not constitute a termination of this lease or a surrender of the premises. Acceptance by Landlord of less than the rent herein provided shall at Landlord's option be deemed on account of earliest rent remaining unpaid. No endorsement on any check, or letter accompanying rent, shall be deemed an accord and satisfaction, and such check may be cashed without prejudice to Landlord. No waiver of any provision of this lease by Landlord shall be effective, unless such waiver be in writing signed by Landlord. This lease contains the entire agreement between the parties, and no modification thereof shall be binding unless in writing and signed by the party concerned. Tenant shall comply with the rules and regulations printed in this lease, and any reasonable modifications thereof or additions thereto. Landlord shall not be liable to Tenant for the violation of such rules and regulations by any other tenant. Failure of Landlord to enforce any provision of this lease, or any rule or regulation, shall not be construed as the waiver of any subsequent violation of a provision of this lease, or any rule or regulation. This lease shall not be affected by nor shall Landlord in any way be liable for the closing, darkening or bricking up of windows in the premises, for any reason, including as the result of construction on any property of which the premises are not a part or by Landlord's own acts. NOTICES. 29. Any bill, notice or demand from Landlord to Tenant, may be delivered personally at the premises or sent by registered or certified mail. Such bill, notice or demand shall be deemed to have been given at the time of delivery or mailing. Landlord shall send a copy of any notice sent to Tenant alleging a default under this lease to Loeb & Loeb, LLP, 345 Park Avenue, New York, New York 10154; Attention: Scott I. Schneider, Esq. Any notice from Tenant to Landlord must be sent by registered or certified mail to the last address designated in writing by Landlord. WATER. 30. Tenant shall pay the amount of Landlord's cost for all water used by Tenant for any purpose other than ordinary lavatory uses, and any sewer rent or tax based thereon. Landlord may install a water meter to measure Tenant's water consumption for all purposes and Tenant agrees to pay for the installation and maintenance thereof and for water consumed as shown on said meter. If water is made available to Tenant in the building or the demised premises through a meter which also supplies other premises, or without a meter, then Tenant shall pay to Landlord $ None per month for water. SPRINKLER SYSTEM. 31. If there shall be a "sprinkler system" in the demised premises for any period during this lease, Tenant shall pay $ None per month, for sprinkler supervisory service. If such sprinkler system is damaged by any non-agent act of Tenant or its agents, employees, licensees or visitors, Tenant shall restore the system to good working condition at its own expense. If the New York Board of Fire Underwriters, the New York Fire Insurance Exchange, the Insurance Services Office or any governmental authority requires the installation or any alteration to sprinkler system by reason of Tenant's particular manner of use of the premises, including any alteration necessary to obtain the full allowance for a sprinkler system in the fire insurance rate of Landlord, or for any other reason, Tenant shall make such installation or alteration promptly, and at its own expense. HEAT, ELEVATOR, ETC. 32. Landlord shall provide elevator service during all usual business hours including Saturdays until 1 P.M., except Sundays, State holidays, Federal holidays, or Building Service Employees Union Contract holidays. Landlord shall furnish heat to the premises during the same hours on the same days in the cold season in each year. Landlord may remove Tenant's extraordinary refuse from the building and Tenant shall pay the cost thereof. If the elevators in the building are manually operated, Landlord may convert to automatic elevators at any time, without in any way affecting Tenant's obligations hereunder. SECURITY DEPOSIT. 33. Tenant has deposited with Landlord the sum of $12,851.1 as security for the performance by Tenant of the terms of this lease. Landlord may use any part of the Security to satisfy any default of Tenant and any expenses arising from such default, including but not limited to any damages or rent deficiency before or after re-entry by Landlord. Tenant shall, upon demand, deposit with Landlord the full amount so used, in order that Landlord shall have the full security deposit on hand at all times during the term of this lease. If Tenant shall comply fully with the terms of this lease, the security shall be returned to Tenant after the date fixed as the end of the lease. In the event of a sale or lease of the building containing the premises, Landlord may transfer the security to the purchaser or tenant, and Landlord shall thereupon be released from all liability for the return of the security. This provision shall apply to every transfer or assignment of the security to a new Landlord. Tenant shall have no legal power to assign or encumber the security herein described. ELECTRICITY. 34. Terms and conditions with respect to electricity rent inclusion, or with respect to sub-metering, as the case may be, and general conditions with respect to either, are set forth in Article 41 in the Rider annexed to and made part of this lease. RENT CONTROL. 35. In the event the fixed annual rent or additional rent or any part thereof provided to be paid by Tenant under the provisions of this lease during the demised term shall become uncollectible or shall be reduced or required to be reduced or refunded by virtue of any Federal, State, County or City law, order or regulation, or by any direction of a public officer or body pursuant to law, or the orders, rules, code or regulations of any organization or entity formed pursuant to law, whether such organization or entity by public or private, then Landlord, at its option, may at any time thereafter terminate this lease, by not less than thirty (30) days' written notice to Tenant, on a date set forth in said notice, in which event this lease and the term hereof shall terminate and come to an end on the date fixed in said notice as if the said date were the date originally fixed herein for the termination of the demised term. Landlord shall not have the right so to terminate this lease if Tenant within such period of thirty (30) days shall in writing lawfully agree that the rentals herein reserved are a reasonable rental and agree to continue to pay said rentals, and if such agreement by Tenant shall then be legally enforceable by Landlord. SHORING. 36. Tenant shall permit any person authorized to make an excavation on land adjacent to the building containing the premises to do any work within the premises necessary to preserve the wall of the building from injury or damage, and Tenant shall have no claim against Landlord for damages or abatement of rent by reason thereof. EFFECT OF CONVEYANCE, ETC. 37. If the building containing the premises shall be sold, transferred or leased, or the lease thereof transferred or sold, Landlord shall be relieved of all future obligations and liabilities hereunder and the purchaser, transferee or tenant of the building shall be deemed to have assumed and agreed to perform all such obligations and liabilities of Landlord hereunder. RIGHTS OF SUCCESSORS AND ASSIGNS. 38. This lease shall bind and inure to the benefit of the heirs, executors, administrators, successors, and, except as otherwise provided herein, the assigns of the parties hereto. If any provision of any Article of this lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of that Article, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of said Article and of this lease shall be valid and be enforced to the fullest extent permitted by law. CAPTIONS. 39. The captions herein are inserted only for convenience and are in no way to be construed as a part of this lease or as a limitation of the scope of any provision of this lease. LEASE SUBMISSION. 40. Landlord and Tenant agree that this lease is submitted to Tenant on the understanding that it shall not be considered an offer and shall not bind Landlord in any way unless and until (i) Tenant has duly executed and delivered duplicate originals thereof to Landlord and (ii) Landlord has executed and delivered one of said originals to Tenant. [GRAPHIC OMITTED] Plan of 4th Floor SEE RIDER(S) ANNEXED HERETO AND MADE A PART HEREOF In witness Whereof, Landlord and Tenant have executed this lease as of the day and year first above written. ______________________________________ Investment Properties Associates Witness for Landlord c/o Helmsley-Spear, Inc. (L.S. ______________________________________ By /s/ Irving Schneider (L.S. Witness for Tenant Irving Schneider, Exec. Vice President DoubleClick, Inc. By: /s/ [Illegible] -------------------------------- ACKNOWLEDGEMENTS. State of New York ) County of New York ) ss.: On the day of , 19 , before me personally came to me known and known to me to be the individual described in, and who executed, the foregoing instrument, and acknowledged to me that he executed the same. --------------------------------- Notary Public State of New York ) County of New York ) ss.: On the day of , 19 , before me personally came to me known, who, being by me duly sworn, did depose and say that he resides at No. that he is the of the corporation described in, and which executed, the foregoing instrument; and that he signed h name thereto by authority of the Board of Directors of said corporation. --------------------------------- Notary Public GUARANTY. For Value Received and in consideration of the letting of the premises within mentioned to the within named Tenant, the undersigned do hereby covenant and agree, to and with the Landlord and the Landlord's legal representatives, that if default shall at any time he made by the said Tenant in the payment of the rent and the performance of the covenants contained in the within lease, on the Tenant's part to be paid and performed, that the undersigned will well and truly pay the said rent, or any arrears thereof that may remain due unto said Landlord, and also pay all damages that may arise in consequence of the non-performance of said covenants, or either of them, without requiring notice of any such default from the Landlord. The undersigned hereby waives all right to trial by jury in any action or proceeding hereinafter instituted by the Landlord, to which the undersigned may be a party. IN WITNESS WHEREOF, the undersigned has set hand and seal this day of 19 - ----------------------------------- (L.S.) - ----------------------------------- (L.S.) State of New York ) County of New York ) ss.: On the day of , 19 , before me personally came to me known and known to me to be the individual described in, and who executed the foregoing Guaranty and acknowledged to me that he executed the same. --------------------------------- Notary Public - -------------------------------------------------------------------------------- To ================================================================================ Lease ================================================================================ Date Space From To Annual Rent $ Monthly Rent $ ================================================================================ HELMSLEY-SPEAR, INC. Real Estate Lincoln Building 60 East 42nd Street New York, N.Y. 10165 Phone (212) 687-6400 - -------------------------------------------------------------------------------- RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN Investment Properties Associates LANDLORD AND DoubleClick, Inc. TENANT - -------------------------------------------------------------------------------- RULES AND REGULATIONS REFERRED TO IN THIS LEASE 1. No animals, birds, bicycles or vehicles shall be brought into or kept in the premises. The premises shall not be used for manufacturing or commercial repairing or for sale or display of merchandise or as a lodging place, or for any immoral or illegal purpose, nor shall the premises be used for a public stenographer or typist; barber or beauty shop; telephone, secretarial or messenger service; employment, travel or tourist agency; school or classroom; commercial document reproduction; Tenant shall not cause or permit in the premises any disturbing noises which may interfere with occupants of this or neighboring buildings, any cooking or objectionable odors, or any nuisance of any kind, or any inflammable or explosive fluid, chemical or substance. Canvassing, soliciting and peddling in the building are prohibited, and each tenant shall cooperate so as to prevent the same. 2. The toilet rooms and other water apparatus shall not be used for any purposes other than those for which they were constructed, and no sweepings, rags, ink, chemicals or other unsuitable substances shall be thrown therein. Tenant shall not throw anything out of doors, windows or skylights, or into hallways, stairways or elevators, nor place food or objects on outside window sills. Tenant shall not obstruct or cover the halls, stairways and elevators, or use them for any purpose other than ingress and egress to or from tenant's premises, nor shall skylights, windows, doors and transoms that reflect or admit light into the building be covered or obstructed in any way. 3. Tenant shall not place a load upon any floor of the premises in excess of the load per square foot which such floor was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes in the premises. Business machines and mechanical equipment shall be placed and maintained by tenant, at tenant's expense, only with Landlord's consent and in settings approved by Landlord to control weight, vibration, noise and annoyance. Smoking or carrying lighted cigars, pipes or cigarettes in the elevators of the building is prohibited. If the premises are on the ground floor of the building the tenant thereof at its expense shall keep the sidewalks and curb in front of the premises clean and free from ice, snow, dirt and rubbish. 4. Tenant shall not move any heavy or bulky materials into or out of the building without Landlord's prior written consent, and then only during such hours and in such manner as Landlord shall approve. If any material or equipment requires special handling, tenant shall employ only persons holding a Master Rigger's License to do such work, and all such work shall comply with all legal requirements. Landlord reserves the right to inspect all freight to be brought into the building, and to exclude any freight which violates any rule, regulation or other provision of this lease. 5. No sign, advertisement, notice or thing shall be inscribed, painted or affixed on any part of the building, without the prior written consent of Landlord. Landlord may remove anything installed in violation of this provision, and Tenant shall pay the cost of such removal. Interior signs on doors and directories shall be inscribed or affixed by Landlord at Tenant's expense. Landlord shall control the color, size, style and location of all signs, advertisements and notices. No advertising of any kind by Tenant shall refer to the building, unless first approved in writing by Landlord. 6. No article shall be fastened to, or holes drilled or nails or screws driven into, the ceilings, walls, doors or other portions of the premises, nor shall any part of the premises be painted, papered or otherwise covered, or in any way marked or broken, without the prior written consent of Landlord. 7. No existing locks shall be changed, nor shall any additional locks or bolts of any kind be placed upon any door or window by Tenant, without the prior written consent of Landlord. At the termination of this lease, Tenant shall deliver to Landlord all keys for any portion of the premises or building. Before leaving the premises at any time. Tenant shall close all windows and close and lock all doors. 8. No Tenant shall purchase or obtain for use in the premises any spring water, ice, towels, food, bootblacking, barbering or other such service furnished by any company or person not approved by Landlord. Any necessary exterminating work in the premises shall be done at Tenants expense, at such times, in such manner and by such company as Landlord shall require. Landlord reserves the right to exclude from the building, from 6:00 p.m. to 8:00 am., and at all hours on Sunday and legal holidays, all persons who do not present a pass to the building signed by Landlord. Landlord will furnish passes to all persons reasonably designated by Tenant. Tenant shall be responsible for the acts of all persons to whom passes are issued at Tenant's request. 9. Whenever Tenant shall submit to Landlord any plan, agreement or other document for Landlord's consent or approval, Tenant agrees to pay Landlord as additional rent, on demand, an administrative fee equal to the sum of the reasonable fees of any architect, engineer or attorney employed by Landlord to review said plan, agreement or document and Landlord's administrative costs for same. 10. The use in the demised premises of auxiliary heating devices, such as portable electric heaters, heat lamps or other devices whose principal function at the time of operation is to produce space heating, is prohibited. In case of any conflict or inconsistency between any provisions of this lease and any of the rules and regulations as originally or as hereafter adopted, the provisions of this lease shall control. RIDER ANNEXED TO AND MADE PART OF A LEASE BETWEEN INVESTMENT PROPERTIES ASSOCIATES, LANDLORD AND DoubleClick, Inc., TENANT ELECTRICITY 41. Tenant agrees that Landlord may furnish electricity to Tenant on a "submetering" basis or on a "rent inclusion" basis. Electricity and electric service, as used herein, shall mean any element affecting the generation, transmission, and/or distribution or redistribution of electricity, including but not limited to services which facilitate the distribution of service. (A). Submetering: If and so long as Landlord provides electricity to the demised premises on a submetering basis, Tenant covenants and agrees to purchase the same from Landlord or Landlord's designated agent at charges, terms and rates set, from time to time, during the term of this lease by Landlord but not more than those specified in the service classification in effect on January 1, 1970 pursuant to which Landlord then purchased electric current from the public utility corporation serving the part of the city where the building is located: provided however, said charges shall be increased in the same percentage as any percentage increase in the billing to Landlord for electricity for the entire building, by reason of increase in Landlord's electric rates or service classifications, subsequent to January 1, 1970, and so as to reflect any increase in Landlord's electric charges, including changes in market prices for electricity from utilities and/or other providers, in fuel adjustments, or by taxes or charges of any kind imposed on Landlord`s electricity purchases or redistribution, or for any other such reason, subsequent to said date. Any such percentage increase in Landlord's billing for electricity due to changes in rates, service classifications, or market prices, shall be computed by the application of the average consumption (energy and demand) of electricity for the entire building for the twelve (12) full months immediately prior to the rate and/or service classification change, or any changed methods of or rules on billing for same, applied on a consistent basis to the new rate and/or service classification or market price, and to the service classification and rate in effect on January 1, 1970. If the average consumption of electricity for the entire building for said prior twelve (12) months cannot reasonably be applied and used with respect to changed methods of or rules on billing, then the percentage shall be computed by the use of the average consumption (energy and demand) for the entire building for the first three (3) months after such change, projected to a full twelve (12) months, so as to reflect the different seasons: and that same consumption, so projected, shall be applied to the service classification and rate in effect on January 1, 1970. Where more than one meter measures the service of Tenant in the building, the service rendered through each meter may be computed and billed separately in accordance with the rates herein specified. Bills therefore shall be rendered at such times as Landlord may elect and the amount, as computed from a meter, shall be deemed to be, and be paid as, additional rent. In the event that such bills are not paid within five (5) days after the same are rendered. Landlord may, without further notice, discontinue the service of electric current to the demised premises without releasing Tenant from any liability under this lease and without Landlord or Landlord's agent incurring any liability for any damage or loss sustained by lessee by such discontinuance of service. If any tax is imposed upon Landlord's receipt from the sale, resale or redistribution of electricity or gas or telephone service to Tenant by any Federal, State, or Municipal authority. Tenant covenants and agrees that where permitted by law, Tenant's pro-rata share of such taxes shall be passed on to and included in the bill of, and paid by, Tenant to Landlord. (B). Rent Inclusion: If and so long as Landlord provides electricity to the demised premises on a rent inclusion basis, Tenant agrees that the fixed annual rent shall be increased by the amount of the Electricity Rent Inclusion Factor ("ERIF"), as hereinafter defined. Tenant acknowledges and agrees (i) that the the fixed annual rent hereinabove set forth in this lease does not yet, but is to include an ERIF of $2.95 per rentable square foot to compensate Landlord for electrical wiring and other installations necessary for, and for its obtaining and making available to Tenant the redistribution of electric current as an additional service; and (ii) that said ERIF, which shall be subject to periodic adjustments as hereinafter provided, has been partially based upon an estimate of the Tenant's connected electrical load, in whatever manner delivered to Tenant, which shall be deemed to be the demand (KW), and hours of use thereof, which shall be deemed to be the energy (KWH), for ordinary lighting and light office equipment and the operation of the usual small business machines, including Xerox or other copying machines (such lighting and equipment are hereinafter called "Ordinary Equipment") during ordinary business hours ("ordinary business hours" shall be deemed to mean 50 hours per week), with Landlord providing an average connected load of 4 1/2 watts of electricity for all purposes per rentable square foot. Any installation and use of equipment other than Ordinary Equipment and/or any connected load and/or energy usage by Tenant in excess of the foregoing shall result in adjustment of the ERIF as hereinafter provided. For purposes of this lease the rentable square foot area of the presently demised premises shall be deemed to be 6,439 square feet. If the cost to Landlord of electricity shall have been, or shall be, increased or decreased subsequent to May 1, 1996 (whether such change occurs prior to or during the term of this Lease), by change in Landlord's electric rates or service classifications, or electricity charges, including changes in market prices, or by any increase, subsequent to the last such electric rate or service classification change or market price change, in fuel adjustments or charges of any kind, or by taxes, imposed on Landlord's electricity purchases or on Landlord's electricity redistribution, or for any other such reason, then the aforesaid ERIF portion of the fixed annual rent shall be changed in the same percentage as any such change in cost due to changes in electric rates, service classifications or market prices, and, also Tenant's payment obligation, for electricity redistribution, shall change from time to time so as to reflect any such increase in fuel adjustments or charges, and such taxes. Any such percentage change in Landlord's cost due to change in Landlord's electric rates or service classifications or market prices shall be computed on the basis of the average consumption of electricity for the building for the twelve full months immediately prior to the rate change or other such changes in cost, energy and demand, and any changed methods of or rules on billing for same, applied on a consistent basis to the new electric rate or service classification or market price and to the immediately prior existing electric rate or service classification or market price. If the average consumption (energy and demand) for the entire building for said prior (12) months cannot reasonably be applied and used with respect to changed methods of or rules on billing, then the percentage increase shall be computed by the use of the average consumption (energy and demand) for the entire building for the first three (3) months after such change, projected to a full twelve (12) months, so as to reflect the different seasons; and that same consumption, so projected, shall be applied to the rate and/or service classification or market price which existed immediately prior to the change. The parties agree that a reputable, independent electrical consultant firm, selected by Landlord. ("Landlord's electrical consultant"), shall determine the percentage change for the changes in ERIF due to Landlord's changed costs, and that Landlord's electrical consultant may from time to time make surveys in the demised premises of the electrical equipment and fixtures and use of current. (i) If such survey shall reflect a connected electrical load in the demised premises in excess of 4 1/2 watts of electricity for all purposes per rentable square foot and/or energy usage in excess of ordinary business hours (each such excess hereinafter called "excess electricity") then the connected electrical load and/or the hours of use portion(s) of the then existing ERIF shall be increased by an amount which is equal to a fraction of the then exisiting ERIF, the numerator of which is the excess electricity (i.e. excess connected load and/or excess usage) and the denominator of which is the connected load and/or the energy usage which was the basis of the then existing ERIF. Such fractions shall be determined by Landlord's electrical consultant. The fixed annual rent shall then be appropriately adjusted, effective as of the date of any such change in connected load and/or usage, as disclosed by said survey. (ii) If such survey shall disclose installation and use of other than Ordinary Equipment, then effective as of the date of said survey, there shall be added to the ERIF portion of fixed annual rent (computed and fixed as hereinbefore described) an additional amount equal to what would be paid under the SC-4 Rate I Service Classification in effect on May 1, 1996 (and not the time-of-day rate schedule) for such load and usage of electricity, with the connected electrical load deemed to be the demand (KW) and the hours of use thereof deemed to be the energy (KWH), as hereinbefore provided, (which addition to the ERIF shall be increased or decreased by all electricity cost changes of Landlord, as hereinabove provided, from May 1, 1996 through the date of billing). In no event, whether because of surveys, rates or cost changes, or for any other reason, is the originally specified $2.95 per per rentable square foot ERIF portion of the fixed annual rent (plus any net increase thereof, but not decrease, by virtue of all electricity rate, service classification or market price changes of Landlord subsequent to May 1, 1996) to be reduced. (C). General Conditions: The determinations by Landlord's electrical consultant shall be binding and conclusive on Landlord and Tenant from and after the delivery of copies of such determinations to Landlord and Tenant, unless, within fifteen (15) days after delivery thereof, Tenant disputes such determination. If Tenant so disputes the determination, it shall, at its own expense, obtain from a reputable, independent electrical consultant its own determinations in accordance with the provisions of this Article. Tenant's consultant and Landlord's consultant then shall seek to agree. If they cannot agree within thirty (30) days they shall choose a third reputable electrical consultant, whose cost shall be shared equally by the parties, to make similar determinations which shall be controlling. (If they cannot agree on such third consultant within ten (10) days, than either party may apply to the Supreme Court in the County of New York for such appointment.) However, pending such controlling determinations. Tenant shall pay to Landlord the amount of additional rent or ERIF in accordance with the determinations of Landlord's electrical consultant. If the controlling determinations differ from Landlord's electrical consultant, then the parties shall promptly make adjustment for any deficiency owed by Tenant or overage paid by Tenant. At the option of Landlord. Tenant agrees to purchase from Landlord or its agents all lamps and bulbs used in the demised premises and to pay for the cost of installation thereof. Supplementing Article 35 hereof, if all or part of the submetering additional rent or the ERIF payable in acccordance with Subdivision (A) or (B) of this Article becomes uncollectible or reduced or refunded by virtue of any law, order or regulation, the parties agree that, at Landlord's option, in lieu of submetering additional rent or ERIF, and in consideration of Tenant's use of the building's electrical distribution system and receipt of redistributed electricity and payment by Landlord of consultant's fees and other redistribution costs, the fixed annual rental rate(s) to be paid under this lease shall be increased by an alternative charge" which shall be a sum equal to $2.95 per year per rentable square foot of the demised premises, changed in the same percentage as any increases in the cost to Landlord for electricity for the entire building subsequent to May 1, 1996, because of electric rate, service classification or market price changes, such percentage change to be computed as in Subdivision (B) provided. Landlord shall not be liable to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant's requirements. Tenant covenants and agrees that at all times its use of electric current shall never exceed the capacity of existing feeders to the building or wiring installation. Tenant agrees not to connect any additional electrical equipment to the building electric distribution system, other than lamps, typewriters and other small office machines which consume comparable amounts of electricity, without Landlord's prior written consent, which consent shall not be unreasonably withheld. Any riser or risers to supply Tenant's electrical requirements, upon written request of Tenant, will be installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's sole judgment, the same are necessary and will not cause permanent damage or injury to the building or demised premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants or occupants. In addition to the installation of such riser or risers, Landlord will also at the sole cost and expense of Tenant, install all other equipment proper and necessary in connection therewith subject to the aforesaid terms and conditions. The parties acknowledge that they understand that it is anticipated that electric rates, charges, etc., may be changed by virtue of time-of-day rates or changes in other methods of billing, and/or electricity purchases and the redistribtition thereof, and fluctuation in the market price of electricity, and that the references in the foregoing paragragraphs to changes in methods of or rules on billing, are intended to include any such changes. Anything hereinabove to the contrary notwithstanding, in no event is the submetering additional rent or ERIF, or any "alternative charge", to be less than an amount equal to the total of Landlord's payments to public utilities and/or other providers for the electricity consumed by Tenant (and any taxes thereon or on redistribution of same) plus 5% thereof for transmission line loss, plus 15% thereof for other redistribution costs. The Landlord reserves the right, at any time upon thirty (30) days' written notice, to change its furnishing of electricity to Tenant from a rent inclusion basis to a submetering basis, or vice versa, or to change to the distribution of less than all the components of the existing service to Tenant. The Landlord reserves the right to terminate the furnishing of electricity on a rent inclusion, submetering, or any other basis at any time, upon thirty (30) days' written notice to the Tenant, in which event the Tenant may make application directly to the public utility and/or other providers for the Tenant's entire separate supply of electric current and Landlord shall permit its wires and conduits, to the extent available and safely capable, to be used for such purpose, but only to the extent of Tenant's then authorized load. Any meters, risers, or other equipment or connections necessary to furnish electricity on a submetering basis or to enable Tenant to obtain electric current directly from such utility and/or other providers shall be installed at Tenant's sole cost and expense. Only rigid conduit or electricity metal tubing (EMT) will be allowed. The Landlord, upon the expiration of the aforesaid thirty (30) days' written notice to the Tenant may discontinue furnishing the electric current but this lease shall otherwise remain in full force and effect. If Tenant was provided electricity on a rent inclusion basis when it was so discontinued, then commencing when Tenant receives such direct service and as long as Tenant shall continue to receive such service, the fixed annual rent payable under this lease shall be reduced by the amount of the ERIF which was payable immediately prior to such discontinuance of electricity on a rent inclusion basis. Dated July __, 1997 BETWEEN INVESTMENT PROPERTIES ASSOCIATES DOUBLECLICK, INC. PAR 42 The Lessee agrees that the charge for electricity for the premises shall be $1,582.92 per month, which ERIF shall be subject to increase because of rate changes after the date of this lease, or based on Lessee's consumption, as provided in Article 41. PAR 43 This lease is prepared by the managing agent for the Lessee. It is not binding upon either party until it is signed by the Lessee and the Lessor and returned to the Lessee. PAR 44 Lessor shall cause the public halls and public portions of the building to be kept clean in accordance with Lessor's customary standards for the building. Lessee shall at its own expense keep the premises clean, and in order, to the satisfaction of the Lessor. It is expressly agreed that the Lessee shall keep the public corridors free of all refuse and shall at no time store any furniture, cartons, displays or any other articles in said public corridors. It is the Lessee's sole responsibility for the removal of all its refuse. In the event that any such item is found in the public corridor or freight halls, then the Lessor shall have the right to remove such items to the basement and charge Lessee for storage and moving costs for such work or arrange with a carting company to remove such refuse for which the Lessee shall reimburse the Lessor for such expenses. It is also agreed and understood that, so long as a freight elevator is available to Lessee, hand trucks may not be used in the passenger elevators by the Lessee, its invitees, or any person making deliveries to the Lessee. PAR 45 Lessee can cancel this lease effective July 31, 1998, on no less than three (3) months prior written notice given to Lessor by certified mail return receipt requested. If this lease is so cancelled "July 31, 1998" shall be deemed the "expiration date" for all purposes under this lease. PAR 46 Except as expressly set forth herein, Lessee agrees to accept these premises "as is" in all respects. PAR 47 Subject to Lessee obtaining any necessary building department approvals, Lessor hereby approves Lessee's initial alterations as described on Schedule A annexed hereto. Further, Lessee shall be permitted, without Lessor's consent, to paint, carpet and make any other minor decorating improvements to the premises. PAR 48 Lessor represents and warrants to Lessee that the air conditioning system serving the premises shall be in good working order on the commencement of the lease. Lessee shall, throughout the term of this lease, maintain a service contract on the air conditioning system serving exclusively the premises. Notwithstanding the foregoing, Lessee shall not be obligated to replace the air conditioning system or make any major repairs thereto. If required, any such replacement or major repairs shall be performed by Lessor. PAR 49 Notwithstanding anything in Paragraph 10 of this lease to the contrary, if the premises or the building are damaged, and such damage materially interferes with Lessee's ability to operate its business within the premises and such damage is not repaired within sixty (60) days or, if in Lessee's reasonable opinion, such damage cannot be repaired within sixty (60) days after the date of such damage, then Lessee may terminate this lease by giving Lessor written notice of such termination by certified mail return receipt requested. Further notwithstanding anything in Paragraph 10 to the contrary, Lessor hereby waives any claims for damages or other liability that Lessor may have against Lessee to the extent that same are covered by Lessor's insurance or would be covered by any insurance that a reasonably prudent owner of similar buildings in the general area of the subject building (within which the premises are located) would carry. PAR 50 The parties hereto acknowledge that the premises are now vacant. However, notwithstanding anything in Paragraph 16 to the contrary, if Lessor is unable to give Lessee possession of the premises by September 1, 1997, Lessee may terminate this lease by giving Lessor written notice thereof by certified mail return receipt requested. PAR 51 If Lessor must make any repairs to the premises or must otherwise enter the premises, Lessor shall use reasonable efforts to minimize any interference with Lessee's business. PAR 52 If there are any inconsistencies between the terms of this Rider and those of the printed form of this lease or any other rider to this lease, the terms of this rider shall control. 2 PAR 53 Lessee covenants, represents and warrants that Lessee has had no dealings or communications with any broker or agent other than Cushman & akefield Inc. and Helmsley Spear, Inc. (collectively, the "Brokers") in connection with the consummation of this lease and Lessee covenants and agrees to pay, hold harmless and to indemnify Lessor from and against any and all cost, expense (including reasonable attorney's fees) or liability for any compensation, commissions or charges claimed by any broker or agent with whom Lessee has had dealings or communications with respect to this lease, other than the Brokers. Lessor covenants and agrees to pay the Brokers and to pay, hold harmless and to indemnify Lessee from and against any and all cost, expense (including reasonable attorney's fees) or liability for any compensation, commissions, or charges claimed by any broker or agent with whom Lessor has had dealings or communications with respect to this lease. 3 - -------------------------------------------------------------------------------- RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN INVESTMENT PROPERTIES ASSOCIATES LANDLORD AND DOUBLECLICK, INC. TENANT - -------------------------------------------------------------------------------- RULES AND REGULATIONS REFERRED TO IN THIS LEASE 1. No animals, birds, bicycles or vehicles shall be brought into or kept in the premises. The premises shall not be used for manufacturing or commercial repairing or for sale or display of merchandise or as a lodging place, or for any immoral or illegal purpose, nor shall the premises be used for a public stenographer or typist; barber or beauty shop; telephone, secretarial or messenger service; employment, travel or tourist agency; school or classroom; commercial document reproduction; or for any business other than specifically provided for in the tenant's lease. Tenant shall not cause or permit in the premises any disturbing noises which may interfere with occupants of this or neighboring buildings, any cooking or objectionable odors, or any nuisance of any kind, or any inflammable or explosive fluid, chemical or substance. Canvassing, soliciting and peddling in the building are prohibited, and each tenant shall cooperate so as to prevent the same. 2. The toilet rooms and other water apparatus shall not be used for any purposes other than those for which they were constructed, and no sweepings, rags, ink, chemicals or other unsuitable substances shall be thrown therein. Tenant shall not throw anything out of doors, windows or skylights, or into hallways, stairways or elevators, nor place food or objects on outside window sills. Tenant shall not obstruct or cover the halls, stairways and elevators, or use them for any purpose other than ingress and egress to or from tenant's premises, nor shall skylights, windows, doors and transoms that reflect or admit light into the building be covered or obstructed in any way. 3. Tenant shall not place a load upon any floor of the premises in excess of the load per square foot which such floor was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes in the premises. Business machines and mechanical equipment shall be placed and maintained by tenant, at tenant's expense, only with Landlord's consent and in settings approved by Landlord to control weight, vibration, noise and annoyance. Smoking or carrying lighted cigars, pipes or cigarettes in the elevators of the building is prohibited. If the premises are on the ground floor of the building the tenant thereof at its expense shall keep the sidewalks and curb in front of the premises clean and free from ice, snow, dirt and rubbish. 4. Tenant shall not move any heavy or bulky materials into or out of the building without Landlord's prior written consent, and then only during such hours and in such manner as Landlord shall approve. If any material or equipment requires special handling, tenant shall employ only persons holding a Master Rigger's License to do such work, and all such work shall comply with all legal requirements. Landlord reserves the right to inspect all freight to be brought into the building, and to exclude any freight which violates any rule, regulation or other provision of this lease. 5. No sign, advertisement, notice or thing shall be inscribed, painted or affixed on any part of the building, without the prior written consent of Landlord. Landlord may remove anything installed in violation of this provision, and Tenant shall pay the cost of such removal. Interior signs on doors and directories shall be inscribed or affixed by Landlord at Tenant's expense. Landlord shall control the color, size, style and location of all signs, advertisements and notices. No advertising of any kind by Tenant shall refer to the building, unless first approved in writing by Landlord. 6. No article shall be fastened to, or holes drilled or nails or screws driven into, the ceilings, walls, doors or other portions of the premises, nor shall any pan of the premises be painted, papered or otherwise covered, or in any way marked or broken, without the prior written consent of Landlord. 7. No existing locks shall be changed, nor shall any additional locks or bolts of any kind be placed upon any door or window by Tenant, without the prior written consent of Landlord. At the termination of this lease, Tenant shall deliver to Landlord all keys for any portion of the premises or building. Before leaving the premises at any time. Tenant shall close all windows and close and lock all doors. 8. No Tenant shall purchase or obtain for use in the premises any spring water, ice, towels, food, bootblacking, barbering or other such service furnished by any company or person not approved by Landlord. Any necessary exterminating work in the premises shall be done at Tenants expense, at such times, in such manner and by such company as Landlord shall require. Landlord reserves the right to exclude from the building, from 6:00 p.m. to 8:00 am., and at all hours on Sunday and legal holidays, all persons who do not present a pass to the building signed by Landlord. Landlord will furnish passes to all persons reasonably designated by Tenant. Tenant shall be responsible for the acts of all persons to whom passes are issued at Tenant's request. 9. Whenever Tenant shall submit to Landlord any plan, agreement or other document for Landlord's consent or approval, Tenant agrees to pay Landlord as additional rent, on demand, an administrative fee equal to the sum of the reasonable fees of any architect, engineer or attorney employed by Landlord to review said plan, agreement or document and Landlords administrative costs for same. 10. The use in the demised premises of auxiliary heating devices, such as portable electric heaters, heat lamps or other devices whose principal function at the time of operation is to produce space heating, is prohibited. In case of any conflict or inconsistency between any provisions of this lease and any of the rules and regulations as originally or as hereafter adopted, the provisions of this lease shall control. RIDER ANNEXED TO AND MADE PART OF A LEASE BETWEEN IN VESTMENT PROPERTIES ASSOCIATES, LANDLORD AND DOUBLECLICK, INC., TENANT ELECTRICITY 41. Tenant agrees that Landlord may furnish electricity to Tenant on a "submetering" basis or on a "rent inclusion" basis. Electricity and electric service, as used herein, shall mean any element affecting the generation, transmission, and/or distribution or redistribution of electricity, including but not limited to services which facilitate the distribution of service. (A). Submetering: If and so long as Landlord provides electricity to the demised premises on a submetering basis, Tenant covenants and agrees to purchase the same from Landlord or Landlord's designated agent at charges, terms and rates set, from time to time, during the term of this lease by Landlord but not more than those specified in the service classification in effect on January 1, 1970 pursuant to which Landlord then purchased electric current from the public utility corporation serving the part of the city where the building is located; provided however, said charges shall be increased in the same percentage as any percentage increase in the billing to Landlord for electricity for the entire building, by reason of increase in Landlord's electric rates or service classifications, subsequent to January 1, 1970, and so as to reflect any increase in Landlord's electric charges, including changes in market prices for electricity from utilities and/or other providers, in fuel adjustments, or by taxes or charges of any kind imposed on Landlord's electricity purchases or redistribution, or for any other such reason, subsequent to said date. Any such percentage increase in Landlord's billing for electricity due to changes in rates, service classifications, or market prices, shall be computed by the application of the average consumption (energy and demand) of electricity for the entire building for the twelve (12) full months immediately prior to the rate and/or service classification change, or any changed methods of or rules on billing for same, applied on a consistent basis to the new rate and/or service classification or market price, and to the service classification and rate in effect on January 1, 1970. If the average consumption of electricity for the entire building for said prior twelve (12) months cannot reasonably be applied and used with respect to changed methods of or rules on billing, then the percentage shall be computed by the use of the average consumption (energy and demand) for the entire building for the first three (3) months after such change, projected to a full twelve (12) months, so as to reflect the different seasons; and that same consumption, so projected, shall be applied to the service classification and rate in effect on January 1, 1970. Where more than one meter measures the service of Tenant in the building, the service rendered through each meter may be computed and billed separately in accordance with the rates herein specified. Bills therefore shall be rendered at such times as Landlord may elect and the amount, as computed from a meter, shall be deemed to be, and be paid as, additional rent. In the event that such bills are not paid within five (5) days after the same are rendered. Landlord may, without further notice, discontinue the service of electric current to the demised premises without releasing Tenant from any liability under this lease and without Landlord or Landlord's agent incurring any liability for any damage or loss sustained by lessee by such discontinuance of service. If any tax is imposed upon Landlord's receipt from the sale, resale or redistribution of electricity or gas or telephone service to Tenant by any Federal, State, or Municipal authority. Tenant covenants and agrees that where permitted by law, Tenant's pro-rata share of such taxes shall be passed on to and included in the bill of, and paid by, Tenant to Landlord. (B). Rent Inclusion: If and so long as Landlord provides electricity to the demised premises on a rent inclusion basis, Tenant agrees that the fixed annual rent shall be increased by the amount of the Electricity Rent Inclusion Factor ("ERIF"), as hereinafter defined. Tenant acknowledges and agrees (i) that the the fixed annual rent hereinabove set forth in this lease does not yet, but is to include an ERIF of $3.15 per rentable square foot to compensate Landlord for electrical wiring and other installations necessary for, and for its obtaining and making available to Tenant the redistribution of electric current as an additional service; and (ii) that said ERIF, which shall be subject to periodic adjustments as hereinafter provided, has been partially based upon an estimate of the Tenant's connected electrical load, in whatever manner delivered to Tenant, which shall be deemed to be the demand (KW). and hours of use thereof, which shall be deemed to be the energy (KWH), for ordinary lighting and light office equipment and the operation of the usual small business machines, including Xerox or other copying machines (such lighting and equipment are hereinafter called "Ordinary Equipment") during ordinary business hours ("ordinary business hours" shall be deemed to mean 50 hours per week), with Landlord providing an average connected load of 4 1/2 watts of electricity for all purposes per rentable square foot. Any installation and use of equipment other than Ordinary Equipment and/or any connected load and/or energy usage by Tenant in excess of the foregoing shall result in adjustment of the ERIF as hereinafter provided. For purposes of this lease the rentable square foot area of the presently demised premises shall be deemed to be 3454 square feet. If the cost to Landlord of electricity shall have been, or shall be, increased or decreased subsequent to May 1, 1996 (whether such change occurs prior to or during the term of this Lease), by change in Landlord's electric rates or service classifications, or electricity charges, including changes in market prices, or by any increase, subsequent to the last such electric rate or service classification change or market price change, in fuel adjustments or charges of any kind, or by taxes, imposed on Landlord's electricity purchases or on Landlord's electricity redistribution, or for any other such reason, then the aforesaid ERIF portion of the fixed annual rent shall be changed in the same percentage as any such change in cost due to changes in electric rates, service classifications or market prices, and, also Tenant's payment obligation, for electricity redistribution, shall change from time to time so as to reflect any such increase in fuel adjustments or charges, and such taxes. Any such percentage change in Landlord's cost due to change in Landlord's electric rates or service classifications or market prices shall be computed on the basis of the average consumption of electricity for the building for the twelve full months immediately prior to the rate change or other such changes in cost, energy and demand, and any changed methods of or rules on billing for same, applied on a consistent basis to the new electric rate or service classification or market price and to the immediately prior existing electric rate or service classification or market price. If the average consumption (energy and demand) for the entire building for said prior (12) months cannot reasonably be applied and used with respect to changed methods of or rules on billing, then the percentage increase shall be computed by the use of the average consumption (energy and demand) for the entire building for the first three (3) months after such change, projected to a full twelve (12) months, so as to reflect the different seasons; and that same consumption, so projected, shall be applied to the rate and/or service classification or market price which existed immediately prior to the change. The parties agree that a reputable, independent electrical consultant firm, selected by Landlord. ("Landlord's electrical consultant"), shall determine the percentage change for the changes in ERIF due to Landlord's changed costs, and that Landlord's electrical consultant may from time to time make surveys in the demised premises of the electrical equipment and fixtures and use of current. (i) If such survey shall reflect a connected electrical load in the demised premises in excess of 4 1/2 watts of electricity for all purposes per rentable square foot and/or energy usage in excess of ordinary business hours (each such excess hereinafter called "excess electricity") then the connected electrical load and/or the hours of use portion(s) of the then existing ERIF shall be increased by an amount which is equal to a fraction of the then exisiting ERIF, the numerator of which is the excess electricity (i.e. excess connected load and/or excess usage) and the denominator of which is the connected load and/or the energy usage which was the basis of the then existing ERIF. Such fractions shall be determined by Landlord's electrical consultant. The fixed annual rent shall then be appropriately adjusted, effective as of the date of any such change in connected load and/or usage, as disclosed by said survey. (ii) If such survey shall disclose installation and use of other than Ordinary Equipment, then effective as of the date of said survey, there shall be added to the ERIF portion of fixed annual rent (computed and fixed as hereinbefore described) an additional amount equal to what would be paid under the SC-4 Rate I Service Classification in effect on May 1, 1996 (and not the time-of-day rate schedule) for such load and usage of electricity, with the connected electrical load deemed to be the demand (KW) and the hours of use thereof deemed to be the energy (KWH), as hereinbefore provided, (which addition to the ERIF shall be increased or decreased by all electricity cost changes of Landlord, as hereinabove provided, from May 1, 1996 through the date of billing). In no event, whether because of surveys, rates or cost changes, or for any other reason, is the originally specified $3.15 per per rentable square foot ERIF portion of the fixed annual rent (plus any net increase thereof, but not decrease, by virtue of all electricity rate, service classification or market price changes of Landlord subsequent to May 1, 1996) to be reduced. (C). General Conditions: The determinations by Landlord's electrical consultant shall be binding and conclusive on Landlord and Tenant from and after the delivery of copies of such determinations to Landlord and Tenant, unless, within fifteen (15) days after delivery thereof, Tenant disputes such determination. If Tenant so disputes the determination, it shall, at its own expense, obtain from a reputable, independent electrical consultant its own determinations in accordance with the provisions of this Article. Tenant's consultant and Landlord's consultant then shall seek to agree. If they cannot agree within thirty (30) days they shall choose a third reputable electrical consultant, whose cost shall be shared equally by the parties, to make similar determinations which shall be controlling. (If they cannot agree on such third consultant within ten (10) days, than either party may apply to the Supreme Court in the County of New York for such appointment.) However, pending such controlling determinations. Tenant shall pay to Landlord the amount of additional rent or ERIF in accordance with the determinations of Landlord's electrical consultant. If the controlling determinations differ from Landlord's electrical consultant, then the parties shall promptly make adjustment for any deficiency owed by Tenant or overage paid by Tenant. At the option of Landlord. Tenant agrees to purchase from Landlord or its agents all lamps and bulbs used in the demised premises and to pay for the cost of installation thereof. Supplementing Article 35 hereof, if all or part of the submetering additional rent or the ERIF payable in acccordance with Subdivision (A) or (B) of this Article becomes uncollectible or reduced or refunded by virtue of any law, order or regulation, the parties agree that, at Landlord's option, in lieu of submetering additional rent or ERIF, and in consideration of Tenant's use of the building's electrical distribution system and receipt of redistributed electricity and payment by Landlord of consultant's fees and other redistribution costs, the fixed annual rental rate(s) to be paid under this lease shall be increased by an alternative charge" which shall be a sum equal to $3.15 per year per rentable square foot of the demised premises, changed in the same percentage as any increases in the cost to Landlord for electricity for the entire building subsequent to May 1, 1996, because of electric rate, service classification or market price changes, such percentage change to be computed as in Subdivision (B) provided. Landlord shall not be liable to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant's requirements. Tenant covenants and agrees that at all times its use of electric current shall never exceed the capacity of existing feeders to the building or wiring installation. Tenant agrees not to connect any additional electrical equipment to the building electric distribution system, other than lamps, typewriters and other small office machines which consume comparable amounts of electricity, without Landlord's prior written consent, which consent shall not be unreasonably withheld. Any riser or risers to supply Tenant's electrical requirements, upon written request of Tenant, will be installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's sole judgment, the same are necessary and will not cause permanent damage or injury to the building or demised premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants or occupants. In addition to the installation of such riser or risers, Landlord will also at the sole cost and expense of Tenant, install all other equipment proper and necessary in connection therewith subject to the aforesaid terms and conditions. The parties acknowledge that they understand that it is anticipated that electric rates, charges, etc., may be changed by virtue of time-of-day rates or changes in other methods of billing, and/or electricity purchases and the redistribtition thereof, and fluctuation in the market price of electricity, and that the references in the foregoing paragragraphs to changes in methods of or rules on billings are intended to include any such changes. Anything hereinabove to the contrary notwithstanding, in no event is the submetering additional rent or ERIF, or any "alternative charge", to be less than an amount equal to the total of Landlord's payments to public utilities and/or other providers for the electricity consumed by Tenant (and any taxes thereon or on redistribution of same) plus 5% thereof for transmission line loss, plus 15% thereof for other redistribution costs. The Landlord reserves the right, at any time upon thirty (30) days' written notice, to change its furnishing of electricity to Tenant from a rent inclusion basis to a submetering basis, or vice versa, or to change to the distribution of less than all the components of the existing service to Tenant. The Landlord reserves the right to terminate the furnishing of electricity on a rent inclusion, submetering, or any other basis at any time, upon thirty (30) days' written notice to the Tenant, in which event the Tenant may make application directly to the public utility and/or other providers for the Tenant's entire separate supply of electric current and Landlord shall permit its wires and conduits, to the extent available and safely capable, to be used for such purpose, but only to the extent of Tenant's then authorized load. Any meters, risers, or other equipment or connections necessary to furnish electricity on a submetering basis or to enable Tenant to obtain electric current directly from such utility and/or other providers shall be installed at Tenant's sole cost and expense. Only rigid conduit or electricity metal tubing (EMT) will be allowed. The Landlord, upon the expiration of the aforesaid thirty (30) days' written notice to the Tenant may discontinue furnishing the electric current but this lease shall otherwise remain in full force and effect. If Tenant was provided electricity on a rent inclusion basis when it was so discontinued, then commencing when Tenant receives such direct service and as long as Tenant shall continue to receive such service, the fixed annual rent payable under this lease shall be reduced by the amount of the ERIF which was payable immediately prior to such discontinuance of electricity on a rent inclusion basis. DATED August, 1997 BETWEEN INVESTMENT PROPERTIES ASSOCIATES AND DOUBLECLICK, INC. PAR 42 The tenant agrees that the minimum charge for electricity for said premises shall be $906.68 per month, which ERIF shall be subject to increase because of rate changes after the date of this lease, or based on tenant's consumption, as provided in Article 41. PAR 43 This agreement is prepared by the managing agent for the tenant. It is not binding upon either party until it is signed by the tenant and the landlord and returned to the tenant. PAR 44 Lessor shall cause the public halls and public portions of the building to be kept clean in accordance with Landlord's customary standards for the building. Tenant shall at its own expense keep demised premises clean, in order, to the satisfaction of the Landlord. It is expressly agreed that the Tenant shall keep the public corridors free of all refuse and shall at no time store any furniture, cartons, displays or any other articles in said public corridors. It is the Tenant's sole responsibility for the removal of all its refuse. In the event that any such item is found in the public corridor or freight halls, then the Landlord shall have the right to remove such items to the basement and charge Tenant for storage and moving costs for such work or arrange with a carting company to remove such refuse for which the Tenant shall reimburse the Lessor for such expenses. It is also agreed and understood that hand truck may not be used in the passenger elevators by the Tenant, its invitees, or any person making deliveries to the Tenant. PAR 45 Lessee agrees to accept these premises "as is" in all respects. EX-10.7 11 PROCUREMENT & TRAFFICKING AGREEMENT (12/96) Exhibit 10.7 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED PROCUREMENT AND TRAFFICKING AGREEMENT Company: DIGITAL EQUIPMENT CORPORATION TOGETHER WITH ITS WHOLLY-OWNED AND MAJORITY-OWNED SUBSIDIARIES AND AFFILIATES ("COMPANY") Address: MSO 2-3 111 POWDERMILL RD. MAYNARD, MA 01754 Web Site URL: altavista.digital.com This Agreement when executed by the above named company ("Company"), and DoubleClick Inc. ("DoubleClick"), will constitute a valid and binding agreement between Company and DoubleClick according to the specific terms and conditions set forth below and those terms and conditions set forth in (i) the Standard Terms and Conditions, (ii) Appendix 1, (iii) Appendix 2 and (iv) Appendix 3 attached hereto. All terms not otherwise defined below shall be as defined in the Standard Terms and Conditions. I. DESCRIPTION OF SERVICES A. DoubleClick hereby agrees to link Pages to the Service and through such Service, DoubleClick shall deliver Advertisers' Banners to users accessing Pages. The selection and the delivery of Banners through the Service to users accessing Pages will be in accordance with the Placement Algorithm set forth in Appendix 1 hereto, and schedules and specifications which may be made a part of this Agreement by the written consent of the parties hereto; provided, however that the delivery of Banners (the "December Delivery Banners") by DoubleClick for the period commencing on December 18, 1996 and continuing through December 31, 1996 (the "December Delivery Period") shall be in accordance with the terms and conditions of Section VI of this Agreement and the Placement Algorithm set forth in Appendix 1 hereto shall not apply to the delivery of the December Banners. DoubleClick and Company shall mutually agree upon the number and type of Pages to be linked to the Service. B. During the first six (6) months of the Term (as defined below), the Company shall not place, or permit the placement or delivery of, any Banners or third party advertising on any pages of the Web Site (including, without limitation, the Pages and those pages which are not linked to the Service) except through DoubleClick which shall be the Company's sole and exclusive representative for the placement and delivery of all Banners and other advertising on the pages of the Web Site. Thereafter, the Company shall not place, or permit the placement or delivery of, any Banners or third party advertising on any Pages except through DoubleClick which shall be the Company's sole and exclusive representative for the placement and delivery of all Banners and other advertising on the Pages; provided, however, that if Company intends to engage a third party to sell or place banners on said non-linked pages after the first six (6) months of the Term, Company shall provide DoubleClick with sixty (60) days notice, notifying DoubleClick of Company's intention to do place or deliver Banner to the non-linked pages. II. TERM The term (the "Term") of this Agreement shall commence on December 16, 1996 and shall continue for two (2) years thereafter, except that either party may earlier terminate this Agreement for any reason after that date which is six (6) months following the effective date hereof on not less than ninety (90) days prior written notice to the other party. III. COMPENSATION/PAYMENT A. In full consideration of the Company providing the use of the Spot, DoubleClick shall pay Company, and Company agrees to accept, * of the Net Revenues generated on Banners which are delivered through the Service to Pages after the December Delivery Period and DoubleClick shall retain * of said Net Revenues; provided, however, if the Earned Revenues generated on Banners which are delivered through the Service to Pages after the December Delivery Period do not meet minimum calendar quarterly goals which are mutually agreed upon by Company and DoubleClick (the "Quarterly Goals"), then DoubleClick shall pay Company, and Company agrees to accept, * of the Net Revenues generated on Banners which are delivered through the Service to Pages for the succeeding calendar quarter and DoubleClick shall retain * of said Net Revenues for the succeeding calendar quarter. The parties expressly acknowledge and agree that the Quarterly Goals for 1997 shall be * for the first quarter of 1997; * for the second quarter of 1997; * for the third quarter of 1997; and * for the fourth quarter of 1997. Notwithstanding DoubleClick's failure to achieve the Quarterly Goals, commencing with the third calendar quarter of 1997, DoubleClick and Company shall reasonably determine whether Company is among the top * Internet Search Engines in terms of gross advertising revenue earned by such Internet Search Engines from the placement of Banners on said Internet Search Engines for each calendar quarter and if Company is among the top * Internet Search Engines for said calendar quarter, then DoubleClick shall pay Company, and Company agrees to accept, * of the Net Revenues generated on Banners which are delivered through the Service to Pages for the succeeding calendar quarter and DoubleClick shall retain * of said Net Revenues for the succeeding calendar quarter. DoubleClick anticipates that the majority of Net Revenues derived from the delivery of Banners through the Service to Pages is *Represents material which has been redacted pursuant to a request for confidential treatment pursuant to Rule 406 promulgated under the Securities Act of 1933, as amended. -2- generated from the delivery of Banners based on Keywords. Company acknowledges that except as otherwise provided in this Agreement, Company shall not be entitled to any additional compensation in connection with the performance of its obligations hereunder. B. DoubleClick shall pay Company on or about the third business day of each month for all Net Revenues collected in the prior month from Advertisers whose Banners are delivered to Pages. C. Company shall be solely responsible for any costs or expenses it incurs in connection with the Service or performance of its obligations under this Agreement including, without limitation, expenses associated with any HTML programming and linking Pages to the Service. D. Notwithstanding anything to the contrary contained herein, in the event Company terminates this Agreement in accordance with Section II above and DoubleClick, prior to said termination, has entered into agreements with Advertisers ("Advertiser Contracts") for the delivery of Banners to the Pages, the duration of which Advertiser Contracts extend beyond the date on which this Agreement has been terminated by Company, DoubleClick shall be entitled to * of the revenues derived from the continued delivery of said Banners by Company or any party other than DoubleClick. E. If Company requests DoubleClick to deliver banners from advertisers which were secured by Company or a third party to any Web Site pages not linked to the Service, DoubleClick's compensation for such delivery shall be negotiated in good faith by the parties hereto. DoubleClick expressly agrees that it shall deliver Company Partner Banners pursuant to this Section III.E. in accordance with the terms set forth in Appendix 1 hereto. IV. COMPANY OBLIGATIONS AND RIGHTS A. Company agrees to effect all necessary HTML programming with respect to the Web Site and Pages in accordance with the HTML Modifications (the "HTML Modifications") to be designated by DoubleClick. B. Spots must be within the first screen of a Page and otherwise conform to the HTML Modifications unless otherwise agreed upon by Company and DoubleClick. C. Company agrees to place a link on the Web Site's home page to DoubleClick's web site for potential advertisers to learn how they can place advertising on the Web Site. *Represents material which has been redacted pursuant to a request for confidential treatment pursuant to Rule 406 promulgated under the Securities Act of 1933, as amended. -3- D. Company agrees that DoubleClick has no responsibility to review the contents of Pages or the Web Site. E. Company shall have the right at any time to notify DoubleClick that it disapproves of a Banner which is then currently being delivered by DoubleClick to the Web Site and that such Banner should no longer be delivered to the Web Site. Provided that such notification is given by Company on a business day, DoubleClick shall remove said Banner within three (3) hours of such notification. If the notification is given on a non-business day, DoubleClick shall remove said Banner within three (3) hours following the start of business on the next business day following such notification. V. DOUBLECLICK OBLIGATIONS AND RIGHTS A. DoubleClick shall have the right to refuse to include in the Service, or remove from the Service, any Pages (including its contents) that DoubleClick determines do not meet the standards of the Service or which do not comply with the HTML Modifications, as DoubleClick deems reasonable and necessary in its sole good faith discretion, or in the event of any material change in the nature of the Web Site or the Page from that set forth in Company's application. DoubleClick shall give Company notice of any such removal of Pages, except where DoubleClick reasonably believes that the failure to remove such Pages will result in harm or damage to DoubleClick or the Service. B. Company acknowledges and agrees that promotion of the Service is critical to enhance usage by Advertisers and in connection therewith Company agrees that (i) DoubleClick shall have the right to use Company's Alta Vista tradenames and logos ("Company Marks") in accordance with Section V.K. and Pages in advertising and promoting the Service in any media now or hereafter known and (ii) Company shall, upon DoubleClick's reasonable request, supply DoubleClick with a reasonable amount of Company's promotional materials so as to facilitate DoubleClick's sales efforts to prospective Advertisers. The parties acknowledge and agree that DoubleClick shall not be required to obtain Company's permission prior to the use of Company's Marks in advertising and promoting the Service; provided, however, that DoubleClick shall at all times comply with the guidelines set forth by Company pertaining to the use of Company's name, trademarks or logos, which guidelines are set forth in Appendix 3 hereto. If DoubleClick fails to comply with said guidelines, Company shall so notify DoubleClick and DoubleClick shall within a reasonable period of time thereafter prospectively conform such use to Company's standards. If DoubleClick fails to conform such use, Company shall have the right to suspend DoubleClick's non-conforming use of the Company Marks. -4- C. DoubleClick agrees to actively promote the Web Site to the advertising community. Seminars, sales materials, trade materials, print and online advertising, conferences, and sales presentation materials are among the means by which DoubleClick shall promote the Web Site. DoubleClick further agrees to promote Company both as part of the network of web sites linked to the Service and as a premium web site using collateral materials and a rate card customized to Company and the Web Site. D. DoubleClick shall have the right to use for DoubleClick's own internal use in connection with the Service or for use in connection with potential Advertisers on the Service, information concerning Pages, Impressions and users accessing Pages obtained through the Service, provided DoubleClick does not reproduce any Pages without Company's prior consent and DoubleClick shall not disclose to any third party any such information specifically pertaining to such users. Except as expressly provided herein, DoubleClick shall not disclose any other statistical data regarding Company or the Web Site to any third party without the written permission of Company. Except as expressly provided above, all of the foregoing information shall be maintained in confidence by DoubleClick in accordance with Section 5 of the Standard Terms and Conditions attached hereto. E. DoubleClick will make site reports available to Company through DoubleClick's web site (www.doubleclick.net) listing the number of Impressions and click-over rates by Page. F. DoubleClick and Company shall mutually determine the rate card charged to Advertisers for delivery of Banners to be delivered solely to Page(s) of the Web Site (except with respect to the December Banners) and any general discounting strategies relating thereto. DoubleClick shall not enter into an Advertiser Contract with an Advertiser for the delivery of Banners to (i) the Page(s) of the Web Site and (ii) the Page(s) of at least one other web site which is linked to the Service without Company's permission and if Company so consents, DoubleClick shall determine the rate card (and any applicable discount) charged to said Advertiser for delivery of said Banners. It is understood that the rate charged for specific buys made by an Advertiser will not be reviewed with Company. Notwithstanding anything to the contrary contained herein, DoubleClick shall have the right, in its sole discretion, to provide Advertisers with bonus and/or make-good Impressions free of charge. G. DoubleClick shall procure Banners for delivery to the Web Site. H. DoubleClick agrees that the Service shall perform in accordance with the Technical Specifications set forth in Appendix 2, attached hereto and that Company shall have the right to perform the Technical Specifications Test in Appendix 2. -5- I. DoubleClick, for its own internal purposes, shall have a financial audit of (i) its books and records and (ii) its "Ad Management System" undertaken by KPMG or another "Big Six" accounting firm on an annual basis during the Term hereof. J. DoubleClick shall keep accurate records and accounts in accordance with standard business practices in the on-line industry and generally accepted accounting principles. Such records shall include, but are not limited to, the information relevant to the payment, and the calculations for such payments, to be made in accordance with Section III of this Agreement. DoubleClick agrees that an independent certified public accountant shall, no more than three times per year, until the expiration of one year after final payment under this Agreement, have access to and the right, upon prior reasonable notice, to examine at DoubleClick's principal place of business during regular working hours any books, documents, papers, records or accounts of DoubleClick relating to the delivery of Banners pursuant to this Agreement and to the determination and calculation of the payments to be made to Company. Company agrees to maintain all information obtained during such examinations in confidence and to cause its duly authorized representatives to do so as well. Audits shall be at the expense of Company, unless an underpayment exceeding five percent (5%) of the amount paid for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating to such audit, together with the amount of such underpayment, shall be paid by Company. If a deficiency is shown by such audit, DoubleClick shall immediately pay that deficiency plus interest thereon at annual rate equal to the prime rate of Citibank existing at the time of such audit plus 1.5% on any past due balance. Non-payment of any deficiency for more than thirty (30) days after the date on which DoubleClick receives notice of such deficiency shall constitute a material breach of this Agreement. K. Company hereby grants to DoubleClick a non-exclusive license to use Company's Marks as set forth in Appendix 3 attached hereto in connection with DoubleClick's placement and delivery of Banners and other advertising and promotions on the Pages pursuant to this Agreement, provided that any such use is approved in advance by Company. DoubleClick's use shall be in accordance with Company's policies as set forth in Appendix 3 attached hereto regarding advertising and trademark usage as established from time to time by company. DoubleClick agrees to cooperate with Company in facilitating Company's monitoring and control of the nature and quality of products and services bearing the Company Marks and to supply Company with specimens of DoubleClick's use of the Company's Marks, upon Company's reasonable request. In the event that Company determines that DoubleClick's use of the Company Marks, or the service in connection which such Company Marks are used, is inconsistent with Company's quality standards, then upon Company's written request, DoubleClick shall within a reasonable period thereafter prospectively conform such use or service to Company's standards. If DoubleClick fails to conforms such use or -6- service, Company shall have the right to suspend DoubleClick's non-conforming use of the Company Marks. L. DoubleClick acknowledges that the Company Marks are trademarks and service marks of Company. DoubleClick understands and agrees that the use of and Company Marks in connection with this Agreement shall not create any right, title or interest, in or to the use of the Company Marks and that all such use and goodwill associated with the Company Marks will inure to the benefit of Company. M. Subject to the provisions of Section 5 of the Standard Terms and Conditions, Company and DoubleClick shall promptly after the effective date of this Agreement agree upon and issue a joint press release announcing in general terms the business arrangement between DoubleClick and Company, without disclosing payment terms, exclusivity or other terms and conditions in this Agreement. Said press release shall be mutually agreed to by the parties hereto. N. It is understood that DoubleClick will not deliver any Banners containing sexually explicit materials or which are linked to a sexually explicit web site. VI. DECEMBER DELIVERY A. Notwithstanding anything to the contrary contained herein, upon the execution of this Agreement, DoubleClick shall have the right to deliver up to One Hundred Million December Banner Impressions (the "December Banners") to the Web Site, which delivery shall commence on December 18, 1996 and shall continue through December 31, 1996 (the "December Delivery Period"). B. DoubleClick shall be entitled to (i) use any or all of the December Banners to advertise DoubleClick and the Service and/or (ii) resell any or all of the December Banners to any third parties which are approved in advance by Company, which approval shall not be unreasonably withheld. Said approval or disapproval must be provided to DoubleClick within twenty-four (24) hours or the applicable third party will be deemed approved. Company acknowledges that it anticipates approving any third parties other than (i) Internet Search Engines (other than Company) and (ii) third parties whose proposed December Banners are derogatory of or disparaging to Company. C. In consideration for DoubleClick having the right to deliver any or all of the December Banners, DoubleClick shall pay Company, and Company agrees to accept an amount equal to * (the "December Compensation"), payable sixty (60) days after December 31, 1996. Company shall not be entitled to any additional compensation in connection with the placement, sale or resale of the December Banners. DoubleClick, in its sole *Represents material which has been redacted pursuant to a request for confidential treatment pursuant to Rule 406 promulgated under the Securities Act of 1933, as amended. -7- discretion, shall determine the rates charged to third parties in connection with the resale of the December Banners. D. DoubleClick shall determine, in its sole discretion, when during the December Delivery Period it delivers the December Banners to the Pages, provided that (i) DoubleClick shall not deliver in excess of ten million (10,000,000) December Banners on any given day and (ii) DoubleClick shall provide Company with twenty-four (24) hours notice prior to the commencement of the delivery of the December Banners to the Web Site. In the event Company is unable for any reason (including for failure to effect the necessary HTML programming, but excluding a failure resulting from the acts or omissions of DoubleClick) to receive or display a December Banner promptly following said twenty-four (24) hour period and notwithstanding Section 4 of the Standard Terms and Conditions, DoubleClick shall be entitled to deduct from the December Compensation an amount equal to $2.50/CPM for such non-received or non-displayed December Banners. DOUBLECLICK INC. COMPANY /s/ Kevin O'Connor By: /s/ Robert E. Hult ------------------------ ------------------------ (Signature) (Signature) /s/ Kevin O'Connor /s/ Robert E. Hult ------------------------ --------------------------- (Printed/Typed Name) (Printed/Typed Name) CEO Vice President ------------------------ --------------------------- (Official Title) (Official Title) 12/17/96 Dated: 12/19/96 -------------------------------- -8- STANDARD TERMS AND CONDITIONS 1. NO ASSIGNMENT. Neither party to this Agreement shall sell, transfer or assign this Agreement or the rights or obligations hereunder, other than to a parent or wholly-owned or majority-owned subsidiary, without the prior written consent of the other party. Notwithstanding the foregoing, without securing such prior consent, either party shall have the right assign or transfer this Agreement and their obligations hereunder to any successor-in-interest of such party by way of sale, merger, consolidation, reorganization, restructuring, or the acquisition of substantially all of the business and assets of the assigning party or more than 75% of the outstanding stock of the assigning party. If either party assigns this Agreement to a successor-in-interest, then the other party shall have the right to terminate this Agreement on not less than ninety (90) days prior written notice. 2. PROPRIETARY RIGHTS. Company understands and agrees that Company shall not have, nor will it claim, any right, title or interest in and to any Banners (other than its own Banners), the Service or any elements thereof (including, without limitation, the grant of a license in or to the Service or any software, source codes, modifications, updates and enhancements thereof or any other aspect of the Service), the name "DoubleClick" or any derivatives thereof, or any other trademarks and logos which are owned or controlled by DoubleClick and made available to Company through the Service or otherwise. DoubleClick understands and agrees that DoubleClick shall not have, nor will it claim, any right, title or interest in and to the Web Site, or any software, source codes, modifications, updates and enhancements thereof, or any intellectual property rights embodied therein. Nothing herein grants or shall be construed as granting DoubleClick any licenses or rights, whether express or implied or otherwise, in, to or under the Web Site or any intellectual property rights embodied therein. 3. REPRESENTATION AND INDEMNITY. Company warrants and represents at all times that Company (i) has the full corporate right, power and authority to enter into this Agreement, to grant the rights herein granted and fully to perform the acts required of it, and to grant the rights granted by it hereunder, (ii) the execution of this Agreement by Company, and the performance by Company of its obligations and duties hereunder, do not and will not violate any agreement to which Company is a party or by which it is otherwise bound and DoubleClick acknowledges that Company makes no representations, warranties or agreements related to the subject matter hereof that are not expressly provided for in this Agreement. The foregoing representations by Company in this Section 3 shall be defined as "Company's Representations". In furtherance of the foregoing, Company agrees to indemnify and hold DoubleClick and the Advertisers harmless from and against any and all claims, actions, losses, damages, liability, costs and expenses (including reasonable attorneys' fees) ("Claims") to the extent that the basis of such Claims is the breach of any representation, warranty or agreement made by Company hereunder; provided that (i) DoubleClick gives Company prompt notice of the Claim, (ii) Company is given the right to control and direct the investigation, preparation, defense and settlement of the Claim; and (iii) DoubleClick reasonably cooperates with Company in the defense and settlement thereof. In connection with the defense of any such Claim, DoubleClick may have its own counsel in attendance at all interactions and substantive negotiations at its own cost and expense. -9- DoubleClick warrants and represents at all times that DoubleClick (i) owns the Service and that such Service will not infringe upon or conflict with the rights held by any third party under patent, trademark, copyright, trade secret or other proprietary right, (ii) the performance by DoubleClick of its obligations and duties hereunder, do not and will not violate any agreement to which DoubleClick is a party or by which it is otherwise bound and (iii) DoubleClick will require each Advertiser whose Banners are being delivered to Pages to agree to indemnify and hold Company harmless from and against any losses, costs, damages, or expenses (including reasonable attorneys' fees) resulting from claims or actions arising out of or in connection with the placement of Banners on Pages. Advertisers refusing to agree to indemnify Company as set forth above shall be excluded from the Pages. It is understood and agreed that nothing herein shall require DoubleClick to take or participate in any action against an Advertiser although DoubleClick shall have the right to participate in such proceeding at DoubleClick's expense. The foregoing representations by DoubleClick in this Section 3 shall be defined as "DoubleClick's Representations". In furtherance of the foregoing and except as provided in Section 4 of these Standard Terms and Conditions, DoubleClick shall indemnify, defend and hold Company harmless from and against any and all claims, actions, losses, damages, liabilities, costs and expenses (including reasonable attorneys' fees) resulting from or arising out of or in connection with any breach of the foregoing representations and warranties and for in connection with or arising from DoubleClick's placement, delivery and/or selling of all Banners on the Pages and the Web Site; provided that (i) Company gives DoubleClick prompt notice of the Claim, (ii) DoubleClick is given the right to control and direct the investigation, preparation, defense and settlement of the Claim; and (iii) Company reasonably cooperates with DoubleClick in the defense and settlement thereof. In connection with the defense of any such Claim, Company may have its own counsel in attendance at all interactions and substantive negotiations at its own cost and expense. 4. NO WARRANTIES/LIABILITIES. EXCEPT WITH RESPECT TO "COMPANY'S REPRESENTATIONS" AND "DOUBLECLICK'S REPRESENTATIONS" (AS SAID TERMS ARE DEFINED IN SECTION 3 ABOVE), NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS OF THE SERVICE OR THE WEB SITE FOR A PARTICULAR PURPOSE INCLUDING, WITHOUT LIMITATION, THE TYPE OF BANNERS OR NUMBER OF BANNERS WHICH WILL BE DELIVERED TO PAGES THROUGH THE SERVICE. DOUBLECLICK SHALL NOT BE LIABLE FOR ANY ADVERTISERS WHOSE BANNERS APPEAR ON THE SERVICE, NOR THE CONTENTS OF ANY BANNER, NOR SHALL DOUBLECLICK BE LIABLE FOR ANY LOSS, COST, DAMAGE OR EXPENSE (INCLUDING COUNSEL FEES) INCURRED BY COMPANY IN CONNECTION WITH COMPANY'S PARTICIPATION IN THE SERVICE. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY TECHNICAL MALFUNCTION, COMPUTER ERROR OR LOSS OF DATA OR OTHER INJURY, FAILURE OR INTERRUPTION OF, AND/OR DAMAGE OR DISRUPTION TO COMPANY'S PAGES OR WEB SITE OR THE SERVICE. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR IN RELATION TO THIS -10- AGREEMENT. IN FURTHERANCE OF, BUT WITHOUT LIMITING THE FOREGOING: (A) DOUBLECLICK ACKNOWLEDGES THAT COMPANY PROVIDES THE WEB SITE ON AN "AS IS" BASIS AND THAT COMPANY MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE USEFULNESS, ACCURACY, COMPLETENESS, FEASIBILITY, RELIABILITY OR EFFECTIVENESS OF THE WEB SITE OR THAT THE OPERATION OF THE WEB SITE WILL MEET THE OBJECTIVES OF DOUBLECLICK OR ANY THIRD PARTY, OR THAT THE OPERATION OF THE WEB SITE WILL BE UNINTERRUPTED OR ERROR-FREE; IN PARTICULAR, AND WITHOUT LIMITING THE FOREGOING, COMPANY MAKES NO REPRESENTATION AS TO THE COMPLETENESS OF SEARCH RESULTS OBTAINED BY USING THE WEB SITE; AND (B) COMPANY ACKNOWLEDGES THAT DOUBLECLICK PROVIDES THE SERVICE ON AN "AS IS" BASIS AND THAT DOUBLECLICK MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE USEFULNESS, ACCURACY, COMPLETENESS, FEASIBILITY, RELIABILITY OR EFFECTIVENESS OF THE SERVICE OR THAT THE OPERATION OF THE SERVICE WILL MEET THE OBJECTIVES OF COMPANY OR ANY THIRD PARTY, OR THAT THE OPERATION OF THE SERVICE WILL BE UNINTERRUPTED OR ERROR-FREE. 5. CONFIDENTIALITY. Any information relating to or disclosed in the course of this Agreement by either party (the "Disclosing Party") to the other party (the "Receiving Party"), which is or should be reasonably understood in good faith by the nature of the circumstance to be confidential or proprietary to the Disclosing Party, including but not limited to, information about the Service and technical processes and formulas, source code, product designs, sales, cost and other unpublished financial information, product and business plans, projections, and marketing data shall be deemed "Confidential Information" and shall not be used, disclosed or reproduced by the Receiving Party without the Disclosing Party's prior written consent. "Confidential Information" shall not include information (a) already lawfully known to or independently developed by the Receiving Party, (b) disclosed in published materials, (c) generally known to the public, (d) lawfully obtained from any third party, or (e) required to be disclosed by law. Except as required by law or generally accepted accounting principles, and except to assert its rights hereunder or for disclosures on a "need-to-know" basis to its own officers, directors, employees and professional advisers or to prospective investors and acquirers in connection with a pending investment in or acquisition of such party, and under an obligation of confidentiality no less stringent than as set forth herein, each party hereto agrees that neither it nor its directors, officers, employees, consultants or agents shall disclose the terms of this Agreement or specific matters relating hereto without the prior consent of the other party. 6. BREACH. Either party shall have the right to immediately terminate this Agreement in the event the other party commits a material breach of this Agreement and such breach is not cured by the breaching party within thirty (30) days of its receipt of notice of such breach from the non breaching party. 7. MISCELLANEOUS. Notwithstanding any provision hereof, for the purpose of this Agreement each party shall be and act as an independent contractor and not as an employee, -11- partner, joint venturer, or agent of the other and shall not bind nor attempt to bind the other to any contract. This Agreement, including (i) the Standard Terms and Conditions, (ii) Appendix 1, (iii) Appendix 2 and (iv) Appendix 3, represents the entire understanding between DoubleClick and Company regarding DoubleClick's services and supersedes all prior agreements. No waiver, modification or addition to this Agreement shall be valid unless in writing and signed by the parties to this Agreement. Notwithstanding the foregoing, DoubleClick shall have the right to modify or make additions to Appendix 1, including the Placement Algorithm, as well as to the HTML Modifications only after notification and consultation with Company. If any provision of this Agreement shall be adjudicated by any court of competent jurisdiction to be unenforceable or invalid, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and the other provisions shall be unaffected. 8. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New York. 9. SURVIVAL. Except with respect to Section V.L. of the Agreement and Sections 2, 3 (only with respect to the indemnities contained therein), 4, 5, 7 and 8 of the Standard Terms and Conditions, no rights or liabilities created by this Agreement shall extend beyond the expiration or earlier termination hereof; provided, however, that the rights and liabilities created by Section 5 of these Standard Terms and Conditions shall only extend for a period of one (1) year beyond the expiration or earlier termination of this Agreement. 10. DEFINITIONS. "Advertiser" is defined as a company, entity or individual which provides Banners to DoubleClick for distribution through the Service. "Banner" is defined as an advertisement or promotion (including any sponsorship-driven advertisements or promotions) and its contents. "Company Partner Banners is defined as a Banner designated by Company which promotes one of Company's partners with which it has established a contractual relationship pertaining to the delivery of Banners and other business matters not related to said delivery. "Development Banner" is defined as a Banner for DoubleClick which is designed to promote the Service and which DoubleClick delivers to the Pages in accordance with the Placement Algorithm at no cost to DoubleClick. "Earned Revenues" is defined as the gross billings earned from Advertisers by DoubleClick. "Net Revenues" is defined as the gross billings collected from Advertisers by DoubleClick less rate card and volume discounts. "Impression" is defined as occurring each time a Banner appears on a Page resulting from a user accessing or visiting such Page. "Internet Search Engines" is defined as Yahoo, Infoseek, Lycos, Excite and Company. "Keyword" shall be a search term consisting of a word or phrase requested by a user of the Web Site which is used to select the Banner that will be delivered to said user. "Page" is defined as a page in the Web Site designated by Company to be linked to the Service and is -12- accepted and approved by DoubleClick. "Paid Banner" is defined as any Banner which is paid for by an Advertiser. "PSA Banner" is defined as a Banner containing a public service announcement promoting worthwhile causes and is donated by DoubleClick. "Service" is defined as the DoubleClick service that delivers Banners to any Page(s) of the Web Site. "Spot" is defined as the specific place on a Page where a Banner may appear through the Service. "User Profile" is defined as information currently available to DoubleClick about the users accessing Pages. "Web Site" is defined as the Alta Vista full-text World Wide Web search engine and the Alta Vista index, which can be accessed through http://www.altavista.digital.com, including the Alta Vista web site accessible through such URL. -13- APPENDIX 1 I. PLACEMENT ALGORITHM A. If a Paid Banner's criteria matches a User Profile or Keyword, the Paid Banner is delivered to the user. Otherwise, B. Either a Company Partner Banner, a Development Banner or a PSA Banner is delivered. Delivery of Company Partner Banners is limited to a maximum per month of an amount equal to * of the number of Paid Banners delivered during the previous month (the "Company Partner Banner Limit"). Delivery of Development Banners is limited to a maximum per month of an amount equal to * of the number of Paid Banners delivered during the previous month. Notwithstanding the foregoing, Company shall have the right to exceed the Company Partner Banner Limit to an amount equal to * of the number of Paid Banners delivered during the previous month; provided, that Company pay to DoubleClick an amount equal to * for the number of Company Partner Banners delivered in excess of the Company Partner Banner Limit, which amount shall be payable on the commencement of the immediately subsequent month. It is expressly understood and agreed that for the month of January, 1997, delivery of Company Partner Banners is limited to a maximum of * and delivery of Development Banners is limited to a maximum of * . The quantity and selection of PSA Banners for a given month must be mutually upon by both parties. Otherwise, C. A blank image will be delivered. *Represents material which has been redacted pursuant to a request for confidential treatment pursuant to Rule 406 promulgated under the Securities Act of 1933, as amended. -14- APPENDIX 2 "TECHNICAL SPECIFICATIONS" I. TECHNICAL SPECIFICATIONS TEST A. Test Basics: Company shall have the right to conduct automated tests (the "Technical Specifications Tests") from its facility in San Mateo, California. The Technical Specifications Test will consist of requests to DoubleClick from Company for the delivery 10,000 3K Banners. The Technical Specifications Test will begin at 9 AM PST on random Wednesdays, with the first Technical Specifications Test to be held on January 29, 1997. The Technical Specifications Test will be performed by a Unix C program provided by Company using up to four hundred (400) threads initially, and up to one thousand (1000) threads by January 29, 1998. Company shall provide DoubleClick with one (1) hour notice prior to commencing any Technical Specifications Test. 1. RESPONSIVENESS: Average Banner delivery latency under the Technical Specifications Test must be under 0.5 seconds for the "Responsiveness" element of the Technical Specifications Test results to be deemed satisfactory. 2. Failure Rate: No more than 0.1 % of the 10,000 3K Banner delivery request under the Technical Specifications Test may fail for the "Failure Rate" element of the Technical Specifications Test results to be deemed satisfactory. 3. Capacity: The Service must be capable of delivering four hundred (400) Banners per second by January 29, 1997 and one thousand (1000) Banners per second by January, 29 1998 for the "Capacity" element of the Technical Specifications Test results to be deemed satisfactory. B. METHODOLOGY: Company represents and warrants that its facilities will not impede the successful completion of a Technical Specifications Test. To avoid potential congestion of a particular route in the Technical Specifications Test, Company agrees, at DoubleClick's request, to source the test from two IP addresses such that the routes for each IP address to DoubleClick are distinct. Company further agrees that it shall conduct all Technical Specifications Tests in good faith. C. UNSATISFACTORY TEST RESULTS: In the event the Technical Specifications Test is not deemed satisfactory pursuant to Sections I.A., I.B. and I.C. of this Appendix 2, DoubleClick will be promptly notified and Company shall repeat the Technical Specifications Test forty-eight (48) hours later (a "Repeat Test"). If the results of a Repeat Test are not deemed satisfactory pursuant to Sections I.A., I.B. and I.C. of this Appendix 2, DoubleClick will be promptly notified and Company shall perform an additional Repeat Test forty-eight (48) hours later. -15- D. FORCE MAJEURE: No element of the Technical Specifications Test results, including, without limitation, the "Responsiveness" "Failure Rate" element and the "Capacity" element, shall be deemed unsatisfactory if events beyond the control of DoubleClick, including, without limitation, Internet brownouts, Web Site technical difficulties, acts of God, fire, earthquake, strike, civil commotion, war, terrorism, or act of government, prevent DoubleClick from satisfying said elements; provided, DoubleClick, immediately upon learning of such events, notifies Company of the impossibility of satisfying such element(s) and to the extent such events are within the reasonable control of DoubleClick, utilizes its best efforts to cure such events within twenty-four (24) hours of said notification of Company. II. GENERAL TECHNICAL SPECIFICATIONS A. CAPACITY: Effective January 29, 1997, the Service must be capable of delivery of an aggregate of four hundred (400) Banners per second dispersed on up to three (3) unique pages. By January 29, 1998 the Service must be capable of delivery of an aggregate of one thousand (1000) Banners per second dispersed on up to three (3) unique pages. If the Service expands beyond three (3) unique pages, the parties shall renegotiate the Banner per second capacity upward. B. RELIABILITY: The Service must be functional and capable of delivering Banners at least ninety-nine percent (99%) of the time over each calendar month period. No single period of Service non-functionality shall be greater than twenty-four (24) hours. C. FORCE MAJEURE: DoubleClick shall not be deemed in default of any of the General Technical Specifications if DoubleClick's failure to meet such General Technical Specification is due to events beyond the control of DoubleClick, including, without limitation, Internet brownouts, Web Site technical difficulties, acts of God, fire, earthquake, strike, civil commotion, war, terrorism, or act of government; provided, DoubleClick, immediately upon learning of such events, notifies Company of the impossibility of meeting such General Technical Specifications and to the extent such events are within the reasonable control of DoubleClick, utilizes its best efforts to cure such events within twenty-four (24) hours of said notification of Company. III. TECHNICAL COVERAGE A. DoubleClick agrees that it shall have personnel available to provide technical coverage to Company twenty-four (24) hours per day, seven (7) days per week. -16- APPENDIX 3 DIGITAL TRADEMARK USAGE GUIDELINES GUIDELINES FOR USE OF ALTAVISTA LOGO AND WORD MARKS SUMMARY Digital's AltaVista marks are of great importance in helping the company compete in the highly competitive computer industry. Digital's legal rights in the marks can be defended only if they are consistently used correctly in all forms of media. Therefore, it is critical that all licensees familiarize themselves with and abide the following rules of trademark use. ALTAVISTA TRADEMARK USAGE GUIDELINES Trademarks must be used as adjectives, not nouns. Always follow the mark with the common generic (dictionary name for the product. Correct: AltaVista Search, AltaVista Software Always distinguish a trademark from surrounding text. Methods of distinguishing a mark include printing it in CAPITALS, ITALICIZED TEXT, using bold faced text, Initial Capitalization or by putting the mark in "quotation marks". Never use the AltaVista trademark as a verb. Never use the AltaVista trademark in plural form. Do not hyphenate or dissect the AltaVista trademark. Incorrect: Alta Vista Incorrect: Alta-Vista Do not combine the AltaVista mark with other trademarks or other words to form new trademarks, except as permitted in the AltaVista Network Affiliate Agreement. The graphic design of the AltaVista logo must be adhered to strictly. Approved artwork must be used and the design cannot be altered in any way. The AltaVista logo must stand alone. It cannot be combined with other marks and cannot be used in text. The trademark symbol. "TM", must appear on the upper right shoulder of the AltaVista logo and AltaVista word mark on both the first use of the mark and on the prominent use of the mark. -17- This following phrase must be centered at the bottom of the AltaVista Search results page: "AltaVista Search from Digital. Used under license." From time to time during the Tenn, Digital may modify the written guidelines for the size, typeface, colors and other graphic characteristics of the AltaVista logo ant word marks, which upon delivery to Affiliate shall be deemed to be incorporated into the "Guidelines for use of AltaVista Logo and Word Mark" document under this Agreement. These guidelines may be modified at any time, by Digital upon written notice. -18- ALTAVISTA LOGO USAGE GUIDELINES Complete artwork files are available on write-locked, read-only electronic media. This artwork may not be edited or modified in any way. COLOR PALETTES The AltaVista logos must be rendered in three colors for graphics arts reproduction. Else color palette is: - AltaVista Dark Blue (Pantone 288C) - AltaVista Medium Blue (Pantone 286C) - AltaVista Ice Blue (Pantone 630C) - OnSite Red (Pantone 1655) - Search Gold (Pantone 604) -19- EX-11.1 12 COMP PER SHARE EARNINGS EXHIBIT 11.1 DOUBLECLICK INC. COMPUTATION OF PRO FORMA NET LOSS PER COMMON SHARE
NUMBER OF COMMON AND COMMON WEIGHTED EQUIVALENT DAYS AVERAGE PERIOD ENDED DECEMBER 31, 1996 SHARES OUTSTANDING SHARES - ------------------------------ ------------ ------------ -------- Issuance of Class A common stock at inception, and exchange for Class B and Class C common stock........................ 9,059,120 251 6,629,269 3,940,890 92 1,057,032 ------------ ------------ 343 7,686,301 Issuance of Class B common stock in exchange for Class A common stock................................................ 5,118,228 92 1,372,819 Issuance of Class C common stock in exchange for Class A common stock................................................ 2 92 1 Cheap stock consideration for common stock and stock options issued during the period from January 23, 1996 (inception) to December 31, 1996........................................ 4,343,927 343 4,343,927 ------------ Pro forma weighted average shares used in per share computation................................................. 13,403,048 ------------ Net loss for the period from January 23, 1996 (inception) to December 31, 1996........................................... $ (3,191,770) Pro forma net loss per share.................................. $ (0.24) ------------- -------------
DOUBLECLICK INC. COMPUTATION OF PRO FORMA NET LOSS PER SHARE
NUMBER OF COMMON AND COMMON WEIGHTED EQUIVALENT DAYS AVERAGE NINE MONTHS ENDED SEPTEMBER 30, 1997 SHARES OUTSTANDING SHARES - ------------------------------------ ------------ ----------- -------- Issuance and assumed conversion of convertible preferred stock............................................. 6,234,434 118 2,704,644 Class A common stock outstanding at January 1, 1997, and exchange for Common Stock................................... 3,940,890 154 2,231,239 Stock options exercised..................................... 28,750 51 5,391 Class B common stock outstanding at January 1, 1997, and exchange for Common Stock................................... 5,118,228 154 2,897,820 Class C common stock outstanding at January 1, 1997, and exchange for Common Stock................................... 2 154 1 Issuance of Common Stock...................................... 5,191,732 118 2,252,296 Stock options exercised..................................... 1,625 76 454 500 61 112 20,000 60 4,412 500 56 103 5,500 53 1,072 4,500 47 778 30,000 39 4,301 23,000 24 2,029 3,500 18 232 1,000 15 55 1,875 12 83 3,500 10 129 500 5 9 4,875 5 90 ------------ ------------ 5,292,607 2,266,155 Cheap stock consideration for common stock and stock options during the nine months ended September 30, 1997............. 4,343,927 272 4,343,927 ------------ Pro forma weighted average shares used in per share computation................................................. 14,449,177 ------------ Net loss for the nine months ended September 30, 1997......... $ (4,612,443) ------------- Pro forma net loss per share.................................. $ (0.32) -------------
EX-16.1 13 LTR KPMG PEAT MARWICK LLP Exhibit 16.1 [LETTERHEAD OF KPMG PEAT MARWICK LLP] December 16, 1997 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Ladies and Gentlemen: Re: DoubleClick Inc. We have read the section titled "Change in Independent Accountants" included in DoubleClick Inc.'s Registration Statement on Form S-1 filed on December 16, 1997 and are in agreement with the statements contained in that section therein. Very truly yours, /s/ KPMG PEAT MARWICK LLP /jk EX-21.1 14 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT Australia: DoubleClick Australia 7571 Pty Limited United Kingdom: DoubleClick Europe Limited Canada: DoubleClick Canada Network Inc. EX-23.1 15 CONSENT OF PRICE WATERHOUSE EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated December 15, 1997, relating to the consolidated financial statements of DoubleClick Inc., which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP New York, New York December 16, 1997 EX-27.1 16 FINANCIAL DATA SCHEDULE
5 12-MOS 9-MOS DEC-31-1997 DEC-31-1997 JAN-23-1996 JAN-01-1997 DEC-31-1996 SEP-30-1997 0 4,639,741 0 8,099,688 4,228,837 7,826,111 (150,000) (362,075) 0 0 4,078,837 20,282,489 491,726 1,942,855 (45,932) (282,250) 4,525,531 22,263,475 7,117,301 9,083,496 0 0 0 0 0 40 9,059 5,293 (2,600,829) 7,837,416 4,525,531 22,263,475 6,514,087 19,657,224 6,514,087 19,657,224 3,780,133 13,047,902 3,780,133 13,047,902 5,841,868 11,228,278 0 0 91,090 256,286 (3,191,770) (4,612,443) 0 0 (3,191,770) (4,612,443) 0 0 0 0 0 0 (3,191,770) (4,612,442) 0 0 0.24 0.32
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