-----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, Q+GLfHoV5bztPVGwMEV7cKSpYq8/UKwRQTFlmy5SBxfjhOZ8VSBc3TpVG95oZ2qu 7dvMFj4mpQjlVsZtRe0W1Q== 0001047469-98-006225.txt : 19980218 0001047469-98-006225.hdr.sgml : 19980218 ACCESSION NUMBER: 0001047469-98-006225 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOUBLECLICK INC CENTRAL INDEX KEY: 0001049480 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 133870996 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-42323 FILM NUMBER: 98540377 BUSINESS ADDRESS: STREET 1: 41 MADISON AVE STREET 2: 32ND FL 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/A 1 FORM S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998 REGISTRATION NO. 333-42323 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- AMENDMENT NO. 3 TO 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION BE REGISTERED REGISTERED(1) PER SHARE (2) PRICE (2) FEE (3) Common Stock, par value $.001 per share................................... 2,875,000 $ 14.00 $ 40,250,000.00 $ 11,874
(1) Includes 375,000 shares of Common Stock which the Underwriters have the option to purchase from the Company solely to cover over-allotments, if any. (2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(a). (3) Previously paid. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL 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 FEBRUARY 17, 1998 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. 2,500,000 SHARES [LOGO] COMMON STOCK (PAR VALUE $.001 PER SHARE) ------------------ All of the 2,500,000 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". Shares of Common Stock may be reserved for sale at the initial public offering price to the Company's employees, directors and other persons with direct business relationships with the Company. Such employees, directors and other persons may purchase, in the aggregate, not more than 10% of the Common Stock offered hereby. See "Underwriting". SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. The Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "DCLK", subject to official notice of issuance. ------------------ 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 375,000 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". 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, 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"); AND (III) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. 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. The Company estimates that in December 1997, 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 over 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. The Company believes 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. The Company believes that, 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. The Company believes that the dollar value of Internet 3 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. 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 Company believes 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.................. 2,500,000 shares Common Stock to be outstanding after the offering.... 14,853,406 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 December 31, 1997. Excludes 2,020,167 shares of Common Stock issuable upon the exercise of stock options outstanding at December 31, 1997, with a weighted average exercise price of $1.78 per share. See "Capitalization", "Management -- 1997 Stock Incentive Plan", "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 (INCEPTION) YEAR THROUGH ENDED DECEMBER 31, DECEMBER 31, 1996 1997 ----------------- -------------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues....................................................................... $ 6,514 $ 30,597 Cost of revenues............................................................... 3,780 20,628 Gross profit................................................................... 2,734 9,969 Operating expenses............................................................. 5,842 18,434 Loss from operations........................................................... (3,108) (8,465) Net loss....................................................................... $ (3,192) $ (8,356) -------- -------------- -------- -------------- Pro forma basic and diluted net loss per share(1).............................. $ (0.35) $ (0.80) -------- -------------- -------- --------------
AS OF DECEMBER 31, 1997 -------------------------------- PRO FORMA ACTUAL AS ADJUSTED(2)(3) ------------- ----------------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents, and short-term investments.......................... $ 8,546 $ 38,021 Working capital................................................................ 7,512 36,987 Total assets................................................................... 21,742 51,217 Total stockholders' equity..................................................... 9,400 38,875
- ------------------------ (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. (3) Adjusted to reflect the sale of 2,500,000 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". ------------------------ 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. 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 61.2% of the Company's revenues for the year ended December 31, 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 44.7% of the Company's revenues for the year ended December 31, 1997. AltaVista, a subsidiary of Digital Equipment Corporation, 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. 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. The agreement was amended on January 7, 1998 to extend the term through December 1999 and to provide that the agreement survives a change of control of AltaVista or Digital Equipment Corporation, provided that, notwithstanding either such provision, either party may terminate the agreement after July 1998 upon 90 days prior written notice. On January 26, 1998, Digital Equipment Corporation announced it had signed a definitive merger agreement pursuant to which it would, upon satisfaction of certain closing conditions, be acquired by Compaq Computer Corp. Any development materially affecting the business or financial condition of AltaVista, including the completion of the proposed acquisition of Digital Equipment Corporation by Compaq Computer Corp., could have a material adverse effect on 6 AltaVista's business or 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 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 7.7% of the Company's revenues for the year ended December 31, 1997 and the Company's top ten advertisers accounted for an aggregate of 27.2% 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 7 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. 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. 8 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 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. 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. PRIVACY CONCERNS 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. 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, a variety of related pricing models have developed in the Company's marketplace, 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. 9 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 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, including 24/7 Media. 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 10 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 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 185 employees as of December 31, 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. The failure by the Company to successfully hire and retain candidates with appropriate qualifications has not in the past 11 had, but could in the future have, a material adverse effect on the Company's business, results of operations and financial condition in the future. See "Management". 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, including outages and delays resulting from the inability of certain computers or software to distinguish dates in the 21st century from dates in the 20th century, 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 12 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 Web publishers 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 13 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 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, 14 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 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 14,853,406 shares of Common Stock to be outstanding upon the closing of the offering, the 2,500,000 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 12,353,406 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) 30,791 shares will be eligible for sale 90 to 180 days after the date of this Prospectus and (ii) 12,332,607 shares will be eligible for sale upon the expiration of lock-up agreements 180 days after the date of this Prospectus. In addition, there are outstanding options to purchase 2,020,167 shares of Common Stock which will be eligible for sale in the public market from time to time subject to vesting and, in the case of certain options, the expiration of lock-up agreements. In addition, certain stockholders, representing approximately 12,353,398 shares of Common Stock, and certain optionholders, with respect to an aggregate of 2,020,167 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 -- 1997 Stock Incentive Plan", "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". 15 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 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 41.2% of the outstanding Common Stock (40.2% 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". BROAD DISCRETION IN USE OF PROCEEDS The net proceeds of the offering will be added to the Company's working capital and will be available for general corporate purposes, including capital expenditures. As of the date of this Prospectus, the Company cannot specify with certainty the particular uses for the net proceeds to be received upon completion of the offering. Accordingly, the Company's management will have broad discretion in the application of the net proceeds. See "Use of Proceeds". ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAWS AND DELAWARE LAW PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK 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 2,500,000 shares of Common Stock offered pursuant to the offering are estimated to be approximately $29.5 million ($34.0 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. As of the date of this Prospectus, the Company cannot specify with certainty the particular uses for the net proceeds to be received upon completion of the offering. Accordingly, the Company's management will have broad discretion in the application of the net proceeds. 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 December 31, 1997, (i) on an actual basis, (ii) on a pro forma basis to reflect the Preferred Stock Conversion and (iii) on a pro forma basis as adjusted to give effect to the sale of 2,500,000 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 DECEMBER 31, 1997 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ---------- ----------- ------------ (IN THOUSANDS) 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; 6,118,972 shares issued and outstanding on an actual basis; 12,353,406 shares issued and outstanding on a pro forma basis; and 14,853,406 shares issued and outstanding on a pro forma as adjusted basis(1)....................... 6 12 15 Additional paid-in capital................................................ 46,996 46,990 76,462 Deferred compensation..................................................... (1,057) (1,057) (1,057) Cumulative translation adjustment......................................... (1) (1) (1) Accumulated deficit(2).................................................... (36,544) (36,544) (36,544) ---------- ----------- ------------ Total stockholders' equity................................................ 9,400 9,400 38,875 ---------- ----------- ------------ Total capitalization.................................................... $ 9,400 $ 9,400 $ 38,875 ---------- ----------- ------------ ---------- ----------- ------------
- ------------------------ (1) Excludes (a) 2,020,167 shares of Common Stock issuable upon the exercise of stock options outstanding at December 31, 1997, with a weighted average exercise price of $1.78 per share, of which options to purchase 408,024 shares were then exercisable, and (b) 803,145 shares reserved for issuance under the Company's 1997 Stock Incentive Plan. See "Management -- 1997 Stock Incentive Plan", "Description of Securities" and Note 5 of Notes to Consolidated Financial Statements. (2) Consists of $11.5 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 December 31, 1997 was $9.4 million, or $0.76 per share of Common Stock, after giving effect to the Preferred Stock 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 December 31, 1997. Assuming the sale by the Company of 2,500,000 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 December 31, 1997 would have been $38.9 million, or $2.62 per share of Common Stock. This represents an immediate increase in pro forma net tangible book value of $1.86 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $10.38 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 December 31, 1997..... $ 0.76 Pro forma increase per share attributable to new investors.............. 1.86 --------- Pro forma net tangible book value per share after the offering.............. 2.62 --------- Pro forma dilution per share to new investors............................... $ 10.38 --------- ---------
The following table summarizes, on a pro forma basis as of December 31, 1997, after giving effect to the Preferred Stock 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)................. 12,353,406 83.2% $ 45,627,317(2) 58.4% $ 3.69 New investors............................. 2,500,000 16.8 32,500,000 41.6 13.00 ------------- ----- -------------- ----- ------- Total................................. 14,853,406 100.0% $ 78,127,317 100.0% $ 5.26 ------------- ----- -------------- ----- ------- ------------- ----- -------------- ----- -------
- ------------------------ (1) Excludes (a) 2,020,167 shares of Common Stock issuable upon the exercise of stock options outstanding at December 31, 1997, having with a weighted average exercise price of $1.78 per share, of which options to purchase 408,024 shares were then exercisable, and (b) 803,145 shares reserved for issuance under the Company's 1997 Stock Incentive Plan. See "Management -- 1997 Stock Incentive Plan", "Description of Securities" and Note 5 of Notes to Consolidated Financial Statements. (2) Includes $25,000,343 which was used to redeem shares of Common Stock held by certain stockholders of the Company. See 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 and for the year ended December 31, 1997 and with respect to the Company's Consolidated Balance Sheet as of December 31, 1996 and 1997 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 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 (INCEPTION) YEAR THROUGH ENDED DECEMBER 31, DECEMBER 31, 1996 1997 ------------------- --------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues............................................................... $ 6,514 $ 30,597 Cost of revenues....................................................... 3,780 20,628 -------- -------- Gross profit......................................................... 2,734 9,969 Operating expenses: Sales and marketing.................................................. 3,079 10,710 General and administrative........................................... 2,145 6,326 Product development.................................................. 618 1,398 -------- -------- Total operating expenses........................................... 5,842 18,434 -------- -------- Loss from operations................................................... (3,108) (8,465) Net loss............................................................... $ (3,192) $ (8,356) -------- -------- -------- -------- Pro forma basic and diluted net loss per share (1)..................... $ (0.35) $ (0.80) -------- -------- -------- -------- Pro forma weighted average shares used in basic and diluted net loss per share calculation(1)(2).......................................... 13,457 14,843 -------- -------- -------- --------
DECEMBER 31, DECEMBER 31, 1996 1997 ------------------- --------------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents, and short-term investments.................. $ -- $ 8,546 Working capital (deficit).............................................. (3,038) 7,512 Total assets........................................................... 4,526 21,742 Total stockholders' (deficit) equity................................... (2,592) 9,400
- ------------------------ (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 founded in January 1996 by Kevin J. O'Connor, the Company's Chief Executive Officer, Dwight A. Merriman, the Company's Chief Technical Officer, and Poppe Tyson, Inc., a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt, Inc. The Company has grown from 13 employees as of March 31, 1996 to 185 employees as of December 31, 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 61.2% of the Company's revenues for the year ended December 31, 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. The agreement was amended on January 7, 1998 to extend the term through December 1999 and to provide that the agreement survives a change of control of AltaVista or Digital Equipment Corporation, although, notwithstanding either such provision, either party may terminate the agreement after July 1998 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. Revenues from advertisements delivered on the AltaVista Web site were $13.7 million, or 44.7% of the Company's revenues for the year ended December 31, 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. On January 26, 1998, Digital Equipment Corporation announced it had signed a definitive merger agreement pursuant to which it would, upon satisfaction of certain closing conditions, be acquired by Compaq Computer Corp. Any development materially affecting the business or financial condition of AltaVista, including the completion of the proposed acquisition of Digital Equipment Corporation by Compaq Computer Corp., could have a material adverse effect on AltaVista's business or 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. The Company has incurred significant losses since its inception, and as of December 31, 1997 had an accumulated deficit of $36.5 million, of which $11.5 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, $0.5 million was amortized during the year ended December 31, 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 JANUARY 23, 1996 (INCEPTION) YEAR THROUGH ENDED DECEMBER 31, DECEMBER 31, 1996 1997 --------------------- --------------------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues................................................................ 100.0% 100.0% Cost of revenues........................................................ 58.0 67.4 ----- ----- Gross profit.......................................................... 42.0 32.6 Operating expenses: Sales and marketing................................................... 47.3 35.0 General and administrative............................................ 32.9 20.7 Product development................................................... 9.5 4.6 ----- ----- Total operating expenses............................................ 89.7 60.3 ----- ----- Loss from operations.................................................... (47.7)% (27.7 )% ----- ----- ----- -----
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 $6.5 million for the period from January 23, 1996 (inception) through December 31, 1996 to $30.6 million for the year ended December 31, 1997. During the period from January 23, 1996 (inception) through December 31, 1996, $1.1 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 year ended December 31, 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 year ended December 31, 1997 from advertisements delivered on the AltaVista Web site were $13.7 million, or 44.7% 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 year ended December 31, 1997, no advertiser accounted for more than 10% of the Company's 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 42.0% and 32.6% for the period from January 23, 1996 (inception) through December 31, 1996 and for the year ended December 31, 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 $3.1 million and $10.7 million for the period from January 23, 1996 (inception) through December 31, 1996 and for the year ended December 31, 1997, respectively, or 47.3% and 35.0% 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 $2.1 million and $6.3 million for the period from January 23, 1996 (inception) through December 31, 1996 and for the year ended December 31, 1997, respectively, or 32.9% and 20.7% 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 $0.6 million and $1.4 million for the period from January 23, 1996 (inception) through December 31, 1996 and for the year ended December 31, 1997, respectively, or 9.5% and 4.6% 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 year ended December 31, 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 generally constant as a percentage of revenues. LOSS FROM OPERATIONS The Company's loss from operations was $3.1 million for the period from January 23, 1996 (inception) through December 31, 1996 and $8.5 million for the year ended December 31, 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 eight quarters ended December 31, 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, SEPT. 30, DEC. 31, 1996 1996 1996 1996 1997 1997 1997 1997 -------- -------- --------- -------- -------- -------- --------- -------- (IN THOUSANDS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues................................ $ 410 $ 972 $ 1,283 $ 3,849 $ 5,329 $ 6,138 $ 8,190 $10,940 Cost of revenues........................ -- 349 830 2,601 3,394 4,094 5,560 7,580 -------- -------- --------- -------- -------- -------- --------- -------- Gross profit.......................... 410 623 453 1,248 1,935 2,044 2,630 3,360 -------- -------- --------- -------- -------- -------- --------- -------- Operating expenses: Sales and marketing................... 226 427 820 1,606 2,120 1,924 2,562 4,104 General and administrative............ 96 459 573 1,017 752 1,019 1,836 2,718 Product development................... 34 78 225 281 233 280 502 384 -------- -------- --------- -------- -------- -------- --------- -------- Total operating expenses............ 356 964 1,618 2,904 3,105 3,223 4,900 7,206 -------- -------- --------- -------- -------- -------- --------- -------- Income (loss) from operations........... $ 54 $ (341) $(1,165) $(1,656) $(1,170) $(1,179) $(2,270) $(3,846) -------- -------- --------- -------- -------- -------- --------- -------- -------- -------- --------- -------- -------- -------- --------- --------
QUARTER ENDED --------------------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1996 1996 1996 1996 1997 1997 1997 1997 -------- -------- --------- -------- -------- -------- --------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues................................ 100.0% 100.0% 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 67.9 69.3 -------- -------- --------- -------- -------- -------- --------- -------- Gross profit.......................... 100.0 64.1 35.3 32.4 36.3 33.3 32.1 30.7 -------- -------- --------- -------- -------- -------- --------- -------- Operating expenses: Sales and marketing................... 55.2 44.0 63.9 41.7 39.8 31.3 31.3 37.5 General and administrative............ 23.3 47.2 44.7 26.4 14.1 16.6 22.4 24.8 Product development................... 8.3 8.1 17.5 7.3 4.4 4.6 6.1 3.5 -------- -------- --------- -------- -------- -------- --------- -------- Total operating expenses............ 86.8 99.3 126.1 75.4 58.3 52.5 59.8 65.8 -------- -------- --------- -------- -------- -------- --------- -------- Income (loss) from operations........... 13.2% (35.2)% (90.8)% (43.0)% (22.0)% (19.2)% (27.7)% (35.1)% -------- -------- --------- -------- -------- -------- --------- -------- -------- -------- --------- -------- -------- -------- --------- --------
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 25 recognize any future revenues, on a commission basis. Gross margin is impacted on a quarterly basis by service and customer mix. 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 123 employees as of December 31, 1997. General and administrative expenses have increased due primarily to additional personnel, professional fees and facilities costs. In the third and fourth quarters 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 generally 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. On December 30, 1997, $5,000,000 in borrowings from a related party pursuant to a Convertible Promissory Note (the "Convertible Note") were converted to 779,302 shares of the Company's Common Stock. Net cash used in operating activities was $3.4 million and $5.8 million for the period from January 23, 1996 (inception) through December 31, 1996 and for the year ended December 31, 1997, respectively. Cash used in operating activities from January 23, 1996 (inception) through December 31, 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 December 31, 1997, no revenues had been recognized related to DoubleClick Japan, Inc. Net cash used in investing activities was $0.5 million and $8.1 million from January 23, 1996 (inception) through December 31, 1996 and for the year ended December 31, 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 year ended December 31, 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 December 31, 1997, the Company had $2.7 million of cash and cash equivalents and $5.9 million in short-term investments. The Company's principal commitments consisted of 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. In particular, the Company anticipates incurring approximately $1.0 million in capital expenditures in connection with its expansion of its New York facilities in the first half of 1998. 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. The Company estimates that in December 1997 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 over 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. The Company believes 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 Company believes that 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 the Company believes that 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. The Company believes that over 20% of United States Internet users have made a purchase over the Web. The Company believes 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. The Company believes that, 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. The Company believes 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, the Company believes that $175 billion was spent in 1997 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. The Company believes that an estimated $153 billion was spent in 1997 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). The Company believes 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 the Company believes that an estimated 35% of Internet usage is outside of the United States, the Company believes that 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 AND MATCHING, TARGETING AND DELIVERING ARCHITECTURE [GRAPHIC] 34 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 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 31, 1997, the DoubleClick Network consisted of over 60 Web sites grouped together by the Company in defined content categories. In December 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 31, 1997: PREMIUM SITES TECHNOLOGY & THE INTERNET SPORTS, TRAVEL & LEISURE AltaVista Search AltaVista MarketSpace Just Sports For Women Billboard Online Borland One-on-One Sports Fast Company ChatPlanet Travelon LookSmart Diamond Multimedia Systems TravelWeb Macromedia FilePile USA Today Sports Scores The Dilbert Zone GoNetwork Whitbread U.S. News Online Inquiry.com ENTERTAINMENT DIRECTORIES, SEARCH ENGINES & ISPS Macromedia Billboard Online AltaVista Search PC Win Resource Center Blockbuster Search Internet Address Finder Silicon Graphics' VRML.sgi.com The DJ Network GTE Internet Solutions SoftSeek Sega Online GTE SuperPages The Dilbert Zone United Media's ComicZone LookSmart Web Developer's Virtual Library Vibe Online MindSpring WebServer WebStakes NetShepherd BUSINESS & FINANCE WOMEN & FAMILY Open Text Index BigCharts Advancing Women NEWS, INFORMATION & CULTURE CompaniesOnline Essence Online Atlantic Unbound EDGAR ONLINE Fashion Net Ivanhoe Medical Breakthroughs Fast Company OnCart JobTrak Individual Investor Online Snoopy.com Kelley Blue Book StockMaster StarChefs mostNEWYORK U.S.A. Today: DBC Top Secret Recipes PBS Online Worth Online Women's Connection Online U.S. News Online USA Today Selected Marketplace
Over 1,000 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 representative list of those 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 December 31, 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. 37 The following illustration depicts DoubleClick Direct: [ILLUSTRATION DEPICTING THE DOUBLECLICK DIRECT ARCHITECTURE] 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 104 employees as of December 31, 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 38 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, including 24/7 Media. 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. 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 39 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 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 40 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 31, 1997, the Company employed 185 persons, including 123 in sales, marketing and customer support (19 of whom serve the international marketplace), 26 in product development, and 36 in accounting, human resources 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 plans to expand 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. 41 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 Donald Peppers....................................... 37 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 42 Programming from July 1996 to October 1997. From August 1994 to July 1996, Ms. Harris Millard served 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, True North Communications, an advertising holding company ("True North"), and Inacom Corporation, a technology management services company. Mr. Gregory received his bachelor's degree in Business Administration from the University of Nebraska. 43 DONALD PEPPERS has served as a Director of the Company since January 1998. Since January 1992, Mr. Peppers has served as Chief Executive Officer of Marketing 1:1, Inc., a marketing consulting firm. Mr. Peppers received his B.S. in Astronautical Engineering from the United States Air Force Academy. 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 44 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 "--1997 Stock Incentive Plan". 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 39,000 -- Barry M. Salzman Vice President, International........................... 105,136 100,000 --
- ------------------------ (1) David Henderson served as the Company's Vice President, North American Sales until September 1997 and is no longer employed by the Company. During 1997, Mr. Henderson earned $139,920 in salary. (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. 45 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 21.2% $ 1.16 $ 4.00 7/31/07 $ 624,800 $ 1,178,227 Wenda Harris Millard.... -- -- -- -- -- -- -- John L. Heider.......... 10,000 1.0 0.28 0.50 2/28/07 2,200 5,350 29,000 2.8 3.00 6.16 9/10/07 91,640 204,183 Barry M. Salzman........ 47,500 4.6 0.28 0.50 2/28/07 10,450 25,413 52,500 5.1 3.00 6.16 9/10/07 165,900 692,685 NAME 10% - ------------------------ ------------ Kevin J. O'Connor....... -- Kevin P. Ryan........... $ 2,024,000 Wenda Harris Millard.... -- John L. Heider.......... 10,150 375,678 Barry M. Salzman........ 48,213 680,106
- ------------------------ (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 "--1997 Stock Incentive Plan". (2) During 1997, the Company granted employees options to purchase an aggregate of 1,038,725 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. 46 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. 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 1,150,000 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. 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. 47 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 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 48 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. 49 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, Inc., a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E") in exchange for $500,000, and (ii) 366,912 shares of Original Common Stock to Kevin J. O'Connor and Dwight A. Merriman (the "IAN Stockholders") in exchange for $75,000 in cash and fixed assets having an approximate value of $25,000 distributed to them by IAN. Poppe Tyson subsequently distributed its shares to 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 June 4, 1997, the Company consummated the transactions contemplated by that certain 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. On December 30, 1997, BJK&E converted the Convertible Note into 779,302 shares of Common Stock. 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". 50 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Common Stock as of December 31, 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)............................................. 2,376,394 21.2% 15.9% Bain Funds(3).................................................... 2,182,060 17.7 14.7 Voting Trustee Committee(4)...................................... 1,493,854 12.1 10.1 David N. Strohm(5)............................................... 1,246,884 10.1 8.4 ABS Capital Partners II, L.P.(6)................................. 1,246,883 10.1 8.4 Dwight A. Merriman(7)............................................ 1,219,692 9.8 8.2 Bozell, Jacobs, Kenyon & Eckhardt, Inc.(8)....................... 779,302 6.3 5.2 Greylock Equity Limited Partnership(5)........................... 623,442 5.0 4.2 Greylock IX Limited Partnership(5)............................... 623,442 5.0 4.2 Mark E. Nunnelly(9).............................................. 554,552 4.5 3.7 Canaan Partners(10).............................................. 519,640 4.2 3.5 Weiss, Peck & Greer, L.L.C.(11).................................. 519,484 4.2 3.5 Venrock Associates(12)........................................... 519,483 4.2 3.5 W. Grant Gregory(13)............................................. 494,949 4.0 3.3 Wenda Harris Millard(14)......................................... 30,000 * * Kevin P. Ryan(15)................................................ 20,000 * * John L. Heider(16)............................................... 9,000 * * Barry M. Salzman(17)............................................. -- * * Donald Peppers(18)............................................... -- * * All directors and executive officers as a group (11 persons)(19)................................................... 6,229,325 49.4 41.2
- ------------------------ * Less than one percent. (1) Gives effect to the shares of Common Stock issuable within 60 days of December 31, 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 31, 1997. (3) Consists of (i) 368,766 shares of Common Stock held by Bain Capital Fund V, LP, whose sole general partner is Bain Capital Partners V, L.P., whose sole general partner is Bain Capital Investors V, Inc., a Delaware corporation wholly owned by W. Mitt Romney, (ii) 960,256 shares of Common Stock held by Bain Capital Fund V-B, LP, whose sole general partner is Bain Capital Partners V, L.P., whose sole general partner is Bain Capital Investors V, Inc., a Delaware corporation wholly owned by W. Mitt Romney, (iii) 268,548 shares of Common Stock held by BCIP Associates, a Delaware 51 general partnership of which W. Mitt Romney is a general partner and a member of the management committee (iv) 286,004 shares of Common Stock held by BCIP Trust Associates, LP, a Delaware limited partnership of which W. Mitt Romney is a general partner and a member of the management committee, (v) 225,998 shares of Common Stock held by Brookside Capital Partners, LP, whose sole general partner is Brookside Capital Investors, L.P., whose sole general partner is Brookside Capital Investors Inc., a Delaware corporation wholly owned by W. Mitt Romney, and (vi) 72,488 shares of Common Stock held by various persons and entities associated with Thomas H. Lee Company, over which such 72,488 shares Bain Capital, Inc. has voting power. The address of these entities is Two Copley Place, 7th Floor, Boston, Massachusetts 02116. (4) 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. (5) Mr. Strohm, a general partner of Greylock Equity GP Limited Partnership ("Greylock Equity GP"), the general partner of Greylock Equity Limited Partnership (beneficial owner of 623,442 shares of Common Stock) and a general partner of Greylock IX GP Limited Partnership ("Greylock IX GP"), the general partner of Greylock IX Limited Partnership (beneficial owner of 623,442 shares of Common Stock), is a director of the Company. Mr. Strohm, together with the other general partners of Greylock Equity GP and Greylock IX GP, shares voting and investment power with respect to the shares owned by Greylock Equity GP and Greylock IX GP, respectively. Mr. Strohm does not own any shares of the Company in his individual capacity and disclaims beneficial ownership of the shares held by Greylock Equity Limited Partnership and Greylock IX Limited Partnership, except to the extent of his pecuniary interest therein. The address of Greylock Equity Limited Partnership and Greylock IX Limited Partnership is One Federal Street, Boston, Massachusetts 02110. (6) 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. (7) 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 31, 1997. (8) 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 True North, of which BJK&E is a subsidiary. See "Certain Transactions". (9) Consists of 268,548 shares of Common Stock held by BCIP Associates, a Delaware general partnership of which Mr. Nunnelly is a general partner, and 286,004 shares of Common Stock held by BCIP Trust Associates, LP, a Delaware limited partnership of which Mr. Nunnelly is a general partner. Mr. Nunnelly disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. (10)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. 52 (11) Consists of (i) 225,687 shares of Common Stock held by WPG Enterprise Fund III, L.P., (ii) 250,780 shares of Common Stock held by Weiss, Peck & Greer Venture Associates IV, L.P., (iii) 32,575 shares of Common Stock held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P., and (iv) 10,443 shares of Common Stock held by WPG Information Sciences Entrepreneur Fund, L.P. The address of the entities associated with Weiss, Peck & Greer, L.L.C. is 555 California Street, San Francisco, California 94104. (12) 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 30 Rockefeller Plaza, Room 5508, New York, New York, 10112. (13) 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 True North, of which BJK&E is a subsidiary, and disclaims beneficial ownership of the 779,302 shares of Common Stock issued to BJK&E upon conversion of the Convertible Note. See "Certain Transactions." (14) 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 31, 1997. (15) 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 31, 1997. (16) 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 31, 1997. (17) 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 31, 1997. (18) Does not include 25,000 shares of Common Stock issuable upon the exercise of stock options that do not vest within 60 days of December 31, 1997. (19) Includes 267,540 shares of Common Stock issuable upon the exercise of stock options that vest within 60 days of December 31, 1997. See notes 2 through 18. 53 DESCRIPTION OF SECURITIES The following description of the securities of the Company and certain provisions of the Company's Certificate of Incorporation (the "Certificate"), and the Bylaws are summaries thereof and are qualified by reference to the Certificate and the Bylaws, 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 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 December 31, 1997, there were 12,353,406 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 2,500,000 shares of Common Stock offered by the Company hereby, there will be 14,853,406 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 December 31, 1997, options to purchase a total of 2,020,167 shares ("Option Shares") of Common Stock were outstanding, approximately 1,192,556 of which are subject to lock-up agreements entered into with the Underwriters. Beginning 90 days after the date of this Prospectus, approximately 827,611 Option Shares which are not subject to lock-up agreements will be eligible for sale in reliance on 54 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 -- 1997 Stock Incentive Plan" 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 12,332,607 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 2,020,167 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 other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. 55 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 days 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 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 56 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. 57 SHARES ELIGIBLE FOR FUTURE SALE Upon the closing of the offering, the Company will have an aggregate of 14,853,406 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 2,500,000 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 12,353,406 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) 30,791 shares will be eligible for sale 90 to 180 days after the date of this Prospectus, and (ii) 12,332,607 shares will be eligible for sale upon the expiration of lock-up agreements 180 days after the date of this Prospectus. In addition, there are outstanding options to purchase 2,020,167 shares of Common Stock of which will be eligible for sale in the public market from time to time subject to vesting and, in the case of certain options, to the expiration of lock-up agreements. 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 148,534 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 "--1997 Stock Incentive Plan". 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. 58 All directors and officers and certain stockholders of the Company (holding an aggregate of approximately 12,322,607 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 1997, and for the period from January 23, 1996 (inception) through December 31, 1996 and for the year ended December 31, 1997 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 and for the period from January 1, 1997 through July 24, 1997, 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. 59 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. 60 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 1997.......................... F-3 Consolidated Statement of Operations for the period from January 23, 1996 (inception) to December 31, 1996 and for the year ended December 31, 1997...................... 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 year ended December 31, 1997.................................................................. F-5 Consolidated Statement of Cash Flows for the period from January 23, 1996 (inception) to December 31, 1996 and for the year ended December 31, 1997...................... 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) equity and of cash flows present fairly, in all material respects, the financial position of DoubleClick Inc. and its subsidiaries at December 31, 1996 and 1997, and the results of their operations and their cash flows for the period from January 23, 1996 (inception) to December 31, 1996 and for the year ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these 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 audits provide a reasonable basis for the opinion expressed above. /S/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP NEW YORK, NEW YORK FEBRUARY 10, 1998 F-2 DOUBLECLICK INC. CONSOLIDATED BALANCE SHEET
DECEMBER 31, DECEMBER 31, 1996 1997 -------------- -------------- PRO FORMA CONVERSION OF CONVERTIBLE PREFERRED STOCK (NOTE 1) DECEMBER 31, 1997 -------------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents.................................. $ -- $ 2,671,845 Short-term investments..................................... -- 5,874,229 Accounts receivable, less allowance for doubtful accounts of $150,000 at December 31, 1996 and $712,075 at December 31, 1997................................................. 4,078,837 10,489,256 Prepaid expenses and other current assets.................. -- 355,841 -------------- -------------- Total current assets................................... 4,078,837 19,391,171 Property and equipment, net................................ 445,794 1,997,326 Investments, at cost....................................... -- 254,926 Other assets............................................... 900 98,574 -------------- -------------- Total assets........................................... $ 4,525,531 $ 21,741,997 -------------- -------------- LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES: Accounts payable........................................... $ 1,948,714 $ 8,142,429 Accrued expenses........................................... 1,097,418 3,408,542 Deferred revenues.......................................... 733,433 91,061 Deferred license and service fees.......................... -- 237,500 Due to related party....................................... 3,337,736 -- -------------- -------------- Total current liabilities.............................. 7,117,301 11,879,532 Deferred license and service fees.......................... -- 462,500 STOCKHOLDERS' (DEFICIT) EQUITY: Convertible preferred stock, par value $.001; 40,000 shares authorized; issued and outstanding; 40,000 at December 31, 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; 6,118,972 at December 31, 1997; 12,353,406 pro forma..................................... 9,059 6,119 12,353 Additional paid-in capital................................. 590,941 46,996,328 46,990,134 Cumulative translation adjustment.......................... -- (1,271) (1,271) Deferred compensation...................................... -- (1,056,773) (1,056,773) Accumulated deficit........................................ (3,191,770) (36,544,478) (36,544,478) -------------- -------------- -------------------- Total stockholders' (deficit) equity................... (2,591,770) 9,399,965 $ 9,399,965 -------------- -------------- -------------------- -------------------- Commitments (Note 8) Total liabilities and stockholders' (deficit) equity... $ 4,525,531 $ 21,741,997 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 DOUBLECLICK INC. CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 23, 1996 YEAR (INCEPTION) THROUGH ENDED DECEMBER 31, DECEMBER 31, 1996 1997 -------------------- -------------- Revenues.................................................................... $ 6,514,087 30,597,031 Cost of revenues............................................................ 3,780,133 20,627,724 -------------------- -------------- Gross profit.............................................................. 2,733,954 9,969,307 -------------------- -------------- Operating expenses Sales and marketing....................................................... 3,079,305 10,710,418 General and administrative................................................ 2,144,312 6,325,666 Product development....................................................... 618,251 1,398,313 -------------------- -------------- Total operating expenses................................................ 5,841,868 18,434,397 -------------------- -------------- Loss from operations........................................................ (3,107,914) (8,465,090) Interest income............................................................. 7,234 449,618 Interest expense............................................................ (91,090) (340,789) -------------------- -------------- Net loss.................................................................... $ (3,191,770) $ (8,356,261) -------------------- -------------- -------------------- -------------- Pro forma basic and diluted net loss per share.............................. $ (0.35) $ (0.80) -------------------- -------------- -------------------- -------------- Pro forma weighted average shares used in basic and diluted net loss per share calculation......................................................... 9,059,121 10,445,647 -------------------- -------------- -------------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 DOUBLECLICK INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
CLASS C COMMON CLASS A COMMON CLASS B COMMON COMMON STOCK ----------------------- ------------------------ ------------------------ ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- 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 5,192 Class B and C shares redeemed............... (3,896,137) (3,895) (1) (1) Common shares issued for stock options.......... 147,938 148 Deferred compensation.... Amortization of deferred compensation........... Issuance of Common Stock upon conversion of convertible note payable to related party.................. 779,302 779 Cumulative foreign currency translation... Net loss................. ---------- ----------- ----------- ----------- ----- ----- ---------- ----------- Balance at December 31, 1997................... -- $ -- -- $ -- -- $ -- 6,118,972 $ 6,119 ---------- ----------- ----------- ----------- ----- ----- ---------- ----------- ---------- ----------- ----------- ----------- ----- ----- ---------- ----------- CONVERTIBLE TOTAL PREFERRED STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS' ------------------------ PAID-IN DEFERRED ACCUMULATED TRANSLATION (DEFICIT) SHARES AMOUNT CAPITAL COMPENSATION DEFICIT ADJUSTMENT EQUITY --------- ------------- -------------- -------------- ------------- ------------- --------------- Capitalization at inception.............. $ 590,941 $ 600,000 Exchange of Class A shares for Class B and Class C shares......... Net loss................. $(3,191,770) (3,191,770) --------- --- -------------- -------------- ------------- ------------- --------------- Balance at December 31, 1996................... -- $ -- 590,941 $ -- (3,191,770) $ -- (2,591,770) Class A shares issued upon excercise of stock options................ 3,637 3,666 Issuance of Convertible Preferred Stock, net of issuance costs of $168,006............... 40,000 $ 40 39,831,954 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............... (24,996,447) (25,000,343) Common shares issued for stock options.......... 23,503 23,651 Deferred compensation.... 1,547,072 (1,547,072) -- Amortization of deferred compensation........... 490,299 490,299 Issuance of Common Stock upon conversion of convertible note payable to related party.................. 4,999,221 5,000,000 Cumulative foreign currency translation... (1,271) (1,271) Net loss................. $(8,356,261) (8,356,261) --------- --- -------------- -------------- ------------- ------------- --------------- Balance at December 31, 1997................... 40,000 $ 40 $ 46,996,328 $ (1,056,773) $(36,544,478) $ (1,271) $ 9,399,965 --------- --- -------------- -------------- ------------- ------------- --------------- --------- --- -------------- -------------- ------------- ------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 DOUBLECLICK INC. CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 23, 1996 YEAR (INCEPTION) THROUGH ENDED DECEMBER 31, DECEMBER 31, 1996 1997 -------------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................................................................. $ (3,191,770) $ (8,356,261) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization......................................... 45,932 388,815 Amortization of deferred compensation expense......................... -- 490,299 Provision for bad debts............................................... 150,000 562,075 Changes in operating assets and liabilities: Accounts receivable................................................. (4,228,837) (6,972,494) Prepaid expenses and other current assets........................... (900) (453,515) Accounts payable.................................................... 1,948,714 6,193,715 Accrued expenses.................................................... 1,097,418 2,311,124 Deferred revenues................................................... 733,433 57,628 -------------------- -------------- Net cash used in operating activities............................. (3,446,010) (5,778,614) -------------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments....................................... -- (5,874,229) Purchases of property and equipment....................................... (491,726) (1,940,347) Investments............................................................... -- (254,926) -------------------- -------------- Net cash used in investing activities............................. (491,726) (8,069,502) -------------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock.................................... 600,000 -- Proceeds from exercise of common stock options............................ -- 27,317 Proceeds from issuance of preferred stock, net............................ -- 39,831,994 Redemption of common stock................................................ -- (25,000,343) Advances from related party............................................... 3,337,736 3,048,096 Repayment of advances to related party.................................... -- (1,385,832) -------------------- -------------- Net cash provided by financing activities......................... 3,937,736 16,521,232 -------------------- -------------- Effect of cumulative translation adjustment................................. -- (1,271) -------------------- -------------- Net increase in cash and cash equivalents................................... -- 2,671,845 Cash and cash equivalents at beginning of period............................ -- -- -------------------- -------------- Cash and cash equivalents at end of period.................................. $ -- $ 2,671,845 -------------------- -------------- -------------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF OPERATIONS DoubleClick Inc. (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 subsidiaries, DoubleClick Canada Network Inc., DoubleClick Europe Limited and DoubleClick Australia Pty Limited. 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. PRO FORMA CONVERSION OF PREFERRED STOCK (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. The pro forma effect of the conversion of the Convertible Preferred Stock on stockholders' equity has been presented as a separate column in the Company's consolidated balance sheet assuming the conversion had occurred on December 31, 1997. 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. F-7 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company classifies its short-term investments as available-for-sale. Accordingly, these investments, primarily corporate bonds with maturities ranging from four to seven months, are carried at fair value. At December 31, 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 their estimated useful lives, or the term of the leases, whichever is shorter. 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 year ended December 31, 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 $137,064 for the year ended December 31, 1997, and such amounts 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 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. F-8 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, $712,172 for the year ended December 31, 1997. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK The Company's financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued expenses. At December 31, 1996 and 1997 the fair value of these instruments approximated their financial statement carrying amount. 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 74 days at December 31, 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"), as amended on January 7, 1998, with Digital Equipment Corporation to deliver advertising to users of the AltaVista Web site. Under the terms of the amended Agreement, the Company is the exclusive representative for the delivery of advertisements on certain pages within the AltaVista Web site, subject to certain exceptions. The amended Agreement terminates in December 1999 and either party may terminate the Agreement, after July 1998, upon 90 days' prior 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 44.7% of the Company's total revenues for the periods ended December 31, 1996 and 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. F-9 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenues associated with major advertising customers, as a percentage of total revenues, are as follows:
JANUARY 23, 1996 (INCEPTION) YEAR THROUGH ENDED DECEMBER 31, DECEMBER 31, CUSTOMER 1996 1997 - ---------- ------------------- ------------------- A 10% --
Accounts receivable regarding significant customers, as a percentage of total accounts receivable, are as follows:
DECEMBER 31, DECEMBER 31, CUSTOMER 1996 1997 - ---------- ------------------- ------------------- A 10% -- B 5 12%
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. FOREIGN CURRENCY The functional currencies of the Company's subsidiaries are the local currencies. The financial statements of these subsidiaries are translated to United States dollars using year-end rates of exchange for assets and liabilities and average rates during the year for revenues, cost of revenues and expenses. Translation gains and losses are deferred and accumulated as a component of stockholders' equity. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not significant during the periods presented. 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 F-10 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 basic 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 the shares resulting from the assumed conversion of all outstanding shares of Convertible Preferred Stock. Pro forma diluted 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. 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. The Company adopted Statement 128 as of December 31, 1997, which had no material impact 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. F-11 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, DECEMBER 31, USEFUL LIFE 1996 1997 ----------- -------------- -------------- Computer equipment................................................... 1-3 years $ 471,366 $ 1,768,509 Furniture and fixtures............................................... 5 years 20,360 273,856 Leasehold improvements............................................... 1-5 years -- 389,708 -------------- -------------- 491,726 2,432,073 Less accumulated depreciation and amortization....................... 45,932 434,747 -------------- -------------- $ 445,794 $ 1,997,326 -------------- -------------- -------------- --------------
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 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 December 31, 1997 the Company had received $700,000 from its business partners. Such amounts are 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, 1997, the Company had approximately $8,750,000 of federal net operating loss carryforwards available to offset future taxable income; such F-12 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--INCOME TAXES (CONTINUED) carryforwards expire in various years through 2012. 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 carryforwards that give rise to significant portions of federal deferred tax assets (liabilities) are comprised of the following:
DECEMBER 31, DECEMBER 31, 1996 1997 -------------- -------------- Deferred tax assets Net operating loss carryforwards...................................... $ 989,000 $ 2,974,000 Deferred revenues, license and service fees........................... -- 238,000 Other................................................................. 96,000 525,000 -------------- -------------- Gross deferred tax assets............................................... 1,085,000 3,737,000 Valuation allowance..................................................... 1,085,000 3,737,000 -------------- -------------- 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. 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. F-13 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED) - 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. 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. 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 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. F-14 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED) 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............................................... 1,038,725 3.41 Options exercised............................................. (176,688) 0.16 Options canceled.............................................. (203,250) 0.66 ------------- ----- Balance at December 31, 1997.................................. 2,020,167 1.78 ------------- ----- Exercisable at December 31, 1997.............................. 408,024 $ 0.14 ------------- ----- ------------- -----
During the year ended December 31, 1997, deferred compensation of $1,547,072 was recorded for options granted of which $490,299 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 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 YEAR ENDED DECEMBER 31, DECEMBER 31, 1996 1997 ----------------- --------------- Net loss: As reported................................................................ $ 3,191,770 $ 8,356,261 Pro forma per SFAS 123..................................................... 3,201,393 8,929,654 Pro forma net loss per share: As reported................................................................ $ (0.24) $ (0.56) Pro forma per SFAS 123..................................................... (0.24) (0.60)
The per share weighted average fair value of options granted during the period from inception to December 31, 1996 and for the year ended December 31, 1997 was $0.03 and $2.21, respectively, on the date with the following weighted average assumptions:
PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, 1996 1997 ----------------- -------------- Expected dividend yield........................................................ 0% 0% Risk-free interest rate........................................................ 5.6% 6.0% Expected life.................................................................. 4 years 4 years
F-15 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--RELATED PARTY TRANSACTIONS During the period from January 23, 1996 (inception) through March 31, 1997, 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 December 31, 1997.............................. $ -- ----------- -----------
Effective April 1, 1997 the related party ceased providing such administrative and support services to the Company. On June 4, 1997, the Company converted advances from the related party into a $5,000,000, convertible note. Principal was payable, with any and all accrued and unpaid interest, on June 4, 2000. The note accrued interest at a per annum rate equal to the "Federal Short Term Rate". On December 30, 1997 at the option of the holder, the convertible note was converted into 779,302 shares of the Company's common stock at a conversion price of $6.42. NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosure of cash flow information:
PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, 1996 1997 -------------- -------------- Cash paid for interest: $ 91,090 $ 338,570 -------------- -------------- -------------- --------------
Non-cash financing activities: On June 4, 1997, the Company converted $5.0 million of advances from the related party into a $5.0 million convertible note. On December 30, 1997, the convertible note was converted into 779,302 shares of the Company's common stock. F-16 DOUBLECLICK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 ---------------- 1998............................................................................................ $ 701,964 1999............................................................................................ 527,237 2000............................................................................................ 427,856 2001............................................................................................ 382,949 2002 and thereafter............................................................................. 287,212
Rent expense totaled approximately $163,195 for the period from January 23, 1996 (inception) to December 31, 1996, and $489,944 for the year ended December 31, 1997, respectively. 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................................................................ 2,500,000 ---------- ----------
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 375,000 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 2,500,000 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. Up to 10% of the shares of Common Stock offered hereby may be reserved for sale to the Company's employees, directors and other persons with direct business relationships with the Company. Sales of shares to such persons will be at the initial public offering price. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same terms as the other shares offered hereby. The Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "DCLK", subject to official notice of issuance. 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. Under Rule 2720 of the National Association of Securities Dealers, Inc. (the "NASD"), the Company may be deemed to be an affiliate of BT Alex. Brown Incorporated. For a description of certain relationships between BT Alex. Brown Incorporated and its affiliates and the Company, see "Certain Transactions" and "Principal Stockholders". The offering is being conducted in accordance with Rule 2720, which provides that, among other things, when an NASD member participates in the underwriting of an affiliate's equity securities, the initial public offering price can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. In accordance with this requirement, Goldman, Sachs & Co. will serve in such role and will recommend a price in compliance with the requirements of Rule 2720. Goldman, Sachs & Co. will receive compensation from the Company in the amount of $10,000 for serving in such role. In connection with the offering, Goldman, Sachs & Co. in its role as qualified independent underwriter has performed due diligence investigations and reviewed and participated in the preparation of this Prospectus and the Registration Statement of which this Prospectus forms a part. 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........................................ 42 Certain Transactions.............................. 50 Principal Stockholders............................ 51 Description of Securities......................... 54 Shares Eligible for Future Sale................... 58 Legal Matters..................................... 59 Experts........................................... 59 Change in Accountants............................. 59 Additional Information............................ 60 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. 2,500,000 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........................................................... $ 11,874 NASD filing fee................................................................ 4,525 Nasdaq National Market listing fee............................................. 88,500 Printing and engraving......................................................... 170,000 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.................................................................. 5,101 ------------- 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"), (i) to Poppe Tyson, Inc. a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt in exchange for $500,000 in cash, and (ii) to Kevin J. O'Connor and Dwight A. Merriman in exchange for $75,000 in cash and fixed assets having an approximate value of $25,000. 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 an aggregate of 36,667 shares of its Convertible Preferred Stock, par value $.001 per share, to the holders of common stock of Newco which consisted of: 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., ABS Capital Partners II, L.P., Greylock Equity Limited Partnership, Greylock IX Limited Partnership, Canaan S.B.I.C., L.P., Canaan Equity, L.P., Canaan Capital Limited Partnership, Canaan Capital Offshore Limited Partnership, C.V., Venrock Associates and Venrock Associates II, L.P. Such shares of Convertible Preferred Stock are convertible into an aggregate of 5,714,950 shares of Common Stock. 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 the following investors for $3,333,000: WPG Enterprise Fund III, L.P., Weiss, Peck & Greer Venture Associates IV, L.P. and Weiss, Peck & Greer Venture Associates IV Cayman, L.P. 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. Such shares of Convertible Preferred Stock are convertible into an aggregate of 519,484 shares of Common Stock. In December 1997, the Company issued 779,302 shares of Common Stock to Bozell, Jacobs, Kenyon & Eckhardt, Inc. upon conversion of a Convertible Promissory Note in the principal amount of $5,000,000. Such shares of Common Stock were issued in reliance upon an exemption from registration under the Securities Act of 1933 pursuant to Section 4(2). II-2 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 31, 1997............................. 1,038,725 0.28-13.00
Between January 1, 1996 and December 31, 1997, an aggregate of 176,668 shares of Common Stock were issued to employees of the Registrant pursuant to the exercise of options at a weighted average exercise price of $0.16 per share in reliance on an exemption under the Securities Act of 1933 pursuant to Rule 701 promulgated thereunder. As indicated, 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-3 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 Amended and Restated Certificate of Incorporation to be in effect upon the closing of the initial public offering. 3.4** Bylaws. 3.5 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. 10.8** Amendment No. 1 to Procurement and Trafficking Agreement, dated January 1998, by and between Registrant and Digital Equipment Corporation. 11.1 Statement re: Computation of Pro Forma Basic and Diluted Net Loss Per Common Share. 16.1** Letter from KPMG Peat Marwick LLP. 16.2** Additional 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. 24.2** Power of Attorney of Donald Peppers. 27.1 Financial Data Schedule. (b) Financial Statement Schedules.
Schedule II Valuation and Qualifying Accounts.
- ------------------------ * To be supplied by amendment. ** Previously filed. + Confidential treatment to be requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act. II-4 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-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to the 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 12th day of February, 1998. DOUBLECLICK INC. By: /s/ KEVIN J. O'CONNOR ------------------------------------------ Kevin J. O'Connor Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 3 to the Registration Statement has been signed by the following persons in the capacities indicated on February 12, 1998:
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 * Financial Officer) ------------------------------------------- Kevin P. Ryan * Chief Technology Officer and Director ------------------------------------------- Dwight A. Merriman * Controller (Principal Accounting Officer) ------------------------------------------- Stephen R. Collins * Director ------------------------------------------- David N. Strohm * Director ------------------------------------------- Mark E. Nunnelly * Director ------------------------------------------- W. Grant Gregory * Director ------------------------------------------- Donald Peppers
*By: /s/ KEVIN J. O'CONNOR ------------------------- Kevin J. O'Connor ATTORNEY-IN-FACT II-6 DOUBLECLICK, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS PERIOD FROM JANUARY 23, 1996 (INCEPTION) TO DECEMBER 31, 1996 AND THE YEAR ENDED DECEMBER 31, 1997
BALANCE AT THE CHARGED TO BALANCE AT THE BEGINNING OF COSTS AND END OF THE DESCRIPTION THE PERIOD EXPENSES WRITE-OFFS YEAR - -------------------------- --------------------- ----------------- --------------- --------------------- (IN THOUSANDS) Allowance for doubtful accounts: Period from January 23, 1996 (inception) to December 31, 1996................. $ -- $ 150 $ -- $ 150 Year ended December 31, 1997..................... $ 150 $ 831 $ 269 $ 712
S-1 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 Amended and Restated Certificate of Incorporation to be in effect upon the closing of the initial public offering. 3.4** Bylaws. 3.5 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. 10.8** Amendment No. 1 to Procurement and Trafficking Agreement, dated January 1998, by and between Registrant and Digital Equipment Corporation. 11.1 Statement re: Computation of Pro Forma Basic and Diluted Net Loss Per Common Share. 16.1** Letter from KPMG Peat Marwick LLP. 16.2** Additional 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. 24.2** Power of Attorney of Donald Peppers. 27.1 Financial Data Schedule. (b) Financial Statement Schedules.
Schedule II Valuation and Qualifying Accounts.
- ------------------------ * To be supplied by amendment. ** Previously filed. + Confidential treatment to be requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act. EX-3.3 2 AMENDED & RESTATED CERT. OF INCORPORATION Exhibit 3.3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DOUBLECLICK INC. (Pursuant to Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware) DoubleClick Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "General Corporation Law"), DOES HEREBY CERTIFY: FIRST: That the Corporation was originally incorporated in Delaware under the name DoubleClick Incorporated, and the date of its filing of its original Certificate of Incorporation with the Secretary of State of Delaware was January 23, 1996. On May 14, 1996, the Corporation filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Certificate of Incorporation changing its name to DoubleClick Inc. Restated Certificates of Incorporation were filed with the Secretary of State of the State of Delaware on September 13, 1996 and June 4, 1997. The Second Restated Certificate of Incorporation was amended by the Certificate of Amendment to the Second Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on December 15, 1997. SECOND: That the Board of Directors duly adopted resolutions proposing to amend and restate the Second Restated Certificate of Incorporation of the Corporation, declaring said amendment and restatement to be advisable and in the best interests of the Corporation and its stockholders, and authorizing the appropriate officers of the Corporation to solicit the consent of the stockholders of the issued and outstanding Common Stock, $0.001 par value, and Preferred Stock, $0.001 par value, voting as a single class and as separate classes, all in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware; THIRD: That the resolution setting forth the proposed amendment and restatement is as follows: "RESOLVED, that the Second Restated Certificate of Incorporation of the Corporation be amended and restated in its entirety as follows: ARTICLE I Name The name of the Corporation is DoubleClick Inc. ARTICLE II Registered Office The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, State of Delaware 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Corporation. ARTICLE III Powers/Term The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law. The Corporation is to have perpetual existence. ARTICLE IV Capital Stock A. CLASSES OF STOCK. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is Sixty Five Million (65,000,000) shares. Sixty Million (60,000,000) shares, par value $0.001 per share, shall be Common Stock and Five Million (5,000,000) shares, par value $0.001 per share, shall be Preferred Stock. The consideration for the issuance of the shares shall be paid to or received 2 by the Corporation in full before their issuance and shall not be less than the par value per share. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of Delaware. B. COMMON STOCK. (1) GENERAL. All shares of Common Stock will be identical and will entitle the holders thereof to the same rights, powers and privileges. The rights, powers and privileges of the holders of the Common Stock are subject to and qualified by the rights of holders of any then outstanding Preferred Stock. (2) DIVIDENDS. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. (3) DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, each issued and outstanding share of Common Stock shall entitle the holder thereof to receive an equal portion of the net assets of the Corporation available for distribution to the holders of Common Stock, subject to any preferential rights of any then outstanding Preferred Stock. (4) VOTING RIGHTS. Except as otherwise required by law or this Amended and Restated Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held of record by such holder on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation. Except as otherwise required by law or provided herein, holders of Preferred Stock shall vote together with holders of Common Stock as a single class, subject to any special or preferential voting rights of any then outstanding Preferred Stock. There shall be no cumulative voting. (5) REDEMPTION. The Common Stock is not redeemable. C. PREFERRED STOCK. The Board of Directors is authorized, subject to limitations prescribed by law, by the rules of a national securities exchange, if applicable, and by the provisions of this ARTICLE IV, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. 3 The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (1) The number of shares constituting that series and the distinctive designation of that series; (2) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (3) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (4) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (5) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights or priority, if any, of payment of shares of that series; and (8) Any other relative rights, preferences and limitations of that series. Dividends on outstanding shares of Preferred Stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on the Common Stock with respect to the same dividend period. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto. 4 D. PREEMPTIVE RIGHTS. No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of any class or series or carrying any right to purchase stock of any class or series; but any such unissued stock, bonds, certificates or indebtedness, debentures or other securities convertible into or exchangeable for stock or carrying any right to purchase stock may be issued pursuant to resolution of the Board of Directors of the Corporation to such persons, firms, corporations or associations, whether or not holders thereof, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. ARTICLE V Directors A. NUMBER. The number of directors of the Corporation shall be such number, not less than five (5) nor more than fifteen (15) (exclusive of directors, if any, to be elected by holders of preferred stock of the Corporation, voting separately as a class), as shall be set forth from time to time in the bylaws, provided that no action shall be taken to decrease or increase the number of directors unless at least 66.67% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose approve such decrease or increase. Vacancies in the Board of Directors of the Corporation, however caused, and newly created directorships shall be filled by a vote of a majority of the directors then in office, whether or not a quorum, and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which the director has been chosen expires and when the director's successor is elected and qualified. B. CLASSIFIED BOARD OF DIRECTORS. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III, each of which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1998; each initial director in Class II shall hold office until the annual meeting of stockholders in 1999; and each initial director in Class III shall hold office until the annual meeting of stockholders in 2000. Notwithstanding the foregoing provisions of this ARTICLE V, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. 5 Subject to the provisions of this ARTICLE V, should the number of directors not be equally divisible by three, the excess director or directors shall be assigned to Classes I or II as follows: (i) if there shall be an excess of one directorship over a number equally divisible by three, such extra directorship shall be classified in Class I; and (ii) if there shall be an excess of two directorships over a number divisible by three, one shall be classified in Class I and the other in Class II. In the event of any increase or decrease in the authorized number of directors, (1) each director than serving as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his earlier resignation, removal from office or death, and (2) the newly created or eliminated directorship resulting from such increase or decrease shall be appointed by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal as possible. C. REMOVAL OF DIRECTORS. Notwithstanding any other provisions of this Certificate or the By-laws of the Corporation, any director or the entire Board of Directors of the Corporation may be removed, at any time, but only for cause and only by the affirmative vote of the holders of not less than 66.67% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. Notwithstanding the foregoing, whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the preceding provisions of this ARTICLE V shall not apply with respect to the director or directors elected by such holders of preferred stock. ARTICLE VI Stockholder Meetings Meetings of stockholders may be held within or without the State of Delaware, as the By-laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-laws of the Corporation. The stockholders of the Corporation may not take any action by written consent in lieu of a meeting. 6 ARTICLE VII Limitation of Directors' Liability 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. If the General Corporation Law is amended after approval by the stockholders of this ARTICLE VII to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. 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 VIII Indemnification The Corporation may, to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware, as amended from time to time, 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, by reason of the fact that he 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) (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 him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom. Indemnification may include payment by the Corporation of expenses in defending an action or proceeding in advance of the final disposition of such action or proceeding upon receipt of an undertaking by the Indemnitee to repay such payment if it is ultimately determined that such person is not entitled to indemnification under this ARTICLE VIII, which undertaking may be accepted without reference to the financial ability of such person to make such repayment. The Corporation shall not indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person unless the initiation thereof was approved by the Board of Directors of the Corporation. 7 The indemnification rights provided in this ARTICLE VIII (i) shall not be deemed exclusive of any other rights to which Indemnitees may be entitled under any law, agreement or vote of stockholders or disinterested directors or otherwise, and (ii) shall inure to the benefit of the heirs, executors and administrators of such persons. 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 the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this ARTICLE VIII. ARTICLE IX Amendment of Bylaws In furtherance of and not in limitation of powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to adopt, repeal, alter, amend and rescind the bylaws of the Corporation by vote of 66.67% of the Board of Directors. ARTICLE X Amendment of Certificate The Corporation reserves the right to repeal, alter, amend or rescind any provision contained in this Certificate in the manner now or hereafter prescribed by law, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Amended and Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in ARTICLES V, VI, VII, VIII, IX and this ARTICLE X may not be repealed, altered, amended or rescinded in any respect unless the same is approved by the affirmative vote of the holders of not less than 66.67% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as a single class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting). * * * FOURTH: That said amendments were duly adopted in accordance with the provisions of Section 242 and 245 of the General Corporation Law. 8 IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been signed by the President and the Assistant Secretary of the Corporation this day of , 1998. -------------------------------------- Kevin Ryan, President -------------------------------------- Stephen Collins, Assistant Secretary 9 EX-3.5 3 AMENDED & RESTATED BY-LAWS Exhibit 3.5 AMENDED AND RESTATED BY-LAWS OF DOUBLECLICK INC. ARTICLE I Certificate of Incorporation and Bylaws Section 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. ARTICLE II Offices Section 1. The registered office shall be in the city of Wilmington, state of Delaware. Section 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE III Meetings of Stockholders Section 1. All meetings of the stockholders for the election of directors shall be held at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote the directors to be elected at such meeting, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not fewer than ten (10) nor more than sixty (60) days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of two-thirds of the Board of Directors. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not fewer than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of fifty percent (50%) of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might -2- have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the Certificate of Incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. A. ANNUAL MEETINGS OF STOCKHOLDERS 1. Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 11, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 11. 2. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (a)(1) of this Section 11, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the one hundred twentieth (120th) day nor earlier than the close of business on the one hundred fiftieth (150th) day prior to the first anniversary of the date of the proxy statement delivered to stockholders in connection with the preceding year's annual meeting; provided, however, that if either (i) the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such an anniversary date or (ii) no proxy statement was delivered to stockholders in connection with the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) -3- day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director it elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of capital stock of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner. 3. Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 11 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy (70) days prior to such annual meeting), a stockholder's notice required by this Section 11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive office of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 11. If the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (A)(2) of this Section 11 -4- shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the ninetieth (90th) day prior to such special meeting not later than the later of (x) the close of business of the sixtieth (60th) day prior to such special meeting or (y) the close of business of the tenth (10th) day following the day on which public announcement is first made of the date of such special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. C. GENERAL. 1. Only such persons who are nominated in accordance with the procedures set forth in this Section 11 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 11. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 11 and, if any proposed nomination or business is not incompliance herewith, to declare that such defective proposal or nomination shall be disregarded. 2. For purposes of this Section 11, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 and 15(d) of the Exchange Act. 3. Notwithstanding the foregoing provisions of this Section 11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 11 shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. Notwithstanding any other provision of law, the Certificate of Incorporation or these By-Laws, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least 66.67% of the votes which all the stockholders would be entitled to cast at any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Section 11. -5- ARTICLE IV Directors Section 1. The number of directors which shall constitute the whole Board shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting of the stockholders, except as provided in Section 2 of this Article. The Board shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. The Board of Directors shall be classified in accordance with the provisions of the corporation's Certificate of Incorporation. Directors need not be stockholders. Section 2. Vacancies and new created directorships resulting from any increase in the authorized number of directors may be filled by 66.67% of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election at which such director's class is to be elected and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the Corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Meetings of the Board of Directors Section 4. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Members of the Board of Directors may participate in regular or special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person. -6- Section 6. Special meetings of the Board may be called by the president on two (2) days' notice to each director by mail or forty-eight (48) hours notice to each director either personally or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the Board consists of only one director, in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 7. At all meetings of the Board a majority of the directors fixed by Section 1 shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 8. Unless otherwise restricted by the Certificate of Incorporation of these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 9. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Committees of Directors Section 10. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence of disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute 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. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors -7- in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 11. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Compensation of Directors Section 12. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Director and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Removal of Directors Section 13. Any director or the entire Board of Directors may be removed only in accordance with the provisions of the Corporation's Certificate of Incorporation. ARTICLE V Notices Section 1. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. -8- Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI Officers Section 1. The officers of the Corporation shall be chosen by the Board of Directors and shall be a chief executive officer, chief financial officer, president, treasurer and a secretary. The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board of Directors may also choose one or more vice-presidents, assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, a treasurer, and a secretary and may choose vice presidents. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. Section 5. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The Chairman of the Board Section 6. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which such individual shall be present. Such individual shall have and may exercise such powers as are, from time to time, assigned to him by the Board and as may be provided by law. Section 7. In the absence of the Chairman of the Board, the Vice Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the -9- stockholders at which such individual shall be present. Such individual shall have and may exercise such powers as are, from time to time, assigned to him by the Board and as may be provided by law. Chief Executive Officer Section 8. Such individual shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 9. Such individual shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The President and Vice-Presidents Section 9. In the absence of the Chairman and Vice Chairman of the Board the President shall preside at all meetings of the stockholders and the Board of Directors; such individual shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 10. Such individual shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Section 11. In the absence of the president or in the event of his inability or refusal to act, the vice-president, if any, (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. The Secretary and Assistant Secretary Section 12. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. Such individual shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the -10- Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision such individual shall be. Such individual shall have custody of the corporate seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 13. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of directors may from time to time prescribe. The Treasurer and Assistant Treasurers Section 14. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. Section 15. The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. Section 16. If required by the Board of Directors, such individual shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 17. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. -11- ARTICLE VII Certificate of Stock Section 1. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the chairman or vice-chairman of the Board of Directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a 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 such individual were such office, transfer agent or registrar at the date of issue. Lost Certificates Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. -12- Transfer of Stock Section 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Fixing Record Date Section 5. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholder or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled 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, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. 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. Registered Stockholders Section 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII General Provisions Dividends Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. -13- Section 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Checks Section 3. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Fiscal Year Section 4. The fiscal year of the Corporation shall end on December 31, unless otherwise fixed by resolution of the Board of Directors. Seal Section 5. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Indemnification Section 7. The Corporation shall, to the fullest extent authorized under the laws of the State of Delaware, as those laws may be amended and supplemented from time to time, indemnify any director or officer made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of being a director or officer of the Corporation or a predecessor corporation or, at the Corporation's request, a director or officer of another corporation, provided, however, that the Corporation shall indemnify any such agent in connection with a proceeding initiated by such agent only if such proceeding was authorized by the Board of Directors of the Corporation. The indemnification provided for in this Section 7 shall: (i) not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement or vote of stockholders or disinterested directors or otherwise, both as to action in their official capacities and as to action in another capacity while holding such office, (ii) continue as to a person who has ceased to be a director, and (iii) inure to the benefit of the heirs, executors and administrators of such a person. The Corporation's obligation to provide indemnification under this Section 7 shall be offset to the extent of any other source of indemnification or any -14- otherwise applicable insurance coverage under a policy maintained by the Corporation or any other person. Expenses incurred by a director or officer of the Corporation in defending a civil or criminal action, suit or proceeding by reason of the fact that such individual is or was a director of the Corporation (or was serving at the Corporation's request as a director or officer of another corporation) shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director to repay such amount if it shall ultimately be determined that such individual is not entitled to be indemnified by the Corporation as authorized by relevant sections of the General Corporation Law of Delaware. Notwithstanding the foregoing, the Corporation shall not be required to advance such expenses to an agent who is a party to an action, suit or proceeding brought by the Corporation and approved by a majority of the Board of Directors of the Corporation which alleges willful misappropriation of corporate assets by such agent, disclosure of confidential information in violation of such agent's fiduciary or contractual obligations to the Corporation or any other willful and deliberate breach in bad faith of such agent's duty to the Corporation or its stockholders. The foregoing provisions of this Section 7 shall be deemed to be a contract between the Corporation and each director who serves in such capacity at any time while this bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. To assure indemnification under this Section 7 of all directors and officers who are determined by the Corporation or otherwise to be or to have been "fiduciaries" of any employee benefit plan of the Corporation which may exist from time to time, Section 145 of the General Corporation Law of Delaware shall, for the purposes of this Section 7, be interpreted as follows: and "other enterprise" shall be deemed to include such an employee benefit plan, including without limitation, any plan of the Corporation which is governed by the Act of Congress entitled "Employee Retirement Income Security Act of 1974," as amended from time to time; the Corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the Corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to such Act of Congress shall be deemed "fines." Transactions with Interested Parties Section 8. No contract or transaction between the Corporation and one or more of the directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely -15- for this reason, or solely because such director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors which authorizes the contract or transaction or solely because his, her or their votes are counted for such purpose, if: (1) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (2) The material facts as to his or her 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 of the Board of Directors, or the stockholders. 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. ARTICLE IX Amendments These By-Laws may be repealed, altered, amended or rescinded by the stockholders of the Corporation by vote of not less than 66.67% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting). In addition, in accordance with the Corporation's Certificate of Incorporation, the Board of Directors may repeal, alter, amend or rescind these By-Laws by vote of 66.67% of the Board of Directors. -16- EX-4.1 4 SPECIMEN COMMON STOCK CERTIFICATE Click DoubleClick www.doubleclick.net DoubleClick Inc. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE NUMBER DC ----- SHARES SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 258609 30 4 THIS CERTIFIES THAT is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 EACH OF THE COMMON STOCK OF - ------------------------------ DoubleClick Inc. ------------------------------ transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: [SEAL] /s/ Kevin P. Ryan /s/ Kevin J. O'Connor - -------------------------------------- ---------------------------- President and Chief Financial Officer Chief Executive Officer and Chairman of the Board COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, N.Y.) BY TRANSFER AGENT AND REGISTRAR AUTHORIZED OFFICER The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT Custodian TEN ENT--as tenants by the entireties -------------------------------- JT TEN --as joint tenants with right of (Cust) (Minor) survivorship and not as tenants under Uniform Gifts to Minors in common Act______________ (State) Additional abbreviations may also be used though not in the above list.
For value received,____________________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - ------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------ shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - ----------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ________________ -------------------------------------------------------------------- THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) NOTICE: AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: - ------------------------------------------------------------------------------ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-11.1 5 COMPUTATION OF EARNINGS EXHIBIT 11.1 DOUBLECLICK INC. COMPUTATION OF PRO FORMA BASIC AND DILUTED 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 Pro forma weighted average shares used in basic and diluted net loss per share computation.............................. 9,059,121 ------------ Net loss for the period from January 23, 1996 (inception) to December 31, 1996........................................... $ (3,191,770) Pro forma basic and diluted net loss per common share......... $ (0.35) ------------- -------------
DOUBLECLICK INC. COMPUTATION OF PRO FORMA BASIC AND DILUTED NET LOSS PER COMMON SHARE
NUMBER OF COMMON AND COMMON WEIGHTED EQUIVALENT DAYS AVERAGE YEAR ENDED DECEMBER 31, 1997 SHARES OUTSTANDING SHARES - ----------------------------- ------------ ----------- -------- Issuance and assumed conversion of convertible preferred stock............................................. 6,234,434 210 3,586,935 Class A common stock outstanding at January 1, 1997, and exchange for Common Stock................................... 3,940,890 154 1,662,732 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 2,159,472 Class C common stock outstanding at January 1, 1997, and exchange for Common Stock................................... 2 154 1 Issuance of Common Stock...................................... 5,191,732 210 2,987,024 Issuance of Common Stock upon conversion of convertible note payable................................. 779,302 1 2,135 Stock options exercised..................................... 1,625 168 748 500 153 210 20,000 152 8,329 500 148 203 5,500 145 2,185 4,500 139 1,714 30,000 131 10,767 23,000 116 7,310 3,500 110 1,055 1,000 107 293 1,875 104 534 3,500 102 978 500 97 133 4,875 97 1,296 1,250 91 312 3,750 90 925 9,000 90 2,219 500 85 116 3,500 61 585 500 61 84 5,000 55 753 500 47 64 1,625 31 138 15,688 19 817 1,750 12 58 1,125 12 37 1,250 12 41 1,625 12 53 ------------ ------------ 6,118,972 3,031,116 Pro forma weighted average shares used in basic and diluted net loss per share computation.............................. 10,445,647 ------------ Net loss for the year ended December 31, 1997................. $ (8,356,261) ------------- Pro forma net loss per common share........................... $ (0.80) -------------
EX-23.1 6 CONSENT (PRICE WATERHOUSE LLP) 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 February 10, 1998, relating to the consolidated financial statements of DoubleClick Inc., which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedules for the period from January 23, 1996 (inception) to December 31, 1996 and for the year ended December 31, 1997 listed under Item 16(b) of this Registration Statement when such schedules are read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included these schedules. 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 February 10, 1998 EX-27.1 7 FDS
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 (0.35) (0.80)
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