-----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, NiK7yK+ffhW3oGDYGi8IruXPwgrMCZpbMy1nQl1ptT4CoS2Yn0wibCVQHAtVBPrx pd4MLwSyZGTpAaAk7Gm+lg== 0001047469-05-004153.txt : 20060823 0001047469-05-004153.hdr.sgml : 20060823 20050217170633 ACCESSION NUMBER: 0001047469-05-004153 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20050217 DATE AS OF CHANGE: 20050401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FASTCLICK INC CENTRAL INDEX KEY: 0001116924 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 000000000 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-121528 FILM NUMBER: 05624842 BUSINESS ADDRESS: STREET 1: 0000990387 CITY: SANTA BARBARA STATE: CA ZIP: 93101 BUSINESS PHONE: 805.568.5334 MAIL ADDRESS: STREET 1: 0000990387 CITY: SANTA BARBARA STATE: CA ZIP: 93101 FORMER COMPANY: FORMER CONFORMED NAME: FASTCLICK COM INC DATE OF NAME CHANGE: 20000620 S-1/A 1 a2150317zs-1a.htm S-1/A
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As filed with the Securities and Exchange Commission on February 17, 2005

Registration No. 333-121528

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 2
to
Form S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

FASTCLICK, INC.
(Exact name of registrant as specified in its charter)

California
(State or other jurisdiction of
incorporation or organization)

7319
(Primary Standard Industrial
Classification Code Number)

77-0540202
(I.R.S. Employer
Identification No.)

360 Olive Street
Santa Barbara, CA 93101
(805) 568-5334
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Kurt A. Johnson
President and Chief Executive Officer
Fastclick, Inc.
360 Olive Street
Santa Barbara, CA 93101
(805) 568-5334
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
C. Thomas Hopkins, Esq. Linda Giunta Michaelson, Esq. Sheppard, Mullin, Richter & Hampton LLP 800 Anacapa Street Santa Barbara, CA 93101 (805) 568-1151		Fred J. Krupica Chief Financial Officer Fastclick, Inc. 360 Olive Street Santa Barbara, CA 93101 (805) 568-5334		William H. Hinman Jr., Esq. Simpson Thacher & Bartlett LLP 3330 Hillview Avenue Palo Alto, California 94304 (650) 251-5000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

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. o

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. o

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. o

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. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

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 said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED FEBRUARY 17, 2005

Fastclick, Inc.

Common Stock

Prior to this offering, there has been no public market for our common stock. We are offering shares and the selling stockholders are offering shares. We will not receive any of the proceeds from the sale of common stock by the selling stockholders. The initial public offering price of our common stock is expected to be between $ and $ per share. We have applied to list our common stock on the Nasdaq National Market under the symbol "FSTC."

The underwriters have an option to purchase a maximum of additional shares from us and additional shares from the selling stockholders to cover over-allotments of shares.

Investing in our common stock involves risks. See "Risk Factors" beginning on page 6.

	Per Share	Total
Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to Fastclick	$	$
Proceeds, before expenses, to selling stockholders	$	$

Delivery of the shares of common stock will be made on or about , 2005.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Credit Suisse First Boston

Citigroup

Thomas Weisel Partners LLC

Jefferies Broadview

The date of this prospectus is , 2005

TABLE OF CONTENTS

		Page
PROSPECTUS SUMMARY		1
RISK FACTORS		6
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		25
USE OF PROCEEDS		26
DIVIDEND POLICY		26
CAPITALIZATION		27
DILUTION		28
SELECTED FINANCIAL DATA		29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		31
BUSINESS		48
MANAGEMENT		60
EXECUTIVE COMPENSATION		65
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		74
PRINCIPAL AND SELLING STOCKHOLDERS		75
DESCRIPTION OF CAPITAL STOCK		78
SHARES ELIGIBLE FOR FUTURE SALE		83
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. STOCKHOLDERS		85
UNDERWRITING		88
NOTICE TO CANADIAN RESIDENTS		91
LEGAL MATTERS		92
EXPERTS		92
WHERE YOU CAN FIND MORE INFORMATION		92
INDEX TO FINANCIAL STATEMENTS		F-1

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

Dealer Prospectus Delivery Obligation

Until , 2005 (25 days after commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

PROSPECTUS SUMMARY

The following is a brief summary of selected contents of this prospectus. To understand this offering fully, you should read the following summary together with the entire prospectus, including the more detailed information regarding us and the common stock being sold in this offering and our financial statements and the related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the section entitled "Risk Factors," before making an investment decision.

Fastclick, Inc.

We are a provider of Internet advertising technologies and services. Advertisers pay us to place their Internet ads on third-party websites in our network and we share the revenue we receive from placing those ads with the website owners, or publishers, that provided the ad space. Our technologies and services, including our proprietary Optimization Engine, Internet ad placement bidding system, and reporting and campaign management tools, are designed to improve the effectiveness of Internet ad campaigns and provide advertisers with an increased return on their advertising expenditures. We believe our technologies and services also enhance the value of Internet ad space available on our network of more than 8,000 third-party websites.

Utilizing advanced mathematical algorithms, our proprietary Optimization Engine is designed to continuously analyze Internet user responses to various advertising campaign elements. Our Optimization Engine then automatically delivers ads to the websites yielding the greatest number of Internet user responses that meet the advertiser's campaign objectives. Based on this analysis, our Optimization Engine continuously refines an advertiser's campaign to emphasize the elements of the campaign that meet the advertiser's campaign objectives, such as the use of specific creative content, and removes elements that do not achieve the advertiser's campaign objectives, such as ads that underperform on a specific website. Our ad placement bidding system prices ad space based on current supply and demand for ad space on our network. Advertisers bidding the highest price receive priority delivery of their ads, subject to certain rules which may be set by us, our advertisers or our publishers.

We placed over 6.5 billion ads in December 2004. Our top ten advertisers accounted for 47.6% and 45.8% of our ad revenue for 2003 and 2004, respectively.

Industry Background

The Internet continues to be a powerful and rapidly growing medium that enables advertisers to effectively target consumers. According to Forrester Research, the U.S. Internet advertising market, which is comprised primarily of display advertising and search engine marketing, was approximately $7 billion in 2003, which represented 3% of the total U.S. advertising market. Forrester Research projects U.S. Internet advertising to grow to $15.6 billion in 2008, representing a compound annual growth rate of 17.5% over that time period. We believe that this market growth is due to increased broadband access, growing consumer Internet usage and the benefits offered by Internet advertising relative to traditional media, including interactivity, rapid and measurable user feedback and the ability to more effectively target consumers. We believe that another factor driving Internet advertising growth is the increase in performance-based advertising, which requires that an advertiser pay for an ad only

when an Internet user performs a specific act in response to that ad, such as clicking through to another website, registering on a website, requesting information or purchasing an item. Our performance-based Internet advertising technologies and services allow advertisers to pay for an ad only when that ad produces the user response specified by the advertiser. We cannot provide any assurance that we will benefit from the projected growth in Internet advertising.

Our Strategy

Our goal is to be a leading provider of performance-based Internet advertising technologies and services. To achieve this goal, we plan to:

•: enhance our existing technologies and services to provide our advertisers with increased return on their advertising expenditures and enhance the value of Internet ad space available on our network of third-party websites;
•: introduce new technologies and services, such as our search engine advertising technology which is designed to help advertisers manage their advertising campaigns across multiple Internet search engines;
•: expand our network of third-party websites to enable our advertisers to reach a larger and broader demographic base of Internet users;
•: grow our advertiser base, increase our sales efforts to indirect channels, such as advertising agencies, and garner a larger share of advertisers' marketing budgets; and
•: pursue acquisition candidates to grow our advertiser base and network of third-party websites, and access technology and talent.

Company Information

We were incorporated in California in March 2000 and plan to reincorporate in Delaware prior to the effective date of the registration statement of which this prospectus is a part. Our principal executive offices are located at 360 Olive Street, Santa Barbara, California 93101 and our telephone number is (805) 568-5334. Our website is www.fastclick.com. Information contained on our website, or that can be accessed through our website, does not constitute a part of this prospectus.

The "Fastclick" family of related marks, images and symbols are our properties, trademarks and service marks. All other trade names, trademarks and service marks appearing in this prospectus are the property of their respective owners.

The Offering

Common stock offered by:
	Fastclick	shares
	The selling stockholders	shares
	Total	shares
Common stock outstanding after this offering		shares
Use of proceeds		We intend to use the net proceeds we receive from this offering primarily for general corporate purposes, including working capital, expansion of our operations, investment in new product development and strategic initiatives. We may also use a portion of the net proceeds to pursue acquisition candidates to grow our advertising and publishing base and access technology and talent. We currently have no specific acquisition plans. We will not receive any proceeds from the sale of common stock by the selling stockholders. See "Use of Proceeds."
Risk factors		An investment in our common stock involves a high degree of risk. See "Risk Factors" and other information included in this prospectus for a discussion of some of the factors you should carefully consider before deciding to invest in shares of our common stock.
Proposed Nasdaq National Market symbol		"FSTC"

The number of shares of common stock described above as outstanding immediately after this offering is based on shares of common stock outstanding as of December 31, 2004, and excludes:

•: 476,073 shares of common stock issuable on the exercise of options outstanding as of December 31, 2004, at a weighted average exercise price of $11.23 per share; and
•: 187,149 shares of common stock reserved for future issuance under our 2004 Stock Plan.

As of December 31, 2004, no shares remained available for issuance under our 2000 Stock Plan and 187,149 shares remained available for future issuance under our 2004 Stock Plan. Upon the completion of this offering, we do not intend to grant any more options under our 2004 Stock Plan.

Unless otherwise stated, all information in this prospectus assumes:

•: an initial public offering price of $ per share, the midpoint of the filing range set forth on the cover of this prospectus;
•: the automatic conversion of all outstanding shares of our Series A Preferred Stock on a one-for-one basis into 2,131,285 shares of common stock upon completion of this offering;
•: no exercise of the over-allotment option granted to the underwriters;
•: our reincorporation in Delaware prior to the effective date of the registration statement of which this prospectus is a part;
•: the filing of our amended and restated certificate of incorporation immediately prior to the completion of this offering; and
•: a - stock split of our common stock to be effected prior to the completion of this offering.

Summary Financial Data

The following tables present our summary financial information. You should read this information together with our financial statements and related notes and the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The summary financial data below for the years ended December 31, 2002, 2003 and 2004 is derived from our audited financial statements included elsewhere in this prospectus and the summary financial data below for the year ended December 31, 2001 is derived from our audited financial statements not included in this prospectus. The unaudited pro forma statements of income data presents our pro forma provision for income taxes and pro forma net income as if we had been a C corporation for all periods presented. The historical results are not necessarily indicative of the results to be expected for any future periods.

		Year Ended December 31,
		2001			2002		2003			2004
		(in thousands, except share data)
Statements of Income Data:
Revenue		$	4,480		$	17,664	$	28,663		$	58,015
Cost of revenue			3,114			11,766		19,246			38,055

Gross profit			1,366			5,898		9,417			19,960
Operating costs(1):
	Sales and marketing		229			995		2,160			6,810
	Technology		221			345		402			2,287
	General and administrative		193			422		1,045			2,787
	Stock-based compensation(2)		—			—		—			644

Total operating costs			643			1,762		3,607			12,528

Operating income			723			4,136		5,810			7,432
Interest and dividend income			8			19		19			124
Interest expense			—			—		(5	)		(8	)
Loss on sale/disposal of equipment			(1	)		—		(12	)		(2	)

Income before income taxes			730			4,155		5,812			7,546
Provision for income taxes(3)			207			97		55			2,412

Net income(4)		$	523		$	4,058	$	5,757		$	5,134

Unaudited Pro Forma Statements of Income Data(5):
Income before income taxes					$	4,155	$	5,812		$	7,546
Pro forma provision for income taxes						1,581		2,167			2,786

Pro forma net income					$	2,574	$	3,645		$	4,760

(footnotes on following page)

The following table presents a summary of our balance sheet data as of December 31, 2004:

•: on an actual basis;
•: on an unaudited pro forma basis to give effect to the automatic conversion of all of our outstanding shares of Series A Preferred Stock on a one-for-one basis into 2,131,285 shares of common stock upon completion of this offering; and
•: on an unaudited pro forma as adjusted basis to reflect the sale of shares of common stock by us in this offering at the estimated initial public offering price of $ per share, the midpoint of the price range set forth on the front of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

	As of December 31, 2004
	Actual			Pro Forma		Pro Forma as Adjusted
	(in thousands)
				(unaudited)
Balance Sheet Data:
Cash and cash equivalents	$	12,397		$	12,397
Short-term investments		7,954			7,954
Working capital		20,072			20,072
Total assets		33,883			33,883
Long-term obligations (including current portion)		121			121
Redeemable convertible preferred stock		73,416			—
Retained earnings		3,312			3,312
Total stockholders' equity (deficit)	$	(49,928	)	$	23,488

(1): Operating costs for 2004 include the one-time compensation charge of $952,000 paid to employees in conjunction with the termination of the Ownership Equivalency Plan. See Note 12 of the notes to our financial statements included elsewhere in this prospectus.
(2): See Note 1 and Note 11 of the notes to our financial statements included elsewhere in this prospectus for an explanation of our stock-based compensation.
(3): From our inception in 2000 to December 31, 2001, we operated as a C corporation. For all of 2002 and 2003 and the period from January 1, 2004 through September 27, 2004 we were a subchapter S corporation. On September 27, 2004 our subchapter S corporation status was revoked in connection with the issuance of our Series A Preferred Stock and we now operate as a C corporation. The provision for income taxes for the year ended December 31, 2004 includes the recognition of taxes of $1,061 under Section 481(a) of the Internal Revenue Code as a result of the revocation of our subchapter S corporation status. See Note 1 of the notes and Note 4 of the notes to our financial statements included elsewhere in this prospectus.
(4): As a result of our subchapter S corporation status for tax purposes for all of 2002 and 2003 and for the period from January 1, 2004 through September 27, 2004 and our status as a closely held corporation from inception through December 31, 2001, earnings per share information has not been presented.
(5): Presents pro forma provision for income taxes and pro forma net income as if we operated as a C corporation in all periods presented, except for the year ended December 31, 2001 in which we were a C corporation. See Note 1 and Note 4 of the notes to our financial statements included elsewhere in this prospectus for an explanation of the unaudited pro forma statement of income data.

RISK FACTORS

An investment in our common stock involves significant risks. You should consider carefully the risks described below, together with all of the other information in this prospectus, before making a decision to invest in our common stock.

Risks Related to Our Business and Industry

We have a limited operating history, operate in an immature industry and have a relatively new business model, all of which may make it difficult for you to evaluate our business and prospects.

We were incorporated in California in March 2000 and began offering Internet advertising technologies and services in September 2000. Accordingly, we have a limited operating history, and as a result, we have limited financial data that you can use to evaluate our business and prospects. In addition, we derive nearly all of our revenue from Internet advertising, which is an immature industry that has undergone rapid and dramatic changes in its short history. Our business model is also evolving and is distinct from other companies in our industry and it may not be successful. As a result of these factors, the future revenue and income potential of our business is uncertain. Although we have experienced significant revenue growth in recent periods, we may not be able to sustain this growth. Any evaluation of our business and our prospects must be considered in light of these factors and the risks and uncertainties often encountered by companies in our stage of development. Some of these risks and uncertainties relate to our ability to do the following:

•: maintain our current relationships, and develop new relationships, with advertisers, advertising agencies, direct marketers, and website publishers;
•: continue to grow our revenue and meet anticipated growth targets;
•: manage our expanding operations and implement and improve our operational, financial and management controls;
•: adapt to industry consolidation;
•: continue to grow our website network;
•: successfully introduce new, and upgrade our existing technologies and services for Internet advertisers and website publishers;
•: respond to government regulations relating to the Internet and other aspects of our business;
•: respond effectively to competition; and
•: attract and retain qualified management and employees.

If we are unable to address these risks, our business, results of operations and prospects could suffer.

If we do not effectively manage our growth, our operating performance will suffer and we may lose advertisers and websites.

We have experienced rapid growth in both our headcount and operations, and we may experience continued growth in our business, both through acquisitions and internal growth. This growth has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. In particular, continued growth will make it more difficult for us to accomplish the following:

•: recruit, train and retain a sufficient number of highly skilled personnel;
•: maintain our customer service standards;
•: maintain the quality of websites on our network;

•: develop and improve our operational, financial and management controls and maintain adequate reporting systems and procedures;
•: successfully scale our software and technology to accommodate a larger business; and
•: maintain advertiser satisfaction.

The improvements required to manage our growth will require us to make significant expenditures and allocate valuable management resources. For example, we are in the process of implementing a new accounting system. If we do not implement this new system successfully, it could adversely affect our ability to timely and accurately report our operations. If we fail to effectively manage our growth, our operating performance will suffer and we may lose advertisers and websites.

If we are unable to retain our senior management or attract and retain qualified senior management in the future, we may not be able to implement our business strategy effectively and our revenue may decline.

We depend on the continued contributions of our senior management and, in particular, Kurt A. Johnson, our president and chief executive officer, and Fred J. Krupica, our chief financial officer. We maintain a key person life insurance policy on only Mr. Johnson. Several members of our senior management have been with us for a short time. For example, Mr. Johnson has served as our chief executive officer since March 2004, Mr. Krupica has served as our chief financial officer since September 2004, James Aviani has served as our chief technology officer since March 2004 and Michael S. Hughes has served as our chief marketing officer since December 2004. It is possible that personality conflicts and differences in management styles may surface, which could slow our decision-making process, prevent us from making strategic decisions in a timely manner or cause us to lose members of our senior management team. In addition, the vesting of some of the stock options granted to two of our senior executives, Mr. Krupica and Mr. Aviani, accelerates upon the consummation of this offering. These individuals may be more likely to leave us if the shares underlying their options have significantly appreciated in value relative to the option exercise price.

We also need to hire additional members of senior management to adequately manage our growing business. We may not be able to identify and attract additional qualified senior management. Competition for senior management in our industry is intense. Qualified individuals are in high demand, and we may incur significant costs to attract them. Volatility or lack of performance in our stock price may also affect our ability to attract and retain senior management. If we are unable to attract and retain qualified senior management, we may not be able to implement our business strategy effectively and our revenue may decline.

We need to hire additional qualified personnel to grow and manage our business. If we are unable to attract and retain qualified personnel, we may not be able to grow our business or effectively compete in our industry.

Our performance depends on the talents and efforts of our employees. Our future success will depend on our ability to attract, retain and motivate highly skilled personnel in all areas of our organization and, in particular, in our technology, finance, and sales and marketing teams. We plan to continue to grow our business and will need to hire additional personnel to support this growth. We have experienced difficulties in attracting and retaining qualified personnel in the past, particularly in the Santa Barbara, California area where our headquarters are located. If we experience similar difficulties in the future, our growth may be hindered. For example, we are in the process of leasing new facilities in Los Angeles, California in the first quarter of 2005. Qualified individuals are in high demand, and we may incur significant costs to attract them. Many of our employees have also become, or will soon become, substantially vested in their stock option grants. Employees may be more likely to leave us if the shares underlying their options have significantly appreciated in value relative to the option exercise price. If we are unable to attract and retain the personnel we need to succeed, we may not be able to grow our business or effectively compete in our industry.

Our operating results have fluctuated in the past and may do so in the future, which could make our results of operations difficult to predict or cause them to fall short of expectations.

Our prior operating results have fluctuated due to changes in our business and the Internet advertising industry. Similarly, our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control and could cause our results to be below investors' expectations, causing the price of our common stock to fall. Because our business is changing and evolving, our historical operating results may not be useful to you in predicting our future operating results. Factors that may increase the volatility of our operating results include the following:

•: the addition of new advertisers or websites or the loss of existing advertisers or websites;
•: changes in demand and pricing for our advertising services;
•: the timing and amount of sales and marketing expenses incurred to attract new advertisers, advertising agencies, and websites;
•: changes in the economic prospects of advertisers or the economy generally, which could alter current or prospective advertisers' spending priorities, or could increase the time it takes us to close sales with advertisers;
•: new product launches by advertisers;
•: changes in our pricing policies, the pricing policies of our competitors or the pricing of Internet advertising generally;
•: overall Internet usage, which generally declines during the summer months;
•: timing differences at the end of each quarter between our payments to website publishers for advertising space and our collection of advertising revenue related to that space;
•: introduction of new ad formats and shifts in ad format mix;
•: costs related to acquisitions of businesses or technologies; and
•: Internet advertising is a relatively new medium and advertisers have not settled into consistent spending patterns.

In addition, advertising spending has historically been cyclical in nature, reflecting overall economic conditions as well as budgeting and buying patterns. Our rapid growth has historically masked the cyclicality and seasonality of our business. As our rate of growth slows, we expect that the cyclicality and seasonality in our business may become more pronounced and may in the future cause our operating results to fluctuate.

If we fail to compete effectively against other Internet advertising companies, we could lose advertisers or advertising space and our revenue may decline.

The market for Internet advertising technologies and services is intensely competitive. We expect this competition to continue to increase because there are no significant barriers to entry. We compete both for advertisers and for the high quality advertising space that is available through websites. We compete for advertisers on the basis of a number of factors, including price, return on advertising expenditures, volume of available advertising space and customer service.

Our primary current and potential competitors include:

•: Internet advertising networks such as Advertising.com (acquired by AOL), ValueClick, Tribal Fusion and Burst Media;
•: Internet advertising technology providers, including search engine optimization companies; and
•: other performance-based Internet marketers, including affiliate networks.

We also compete with large Internet companies and traditional media for a share of advertisers' overall marketing budgets, including:

•: website publishers with their own sales forces that sell their advertising space directly to advertisers;
•: major Internet portals and search engine companies with advertising networks such as Google and Yahoo!; and
•: direct marketing, television, radio, cable and print companies.

Competition for ads among websites, search engines, Internet service providers, or ISPs, as well as competition with traditional media companies, could result in significant price pressure, declining margins, reductions in advertising revenue and loss of our market share. In addition, as we continue to expand the scope of our services, we may compete with a greater number of websites, advertisers and traditional media companies across an increasing range of different services, including in vertical markets where competitors may have advantages in expertise, brand recognition and other areas. Large websites with brand recognition, such as Yahoo!, AOL, Google and MSN, have direct sales personnel and substantial proprietary advertising space that provides a significant competitive advantage compared to our network of websites and have significant impact on pricing for Internet advertising. Many of our current and potential competitors also enjoy other competitive advantages over us, such as longer operating histories, larger advertiser bases, greater access to advertising space on high-traffic websites, and significantly greater financial, technical and marketing resources. As a result, we may not be able to compete successfully. If we fail to deliver advertising results that are superior to those that advertisers or websites could achieve directly or through the use of our competitors, we could lose advertisers or advertising space and revenue may decline.

We depend on websites for advertising space, and any decline in the supply of advertising space available through our network could cause our revenue to decline or the cost to acquire advertising space to increase.

We generate a significant portion of our revenue from the advertising space provided by a limited number of websites. Expenses for our top ten website publishers accounted for 22.6% and 21.6% of our publisher expenses for 2003 and 2004, respectively. In most instances, website publishers can change the amount of advertising space they make available to us at any time and therefore impact our revenue. In addition, website publishers may place significant restrictions on our use of their advertising space. These restrictions may prohibit ads from specific advertisers or specific industries, or restrict the use of certain creative content or format. If a website publisher decides not to make advertising space available to us, or decides to demand a higher revenue share or places significant restrictions on the use of such advertising space, we may not be able to replace the space with advertising space from other websites that satisfy our requirements in a timely and cost-effective manner. In addition, the number of competing Internet advertising networks that acquire space from websites continues to increase. We cannot assure you that we will be able to acquire advertising space that meets our advertisers' performance, price and quality requirements. If any of these things occur, our revenue could decline or our cost of acquiring advertising space may increase.

If we offer new technologies and services that compete with products or services offered by our advertisers or website publishers, we could lose advertisers or advertising space and our revenue could decrease.

We intend to expand the scope of our services and develop new technologies and services. As we do so, we will compete with a greater number of advertisers, website publishers and other media companies across an increasing range of markets, which may include advertisers or publishers to whom we currently provide technologies and services. For example, we are currently developing a search engine advertising technology, which is designed to manage search engine advertising, including bids for key words. We are also developing an Internet user targeting technology, which is designed to gather,

store and distribute to advertisers targeted Internet user contact and other information. Some of our publishers and advertisers already offer, or in the future may offer, similar or competing technologies and services. We depend, and expect to continue to depend, on our relationships with our advertisers and publishers. If we develop new technologies and services that compete with our current advertisers or publishers, they may materially reduce or cease their use of our advertising technologies and services and our revenue could decrease.

A substantial portion of our revenue is generated from a limited number of advertisers, and if we lose a major advertiser our revenue could decrease.

A substantial portion of our revenue is generated from a limited number of advertisers and advertising agencies. Our advertisers can generally terminate their contracts with us at any time, with no penalty upon one business day prior notice. Our top ten advertisers accounted for 47.6% and 45.8% of our advertising revenue for 2003 and 2004, respectively. We expect that a limited number of advertisers may continue to account for a significant percentage of our revenue and the loss of, or material reduction in, their advertising purchases could decrease our revenue and harm our business.

Because our advertiser contracts generally can be cancelled by the advertiser with no penalty upon one business day prior notice, the cancellation of one or more contracts could result in an immediate decline in our revenue.

We derive substantially all of our revenue from Internet advertising campaigns under short-term contracts, most of which are cancelable with one business day prior notice. In addition, these contracts do not contain penalty provisions for cancellation before the end of the contract term. The non-renewal, renegotiation, cancellation or deferral of large contracts, or a number of contracts that in the aggregate account for a significant amount of revenue, is difficult to anticipate and could result in an immediate decline in our revenue.

We may pursue the acquisition of other businesses in order to grow our advertiser and website base and access technology and talent, which may not achieve the desired results or could result in operating difficulties, dilution and other harmful consequences.

A component of our strategy is to acquire other businesses in order to grow our advertiser and website base and access technology and talent. However, suitable acquisition candidates may not be available on terms and conditions we find acceptable. In pursuing acquisitions, we will compete with other companies, many of which have greater financial and other resources than we do. Further, if we do succeed in consummating acquisitions, these acquisitions could be material to our business, operating results and financial condition. Any future acquisition or investment may require us to use significant amounts of cash, issue potentially dilutive equity securities with rights, preferences or privileges greater than our common stock, incur debt or assume contingent liabilities, any of which could harm our results of operations and financial position. In addition, the anticipated benefits of our acquisitions may not materialize and the acquired business may not achieve anticipated revenue, earnings or cashflows. In addition, acquisitions involve numerous risks, any of which could harm our business, including:

•: diversion of management's attention and resources from other business concerns;
•: difficulties and expenditures associated with integrating the operations and employees from the acquired company into our organization, and integrating each company's accounting, management information, human resources and other administrative systems to permit effective management;
•: inability to maintain the key business relationships and the reputations of the acquired businesses;
•: ineffectiveness or incompatibility of acquired technologies or services with our existing technologies and systems;

•: potential loss of key employees of acquired businesses;
•: integrating new business lines with which we may have little or no experience or which may compete with our advertisers or publishers
•: responsibility for liabilities of acquired businesses;
•: unavailability of favorable financing for future acquisitions;
•: inability to maintain our standards, controls, procedures and policies, which could affect our ability to receive an unqualified attestation from our independent accountants regarding management's required assessment of the effectiveness of our internal control structure and procedures for financial reporting; and
•: increased fixed costs.

We also may pursue the acquisition of businesses outside the United States. Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.

Interruption or failure of our information technology and communications systems could impair our ability to effectively deliver our technologies and services, which could cause us to lose advertisers or advertising space and harm our operating results.

Our delivery of technologies and services depends on the continuing operation of our technology infrastructure and systems. Any damage to or failure of our systems could result in interruptions in our ability to deliver ads quickly and accurately and to process users' responses to ads. Interruptions in our service could reduce our revenue and profits, and our reputation could be damaged if people believe our system is unreliable. Our systems are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses or other attempts to harm our systems, and similar events. We have critical systems in our Santa Barbara, California headquarters and lease server space in San Jose, California and Ashburn, Virginia. Our California facilities are located in areas with a high risk of major earthquakes. Our facilities are also subject to break-ins, sabotage and intentional acts of vandalism, and to potential disruptions if the operators of these facilities have financial difficulties. Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities. The occurrence of a natural disaster, a decision to close a facility we are using without adequate notice for financial reasons or other unanticipated problems at our facilities could result in lengthy interruptions in our service.

We have experienced limited system failures in the past and may in the future. For example, we failed to deliver ads to our websites for an aggregate of approximately two hours during the year ended December 31, 2004. Any unscheduled interruption in our service puts a burden on our entire organization and results in an immediate loss of revenue. If we experience frequent or persistent system failures, the attractiveness of our technologies and services to advertisers and website publishers could be permanently harmed. Our insurance policies may not adequately compensate us for any losses that occur due to failure in our systems. The steps we have taken to increase the reliability and redundancy of our systems are expensive, reduce our operating margin and may not be successful in reducing the frequency or duration of unscheduled interruptions.

Any constraints on the capacity of our technology infrastructure could delay the effectiveness of our operations or result in system failures, which could result in the loss of advertisers and a decline in our revenue.

Our future success depends in part on the efficient performance of our software and technology infrastructure. As the numbers of websites and Internet users increase, our technology infrastructure may not be able to meet the increased demand. A sudden and unexpected increase in the volume of

ads delivered by us or in user responses could strain the capacity of our technology infrastructure. Any capacity constraints we experience could lead to slower response times or system failures and adversely affect the availability of ads, the number of ads delivered and the level of user responses received, which could result in the loss of advertisers and a decline in our revenue.

Our Internet advertising technologies and services incorporate multiple proprietary technologies and our intellectual property rights are key to the success of our business. If we do not adequately protect our intellectual property rights, our competitive position may suffer.

We rely on a combination of patent, copyright, trademark and trade secret laws of the United States and other countries, and confidentiality procedures to protect our intellectual property rights. Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary technology. The use of our intellectual property rights by others could reduce any competitive advantage we have developed and cause us to lose advertisers or websites or otherwise harm our business. We have from time to time become aware of third parties who we believe may have infringed on our intellectual property rights. The steps we currently take to monitor the unauthorized use of our proprietary technology are difficult and costly, and we cannot be certain that the steps we have taken and continue to take will prevent unauthorized distribution and use of our proprietary technology, particularly in foreign countries, where the laws may not protect our intellectual property rights as fully as in the United States. In addition, in the future it may become necessary for us to resort to litigation to protect these rights, and any proceedings could be burdensome and costly and we may not prevail.

Third parties may sue us for our use of Internet advertising technologies or other intellectual property and allege that we have infringed on their intellectual property rights. If successful, these lawsuits could require us to pay significant damage awards or curtail our technology or service offerings.

From time to time third parties have alleged that we have infringed their intellectual property rights. We cannot be certain that we do not and will not infringe the intellectual property rights of others and we may be subject to legal proceedings and claims in the ordinary course of our business, including suits for intellectual property infringement or proceedings to invalidate our intellectual property. Any intellectual property claims, whether or not meritorious, could result in costly litigation and could divert management resources and attention. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (if available on acceptable terms or at all), pay damages or limit or curtail our product or service offerings. We may also need to redesign some of our products or processes to avoid future infringement liability. Any of the foregoing could prevent us from competing effectively and increase our costs.

Our proprietary technologies, including our Optimization Engine, may include design or performance defects and may not achieve their intended results, either of which could impair our future revenue growth.

Our Optimization Engine and other proprietary technologies are relatively new, and they may contain design or performance defects that are not yet apparent. We cannot assure you that the use of our proprietary technologies will achieve the intended results as effectively as other technologies that exist now or may be introduced by our competitors, in which case our business could be harmed.

In addition, we recently have spent significant resources developing our search engine advertising technology and Internet user targeting technology. If these technologies, which we currently intend to launch in the first quarter of 2005 and second quarter of 2005, respectively, do not achieve the results we desire, our expected growth in future revenue and margins may not materialize. Our success also depends on our ability to develop and introduce new proprietary technologies that address our advertisers' and website publishers' changing needs. Any new products that we develop may not achieve significant market acceptance. Our competitors may introduce new products that compete with our

proprietary technologies and render our proprietary technologies unmarketable. Developing new products and technologies requires a significant commitment of technology and other resources. If revenue generated from the use of our proprietary technologies does not cover our development costs, our results of operations may be harmed.

If we are unable to accurately price advertising space on our network, our margins and revenue may decline.

Our advertisers can purchase advertising space on our network based on the following pricing options:

•: Cost-per-action, where the advertiser pays us a fee based on the number of specified Internet user responses, such as registrations, requests for information or sales that its ads produce;
•: Cost-per-click, where the advertiser pays us a fee based on the number of clicks its ads generate; and
•: Cost-per-thousand impressions, where the advertiser pays us a fee based on the number of times its ads are displayed, referred to as impressions.

Regardless of how an advertiser pays for space, we pay the vast majority of our website publishers on a cost-per-thousand impressions basis. However, the number of impressions it actually takes to achieve an action can be far greater than the number we anticipate. This can result in us paying a higher price to our publishers for advertising space than our advertisers pay us for that space. If we are unable to accurately convert advertising campaigns that are priced on a cost-per-action or cost-per-click basis to an effective cost-per-thousand impressions based price that reflects the actual amount of impressions it takes to achieve an action or click, our results of operations will suffer. For the year ended December 31, 2004, approximately 22% of the advertising space on our network was purchased on a cost-per-action or cost-per-click basis and we paid the vast majority of our website publishers displaying these ads on a cost-per-thousand impressions basis. We expect that advertising purchased based on this pricing will increase over time.

Any decrease in demand for our technologies and services could substantially reduce our revenue.

To date, substantially all of our revenue has been derived from Internet advertising. We expect that Internet advertising will continue to account for substantially all our revenue in the future. However, our revenue from Internet advertising may decrease in the future for a number of reasons, including the following:

•: the rate at which Internet users take action in response to an ad may decrease;
•: the popularity of the Internet as an advertising medium could decrease;
•: Internet users may install existing or to-be-developed software programs that allow them to prevent ads from appearing on their screens;
•: advertisers may prefer an alternative Internet advertising format, product or service which we might not offer; and
•: we may be unable to make the transition to new Internet advertising formats preferred by advertisers.

If we fail to keep pace with rapidly changing technologies we could lose advertisers and advertising space and our revenue may decline.

The Internet advertising market is characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing user demands. The introduction of new products and services embodying new technologies and the emergence of new industry standards and practices can render existing products and services obsolete and unmarketable or require unanticipated investments in technology. Our future success will depend on our ability to

adapt to rapidly changing advertising formats and other technologies. We will need to enhance our existing technologies and services and develop and introduce a variety of new technologies and services to address our advertisers' changing demands. In addition, an increase in the bandwidth of Internet access resulting in faster data delivery may provide new products and services that will take advantage of this expansion in delivery capability. If we fail to adapt successfully to such developments, we could lose advertisers or advertising space. We may also experience difficulties that could delay or prevent the successful design, development, introduction or marketing of new technologies and services. Any new technologies and services or enhancement that we develop will need to meet the requirements of our current and prospective advertisers and may not achieve significant market acceptance. For example, we currently intend to launch our search engine advertising technology in the first quarter of 2005 and our Internet user targeting technology in the second quarter of 2005. We expect the success of these technologies to be material to our future growth. If we do not successfully introduce new technologies and services or if we fail to keep pace with technological developments and the introduction of new industry and technology standards on a cost-effective basis, we could lose advertisers and advertising space and our revenue may decline.

Changes in government regulation and industry standards applicable to the Internet could decrease demand for our technologies and services or increase our costs.

Laws and regulations that apply to Internet communications, commerce and advertising are becoming more prevalent. These regulations could affect the costs of communicating on the Internet and could decrease demand for our technologies and services or increase our costs.

In the United States, federal and state laws have been enacted regarding children's privacy, copyrights, sending of unsolicited commercial email, user privacy, search engines, Internet tracking technologies, direct marketing, data security, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets, export of encryption technology, taxation and acceptable content and quality of goods. The European Union has also adopted directives that may affect our ability to collect and use information regarding Internet users in Europe. Other laws and regulations may be adopted in the future. This legislation could hinder growth in the use of the Internet generally, and decrease the acceptance of the Internet as a communications, commercial and advertising medium.

Several recent federal laws could have an impact on our business. The Digital Millennium Copyright Act is intended, in part, to limit the liability of eligible Internet service providers for listing or linking to third-party websites that include materials that infringe copyrights or other rights of others. The Children's Online Protection Act and the Children's Online Privacy Protection Act are intended to restrict the distribution of certain materials deemed harmful to children and impose additional restrictions on the ability of Internet services to collect user information from minors. In addition, the Protection of Children From Sexual Predators Act of 1998 requires Internet service providers to report evidence of violations of federal child pornography laws under certain circumstances. Though we specifically prohibit the use of our network for any such activities, and refuse to transact business with any advertiser or websites participating in such activities, such legislation may impose significant additional costs on our business or subject us to additional liabilities.

The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. We are not certain how our business might be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, libel, obscenity and export or import matters to the Internet advertising industry. The vast majority of such laws were adopted prior to the advent of the Internet. As a result, they do not contemplate or address the unique issues of the Internet and related technologies. Changes in laws intended to address such issues could create uncertainty in the Internet market. It may take years to determine how existing laws apply to the Internet and Internet advertising. Such uncertainty can make it difficult to predict costs and could reduce demand for our services or increase the cost of doing business as a result of litigation costs or increased service delivery costs.

The growth and development of the market for Internet commerce may prompt calls for more stringent laws and regulations governing the Internet, both in the United States and abroad, which may impose additional burdens on companies conducting business over the Internet. In addition to governmental regulation, privacy advocacy groups and the advertising, technology and direct marketing industries are all considering various new, additional or different self-regulatory standards applicable to the Internet. Demand for our technologies and services may decrease and our business could be materially and adversely affected by the adoption or modification of laws, regulations or industry guidelines relating to the Internet, or the application of existing laws to the Internet or Internet-based advertising.

We may be subject to regulations and taxes in locations from which our transmissions do not originate and we may not accurately determine our tax liabilities, either of which could materially affect our financial results.

Due to the global nature of the Internet, it is possible that, although our transmissions originate in Santa Barbara, California, San Jose, California and Ashburn, Virginia, the governments of other states or foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. For example, we file tax returns in the states where we are required to by law, based on principles applicable to traditional businesses. However, one or more states could seek to impose additional income tax obligations or sales tax collection obligations on out-of-state companies, such as ours, that engage in or facilitate electronic commerce. A number of proposals have been made at state and local levels that could impose such taxes on the sale of products and services through the Internet or the income derived from such sales. If adopted, these proposals could substantially impair the growth of electronic commerce and seriously harm our profitability.

The determination of our provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

If the technology that we currently use to target the delivery of Internet advertisements and to prevent fraud on our network is restricted by or becomes subject to regulation, our expenses could increase and we could lose advertisers or advertising space.

Websites typically place small files of non-personalized, or anonymous, information, commonly known as cookies and action tags, on an Internet user's hard drive, generally without the user's knowledge or consent. Cookies generally collect aggregate information about users on a non-personalized basis to enable websites to provide users with a more customized experience. Cookie information is passed to the website through an Internet user's browser software. We use cookies to collect information regarding the ads we deliver to Internet users and their interaction with these ads. An action tag functions similarly to a banner ad, except that the action tag is not visible. Action tags may be placed on certain pages of a website, which enables us to measure an advertising campaign's effectiveness in driving Internet users to take specific actions. We use this information to identify Internet users who have received our ads in the past and to monitor and prevent potentially fraudulent activity. In addition, our proprietary technologies use this information to monitor the performance of ongoing advertising campaigns and plan future campaigns. Most currently available Internet browsers allow Internet users to modify their browser settings to prevent cookies from being stored on their hard drives, and some users currently do so. Internet users can also delete cookies from their hard drives at any time. Recently, technologies have been developed, like the Platform for Privacy Preferences Project, or P3P, which limit the collection of cookie and action tag information. Finally, third parties have brought class action lawsuits against other companies relating to the use of cookies, and we may be

subject to similar lawsuits in the future. The use of such technologies or the results of such lawsuits could limit or eliminate our ability to use cookies and action tags.

Some Internet commentators and privacy advocates have suggested limiting or eliminating the use of cookies and certain software programs which allow the monitoring of Internet users' activities without their consent; such programs are commonly known as "spyware." Legislation has been passed or is pending in several states and in the United States Congress that restrict the use of these types of technologies. For example, in California, the Consumer Protection Against Computer Spyware Act was passed and took effect on January 1, 2005. In the United States Congress, the House of Representatives recently passed two separate bills known as the Securely Protect Yourself Against Cyber Trespass Act, or the SPY Act, and the Internet Spyware Prevention Act of 2004, or the I-SPY Act. Both the SPY Act and the I-SPY Act are pending in the United States Senate. In addition, the European Union has adopted a directive requiring that when cookies are used, the user must be informed regarding the use and purpose of cookies and provided instructions on how to remove cookies.

Any reduction of or limitation on our ability to use Internet tracking technologies such as cookies and action tags may:

•: reduce the effectiveness of our proprietary technologies;
•: require us to replace or re-engineer our proprietary technologies, which could require significant amounts of our time and resources, may not be completed in time to avoid losing advertisers or advertising space, and may not be commercially or technically feasible; and
•: cause us to become subject to costly and time-consuming litigation or investigations due to our use of cookie technology or other technologies designed to collect Internet usage information.

Any one or more of these occurrences could result in increased costs, require us to change our business practices or divert management's attention.

New technologies could block our ability to serve advertisements, and may reduce demand for our technologies and services.

Technologies have been developed and distributed that are designed to block the appearance of pop-up and pop-under ads on website pages viewed by Internet users. For the years ended December 31, 2003 and 2004, we derived approximately 57% and 51%, respectively, of our revenue from our deployment of pop-under ads across our network. These ad- blocking technologies may become more effective and their use may become more widespread, and they may block the display of other current or future formats that we may use to deploy our ads. Substantially all of our revenue is derived from fees paid to us by advertisers in connection with the display of ads on websites. As a result, ad-blocking technology could reduce demand for our technologies and services and harm our business.

Disputes with advertisers or website publishers over our measurement of Internet user impressions, clicks or actions may cause us to lose advertisers and publishers.

We earn advertising revenue and make payments to website publishers based on the number of impressions, clicks and actions from ads delivered on our network of websites. Advertisers' and publishers' willingness to use our services and join our network will depend on the extent to which they perceive our measurements to be accurate and reliable. Advertisers and publishers often maintain their own technologies and methodologies for counting impressions, clicks and actions from ads, and we frequently have had to resolve differences between our measurements and theirs, none of which we consider to be significant based on the amount subject to the dispute. Any significant dispute over the proper measurement of impressions, clicks and actions from ads could cause us to lose advertisers or advertising space and the related revenue.

If our pricing models are not accepted by our advertisers, we could lose advertisers and our revenue could decrease.

Many of our services are offered to advertisers based on cost-per-action or cost-per-click pricing models, under which advertisers only pay us if the user takes a specific action in response to the ad, such as clicking on it or registering on a website. These performance-based pricing models differ from the fixed-rate pricing model used by many Internet advertising companies, under which these companies are paid based on the number of times the ad is shown without regard to effectiveness. Our ability to generate significant revenue from advertisers will depend, in part, on our ability to demonstrate the effectiveness of our primary pricing models to advertisers, who may be more accustomed to a fixed-rate pricing model. Furthermore, intense competition among websites and other Internet advertising providers has led to the development of a number of alternative pricing models for Internet advertising. The proliferation of multiple pricing alternatives may confuse advertisers and make it more difficult for them to differentiate among these alternatives. In addition, it is possible that new pricing models may be developed and gain widespread acceptance that are not compatible with our business model or our technology. These alternatives, and the likelihood that additional pricing models will be introduced, make it difficult for us to project the levels of advertising revenue or the margins that we, or the Internet advertising industry in general, will realize in the future. If advertisers do not understand the benefits of our pricing models, then the market for our services may decline or develop more slowly than we expect, which may limit our ability to grow our revenue or cause our revenue to decline.

Limitations on our ability to collect and use data derived from advertising campaigns could significantly diminish the value of our services and cause us to lose advertisers and revenue.

When a user visits the websites on our network, we use technologies, including cookies, to collect information such as the user's IP address, ads delivered by us that have been previously viewed by the user and responses by the user to those ads. In order to determine the effectiveness of an advertising campaign by one of our advertisers and to determine how to modify the campaign, we need to access and analyze this information. Certain of our advertisers and publishers prohibit or limit our collection or use of this data. Interruptions, failures or defects in our data collection systems, as well as privacy concerns regarding the collection of user data, could also limit our ability to analyze data from our advertisers' advertising campaigns. If that happens, we may be unable to provide effective technologies and services to advertisers and we may lose advertisers.

We could lose advertisers if we fail to detect click-through fraud on advertisements in a manner that is acceptable to our advertisers.

We are exposed to the risk of fraudulent clicks on our ads by individuals seeking to increase the advertising fees paid to our website publishers. We may in the future have to refund revenue that our advertisers have paid to us and that was later attributed to click-through fraud. Click-through fraud occurs when an individual clicks on an ad displayed on a website for the sole intent of generating the revenue share payment to the publisher rather than to view the underlying content. From time to time we have experienced fraudulent clicks on our network and we do not charge our advertisers for such fraudulent clicks. This negatively affects our profitability, and this type of fraudulent act could hurt our brand. If fraudulent clicks are not detected, the affected advertisers may experience a reduced return on their investment in our advertising programs, which could lead the advertisers to become dissatisfied with our advertising campaigns, and in turn, lead to loss of advertisers and the related revenue.

Consolidation of website publishers may impair our ability to provide marketing services and acquire advertising space at favorable rates.

The consolidation of Internet advertising networks and website publishers could eventually lead to a concentration of desirable advertising space on a small number of networks and large websites. Such concentration could:

•: increase our costs if these publishers use their greater bargaining power to increase revenue share rates for advertising space;
•: impair our ability to provide advertising technologies and services if these publishers prevent us from distributing our advertisers' advertising campaigns on their websites or if they adopt ad delivery systems that are not compatible with our ad delivery systems; and
•: lessen the value of our services as an intermediary if these publishers choose to negotiate directly with advertisers or use the services of our competitors rather than us.

If any of our advertisers are unable to pay for our technologies and services, we will lose the revenue related to the technologies and services we provided.

Some of our advertisers have limited operating histories, are unprofitable and may not be able to pay for our services. In the past we have lost advertisers, or have had difficulty collecting payments from advertisers, who could not pay for our services because they were unprofitable and unable to secure funding. The ability of several of our advertisers to meet their payment obligations is affected by the risks and difficulties encountered by companies with limited operating histories, particularly in the evolving Internet market. We typically pay our publishers within 25 business days after the end of the month, regardless of whether we have received payment from our advertisers. If any of our current or future advertisers are unable to pay for our services, we will lose the revenue related to the services we provided.

We may be liable for content displayed on our network of websites which could increase our expenses.

We may be liable to third parties for content in the ads we deliver if the artwork, text or other content included in the ads violates copyright, trademark, or other intellectual property rights of third parties or if the content is defamatory. From time to time we have received notice from third parties alleging that the content displayed on our network infringes their intellectual property rights. In the event any of these allegations result in claims or counterclaims, it could be time-consuming, result in costly litigation and divert management's attention.

If the market for Internet advertising fails to continue to develop, our future growth may be limited and our revenue may decrease.

Our future success is highly dependent on the continued use and growth of the Internet as an advertising medium. The Internet advertising market is relatively new and rapidly evolving, and it uses different measurements than traditional media to gauge its effectiveness. As a result, demand for and market acceptance of Internet advertising services is uncertain. Many of our current or potential advertisers have little or no experience using the Internet for advertising purposes and have allocated only limited portions of their advertising budgets to the Internet. 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, exchanging information, measuring success and evaluating new advertising products and services. Such advertisers may find Internet advertising to be less effective for promoting their products and services than traditional advertising media. They may never adopt Internet advertising or cease using it. We cannot assure you that the market for Internet advertising will continue to grow or become sustainable. If the market for Internet advertising fails to

continue to develop or develops more slowly than we anticipate, our ability to grow may be limited and our revenue may decrease.

The advertising industry, including Internet advertising, could be adversely affected by general economic downturns, catastrophic events or declines or disruptions in industries that advertise heavily on the Internet and, as a result, our revenue may decline.

The advertising industry, including Internet advertising, is sensitive to both general economic and business conditions and to specific events, such as acts of terrorism. In addition, Internet advertising spending can be affected by the condition of industries that advertise heavily on the Internet such as the travel, financial services, education, telecommunications, retail and entertainment industries. Some of these industries tend to be sensitive to event-driven disruptions such as government regulation, war, terrorism, disease, natural disasters and other significant events. A general decline in economic conditions or disruptions in specific industries characterized by heavy spending on Internet advertising, could cause a decline in Internet advertising expenditures, which could in turn cause a decline in our revenue.

Changes to financial accounting standards and new exchange rules could make it more expensive to issue stock options to employees, which will increase our compensation costs and may cause us to change our business practices.

We prepare our financial statements to conform with GAAP in the United States. These accounting principles are subject to interpretation by the Public Company Accounting Oversight Board, the SEC and various other bodies. A change in those policies could have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. For example, we have used stock options and other long-term equity incentives as a component of our employee compensation packages. We believe that stock options and other long-term equity incentives directly motivate our employees to maximize long-term stockholder value and, through the use of vesting, encourage employees to remain with us. Several regulatory agencies and entities are considering regulatory changes that could make it more difficult or expensive for us to grant stock options to employees. In December 2004, the Financial Accounting Standards Board issued a final standard that requires us to record a charge to earnings for employee stock option grants. This standard will be effective for interim and annual periods beginning after June 15, 2005. We could adopt the standard in one of two ways—the modified prospective transition method or the modified retrospective transition method, and we have not concluded how we will adopt the new standard. In addition, regulations implemented by The Nasdaq National Market generally require stockholder approval for all stock option plans, which could make it more difficult or expensive for us to grant stock options to employees. We will, as a result of these changes, incur increased compensation costs, which could be material and we may change our equity compensation strategy or find it difficult to attract, retain and motivate employees.

We rely on bandwidth and data center providers, and other third parties for key aspects of the process of providing products and services to our advertisers and publishers, and any failure or interruption in the services and products provided by these third parties could disrupt our business and cause us to lose advertisers and advertising space.

We rely on third-party vendors, including data center and bandwidth providers. Any disruption in the network access or co-location services, which are the services that house and provide Internet access to our servers, provided by these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business. Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little control over these third-party vendors, which increases our vulnerability to problems with the services they provide. We license technology and related databases from third parties to facilitate aspects of our campaign reporting, analysis and storage

of data, and delivery of ads across our network. We have experienced and expect to continue to experience interruptions and delays in service and availability for such elements. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services could negatively impact our relationship with our advertisers and publishers and adversely affect our brand and our business and could expose us to liabilities to third parties.

Our systems also heavily depend on the availability of electricity, which also comes from third-party providers. If we were to experience a major power outage, we would have to rely on back-up generators. These back-up generators may not operate properly through a major power outage and their fuel supply could also be inadequate during a major power outage. Information systems such as ours may be disrupted by even brief power outages, or by the fluctuations in power resulting from switches to and from backup generators. This could disrupt our business and cause us to lose advertisers and advertising space.

We are in the process of implementing new financial and accounting systems which may not work as expected.

We are in the process of implementing new financial and accounting software. Additionally, we are in the process of upgrading certain of our other information systems and internal controls. These systems are critical to our operations and involve sensitive interactions between us and our advertisers and our website publishers. If we fail to successfully implement and integrate these new financial reporting and accounting systems, or we are not able to scale these systems to our growth, we may not have adequate, accurate or timely financial information. Failure to have adequate, accurate or timely financial information could result in advertiser or publisher dissatisfaction, disrupt our operations and adversely affect our results of operations and effect our ability to prepare financial information in accordance with GAAP.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. For example, our auditors have identified the need to hire additional financial employees and upgrade our accounting system. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to evaluate and report on our internal controls over financial reporting and have our independent auditors attest to our evaluation, beginning with our Annual Report on Form 10-K for the fiscal year ending December 31, 2005. We have prepared an internal plan of action for compliance with Section 404 and strengthening and testing our system of internal controls to provide the basis for our report. The process of strengthening our internal controls and complying with Section 404 will be expensive and time consuming, and will require significant attention of management. Although we believe our recent efforts will strengthen our internal controls we are continuing to work to improve our internal controls, including in the areas of our accounting system. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, would reduce the market's confidence in our financial statements and harm our stock price. In addition, a delay in compliance with Section 404 could subject us to a variety of administrative sanctions, including the suspension or delisting of our common stock from the Nasdaq National Market and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price.

Risks Related to this Offering

Sales of a substantial number of shares of common stock in the public market following this offering may adversely affect the market price for our common stock.

Upon completion of this offering, we will have shares of common stock outstanding, of which the shares sold in this offering, or shares if the underwriters' over-allotment option is exercised in full. These shares will be freely tradable without restriction or further registration under the Securities Act, unless purchased by our "affiliates," as that term is defined under the Securities Act, whose shares will be subject to the resale limitations but not the holding period requirements of Rule 144 under the Securities Act. We and our executive officers and directors, the selling stockholders and substantially all of our other stockholders, option holders and warrant holders, have entered into 180-day lock-up agreements with the underwriters. As of the date of this prospectus, holders of shares, in the aggregate, are not subject to a lock-up agreement. The lock-up agreements prohibit each of us from selling or otherwise disposing of our shares of common stock except in limited circumstances. The lock-up agreements are contractual agreements, and Credit Suisse First Boston LLC and Citigroup Global Markets Inc., at their discretion, can waive the restrictions of any lock-up agreement at an earlier time without prior notice or announcement and allow the sale of shares of our common stock. If the restrictions in the lock-up agreements are waived, shares of our common stock will be available for sale into the public market, subject to applicable securities laws, which could reduce the market price for shares of our common stock. See "Underwriting."

Under our investors' rights agreement, dated September 27, 2004, some of our stockholders have customary demand and piggyback registration rights. See "Description of Capital Stock—Registration Rights." In addition, we intend to file a registration statement under the Securities Act to register an aggregate of up to shares of our common stock reserved for issuance under our 2004 Stock Incentive Plan, or 2004 Stock Plan, and shares of our common stock reserved for issuance under our 2005 Equity Incentive Plan, or 2005 Equity Plan. These shares when issued in accordance with the plans, will be eligible for immediate sale in the public market, subject to the 180-day lock-up restriction described above and Rule 144 resale volume limitations if held by affiliates. We may also issue our common stock in connection with acquisitions or investments. The sale of any additional shares of our common stock, or the perception of investors that such a sale could take place, could depress the market price for our common stock.

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid or at all.

Our common stock has not been sold in a public market prior to this offering. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price for our shares of common stock will be determined by negotiations among the representatives of the underwriters, the selling stockholders and us and may not be indicative of prices that will prevail in the trading market. The trading price of our common stock could be subject to wide fluctuations due to the factors discussed in this "Risk Factors" section and elsewhere in this prospectus. In addition, the stock market in general, and the Nasdaq National Market and technology companies in particular, have experienced extreme price and volume fluctuations. Current trading prices and valuations may not be sustainable. Investor sentiment towards the market and our industry may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a company's securities, securities class action litigation has often been instituted against such companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.

If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our common stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrade our common stock, our common stock price would likely decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.

Concentration of ownership among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions and may result in a lower trading price for our common stock than if ownership of our common stock was less concentrated.

Upon completion of this offering, our executive officers, directors and principal stockholders will beneficially own, in the aggregate, approximately % of our outstanding common stock. As a result, these stockholders, acting together, could have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. This concentration of control could be disadvantageous to other stockholders with interests different from those of our executive officers, directors and principal stockholders. For example, our executive officers, directors and principal stockholders could delay or prevent an acquisition or merger even if the transaction would benefit other stockholders. In addition, this significant concentration of common stock ownership may adversely affect the market price for our common stock because investors often perceive disadvantages in owning stock in companies with a concentration of ownership in a few stockholders. See "Principal and Selling Stockholders."

We do not intend to pay any cash dividends in the foreseeable future and unless and until we pay cash dividends on our common stock, any gains from your investment in our common stock must come from an increase in its market price.

Prior to September 27, 2004, we had elected to be treated as a subchapter S corporation for tax purposes. During this time period, we made regular distributions to our stockholders. In addition, as part of our Series A Preferred Stock financing, which closed on September 28, 2004, we made a final cash distribution to our former S corporation stockholders of approximately $3.2 million on December 16, 2004. After our change in status from a subchapter S corporation to a C corporation on September 28, 2004 up through December 31, 2004 we did not declared or paid any cash dividends on our capital stock except for the final distribution to our subchapter S corporation stockholders on December 16, 2004. We do not anticipate declaring or paying any cash dividends in the foreseeable future. We intend to reinvest any earnings in the growth of our business. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends. Therefore, unless and until we pay cash dividends on our common stock, any gains from your investment in our common stock must come from an increase in its market price.

Our new investors will experience dilution in the book value per share, and they may not be able to resell their shares of our common stock at or above the price they paid for their shares.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. As a result, purchasers of the common stock in this offering will experience an immediate and substantial dilution of $ in

the net tangible book value per share based on the assumed initial public offering price of $ per share, the midpoint of the range set forth on the front cover of this prospectus. Any exercise of options and warrants that are currently outstanding will result in further dilution. As a result of this dilution, investors may not be able to resell their shares of our common stock at or above the price they paid for their shares.

We will incur increased costs as a public company, which could decrease our margins and negatively affect our results of operations.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and the Nasdaq National Market, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, as a result of being a public company, we will be required to create additional board committees and adopt policies regarding internal controls and disclosure controls and procedures. In addition, we will incur additional costs associated with our public company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new rules, but we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

We have not determined a specific use for the net proceeds received by us from this offering and we may use these proceeds in ways with which you may not agree.

We have not determined a specific use for the net proceeds received by us from this offering. You will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. Our management will have considerable discretion in the application of the net proceeds from this offering and you must therefore rely on their judgment. We intend to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures. We may also use a portion of the net proceeds to acquire or invest in businesses and technologies. However, we have no present understandings, commitments or agreements with respect to the acquisition of other businesses or technologies. The net proceeds received by us from this offering may be placed in investments that do not produce income or which lose value, or could be applied in other ways that do not improve our operating results or increase the value of your investment.

We plan to reincorporate in Delaware prior to the effective date of the registration statement of which this prospectus is a part and provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.

Provisions in our certificate of incorporation and bylaws, as amended and restated prior to the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

•: Vacancies created by the expansion of the board of directors, or the resignation, death or removal of a director may be filled only by a majority of the remaining directors, even though less than a quorum, or by a sole remaining director, and not by the stockholders.
•: Our certificate of incorporation does not provide for cumulative voting in the election of directors. This limits the ability of minority stockholders to elect director candidates. Members

of the board of directors may only be removed for cause and upon the affirmative vote of the holders of a majority of our capital stock entitled to vote.

•: Our certificate of incorporation provides for the board of directors to be divided into three classes, each with staggered three-year terms. As a result, only one class of directors will be elected at each annual meeting of stockholders, and each of the two other classes of directors will continue to serve for the remainder of their respective three-year term, limiting the ability of stockholders to reconstitute the board of directors.
•: Our bylaws provide that the holders of a majority of our capital stock entitled to vote constitute a quorum for the conduct of business at a meeting of stockholders. However, the holders of at least two-thirds of our outstanding voting stock must approve any amendments to the protective provisions of our certificate of incorporation and bylaws, which include the requirements that actions by stockholders be taken at duly called meetings and not by written consent, and that our board of directors be divided into three classes with staggered terms.
•: Our bylaws provide that special meetings of the stockholders can be called only by the board of directors, the chairman of the board or the president, and not by any stockholder. Our bylaws also prohibit the conduct of any business other than as specified in the notice of special meeting or as otherwise brought before the meeting by the board of directors. These provisions may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.
•: Our board of directors may issue, without stockholder approval, shares of preferred stock with rights, preferences and privileges determined by the board of directors. The ability to authorize and issue preferred stock with voting or other rights or preferences makes it possible for our board of directors to issue preferred stock with super voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us.
•: We will be subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15 percent or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction in which such person became such an interested stockholder. Our board of directors could rely on Delaware law to prevent or delay an acquisition of us. See "Description of Capital Stock."

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•: our expectations regarding our future operating results;
•: our anticipated cash needs and our estimates regarding our capital requirements and our needs for additional financing;
•: plans for future technologies and services and for enhancements of existing technologies and services;
•: elements of our growth strategy;
•: our intellectual property;
•: anticipated trends and challenges in our business and the market in which we operate;
•: statements regarding our potential legal proceedings; and
•: our ability to attract advertisers, advertising agencies and websites.

In some cases, you can identify forward-looking statements by such terms as "may," "might," "will," "objective," "intend," "should," "could," "can," "would," "expect," "believe," "estimate," "predict," "potential," "plan," "is designed to" or the negative of these terms, and similar expressions.

These statements reflect our current views with respect to future events and are based on assumptions and estimates, which are subject to risks and uncertainties including those discussed under the heading "Risk Factors" and elsewhere in this prospectus. Accordingly, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. We do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made.

You should read this prospectus, the documents to which we refer in this prospectus and those we have filed as exhibits to the registration statement of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

References to industry statistics and market data attributed to Forrester Research are references to their independent research publication Marketing to Consumers: The Changing Landscape, November 22, 2004. References to industry statistics and market data attributed to comScore Media Metrix are references to their independent research publication Inside the Ratings, January 2005. Although we believe that these publications are reliable, we have not independently verified the data contained in them.

USE OF PROCEEDS

We estimate that we will receive net proceeds of $ from our sale of the shares of common stock offered by us in this offering, assuming an initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $ . We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders.

The principal purposes for this offering are to increase our working capital, create a public market for our common stock, facilitate our future access to the public capital markets and increase our visibility in our markets. We intend to use the net proceeds from this offering for working capital, expansion of our operations, investment in new product development and strategic initiatives. We may use a portion of the net proceeds to partially fund the anticipated increase in our sales and marketing, technology and general and administrative operating expenses, including an estimated $2 million in expenses in 2005 related to public company costs. We may also use a portion of the net proceeds to pursue acquisition candidates to grow our advertising and publishing base and access technology and talent. However, we have no present understandings, commitments or agreements with respect to the acquisition of other businesses or technologies.

We have not yet determined all of our anticipated expenditures and therefore cannot estimate the amounts to be used for all of the purposes discussed above. The amounts and timing of any expenditures will vary depending on the amount of cash generated by our operations, competitive and technological developments and the rate of growth, if any, of our business. Accordingly, our management will have broad discretion in applying the net proceeds from this offering. Pending the uses described above, we intend to invest the net proceeds from this offering in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We currently intend to retain any future earnings to finance the growth, development and expansion of our business and do not anticipate paying cash dividends in the future. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs and plans for expansion and any legal or contractual restrictions on the payment of dividends.

During the time period that we elected to file taxes as a subchapter S corporation, our policy was to disburse the necessary amount of funds to satisfy the stockholders' estimate of income tax liabilities based on our taxable income. These stockholder distributions were $0.6 million, $4.4 million and $7.1 million, respectively, in 2002, 2003 and 2004, including a final cash distribution to our former S corporation stockholders of approximately $3.2 million on December 16, 2004.

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2004, as follows:

•: on an actual basis;
•: on an unaudited pro forma basis to give effect to the automatic conversion of all of our outstanding shares of Series A Preferred Stock on a one-for-one basis into 2,131,285 shares of common stock upon completion of this offering; and
•: on an unaudited pro forma as adjusted basis to reflect (1) the sale of shares of common stock by us in this offering at the estimated initial public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, (2) the filing of our amended and restated certificate of incorporation immediately prior to the completion of this filing and (3) a -for- stock split of our common stock to be effected prior to the completion of this offering.

You should read this table together with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes appearing elsewhere in this prospectus.

				As of December 31, 2004
				Actual			Pro Forma			Pro Forma As Adjusted
				(in thousands, except share data)
							(unaudited)
Cash and cash equivalents				$	12,397		$	12,397		$
Short-term investments					7,954			7,954
Long-term obligations (including current portion)					121			121
Redeemable convertible preferred stock, no par value per share; 2,131,285 shares authorized, issued and outstanding, actual; 2,131,285 shares authorized and no shares issued or outstanding, pro forma; and no shares authorized, issued or outstanding pro forma as adjusted					73,416			—
Stockholders' equity:
	Preferred stock; no par value per share, no shares authorized, issued or outstanding, actual and pro forma; $0.001 par value per share, shares authorized and no shares issued or outstanding, pro forma as adjusted				—			—
	Common stock, no par value per share, 3,750,000 shares authorized, 2,398,263 issued and 615,319 shares outstanding, actual; no par value per share, 3,750,000 shares authorized and 2,746,604 shares issued and outstanding, pro forma; and $0.001 par value per share, shares authorized, shares issued and shares outstanding, pro forma as adjusted				8,395			81,811
	Additional paid-in capital				—			—
	Deferred stock-based compensation				(7,249	)		(7,249	)
	Less: treasury stock				(54,386	)		(54,386	)
	Retained earnings				3,312			3,312

		Total stockholders' equity (deficit)			(49,928	)		23,488

			Total capitalization	$	23,609		$	23,609		$

The table above excludes the following shares:

•: 476,073 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2004, at a weighted average exercise price of $11.23 per share; and
•: 187,149 shares of common stock reserved for future issuance under our 2004 Stock Plan.

As of December 31, 2004, 187,149 shares remained available for future issuance under our 2004 Stock Plan. Upon the completion of this offering, we do not intend to make any new option grants under this plan.

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of December 31, 2004 after giving effect to the conversion of all of our outstanding Series A Preferred Stock into an aggregate of 2,131,285 shares of our common stock and a -for- split of our common stock, both of which will occur upon completion of this offering.

Investors participating in this offering will incur immediate, substantial dilution. Our pro forma net tangible book value was approximately $(50.1) million, or $ per share of common stock as of December 31, 2004. After giving effect to the sale of shares of common stock by us in this offering at the assumed initial public offering price of $ per share, the midpoint of the range on the cover page of this prospectus, after deducting underwriting discounts, commissions and estimated offering expenses we are responsible for paying, our pro forma as adjusted net tangible book value as of December 31, 2004, would have been $ million, or $ per share of common stock. This represents an immediate increase in pro forma net tangible book value of $ per share of common stock to our existing stockholders and an immediate dilution of $ per share to the new investors purchasing shares in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share		$
	Pro forma net tangible book value per share before this offering at December 31, 2004
	Increase in net tangible pro forma book value per share attributable to new investors in this offering

	Pro forma as adjusted net tangible book value per share after this offering

Dilution per share to new investors		$

The following table summarizes, as of December 31, 2004, on a pro forma as adjusted basis, the total number of shares, the consideration paid to us, and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering from us at the assumed initial public offering price of $ per share, the midpoint of the range on the cover page of this prospectus, and before deducting the underwriting discounts, commissions and estimated offering expenses we are responsible for paying:

		Shares Purchased			Total Consideration
		Shares Purchased			Total Consideration			Average Price per Share
		Number	Percent		Amount	Percent		Average Price per Share
Existing stockholders				%	$		%	$
New Investors

	Total		100	%	$	100	%

If the underwriters exercise their over-allotment option in full, the following will occur: (1) the number of shares of common stock held by our existing stockholders will represent approximately % of the total number of shares of common stock outstanding; and (2) the number of newly issued shares of common stock held by new investors will be increased to , or approximately % of the total number of shares of our common stock outstanding after this offering.

The discussion and tables above are based on the number of shares of common stock and Series A Preferred Stock outstanding as of December 31, 2004.

The discussion and tables above exclude the following shares:

•: 476,073 shares of common stock issuable upon exercise of stock options outstanding, as of December 31, 2004, at a weighted average exercise price of $11.23 per share; and
•: 187,149 shares of common stock available for future issuance under our 2004 Stock Plan, as of December 31, 2004.

To the extent outstanding options are exercised, new investors will experience further dilution.

SELECTED FINANCIAL DATA

The following table sets forth our selected historical financial data as of and for the periods presented. The statements of income data for the years ended December 31, 2002, 2003 and 2004 and the balance sheet data as of December 31, 2003 and 2004 are derived from our audited financial statements included elsewhere in this prospectus. The statements of income (loss) data for the period beginning March 31, 2000, our inception, through December 31, 2000 and the year ended December 31, 2001, and the balance sheet data as of December 31, 2000, 2001 and 2002 are derived from our audited financial statements for those periods, which are not included in this prospectus. The selected financial data presented below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus.

The unaudited pro forma statement of income data presents our pro forma provision for income taxes and pro forma net income as if we had been a C corporation for all periods presented. The historical results are not necessarily indicative of the results to be expected for any future periods.

		March 31, 2000 (Inception) Through December 31, 2000			Year Ended December 31,
		March 31, 2000 (Inception) Through December 31, 2000			2001			2002		2003			2004
		(in thousands, except share data)
Statements of Income (Loss) Data:
Revenue		$	143		$	4,480		$	17,664	$	28,663		$	58,015
Cost of revenue			106			3,114			11,766		19,246			38,055

Gross profit			37			1,366			5,898		9,417			19,960
Operating costs(1):
	Sales and marketing		68			229			995		2,160			6,810
	Technology		15			221			345		402			2,287
	General and administrative		81			193			422		1,045			2,787
	Stock-based compensation(2)		—			—			—		—			644

Total operating costs			164			643			1,762		3,607			12,528

Operating income			(127	)		723			4,136		5,810			7,432
Interest and dividend income			10			8			19		19			124
Interest expense			—			—			—		(5	)		(8	)
Loss on sale/disposal of equipment			—			(1	)		—		(12	)		(2	)

Income before income taxes			(117	)		730			4,155		5,812			7,546
Provision for income taxes(3)			—			207			97		55			2,412

Net income (loss)(4)		$	(117	)	$	523		$	4,058	$	5,757		$	5,134

Unaudited Pro Forma Statements of Income Data(5):
Income before income taxes								$	4,155	$	5,812		$	7,546
Pro forma provision for income taxes									1,581		2,167			2,786

Pro forma net income								$	2,574	$	3,645		$	4,760

(footnotes on following page)

	As of December 31,
	2000			2001		2002		2003		2004
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	55		$	89	$	2,023	$	1,657	$	12,397
Short-term investments		—			—		—		—		7,954
Working capital		43			553		3,687		4,131		20,072
Total assets		403			1,697		6,074		7,854		33,883
Loans payable (including current portion)		—			—		—		156		121
Redeemable convertible preferred stock		—			—		—		—		73,416
Retained earnings (deficit)		(117	)		406		3,857		5,230		3,312
Total stockholders' equity (deficit)	$	284		$	807	$	4,248	$	5,657	$	(49,928	)

(1): Operating costs for 2004 include the one-time compensation charge of $952,000 paid to employees in conjunction with the termination of the Ownership Equivalency Plan. See Note 12 of the notes to our financial statements included elsewhere in this prospectus.
(2): See Note 1 and Note 11 of the notes to our financial statements included elsewhere in this prospectus for an explanation of our stock-based compensation.
(3): From our inception in 2000 to December 31, 2001, we operated as a C corporation. For all of 2002 and 2003 and the period from January 1, 2004 through September 27, 2004 we were a subchapter S corporation. On September 27, 2004 our subchapter S corporation status was revoked in connection with the issuance of our Series A Preferred Stock and we now operate as a C corporation. The provision for income taxes for the year ended December 31, 2004 includes the recognition of taxes of $1,061 under Section 481(a) of the Internal Revenue Code as a result of the revocation of our subchapter S corporation status. See Note 1 and Note 4 of the notes to our financial statements included elsewhere in this prospectus.
(4): As a result of our subchapter S corporation status for tax purposes for all of 2002 and 2003 and for the period from January 1, 2004 through September 27, 2004 and our status as a closely held corporation from inception through December 31, 2001, earnings per share information has not been presented.
(5): Presents pro forma provision for income taxes and pro forma net income as if we operated as a C corporation, in all periods presented, except for the period from March 31, 2000 (our inception) through December 31, 2000 and the year ended December 31, 2001 in which we were a C corporation. See Note 1 and Note 4 of the notes to our financial statements included elsewhere in this prospectus for an explanation of the unaudited pro forma statement of income data.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes that are included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described under "Risk Factors" or elsewhere in this prospectus.

General

We are a provider of performance-based Internet advertising technologies and services to advertisers and website owners, or publishers. Our technologies and services, including our proprietary Optimization Engine, Internet ad placement bidding system, and reporting and campaign management tools, are designed to improve the effectiveness of Internet ad campaigns and provide advertisers with an increased return on their advertising expenditures. We believe our technologies and services also enhance the value of Internet advertising space available on our network of more than 8,000 third-party websites.

Our advertisers include direct response marketers, brand marketers and advertising agencies. We represent advertisers in a variety of industries, including travel, financial services, education, telecommunications, retail, automotive, entertainment, finance, pharmaceutical and health and information technology, either directly or indirectly through an advertising agency. During 2004, no advertiser accounted for more than 10% of our revenue. Our top ten advertisers accounted for 47.6% and 45.8% of our advertising revenue for 2003 and 2004, respectively.

Our network reached over 115 million unique Internet users in January 2005 according to comScore Media Metrix, giving our network one of the broadest reaches of any Internet advertising network. In determining the number of unique Internet users, comScore Media Metrix counts visitors only once in a given month regardless of the number of times they visit a website. We have built our network of over 8,000 third-party websites by offering publishers attractive pricing and revenue sharing agreements, easy-to-use, web-based tools and quality service. Our publishers include publishers of branded websites that offer large amounts of advertising space as well as a substantial number of websites that reach Internet users with highly-targeted demographics and interests. No single publisher accounted for more than 10% of our publisher expenses during 2003 or 2004. Our top ten publishers accounted for 22.6% and 21.6% of our publisher expenses for 2003 and 2004, respectively.

Overview

Our History

We were founded in March 2000 and engaged primarily in the development of our proprietary technology throughout 2000. We began generating revenue in 2000, and have since increased our revenue from $0.1 million in 2000, to $4.5 million in 2001, $17.7 million in 2002, $28.7 million in 2003 and $58 million in 2004. We introduced our proprietary Optimization Engine and our ad placement bidding system in late 2000 and became profitable in the first quarter of 2001. We generated a net loss of $0.1 million for 2000 and net income of $0.5 million, $4.1 million, $5.8 million and $5.1 million in 2001, 2002, 2003 and 2004, respectively.

Our early operations were financed with $0.4 million of equity financing in March 2000. Thereafter, we financed our operations primarily through internally generated funds through September 2004. On September 28, 2004, we sold 2,131,285 shares of our Series A Preferred Stock at a price per share of $35.19, for an aggregate purchase price of approximately $75 million. Approximately $55 million of these proceeds were used to repurchase 1,562,944 shares of our common stock held by our founders, employees and investors at the issuance price. Approximately $20 million of our net

proceeds from the sale of our Series A Preferred Stock remains on our balance sheet as cash, cash equivalents and short-term investments and we expect to use these funds to finance our future growth. We also made a final cash distribution to our former subchapter S corporation stockholders of approximately $3.2 million on December 16, 2004.

From our inception to December 31, 2001, we operated as a C corporation. Effective January 1, 2002, we elected to be taxed as a subchapter S corporation for federal and state income tax purposes. For the years ended December 31, 2002 and 2003 and the period from January 1, 2004 through September 27, 2004, we did not incur any provision for federal income taxes as the income, deductions, gains, losses, tax credits and other tax attributes of the corporation for these periods passed through and were taxed directly to the stockholders. We were subject to a 1.5% California subchapter S corporation income tax during these periods. We made distributions to our stockholders of $0.6 million, $4.4 million and $7.1 million for the years ended December 31, 2002, 2003 and 2004, respectively. Our subchapter S corporation status was revoked on September 27, 2004 in connection with the issuance of our Series A Preferred Stock and we now operate as a C corporation and are subject to federal and state tax in the United States.

We have grown our employee base from three employees at inception to 35 employees as of December 31, 2003 and 88 employees as of December 31, 2004. While we have increased the number of our employees in all areas, our highest growth has been in our sales and marketing, technology and general and administrative departments. We expect our headcount to continue to grow as our business expands. We have two office locations in Santa Barbara, California, including our corporate headquarters. We also currently have sales and marketing operations in San Francisco, Los Angeles and New York City, and are in the process of establishing a Los Angeles office. We also lease server space in San Jose, California and Ashburn, Virginia.

Our Business Model

We generate revenue primarily from the sale of advertising across our growing network of over 8,000 websites. Advertising space on our network of websites is priced through our ad placement bidding system, which values advertising space based on market demand by matching the advertisers bidding the highest price for the advertising space that meets their campaign objectives with the websites able to supply that space, subject to certain rules that may be set by us, our advertisers or our publishers.

We offer advertisers multiple pricing options to achieve their desired results. These alternatives include:

•: Cost-per-action, where the advertiser pays us a fee based on the number of specified Internet user responses, such as registrations, requests for information or sales that its ads produce;
•: Cost-per-click, where the advertiser pays us a fee based on the number of clicks its ads generate; and
•: Cost-per-thousand impressions, where the advertiser pays us a fee based on the number of times its ads are displayed, referred to as impressions.

While we allow advertisers to purchase website advertising space based on a cost-per-action, cost-per-click or cost-per-thousand impressions pricing model, we pay for a majority of our publishers' website advertising space on a cost-per-thousand impressions basis. This allows our publishers to be paid for the impressions they serve and our advertisers to receive the performance-based pricing model they desire for their advertising campaigns.

Our standard advertising contract covers both campaign management and ad delivery. Advertisers generally pay us on a 30-day, net basis, although a portion of our advertisers prepay us for their campaigns. Our advertising contracts are terminable at any time by the advertiser or us with no penalty upon one business day prior notice. Our standard publishers' agreement covers the provision and use of

Internet advertising campaigns and the related payments. We typically pay our publishers within 25 business days after the end of the month under the revenue-sharing provisions of our publisher's agreement pursuant to which we generally pay them up to 65% of the advertising revenue we generate from ads placed on their websites. We can terminate our publisher's agreement at any time without penalty.

Components of Gross Margin

Sources of Revenue

We principally derive revenue from the sale of Internet advertising space across our network of websites. With respect to the Internet advertising services we provide to advertisers, we recognize revenue when the advertising impression is served (for cost-per-thousand impressions contracts) or when the specified click or other action occurs or when lead-based information is delivered (for cost-per-click and cost-per-action contracts), provided that we have no significant remaining obligations, collection of the resulting receivable is reasonably assured and prices are fixed and determinable. Our revenue recognition policy is discussed in more detail in the section below entitled "Critical Accounting Policies and the Use of Estimates—Revenue Recognition."

Cost of Revenue

Cost of revenue consists primarily of amounts we incur and pay to our publishers for their share of revenue we derive from the sale of their website advertising space and, to a lesser extent, the cost of maintaining the computer systems infrastructure which supports our proprietary technologies, the salaries and benefits of network operations personnel, bandwidth and communications costs, depreciation of network infrastructure equipment and the cost of database maintenance and support.

Components of our Operating Costs and Other Items

The following describes certain line items in our statement of operations:

Operating Costs

Our operating costs include sales and marketing, technology, general and administrative and stock-based compensation. Since we expect the growth of our operating expenses to be driven, in part, by the growth of our business, we are currently unable to accurately estimate the anticipated increases in these costs.

Sales and marketing. Our sales and marketing expenses primarily consist of the compensation and associated costs for sales and marketing personnel, marketing and advertising, public relations and other promotional activities, general business development activities, publisher acquisition and product development expenses. We expect sales and marketing expenses to increase in absolute terms with the growth of our business as we expand our sales and marketing workforce and further promote our products and services.

Technology. Technology costs include expenses for the research and development of new technologies designed to enhance our Internet advertising services and costs associated with the maintenance and administrative support of our technology team, including the salaries and related expenses for our research and development, as well as costs for contracted services and supplies. Also included in technology is the amortization of capitalized software development costs. We expect our technology expenses to increase in absolute terms as we grow and continue to invest in new technologies and hire additional technology personnel.

General and administrative. Our general and administrative expenses primarily consist of the compensation and associated costs for general and administrative personnel and facility costs. We expect that general and administrative expenses will increase in absolute terms as we hire additional

personnel and incur costs related to the anticipated growth of our business and our operation as a public company.

Stock-based compensation. We have recorded stock-based compensation expense for some of our equity awards provided to employees and non-employee directors. Our accounting policy for recognizing stock compensation expense is described in the section below entitled "Critical Accounting Policies and the Use of Estimates—Accounting for Stock-Based Compensation." As of December 31, 2004, we had an aggregate of $7.2 million of deferred stock-based compensation expense, which will be recognized over the next four years as the related awards vest.

We expect sales and marketing, technology and general and administrative operating expenses to increase quarter over quarter commensurate with our revenue growth over the same periods. The largest impact on these expenses relate to public company costs, which we estimate to be approximately $2 million for 2005. We expect to fund the increase in these expenses by future cash flow from operations, our current cash position and funds generated by this offering.

Income Taxes

We are subject to tax in the United States as we are now a C corporation. The accounting for income taxes is discussed in more detail in the section below entitled "Critical Accounting Policies and Use of Estimates—Accounting for Income Taxes."

Trends that Affect our Business

Our business has grown rapidly since our inception in March 2000, and we expect that it will continue to grow; however, we anticipate that our growth rate will slow as our revenue base increases. We expect that some of the historical trends or patterns in our business will change over time, and in managing and evaluating our business we are focused on several trends, including the following:

•: Revenue growth. Our revenue depends on the volume of paid ads, pricing of advertising and ad format mix that our advertisers purchase. Over the past several years we have experienced a significant increase in the volume of paid ads we deliver across our network. Additionally, we have generally experienced a gradual increase in ad pricing. The historical increase in ad volume and pricing has been partially offset by the introduction of new, lower-priced ad formats and other new products in response to demand from both advertisers and publishers. We anticipate that the volume of paid ads, pricing of advertising and ad format mix will continue to be key revenue drivers in the future. Although we are unable to predict the future demand for ad types and the impact on the anticipated sales mix of our ad formats, we expect a continued increase in the volume of lower-priced ad formats. An increased demand for lower priced ad formats could potentially displace or reduce the demand for higher priced ad formats, and, to the extent not offset by an increase in ad volume, result in lower overall revenue for us. In addition, to the extent that the lower priced ad formats do not have a correspondingly lower revenue share payment, they could result in a lower gross profit margin.
•: Gross profit margin. The primary component of our cost of revenue is the revenue share payments we make to our publishers. The percentage of revenue we share with our publishers has remained relatively constant. We anticipate that our gross profit margin will increase as advertisers continue to shift to cost-per-action and cost-per-click based pricing models. Our advertisers increasingly prefer to purchase advertising on a cost-per-action or cost-per-click basis because they pay only for ads which result in the desired action. Our publishers typically prefer payment on a cost-per-thousand impressions basis, in which they are paid for the impressions they serve and do not assume any risk relating to the performance of an ad. In order to mitigate the performance risks associated with paying publishers on a cost-per-thousand impressions basis for the cost-per-action based and cost-per-click based campaigns of our advertisers, we typically build in a higher profit margin when pricing these campaigns. We do this by initially running

tests on an advertising campaign priced on a cost-per-action or cost-per-click basis, which measures user responses to the campaign to determine how many impressions it takes to achieve the action or click. Based on this information, we may then adjust the pricing of the campaign to mitigate our performance risk associated with paying for the campaign on a cost-per-thousand impressions basis, thereby increasing our gross margin. To the extent that we are able to manage the risks associated with advertisers purchasing on a cost-per-action and cost-per-click basis and paying publishers on a cost-per-thousand impression basis, we believe that our gross profit margins will increase.

•: Sales and marketing. We anticipate that our sales and marketing expenses will increase over the next several quarters. In addition, as we continue to grow, we expect to hire additional sales and marketing personnel and expand to new facilities to accommodate our growing sales and marketing team.
•: Technology. We anticipate increasing our investment in the development and deployment of new products, services and features to our existing technologies and services. Our historical decline in technology expense as a percentage of revenue primarily reflects the increase in our revenue over the three year period ended December 31, 2003. In the future, we expect our technology expense, both as a percentage of revenue, and in absolute dollars, will increase. In addition, as we continue to grow, we expect to hire additional technology personnel and expand to new facilities.
•: General and administrative. We anticipate that our general and administrative expenses will increase over the next several quarters as we incur expenses related to being a public company, including increased legal, accounting and insurance expenses. We estimate increased expenses related to public company costs of approximately $2 million for 2005. In addition, as we continue to grow, we expect to hire additional senior management personnel and expand to new facilities.
•: Seasonality and cyclicality. We believe that our business is subject to seasonal and cyclical fluctuations. Generally, our advertisers and advertising agencies place more ads in the fourth calendar quarter and fewer ads in the first calendar quarter of each year. Overall Internet usage generally declines during the summer months, resulting in lower inventories in our website network and lower revenue for us. In addition, domestic advertising spending generally is cyclical in reaction to overall conditions in the United States economy. Our rapid historical growth rate has masked the impact of seasonality on our business. As our growth rate slows, however, we expect the seasonal pattern of our business to become more pronounced.
•: Volume of advertising space. Over the past several years our website network and advertising space volume have increased significantly. In order to continue to grow our revenue we must increase the volume of advertising space that we are able to sell to advertisers. We anticipate that our ability to grow advertising space volume will be influenced by a number of factors including the size of our website network and Internet advertising market dynamics such as sector consolidation.
•: Provision for income taxes. From our inception to December 31, 2001 we operated as a C corporation. From January 1, 2002 through September 27, 2004 we operated as a subchapter S corporation. In connection with the issuance of our Series A Preferred Stock our subchapter S corporation status was revoked and we now operate as a C corporation. During the period we were a subchapter S corporation, we did not incur any provision for federal income taxes and we were subject to a 1.5% California income tax. As a C corporation, we will now pay C corporation income taxes. We currently anticipate our effective tax rate to be approximately 40%, excluding the effects of any future tax credits.

Results of Operations

The following table sets forth the items in our historical statements of income for the periods indicated as a percentage of revenue:

		Year Ended December 31,
		2002		2003		2004
Statements of Income Data:
Revenue		100.0	%	100.0	%	100.0	%
Cost of revenue		66.6		67.1		65.6

Gross profit		33.4		32.9		34.4
Operating costs:
	Sales and marketing	5.6		7.5		11.8
	Technology	2.0		1.4		3.9
	General and administrative	2.4		3.6		4.8
	Stock-based compensation	—		—		1.1

Total operating costs		10.0		12.5		21.6

Operating income		23.4		20.4		12.8
Interest and dividend income		0.1		0.1		0.2
Interest expense		—		—		—
Loss on sale/disposal of equipment		—		—		—

Income before income taxes		23.5		20.5		13.0
Provision for income taxes		0.5		0.2		4.2

Net income		23.0	%	20.3	%	8.8	%

Comparison of the Years Ended December 31, 2003 and 2004

Revenue. Revenue increased from $28.7 million in 2003 to $58 million in 2004, a 102.4% increase. This increase was primarily due to an increase in the number of paid ads delivered across our website network as well as a slight increase in the average price of existing ad formats as compared to the prior period. This growth in volume and ad pricing was partially offset by a shift in mix to include new lower priced advertising formats.

Cost of revenue. Cost of revenue increased from $19.2 million in 2003 to $38.1 million in 2004, a 97.7% increase. Our cost of revenue decreased slightly as a percentage of revenue from 67.1% in 2003 to 65.6% in 2004. This increase in absolute dollars was primarily due to an increase in the volume of advertising sold to advertisers resulting in increased publisher revenue-share costs. The percentage of revenue we shared with publishers remained relatively constant and we continued to pay our publishers primarily on a cost-per thousand impressions basis, the shift to cost-per-action and cost-per click priced advertising campaigns resulted in improved gross margins.

Sales and marketing. Sales and marketing expenses increased from $2.2 million in 2003 to $6.8 million in 2004, a 215.3% increase. Our sales and marketing expenses increased as a percentage of revenue from 7.5% in 2003 to 11.8% in 2004. This increase in sales and marketing expenses was primarily the result of hiring additional sales and marketing personnel, combined with expanded marketing and advertising costs.

Technology. Technology expenses increased from $0.4 million in 2003 to $2.3 million in 2004, a 468.9% increase. Our technology expenses increased as a percentage of revenue from 1.4% in 2003 to 3.9% in 2004. This increase in our technology expenses primarily resulted from an increase in technology personnel.

General and administrative. General and administrative expenses increased from $1 million in 2003 to $2.7 million in 2004, an increase of 166.7%. Our general and administrative expenses increased as a percentage of revenue from 3.6% in 2003 to 4.8% in 2004. This increase in general and administrative expenses was primarily due to the hiring of additional personnel and expansion into new facilities.

Stock-based compensation. Stock-based compensation in 2003 was $0 compared to $0.6 million in 2004. The increase in stock based compensation was primarily a result of recognizing the impact of the deemed fair value of the option exercise prices for stock option grants during the period.

Interest and other income (expense), net. Interest and other income (expense), net in 2003 amounted to income of $2,000 compared to $0.1 million in 2004. The change was primarily a result of increasing average cash balances in our money market account.

Provision for income taxes. Provision for income taxes increased from $55,000, an effective tax rate of 1.0%, in 2003, to $2.4 million, an effective tax rate of 32%, in 2004. During all of 2003 and through September 27, 2004, we elected to be taxed as a subchapter S corporation for federal and state income tax purposes, and our income, deductions, gains, losses, tax credits and other tax attributes were passed through and taxed directly to our stockholders. Our subchapter S corporation status was revoked on September 27, 2004 in connection with the issuance of our Series A Preferred Stock and we now operate as a C corporation and are subject to federal and state tax in the United States.

Comparison of the Years Ended December 31, 2002 and 2003

Revenue. Revenue increased from $17.7 million in 2002 to $28.7 million in 2003, a 62.3% increase. This increase in revenue was primarily due to an increase in the number of paid ads delivered across our network as well as an increase in the average price of existing ad formats as compared to the prior period. The growth in volume was partially offset by a shift in mix to lower priced advertising formats.

Cost of revenue. Cost of revenue increased from $11.8 million in 2002 to $19.2 million in 2003, a 63.6% increase. Our cost of revenue increased as a percentage of revenue from 66.6% in 2002 to 67.1% in 2003. The percentage of revenue we share with publishers remained relatively constant compared to the prior period, the increase was primarily due to an increase in the cost of maintaining and upgrading our computer and communications systems.

Sales and marketing. Sales and marketing expenses increased from $1 million in 2002 to $2.2 million in 2003, a 117.1% increase. Our sales and marketing expenses increased as a percentage of revenue from 5.6% in 2002 to 7.5% in 2003. This increase in sales and marketing expenses was primarily the result of hiring additional sales and marketing personnel, combined with expanded marketing and advertising costs.

Technology. Technology expenses increased from $0.3 million in 2002 to $0.4 million in 2003, a 16.5% increase. Our technology expenses decreased as a percentage of revenue from 2% in 2002 to 1.4% in 2003. This increase in our technology expenses in absolute dollars was primarily the result of an increase in technology personnel. The decrease in our technology expenses as a percentage of revenue was primarily the result of our rate of revenue growth.

General and administrative. General and administrative expenses increased from $0.4 million in 2002 to $1 million in 2003, an increase of 147.6%. Our general and administrative expenses increased as a percentage of revenue from 2.4% in 2002 to 3.6% in 2003. This increase in our general and administrative expenses resulted from the hiring of additional personnel and expansion into new facilities.

Interest and other income (expense), net. Interest and other income (expense), net for the year ended December 31, 2002 amounted to income of $0.02 million compared to income of $2,000 for the year ended December 31, 2003. The change was primarily a result of a loss on sale of equipment.

Comparison of the Years Ended December 31, 2001 and 2002

Revenue. Revenue increased from $4.5 million in 2001 to $17.7 million in 2002, a 294.3% increase. This increase in revenue was primarily due to an increase in the number of paid ads delivered across our network and a shift in mix to higher priced ad formats.

Cost of revenue. Cost of revenue increased from $3.1 million in 2001 to $11.8 million in 2002, a 277.8% increase. Our cost of revenue decreased as a percentage of revenue from 69.5% in 2001 to 66.6% in 2002. This increase in absolute dollars was primarily due to an increase in the volume of advertising sold to advertisers resulting in increased revenue share payments to our publishers. The decrease as a percentage of revenue was primarily due to our revenue growing faster than our cost of maintaining and upgrading our computer and communications systems.

Sales and marketing. Sales and marketing expenses increased from $0.2 million in 2001 to $1 million in 2002, a 334.5% increase. Our sales and marketing expenses increased as a percentage of revenue from 5.1% in 2001 to 5.6% in 2002. This increase in sales and marketing expenses was primarily the result of hiring additional sales and marketing personnel, combined with expanded marketing and advertising.

Technology. Technology expenses increased from $0.2 million in 2001 to $0.3 million in 2002, a 56.1% increase. Our technology expenses decreased as a percentage of revenue from 4.9% in 2001 to 2% in 2002. This increase in our technology expenses in absolute dollars was primarily the result of an increase in technology personnel. The decrease in our technology expenses as a percentage of revenue was primarily the result of our rate of revenue growth.

General and administrative. General and administrative expenses increased from $0.2 million in 2001 to $0.4 million in 2002, an increase of 118.7%. Our general and administrative expenses decreased as a percentage of revenue from 4.3% in 2001 to 2.4% in 2002. The increase in our general and administrative expenses in absolute dollars primarily resulted from an increase in hiring additional personnel. The decrease in our general and administrative expenses as a percentage of revenue was primarily the result of our rate of growth.

Interest and other income (expense), net. Interest and other income (expense), net for the year ended December 31, 2001 amounted to income of $7,000 compared to income of $0.02 million for the year ended December 31, 2002. The change was primarily a result of increased interest income due to an increase in our cash balance.

Quarterly Results of Operations

The following table sets forth our unaudited quarterly income statement data for the eight quarters ended December 31, 2004. This data has been derived from the unaudited interim financial statements prepared on the same basis as the audited financial statements contained in this prospectus and, in our opinion, includes all adjustments consisting only of normal recurring adjustments that we consider necessary for a fair presentation of such information. This data should be read in conjunction with the

financial statements and notes thereto appearing elsewhere in this prospectus. The operating results for any quarter should not be considered indicative of results for any future period.

		Three Months Ended
		March 31, 2003		June 30, 2003			Sept. 30, 2003			Dec. 31, 2003			March 31, 2004			June 30, 2004			Sept. 30, 2004			Dec. 31, 2004
		(in thousands)
		(unaudited)
Revenue		$	5,179	$	6,093		$	7,187		$	10,204		$	10,922		$	12,222		$	15,842		$	19,029
Cost of revenue			3,495		4,013			4,890			6,848			7,380			8,056			10,252			12,367

Gross profit			1,684		2,080			2,297			3,356			3,542			4,166			5,590			6,662
Operating costs:
	Sales and marketing		418		457			496			789			893			1,409			2,368			2,140
	Technology		170		39			69			124			373			532			946			436
	General and administrative		260		233			223			329			404			492			865			1,026
	Stock-based compensation		—		—			—			—			—			—			37			607

Total operating costs			848		729			788			1,242			1,670			2,433			4,216			4,209

Operating income			836		1,351			1,509			2,114			1,872			1,733			1,374			2,453
Interest and dividend income			5		5			4			5			6			6			11			101
Interest expense			—		(1	)		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)
Loss on sale/disposal of equipment			—		—			(12	)		—			—			—			—			(2	)

Income before income taxes			841		1,355			1,499			2,117			1,876			1,737			1,383			2,550
Provision for income taxes			14		14			14			13			43			14			1,291			1,064

Net income		$	827	$	1,341		$	1,485		$	2,104		$	1,833		$	1,723		$	92		$	1,486

The following table sets forth our quarterly statements of income data for the eight quarters ended December 31, 2004 as a percentage of revenue.

		Three Months Ended
		March 31, 2003		June 30, 2003		Sept. 30, 2003		Dec. 31, 2003		March 31, 2004		June 30, 2004		Sept. 30, 2004		Dec. 31, 2004
		(unaudited)
Revenue		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue		67.5		65.9		68.0		67.1		67.6		65.9		64.7		65.0

Gross profit		32.5		34.1		32.0		32.9		32.4		34.1		35.3		35.0
Operating costs:
	Sales and marketing	8.1		7.5		6.9		7.7		8.2		11.5		14.9		11.2
	Technology	3.3		.6		1.0		1.2		3.4		4.4		6.0		2.3
	General and administrative	5.0		3.8		3.1		3.2		3.7		4.0		5.5		5.4
	Stock-based compensation	—		—		—		—		—		—		0.2		3.2

Total operating costs		16.4		11.9		11.0		12.1		15.3		19.9		26.6		22.1

Operating income		16.1		22.2		21.0		20.8		17.1		14.2		8.7		12.9
Interest and dividend income		0.1		0.1		0.1		0.1		—		—		—		0.5
Interest expense		—		—		—		—		—		—		—		—
Loss on sale/disposal of equipment		—		—		(0.2	)	—		—		—		—		—

Income before income taxes		16.2		22.3		20.9		20.9		17.1		14.2		8.7		13.4
Provision for income taxes		0.3		0.2		0.2		0.1		0.4		0.1		8.1		5.6

Net income		15.9	%	22.1	%	20.7	%	20.8	%	16.7	%	14.1	%	0.6	%	7.8	%

Our revenue generally increased in each quarter primarily from an increase in the number of paid ads delivered across our website network. Our costs of revenue generally increased each quarter as a result of the increase in publisher revenue share costs related to the increasing volume of advertising sold to advertisers quarter over quarter. The quarter over quarter increase in operating expenses was directly related to the addition of employees commensurate with the growth in our business. The quarter ended September 30, 2004 reflects approximately $1 million of costs related to the termination of our ownership equivalent plan as final payments to employees in conjunction with the plan termination on September 27, 2004, which is allocated across cost of revenue and all operating expense categories.

Liquidity and Capital Resources

With the exception of an initial equity financing of $0.4 million in 2000, we have principally financed our operations through internally generated funds. On September 28, 2004, the Company closed a private placement of preferred shares in which we sold 2,131,285 shares of our Series A Preferred Stock at a price per share of $35.19 for an aggregate purchase price of approximately $75 million. We used approximately $55 million of the proceeds from the sale of the Series A Preferred Stock to repurchase 1,562,944 shares of our common stock held by our founders and employees at the same $35.19 issue price. Of the proceeds that went to our stockholders, $3 million was placed into escrow to cover the stockholders' indemnification obligations and an additional $0.7 million went to cover their expenses. Approximately $20 million of our net proceeds from the sale of our Series A Preferred Stock remains on our balance sheet as cash, cash equivalents and short-term investments, and we expect to use these funds to finance our future growth.

Our principal sources of liquidity are our cash, cash equivalents and short-term investments as well as the cash flow that we generate from our operations. Short-term investments consist of highly liquid commercial paper as of December 31, 2004.

Our net cash provided by operating activities was $9.9 million in 2004, as compared to $5.1 million in 2003 and $2.9 million in 2002. Net cash provided by operating activities in 2002 and 2003 was primarily the result of our growth in profitability.

Accounts receivable from our advertisers has increased with our revenue growth. Our day's sales in outstanding receivables increased to 42 days at December 31, 2004 compared to 37 days at December 31, 2003. Our accounts receivable balance increased by $1.2 million, $1.8 million and $4.6 million in 2002, 2003 and 2004. The growth in receivables is anticipated to continue if our revenue continues to increase and this will continue to have a significant impact on our cash flows from operations.

Our net cash used in investing activities was $10.4 million in 2004 compared to $1.2 million in 2003 and $0.4 million in 2002. In 2004, we invested $8.0 million of our net proceeds from the sale of our Series A Preferred Stock in short-term investments. Our other investing activities primarily represent the acquisition of property and equipment as well as software development and domain names. In 2002, 2003 and 2004, we added $0.1 million, $0.7 million and $1.6 million of property and equipment, respectively, including capital expenditures in 2004 to enhance our facilities. We expect to continue to invest in our facilities and technology to support our operations and remain competitive and expect to spend approximately $2.5 million to $3 million in capital expenditures in 2005, exclusive of acquisitions.

Our net cash provided by financing activities was $11.2 million in 2004 compared to $4.2 million used in financing activities in 2003 and $0.6 million in 2002. Historically, cash used in financing activities has been due to distributions to stockholders during the time period that we elected to be treated as a subchapter S corporation. Cash provided by financing activities was generated from the sale of Series A Preferred Stock and from shares issued upon the exercise of stock options, offset partially by the repurchase of common stock.

During the time period that we elected to file taxes as a subchapter S corporation, we made regular cash distributions to our stockholders. These stockholder distributions were $0.6 million, $4.4 million and $7.1 million, respectively, in 2002, 2003 and 2004, including a final cash distribution to our former subchapter S corporation stockholders of approximately $3.2 million on December 16, 2004.

We believe that our current cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to meet our anticipated cash needs, including for working capital purposes, capital expenditures of approximately $2.5 million to $3 million for 2005, and various contractual obligations, for at least the next 12 months. Our primary uses of cash in our operations are to make the required payments to our website publishers, as well as to cover operating expenses and meet future tax obligations. We expect that our future cash requirements will be significantly higher than our historical cash requirements as we continue to grow our business. We also expect that the impact of the seasonality of our business will be more pronounced in the future, and the timing of our expenditures, including those related to personnel and capital items, may not coincide with our cash collections. Historically, our cash flow from operations has generated sufficient cash to cover our operations and meet obligations. Although our historical cash flows are not a predictor of future cash flows, we expect that future revenues and related collections should be sufficient to meet our anticipated obligations and we believe our current cash and cash equivalent position is sufficient to cover any disparity in timing between receipt of our revenues and payment of our expenses. Factors which impact the timing of our receipt of revenue include competitive conditions in our industry for extending credit to customers, the financial health of our customers and their ability to make payments to us in accordance with the credit terms we established with them. The timing of payments for our expenses are dependent on the amounts and timing of services and obligations contracted for, however, we currently anticipate no material change in the timing of payments we make to our publishers. We may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these sources of cash are insufficient to satisfy our cash

requirements, we may seek to sell debt securities or additional equity securities or to obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in incurring debt service obligations and could result in operating and financial covenants that would restrict our operations. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all.

The net proceeds from this offering will provide us additional liquidity for use in the expansion of our operations, increased working capital needs, investment in new product development and strategic initiatives. We expect to invest a portion of the net proceeds from this offering in short term interest-bearing, investment-grade securities, which will result in additional interest income.

Indebtedness

As of December 31, 2004, we had $77,000 indebtedness related to the purchase of equipment, which we intend to repay prior to the offering, and no outstanding debt securities, material contingent liabilities or material mortgages or liens.

Contractual Obligations

Our major outstanding contractual obligations relate to our notes payable related to purchases of fixed assets, operating lease obligations and contractual obligations, primarily consisting of bandwidth and content delivery. There are no significant provisions in bandwidth or content delivery arrangements that are likely to create, increase, or accelerate obligations due thereunder other than changes in usage fees that are directly proportional to the volume of activity in the normal course of our business operations. We have no long-term obligations of more than three years. We have summarized in the table below our fixed contractual cash obligations as of December 31, 2004.

	Total		Less than 1 Year		1 to 3 Years
	(in thousands)
Notes payable related to the purchase of fixed assets	$	121	$	46	$	75
Operating lease obligations		668		499		169
Contractual obligations		498		448		50

Total	$	1,287	$	993	$	294

Critical Accounting Policies and the Use of Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 1 of the notes to our financial statements, and of those policies, we believe that the following accounting policies involve the greatest degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

We recognize revenue in accordance with the guidelines of SEC Staff Accounting Bulletin, or SAB, No. 104 "Revenue Recognition" and Emerging Issues Task Force Issue ("EITF") 00-21 "Revenue Arrangements with Multiple Deliverables."

We recognize revenue when the advertising impression is served (for cost-per-thousand impressions contracts) or when the specified click or other action occurs or when lead-based information is delivered (for cost-per-click and cost-per-action contracts), provided that we have no significant remaining obligations, collection of the resulting receivable is reasonably assured and prices are fixed and determinable.

We assess the likelihood of collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. Cash received in advance is recorded as deferred revenue until earned.

Accounting for Stock-Based Compensation

We account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, and comply with the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25, compensation cost, if any, is recognized over the respective vesting period based on the difference between the deemed fair value of our common stock and the exercise price on the date of grant. We account for non-employee stock-based awards, in which goods or services are the consideration received for the equity instruments issued, in accordance with the provisions of SFAS No. 123 and related interpretations. We have recorded compensation charges for issuances of stock awards where the exercise price was less than the deemed fair value of the underlying stock for financial accounting purposes. See "—Results of Operations—Stock-Based Compensation."

In connection with the grant of common stock awards, we have recorded deferred stock-based compensation for the difference between the exercise price and the deemed fair value for financial accounting purposes of the underlying shares of stock and option awards to employees on the date of the grant.

During 2004, we granted stock options with exercise prices ranging from $7.00 per share to $17.50 per share and deemed fair values for accounting purposes for the same period ranging from $7.00 per share to $76.78 per share, resulting in deferred stock-based compensation of $7.9 million in 2004. All stock options granted to our employees, officers and directors under our equity plans were intended to be exercisable at a price per share not less than the fair value of the shares of our common stock underlying those options or awards on their respective dates of grant. Because there has not been a public market for our shares prior to this offering, our board of directors determined these exercise prices in good faith, based on the best information available to the board and our management at the time of grant.

We did not obtain contemporaneous valuations by an unrelated valuation specialist at the times we issued stock options or awards because our board of directors believed the best indicator of fair value was to consider our relative scale and profitability as a private company at that time. As a result, we relied on numerous objective and subjective factors and methodologies to value our common stock at different stages of our growth. In addition, our board of directors believed that, because of the early stage of our business, traditional valuation approaches used by independent valuation firms, such as an income approach, would not be relevant. Subsequently, in anticipation of this offering, we reassessed

the valuations of our common stock using a retrospective valuation performed by management, which included subjective judgments. The deemed fair value of our common stock was determined using a combination of a market approach at several key dates and straight-line interpolation of the deemed fair value at those dates to the contemplated initial public offering price. Management's valuation took into consideration the following factors:

•: key company milestones;
•: third-party preferred stock investments and related common stock implied values based on preferred stock preferences;
•: comparable company analysis;
•: key industry and market factors; and
•: the likelihood of an initial public offering.

The differences between the range of deemed fair values of $7 to $76.78 per share for options and awards granted during the last twelve months and the assumed initial public offering price of $ per share, the midpoint of the range set forth on the front cover of this prospectus, were a result of the following factors:

•: During the quarter ended December 31, 2003, we believed that the probability of an initial public offering was low given the early stage of our business and the condition of the capital markets. Based on prevailing capital market requirements, we believed we would need to have significant growth in revenue and sustained profitability to be a viable initial public offering candidate. Accordingly, for most of 2003, we believed that the likelihood of an initial public offering was remote, and we believed that our shareholders would be more likely to obtain liquidity through a private sale of the business or a merger with a third party.
•: During the quarter ended March 31, 2004, our revenue grew by approximately 7% from the final quarter in 2003. We continued to believe the likelihood of an initial public offering was remote because we had not achieved the necessary revenue scale or profitability.
•: During the quarter ended June 30, 2004, our revenue grew by approximately 11% over the previous quarter and we conducted meetings over several months with private equity and venture capital firms regarding a potential liquidity event for our shareholders and an investment in the Company. Given the market conditions during this period, we continued to believe that liquidity for our shareholders was more likely to be obtained through private investment or sale rather than a public offering.
•: During the quarter ended September 30, 2004, we entered into a Recapitalization Agreement dated September 9, 2004, with Highland Capital Partners VI Limited Partnership, Highland Capital Partners VI-B Limited Partnership, Highland Entrepreneurs' Fund VI Limited Partnership, Oak Investment Partners XI, Limited Partnership, Steamboat Ventures, LLC and Steamboat Ventures Manager, LLC, David Gross and Jeff Pryor, pursuant to which we sold 2,131,285 shares of our Series A Preferred Stock at a price per share of $35.19 for an aggregate purchase price of approximately $75 million. We used approximately $55 million of the proceeds from the sale of the Series A Preferred Stock to repurchase 1,562,944 shares of our common stock at a price per share of $35.19. Of the proceeds that went to our stockholders that participated in the repurchase transaction, $3 million was placed into escrow to cover the stockholders' indemnification obligations and an additional $0.6 million went to their expenses. The net proceeds of approximately $20 million to us from the private placement and repurchase transactions remains on our balance sheet, and we expect to use these funds to finance our growth in the future.

•: We retained underwriters on November 22, 2004 to advise us on a potential initial public offering and on December 22, 2004, we filed the registration statement of which this prospectus is a part.

Although it is reasonable to expect that the completion of this offering will add value to shares of our common stock because they will have increased liquidity and marketability, the amount of additional value can be measured with neither precision nor certainty. We recognize compensation expense as we amortize the deferred stock-based compensation amounts on a straight-line basis over the related vesting periods, generally over three to four years.

During 2004, we recorded deferred stock-based compensation to stockholders equity of $7.9 million, related to the final remeasurement of the grant of options. Future annual amortization of deferred stock-based compensation for these options as of December 31, 2004 is as follows (in thousands):

Years Ending December 31,
2005	$	2,433
2006	$	1,977
2007	$	1,703
2008	$	1,136

Accounts Receivable and the Allowance for Doubtful Accounts

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by a review of their current credit information. We regularly monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that have been experienced in the past.

The allowance for doubtful accounts for estimated losses results from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Short-Term Investments

We record an impairment charge when we believe our short-term investments have experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future.

Accounting for Software Development Costs for Internal Use

In accordance with SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," we capitalize and amortize over the expected life of a software asset the costs incurred during the application development stage including the following: (1) external direct costs of materials and services consumed in developing or obtaining software, (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the project, and (3) interest costs incurred, when material. We expense the costs of research, during the preliminary project stage and costs incurred for training and maintenance.

Impairment of Long-Lived Assets

We assess impairment of our other long-lived assets in accordance with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." An impairment review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered by us include:

•: significant underperformance relative to expected historical or projected future operating results;
•: significant changes in the manner of use of the acquired assets or the strategy for our overall business; and
•: significant negative industry or economic trends.

When we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, we estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, we recognize an impairment loss. We report an impairment loss in the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair market value if available, or discounted cash flows if not. To date, we have not had an impairment of long-lived assets.

Accounting for Income Taxes

We account for income taxes using the asset and liability method in accordance with SFAS 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of the assets and liabilities. We periodically review the likelihood that we will realize the value of our deferred tax assets and liabilities to determine if a valuation allowance is necessary. At December 31, 2004 there was no valuation allowance against net deferred tax assets. If we determine in the future that it is more likely than not that we will realize any future deferred tax assets for which we previously provided a valuation allowance, we would reduce the existing valuation allowance and recognize income in the amount of the reduction. Conversely, if we determine that we would not be able to realize any future recorded net deferred tax asset, we would increase the valuation allowance and recognize the increase as a charge to our results of operations in the period when we reached the conclusion.

From inception to December 31, 2001, we operated as a C corporation. Effective January 1, 2002, we elected to be taxed as a subchapter S corporation for income tax purposes. Income, deductions, gains, losses, tax credits and other tax attributes of the corporation pass through were taxed directly to the stockholders for 2002, 2003 and the period from January 1, 2004 through September 27, 2004. On September 27, 2004, we revoked our subchapter S corporation status and we now operate as a C corporation. Under SFAS 109, in connection with the revocation of subchapter S, we recognized both a federal and state tax provision in the amount of $1.2 million and $0.2 million, respectively, arising from the change from non-taxable subchapter S to taxable entity status as a C corporation.

In addition, we operate within multiple domestic taxing jurisdictions and are subject to audit in those jurisdictions. These audits can involve complex issues, which may require an extended period of time for resolution. Although we believe that our financial statements reflect a reasonable assessment of our income tax liability, it is possible that the ultimate resolution of these issues could significantly differ from our original estimates.

Contingencies and Litigation

We evaluate contingent liabilities including threatened or pending litigation in accordance with SFAS No. 5, "Accounting for Contingencies" and record accruals when the outcome of these matters is deemed probable and the liability is reasonably estimable. We make these assessments based on the facts and circumstances and in some instances based in part on the advice of outside legal counsel.

Off-Balance Sheet Arrangements

We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions, foreign currency forward contracts or any other off-balance sheet arrangements.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

Our exposure to adverse movements in foreign currency exchange rates is primarily related to nominal payments to international website publishers. A hypothetical change of 10% in foreign currency exchange rates would not have a material impact on our financial statements or results of operations. All of our sales are denominated in U.S. Dollars.

Interest Rate Risk

Our exposure to market risks for changes in interest rates relates primarily to our investment portfolio. As of December 31, 2004, our cash equivalents consisted of money market funds. Due to the short-term nature of our investment portfolio, we do not believe that an immediate 10% increase interest rates would have a material effect on the fair market value of our investment portfolio. We believe that we have the ability to liquidate this portfolio in short order and we do not expect our operating results or cash flows to be materially affected to any significant degree by a sudden change in market interest rates on our investment portfolio.

Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board, or FASB, issued its final standard on accounting for share-based payment in FASB Statement 123R, which requires all companies to measure compensation cost for all share-based payments (including stock options) at fair value, would be effective for public companies for interim or annual periods beginning after June 15, 2005. We will adopt the standard in the quarter ending September 30, 2005 or earlier and could adopt the new standard in one of two ways—the modified prospective transition method or the modified retrospective transition method.

We have not concluded when and how they will adopt this new standard if it is finalized. This standard will have a significant impact on our consolidated statement of operations as we will be required to expense the fair value of our stock options rather than disclosing the impact on its consolidated result of operations within our footnotes in accordance with the disclosure provisions of SFAS 123 (see Note 1 of the notes to our financial statements included elsewhere in this prospectus). This will result in lower reported earnings per share, which could negatively impact our stock price. In addition, this could impact our ability to utilize broad based employee stock plans to reward employees and could result in a competitive disadvantage to us in hiring and retaining qualified employees.

BUSINESS

Overview

Advertisers use our flexible, web-based tools and services to define their marketing objectives, determine ad formats and other creative content of their campaigns and implement their Internet advertising campaigns across our network of third-party websites. Once a campaign has been set up and implemented, our Optimization Engine continuously analyzes Internet user responses to various advertising campaign elements, such as the performance of an ad on a specific website and the effectiveness of creative content to assess whether the advertiser's performance objectives are being met. Based on this analysis, our Optimization Engine continuously refines an advertiser's campaign to emphasize the elements of the campaign that meet the advertiser's campaign objectives, such as the use of specific creative content, and removes elements that do not achieve the advertiser's campaign objectives, such as ads that underperform on a specific website. We also provide advertisers with web-based reporting that automatically tracks ad delivery based on a variety of performance criteria. Using this information, advertisers can use our web-based campaign management tools to customize various aspects of their campaigns, including the scope, frequency and creative content of the deployed ads. Throughout this process, our dedicated and experienced account managers work with our advertisers to design, implement and effectively manage each advertising campaign in order to achieve their marketing objectives. We placed over 6.5 billion ads in December 2004. Our top ten advertisers accounted for 47.6% and 45.8% of our ad revenue in 2003 and 2004, respectively.

Our network reached over 115 million unique Internet users in January 2005 according to comScore Media Metrix, giving our network one of the broadest reaches of any Internet advertising network. In determining the number of unique Internet users, comScore Media Metrix counts visitors only once in a given month regardless of the number of times they visit a website. Website publishers join our network to offer advertising space available on their websites to our advertisers. We have built our network of more than 8,000 third-party websites by offering publishers attractive pricing and revenue sharing arrangements, easy-to-use, web-based tools and quality service. Our network of third-party websites includes branded websites that offer large volumes of advertising space as well as a substantial number of websites that reach Internet users with highly-targeted demographics and interests. We price advertising space on our network using our ad placement bidding system, which we believe enhances the value of website advertising space available on our network of third-party websites. We also provide publishers with web-based reporting and management tools that allow them to exercise control over the frequency, pricing, creative content and format of ads we place on their websites.

Industry Background

growth rate of 17.5% over that time period. We believe that this market growth is due to increased broadband access, growing consumer Internet usage and the benefits offered by Internet advertising relative to traditional media, including:

•: Interactivity. The interactive nature of the Internet enables consumers to respond directly to Internet marketing messages, request additional information and purchase goods and services online. This enables advertisers to more effectively convert Internet users to leads or customers based on these responses.
•: Rapid and measurable feedback. The Internet provides an opportunity for advertisers to obtain a wide range of detailed, rapid feedback on advertising campaign effectiveness, allowing them to dynamically adjust their campaigns to improve performance.
•: Targeted Advertising. The Internet provides advertisers the opportunity to more effectively target consumers based on their affinities, demographics and geographic location.

We believe the growth in Internet advertising is also being driven by an increase in performance-based advertising. Advertising historically has been purchased on a cost-per-thousand-impressions basis, where an advertiser pays for advertising based on the number of times an ad is viewed. Internet advertising, however, increasingly is being purchased on a performance-based model, such as cost-per-action, where an advertiser only pays when an Internet user performs a specified action, such as a click-through or user registration, in response to an ad. Performance-based Internet advertising technologies and services allow advertisers to pay for an ad only when that ad produces the user response specified by the advertiser. We cannot provide any assurance that we will benefit from the projected growth in Internet advertising.

Internet Advertising Market Challenges

Despite the benefits of Internet advertising, we believe advertisers and publishers seeking to take advantage of the Internet's potential face numerous challenges.

Challenges Faced by Advertisers. The challenges faced by advertisers include:

•: Generating an attractive return on advertising expenditures. We believe that, while the Internet represents an attractive advertising medium, several inefficiencies can hinder an advertiser's ability to generate a positive return on its advertising expenditures. Ad redundancy, where a user is shown an ad on a repetitive basis, poor ad targeting, or ineffective creative content or ad format can result in underperforming Internet advertising campaigns that fail to meet advertisers' campaign objectives. Additionally, it can be difficult to accurately measure return on advertising expenditures when an advertiser chooses a campaign based on the number of times an ad is viewed as opposed to user actions in response to the ad.
•: Assessing and actively managing advertising campaigns. To assess a campaign's effectiveness and rapidly make informed modifications to improve campaign performance, advertisers need access to complex computer networking, software applications and systems that provide these functions. Developing these technologies demands significant investments and technical expertise.
•: Reaching the right audience. To reach the desired audience in terms of both user profile and size, an Internet advertiser may have to advertise across hundreds of websites using multiple ad formats. The ability to deliver ads across multiple websites requires significant technical capabilities and involves costs associated with managing relationships with multiple website publishers, including negotiating and executing contracts and keeping track of available advertising space.
•: Complexity of implementing advertising campaigns. The complex nature of Internet advertising requires advertisers to identify and manage multiple campaign elements, including creative

content and technical requirements, performance, measurement tools and pricing. This complexity is compounded by the wide variety of media and measurement methods used in Internet advertising.

Challenges Faced by Publishers. The challenges faced by publishers include:

•: Attracting advertisers. Publishers desiring to sell website advertising space need to attract advertisers to their websites. This can be difficult due to the large number of websites, limited resources focused on advertising sales and the fragmented nature of the Internet.
•: Maximizing revenue opportunities. Each unique visit to a website or use of a search engine, e-mail or Internet software application represents an opportunity to display an ad and generate revenue. In order to maximize its advertising revenue, a publisher must find the advertiser that is willing to pay the highest price for its current volume of Internet advertising space.
•: Controlling advertising space. The ads displayed on a website can dramatically affect the experience of users of that website. Publishers have an interest in actively controlling the content and frequency of ads displayed on their websites and need easy-to-use technologies that give them this control.
•: Developing technology to support complex and changing advertiser requirements. The Internet advertising market is evolving rapidly and publishers must have the resources to respond to the increasing technological sophistication and complex needs of their advertisers. Publishers must continually assess the value and volume of their advertising space when identifying, negotiating with and managing multiple advertiser prospects and clients. Additionally, the complex nature of Internet advertising imposes significant technical and administrative burdens on publishers. These technical and administrative issues are particularly challenging to publishers that lack sufficient technical and sales capabilities.

The Fastclick Solution

We believe our performance-based Internet advertising technologies and services effectively address the challenges faced by advertisers and publishers. We help Internet advertisers increase their return on advertising expenditures and publishers enhance the value of their Internet advertising space through a combination of our proprietary Optimization Engine, ad placement bidding system and reporting and campaign management tools. We intend to improve our existing performance-based technologies and services and develop new technologies to address the constantly evolving needs of advertisers and publishers.

We believe our competitive strengths include:

•: Our Optimization Engine. Utilizing advanced mathematical algorithms, our proprietary Optimization Engine is designed to improve advertising campaign performance by continuously analyzing Internet user responses to various advertising campaign elements and automatically modifying the campaign parameters to deliver the types and formats of ads eliciting the greatest number of user responses that meet the advertiser's campaign objectives to the websites yielding the greatest number of specified Internet user responses. Our Optimization Engine analyzes various campaign elements, including website, creative content, targeting and other variables. Through this process, we reduce Internet ad redundancy, poorly targeted placements and other Internet advertising inefficiencies.
•: Our network of websites. Our network reached over 115 million unique Internet users in January 2005 according to comScore Media Metrix, giving our network one of the broadest reaches of any Internet advertising network. We have built our network of more than 8,000 third-party websites by offering publishers attractive pricing and revenue-sharing arrangements,

easy-to-use, web-based tools and quality services. Our network allows us to offer advertisers a significant volume of Internet advertising space across a wide variety of content channels. We maintain the quality of our network by periodically evaluating each website in our network to ensure it meets our content standards. We believe the size and quality of our network creates efficiencies that benefit both advertisers and publishers. Our ability to analyze large numbers of advertising campaigns across our network provides us with data that we can use to improve campaign performance for all of our advertisers. Publishers on our network also derive benefits from access to a larger market of advertisers competing for their advertising space.

•: Efficient pricing for advertisers and publishers. Our ad placement bidding system prices advertising space based on current supply and demand for advertising space on our network. Advertisers bidding the highest price for advertising space receive priority delivery of their ads, subject to certain rules which may be set by us, our advertisers or our publishers. Our ad placement bidding system enables advertisers to more efficiently meet their campaign objectives and enhances the value of publishers' advertising space available on our network.
•: Reporting and campaign management tools. Our easy-to-use, web-based campaign management tools provide customized campaign reporting, updated hourly, to advertisers and publishers. Advertisers can obtain a wide range of detailed feedback on ad placement, impressions, clicks, actions and overall advertising campaign effectiveness, and then use our campaign management tools to optimize their overall marketing efforts in response to that feedback. Publishers can also use our tools to view detailed information regarding the ads appearing on their websites, and exercise control over the frequency, pricing, creative content and format of those ads.
•: Outstanding customer service. We believe our account managers provide outstanding account management service that increases the effectiveness of our advertisers' campaigns.

Benefits to Advertisers. Our technologies and services deliver the following benefits to advertisers:

•: Increased return on advertising expenditures. Our Optimization Engine is designed to increase advertiser return on their advertising expenditures by delivering higher performing ads, based on creative content, to those websites that meet the advertiser's objectives and by removing creative content and ads that underperform on specific websites. Our Optimization Engine is distinct from, and we believe complementary to, campaign targeting. Targeting in advertising is based on predetermined market research, historical testing, assumptions and experience from prior campaigns. Our optimization technologies improve upon static targeting by applying a set of delivery rules specific to each user, website, creative content and advertising campaign. These rules combine predetermined parameters set by the advertiser and our extensive optimization algorithms.
•: Detailed, hourly campaign performance feedback. Our web-based reporting tools provide detailed campaign statistics, such as the number of impressions, clicks and actions generated by each ad in a campaign that are broken down by category, sub-category and website. These statistics are updated hourly, 24 hours a day, 7 days a week.
•: Flexible set-up and campaign management tools. Using our web-based tools, advertisers create campaigns for deployment on our network by setting their budget, determining targeting criteria, including geography, day part or website category and selecting creative content such as ad format, type and appearance. Using the information provided by the reports we provide, advertisers use our web-based campaign management tools to efficiently and dynamically manage their Internet advertising campaigns, including loading and changing a campaign's creative content, changing targeting and pausing a campaign. Our campaign managers advise and assist advertisers throughout this process.

•: Access to large amounts of higher-performing advertising space. Through our ad placement bidding system, our advertisers can bid higher prices to access a greater volume of advertising space on those websites generating Internet user responses most closely meeting the advertiser's campaign objectives.
•: Broad reach. Through our network, we offer our advertisers access to over 8,000 third-party websites, which, according to comScore Media Metrix, reached over 115 million unique Internet users in January 2005. Our broad and growing network of third-party websites enables advertisers to deliver the right marketing message to the right Internet users at the right time.

Benefits to Website Publishers. Our technologies and services deliver the following benefits to publishers:

•: Enhanced value of advertising space. Our ad placement bidding system selects the highest bidding advertising campaign for priority delivery across our network, subject to certain rules that may be set by us, our advertisers or our publishers. This system is designed to increase the amount of advertising revenue generated by the third-party websites in our network.
•: Attractive economic relationships. Pursuant to the revenue-sharing provisions of our publisher's agreement, we generally pay publishers up to 65% of the advertising revenue we generate from their website advertising space. Additionally, we mitigate payment and performance risks for publishers. Publishers typically prefer payment on a cost-per-thousand-impressions-basis, in which they are paid for the ad impressions they serve and do not assume any performance risk, while our advertisers typically prefer to purchase advertising on a cost-per-action or cost-per-click-basis. Our technologies enable us to manage the risk associated with reconciling these preferences, while ensuring publishers are paid for the ad impressions they serve. We assume the risk of payment from advertisers and we typically pay our publishers for the advertising space within 25 business days after the end of the month.
•: Control over advertising space. By providing the publishers with extensive information regarding advertising campaigns on the websites in our network, they are able to make better decisions regarding which campaigns to run on their websites. Publishers can exercise control over the frequency, pricing, creative content and format of ads appearing on their websites. They can also block specific types or categories of advertising campaigns from appearing on their websites. These controls enable publishers to enhance ad performance, limit ad "burn out" and improve their users' experience.
•: Ease-of-use. We designed our technologies to enhance ease-of-use for publishers. We offer publishers a web-based tool that allows them to automatically add their websites to our network. Once a website has been added to our network, our technologies automatically begin delivering ads meeting the publisher's specified criteria, enabling the website to quickly and easily generate revenue.

Our Strategy

Our goal is to be a leading provider of performance-based Internet advertising technologies and services to advertisers and publishers. To achieve this goal, we plan to:

•: Enhance our existing technologies. We plan to continue to enhance our Optimization Engine so that campaign performance can be optimized based on additional variables. We also plan to improve the functionality of our ad placement bidding system and our reporting and campaign management tools to provide greater campaign control and efficiency. We expect that our planned enhancements will provide our advertisers with increased return on their advertising expenditures and our publishers with higher advertising revenue through greater campaign

control and flexibility. We also plan on hiring additional personnel within our technology division throughout the next year.

•: Introduce new technologies and services. According to Forrester Research, the U.S. search engine advertising market was $1.9 billion in 2003 and is projected to grow to $5.6 billion in 2008, representing a compound annual growth rate of 24% over that time period. Advertisers on search engines must typically go to each search engine on which they are included and manually modify their search engine advertising campaigns, including selecting and bidding on key words associated with each search engine. We are in the process of leveraging our existing technologies to develop a search engine advertising technology, which is designed to help advertisers more efficiently manage their search engine advertising campaigns across multiple third-party Internet search engines, such as Yahoo!, Google and FindWhat. This technology is also being designed to remove ads from search engines that are not meeting an advertiser's campaign objectives. We believe this technology will increase advertisers' return on their search engine advertising expenditures. We currently intend to launch our search engine advertising technology in the first quarter of 2005. In addition to our search engine advertising technology, we are developing an Internet user targeting technology that will allow us to gather, store and distribute to advertisers targeted Internet user contact and other information. We plan to launch our Internet user targeting technology in the second quarter of 2005.
•: Respond to new market opportunities. We anticipate that as Internet usage and broadband access increases, and advertisers and publishers face new challenges, the demand for increasingly sophisticated Internet advertising technologies and services will grow. As these challenges emerge, we plan to increase our research and development efforts to respond to new market opportunities and changing advertiser, website and Internet user demands.
•: Expand our website network. To increase our volume of advertising space and to enable our advertisers to reach a larger and broader demographic base of Internet users, on an on-going basis we plan to add more high-traffic websites that meet our content and quality standards. We also plan to increase the overall value of advertising space on our network by developing new and innovative ad formats.
•: Grow our advertiser base and gain a larger share of our advertisers' marketing spend. Over the next two years, we intend to invest significant resources in our sales and marketing organization to attract additional advertisers and garner a larger share of our advertisers' marketing budgets. We plan to increase our sales and marketing efforts to target potential customers directly and to work with indirect channels, such as advertising agencies, to grow our advertiser base. Additionally, we will continue to work with our advertisers to demonstrate the value of our existing and future Internet advertising technologies to increase the amount of money they spend with us. We intend to hire sales representatives in key domestic markets, including New York City, Los Angeles, San Francisco and Chicago.
•: Expand through acquisitions. We intend to pursue acquisition candidates to grow our advertiser and publisher base and access technology and talent. However, we have no present understandings, commitments or agreements with respect to the acquisition of any other businesses or technologies.

Our Advertisers

The vast majority of our advertisers are direct response marketers. Direct response marketers generally place Internet ads that will generate an immediate response or action from an Internet user. We also work with brand marketers and advertising agencies that represent multiple advertisers. We represent advertisers in a variety of industries, including travel, financial services, education, telecommunications, retail, automotive, entertainment, finance, pharmaceutical and health and

information technology, either directly or indirectly through an advertising agency. Our advertiser base is not concentrated by industry, and our top 20 advertisers by revenue for 2003 were from ten different industries. One of our former advertisers accounted for 11.2% of our revenue in 2003. No single advertiser represented more than 10% of our revenue in 2004. Our top ten advertisers accounted for 47.6% and 45.8% of our advertising revenue in 2003 and 2004, respectively.

Our standard advertising contract covers both campaign management and ad delivery. Advertisers typically pay us on a 30-day, net basis. The contract is terminable at any time by the advertiser or us with no penalty upon one business day notice.

We offer advertisers multiple pricing options to achieve their desired results. These alternatives include:

•: Cost-per-action, where the advertiser pays us a fee based on the number of specified Internet user responses, such as registrations, requests for information or sales that its ads produce;
•: Cost-per-click, where the advertiser pays us a fee based on the number of clicks its ads generate; and
•: Cost-per-thousand impressions, where the advertiser pays us a fee based on the number of times its ads are shown, referred to as impressions.

We also offer advertisers new creative advertising formats to provide a variety of media options, as evidenced by our implementation of industry standard formats such as interstitials, InVues and larger in-page formats, like leaderboards, skyscrapers and rectangles, and the incorporation of audio and video content in all advertising formats. All of our advertising formats comply with the Internet Advertising Bureau standards.

Our Publishers and Website Network

Our network reached over 115 million unique Internet users in January 2005 according to comScore Media Metrix, giving our network one of the broadest reaches of any Internet advertising network. Our website network of more than 8,000 third-party websites extends across 18 distinct content channels. Our network includes branded websites that offer large volumes of advertising space as well as a substantial number of websites that reach Internet users with highly-targeted demographics and interests. We maintain the quality of our network by periodically evaluating each website in our network to ensure it meets our content standards. The vast majority of our publishers added their websites to our network using our automated web-based sign-up tools. No single publisher accounted for more than 10% of our publisher expenses during 2003 or 2004. Yahoo! represented 25.9% of our publisher expenses during 2002. Our top ten publishers accounted for 22.6% and 21.6% of our publisher expenses in 2003 and 2004, respectively.

Our standard publisher's agreement covers the provision and use of website advertising campaigns and the related payments. We typically pay a vast majority of our publishers within 25 business days after the end of the month under the revenue-sharing provisions of our publisher's agreement pursuant to which we generally pay them up to 65% of the advertising revenue we generate from ads placed on their websites. We can terminate our publisher agreements at any time without penalty.

Our 18 content channels, which are further divided into 201 sub-content channels, include the following:

Arts & Humanities	Family & Living	Music & Radio
Autos, Boats & Planes	Health & Fitness	News & Reference
Business Management	Hobbies & Interests	Science, Nature & Technology
Careers & Education	Internet	Shopping
Computers & Software	Money & Finance	Sports & Recreation
Entertainment & Leisure	Movies & Television	Travel

Sales and Marketing

Our sales and marketing team markets our proprietary optimization technologies and services directly to advertisers and indirectly to advertising agencies and other companies that represent multiple advertisers. We have account executives located in our Santa Barbara, California headquarters, as well as in other cities including New York, Los Angeles, and San Francisco. During the next two years, we intend to expand our sales and marketing team.

We primarily acquire advertisers through our direct sales force. We also use a variety of traditional and web-based channels including direct marketing, print advertising in trade journals, field sales, client referrals, trade shows, industry conferences, Internet advertising and our website.

Our account managers use their Internet advertising campaign expertise to assist existing and potential advertisers with various elements of their Internet campaigns, including media selection, creative content advice, reporting and campaign monitoring. We consider our account managers to be the primary customer contact for all of our advertisers' Internet campaign management needs. We believe our account managers, together with our technology infrastructure, provide a higher level of customer service for our advertisers.

Our publisher acquisition team focuses on building our network of third-party websites in order to continue to provide a large volume of advertising space. Currently, we generate publisher leads primarily through direct sales, publisher referrals, our website and responses to our marketing and public relations efforts.

Technology

We have devoted more than four years to developing proprietary software and other technologies and services for Internet advertisers and publishers, including our proprietary Optimization Engine, ad placement bidding system, and reporting and campaign management tools. We believe that the quality of our technology gives us an advantage over our competitors and we intend to continue to invest resources to enhance our existing, and develop new technology. In addition, we periodically evaluate new technology and software alternatives to help improve operational efficiency and reduce operating costs.

Our Optimization Engine is an automated technology designed to improve advertisers' return on their advertising expenditures and enhance website revenue. Our Optimization Engine applies advanced mathematical algorithms to Internet users' response patterns to determine the optimal ad to deliver to available advertising space on our network of third-party websites. Based on campaign data, including pricing, website and creative content performance, targeting, advertising space and other variables, our Optimization Engine automatically refines campaign delivery and creative content selection. Once an advertiser establishes a campaign, our Optimization Engine helps an advertiser realize its campaign objectives by testing the performance of creative content and ads on various websites.

We are in the process of leveraging our existing technologies to develop a search engine advertising technology, which is being designed to help advertisers more efficiently manage their search engine advertising campaigns across multiple third-party Internet search engines, such as Yahoo!, Google and FindWhat. This search engine advertising technology is being designed to remove ads from search engines that are not meeting an advertisers campaign objectives. In addition, our technology will contain automated processes that remove key words that do not meet an advertiser's campaign objectives and increase or decrease the bidding prices for key words based on their performance relative to the overall campaign objectives. We believe this technology will increase advertisers' return on their search engine advertising expenditures. We currently intend to launch our search engine advertising technology in the first quarter of 2005. In addition to our search engine advertising technology, we are developing an Internet user targeting technology that will allow us to gather, store and distribute to advertisers targeted Internet user contact and other information. We plan to launch our Internet user targeting technology in the second quarter of 2005.

We serve an average of over 250 million ads per day through database clustering technology and advanced content routing algorithms. Our database clustering technology relies on our software and technology infrastructure, which provides substantial computing power at low cost. We currently use a combination of licensed and proprietary software running on clusters of servers located in Santa Barbara and San Jose, California and Ashburn, Virginia. Our technology infrastructure makes our continuous campaign reporting possible, simplifies the analysis and storage of large amounts of data, and facilitates the rapid delivery of ads across our network. By efficiently distributing our data across many servers, we have created a highly optimized, scalable system that can be easily upgraded as needed. Using three facilities to store our data provides us with system redundancy and enables us to offer rapid response time and availability to our advertisers and network of third-party websites.

Our technology research and development efforts are critical to our success. We currently conduct our technology research and development primarily in our Santa Barbara, California headquarters through a staff of approximately 21 employees as of December 31, 2004. We intend to expand our technology research and development resources in the new facilities we are in the process of establishing in Los Angeles, California. Much of our technology expense has been focused on developing other performance-based marketing technologies and services, including search engine advertising. We currently intend to introduce our search engine advertising technologies and services in the first quarter of 2005. Some of our other current research and development efforts include continuing to enhance and improve our proprietary technologies and our database capabilities with respect to geographic targeting.

Our technology expenses were $0.2 million in 2001, $0.3 million in 2002, $0.4 million in 2003 and $2.3 million in 2004.

Competition

The Internet advertising market is characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing client demands. As demand for Internet advertising technologies and services continues to increase, we expect new competitors to enter the market and existing competitors to allocate more resources to develop and market Internet advertising services and products. As a result, we expect competition in the Internet advertising market to intensify.

Our primary current and potential competitors include:

•: Internet advertising networks such as Advertising.com (acquired by AOL), ValueClick, Tribal Fusion and Burst Media;
•: Internet advertising technology providers, including search engine optimization companies; and

•: other performance-based Internet marketers, including affiliate networks.

We also compete with large Internet companies and traditional media for a share of advertisers' overall marketing spending, including:

•: website publishers with their own sales forces that sell their advertising space directly to advertisers;
•: major Internet portals and search companies with advertising networks such as Google and Yahoo!; and
•: direct marketing, television, radio, cable and print, advertising companies.

We believe we compete favorably in the principal competitive factors in our market, which consist of the following:

•: innovative technology allowing advertisers to track and increase their return on their advertising expenditures;
•: high volume of quality advertising space;
•: economic relationship with publishers;
•: an efficient and scalable operating model; and
•: technical capability, advertiser and publisher service and management experience.

Many of our existing competitors, as well as a number of potential new competitors, have longer operating histories, greater name recognition, more advertisers and significantly greater financial, technical and marketing resources than we have. Also, many of our current and potential competitors have established or may establish cooperative relationships among themselves or with third parties. In addition, several of our competitors have combined with larger companies with greater resources than ours. These competitors may engage in more extensive research and development, undertake more far-reaching marketing campaigns and make more attractive offers to existing and potential clients than we do. They could also adopt more aggressive pricing policies and may even provide services similar to ours at no additional cost by bundling them with their other product and service offerings.

Many of our existing competitors, as well as a number of potential new competitors, offer or may offer Internet advertising products or services that compete with our technologies and services with respect to user analysis capabilities, client service, technology functionality, strategy, ad serving technology, price or other factors. We believe our technologies and services compete adequately with respect to the Internet advertising technologies and services offered by our competitors. We are unable to accurately quantify our market share in the markets in which we operate because we believe reliable market share data is not currently available to us.

Intellectual Property

Our intellectual property is an essential element of our business. We rely on a combination of patent, copyright, trademark and trade secret laws of the United States and other countries and confidentiality procedures to protect our intellectual property rights. Our employees and independent contractors are required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, and assigning to us any ownership that they may claim in those works. Our standard form agreements for website publishers and advertisers also contain provisions designed to protect our intellectual property rights. Despite our precautions, it may be possible for third parties to obtain and use, without consent, intellectual property that we own or license. Unauthorized use of our intellectual property by third

parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

We are the owner of a service mark registered with the U.S. Patent and Trademark Office, "Fastclick." We do not have any patents issued by the U.S. Patent and Trademark Office for our intellectual property. We currently have one patent application pending with the U.S. Patent and Trademark Office. We do not own any copyrights registered with the U.S. Copyright office.

In addition, we license technology and related databases from third parties related to correlation of IP geographic addresses that we use in ad placement targeting. We have non-exclusive licenses to use these technologies. Our license agreements include agreements with Digital Envoy, Inc., which expires in May 2005, and geobytes, inc., which expires in February 2005, each of which we believe are renewable or replaceable on commercially reasonable terms. We believe that all of the other technologies we license are generally replaceable on commercially reasonable terms.

We cannot be sure that we do not and will not infringe the intellectual property rights of others. We may be subject to legal proceedings and claims in the ordinary course of business and third parties may sue us for intellectual property infringement or initiate proceedings to invalidate our intellectual property. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (if available on acceptable terms or at all), pay damages or curtail our product and service offerings. Moreover, we may need to redesign some of our technologies, services or processes to avoid future infringement liability. Any of the foregoing could prevent us from competing effectively and adversely affect our business.

Seasonality and Cyclicality

We believe that our business is subject to seasonal and cyclical fluctuations. Generally, our advertisers and advertising agencies place more ads in the fourth calendar quarter and fewer ads in the first calendar quarter of each year. Additionally, overall Internet usage generally declines during the summer months, resulting in lower advertising space volume for publishers. Furthermore, domestic advertising spending generally is cyclical in reaction to overall conditions in the United States economy. We believe our recent performance and strong historical growth have masked the impact of seasonality on our business which we expect to be more pronounced in the future.

Regulation

Our business is subject to government laws and regulations relating to privacy, direct marketing activities and Internet commerce. These laws and regulations are constantly evolving as new laws and regulations are passed and as the courts interpret existing laws and regulations. In addition, advertising and Internet commerce trade and industry associations have in the past and will continue to adopt guidelines and standards for Internet advertising and commerce. While we pay close attention to these shifting regulatory and industry environments, we cannot predict the impact of future changes in those environments, and we anticipate that it may be necessary in the future to adapt our business in response to such changes.

As part of our on-going efforts to ensure the best possible experience for all recipients of our advertising, we use cookies and action tags (also known as clear gif technology) to collect technical data from web browsers to aggregate statistical information. This data includes IP addresses, browser types, operating systems, domain names, access times and referring website addresses. Cookies are files that an Internet browser places on the hard drive of a computer used to access the Internet, which we use to improve the web advertising experience for Internet users. Action tags are tiny transparent graphic image files placed in a website, which are served by us and counted when served. We use these action tags to track the completion of transactions and submittal of applications. The cookies and action tags we use do not provide us with personally identifiable information, and we do not and cannot use

cookies or action tags to retrieve personal information from an Internet user's computer. For those Internet users who remain concerned about cookies, we provide an opt-out cookie to the public free of charge on our website to block future placements of our cookies.

In addition, advertisers using our network or we may collect personally identifiable information explicitly provided by Internet users for purposes such as purchasing goods and services, shipping orders, and entering sweepstakes. In addition, some ads delivered by us provide links that permit Internet users to click through to websites not under our control. Any personally-identifiable information collected using our network is subject to our privacy policies or those of our individual advertisers.

Employees

As of December 31, 2004, we had 88 employees, all located in the United States, including 21 in technology, 52 in sales and marketing, 3 in operations and 12 in general administration. We have never had a work stoppage and none of our employees is represented by a labor organization or under any collective bargaining arrangements. We consider our employee relations to be good.

Facilities

Our principal executive officers are located in Santa Barbara, California, where we lease two properties with approximately 14,891 square feet and approximately 7,500 square feet of space under leases that expire in April 2006. We also lease server space in San Jose, California and Ashburn, Virginia. We are in the process of leasing additional facilities in Los Angeles, California for expansion of our sales force and technology teams. We believe that our space will be adequate for our needs and that suitable additional or substitute space in the future will be available to accommodate the foreseeable expansion of our operations.

Legal Proceedings

From time to time we may be involved in other litigation relating to claims of alleged infringement, misuse or misappropriation of intellectual property rights of third parties. In the normal course of business, we may also be subject to claims arising out of our operations, and may file collection claims against delinquent advertisers. As of the date of this prospectus, there are no claims or actions pending or threatened against us that, if adversely determined, would have a material adverse effect on us.

Corporate Information

We were incorporated in California in March 2000. In September 2004, we underwent a recapitalization in which we offered and sold shares of Series A Preferred Stock to investors and used a portion of the proceeds from the offering to repurchase a substantial percentage of our then-outstanding common stock. We plan to reincorporate in Delaware prior to the closing of this offering.

MANAGEMENT

Directors and Executive Officers

The following table sets forth information about our directors and executive officers as of December 15, 2004:

Name	Age	Position
Kurt A. Johnson	41	President, Chief Executive Officer and Director
Fred J. Krupica	52	Chief Financial Officer
Michael S. Hughes	54	Chief Marketing Officer
James Aviani	39	Chief Technology Officer
Shayne G. Mihalka	34	Executive Vice President of Operations
Robert J. Davis	48	Director
Fredric W. Harman	44	Director
Daniel J. Nova	43	Director

Provided below are biographies for each of our executive officers and directors listed in the table above.

Kurt A. Johnson has served as our President and Chief Executive Officer since March 2004. Mr. Johnson joined our company as President and Chief Financial Officer in October 2003. In September 2004, Mr. Johnson relinquished his duties as Chief Financial Officer upon our hiring of Fred J. Krupica. Prior to joining us, from May 1999 to June 2002, Mr. Johnson served as chief financial officer of ValueClick, Inc., a provider of Internet advertising services. From February 1998 to May 1999, Mr. Johnson served as an investment banker at Olympic Capital Partners, specializing in mergers and acquisitions and Internet company investments. From March 1995 to January 1998, Mr. Johnson served as vice president of investments for Bozarth & Turner Securities, a private investment management firm. From April 1994 to March 1995, Mr. Johnson served as chief financial officer of HSD Corporation, a privately held industrial automation company. Mr. Johnson is a Certified Management Accountant and holds a BA from Eastern Washington University and a MBA from Gonzaga University.

Fred J. Krupica has served as our Chief Financial Officer since September 2004. Mr. Krupica has also served as our Secretary since October 2004. Prior to joining us, from December 2002 to August 2004, Mr. Krupica served as chief financial officer of WJ Communications, Inc., a leading designer and manufacturer of radio frequency semiconductors. From May 2001 to November 2002, Mr. Krupica served as chief financial officer of Magnetic Data Technologies LLC (acquired by Solectron Corporation in June 2002), an international repair manufacturer. From January 2000 to April 2001, Mr. Krupica served as chief financial officer and chief operating officer of Patel Ventures, a private equity firm. From December 1994 to December 1999, Mr. Krupica served as founder, president and chief financial officer of F&G Financial Services, a financial services firm. Mr. Krupica is a CPA (state of Illinois) and holds a BS from the University of Illinois and a MBA from the University of California, Los Angeles.

Michael S. Hughes has served as our Chief Marketing Officer since December 2004. Prior to joining us, from November 2001 to November 2004, Mr. Hughes served as Executive Vice President, Microsoft Chief Client Officer for MRM Partners, a customer relationship marketing and interactive advertising agency and a wholly owned subsidiary of McCann Worldgroup. From May 2001 to October 2001 Mr. Hughes served as chief executive officer of Digital Planet, a webcasting and streaming media company. From November 1998 to April 2001, Mr. Hughes served as President of the Irvine, California office of Wunderman, an advertising agency and a wholly-owned subsidiary of Young & Rubicam. From August 1995 to October 1998, Mr. Hughes served as Director of Relationship Marketing for Team One Advertising, a wholly-owned subsidiary of Saatchi & Saatchi. Mr. Hughes holds a BA from Dickinson College.

James Aviani has served as our Chief Technology Officer since March 2004. Prior to joining us, from May 1996 to February 2004, Mr. Aviani served as a Senior Software Development Manager of Cisco Systems, Inc., an Internet networking company. Mr. Aviani holds a BA from the University of California, Santa Cruz and a MS in computer science from California Polytechnic University, San Luis Obispo. He holds eight US patents.

Shayne G. Mihalka has served as our Executive Vice President of Operations since October 2004. Mr. Mihalka also served as our Executive Vice President of Strategic Development from December 2003 to September 2004, our Senior Vice President and General Manager of AdServer from November 2002 to November 2003, and our Vice President of Business Development from April 2002 to October 2002. Prior to joining us, from June 2000 to March 2002 Mr. Mihalka served as Vice President of Network Development and Business Operations of ValueClick, Inc., and from July 1999 to May 2002 served in key financial and operational roles for ValueClick Inc. Prior to that, Mr. Mihalka held several operations and financial roles at Association Group Insurance Administrators. Mr. Mihalka holds a BA in Political Science from University of California at Santa Barbara and a MBA from California State University, Northridge.

Robert J. Davis has served as one of our directors since September 2004. Since February 2001, Mr. Davis has served as a venture partner of Highland Capital Partners, a venture capital firm. From October 2000 to February 2001, Mr. Davis served as chief executive officer of Terra Lycos, a global Internet portal and access provider. From June 1995 to October 2000, Mr. Davis served as president and chief executive officer of Lycos, Inc., a global Internet portal. Mr. Davis holds a BS from Northeastern University, a MBA from Babson College and Honorary Doctorates from Northeastern University and Bentley College. Mr. Davis also serves as director for several privately held companies.

Fredric W. Harman has served as one of our directors since September 2004. Since July 1994, Mr. Harman has served as a Managing Member of the General Partner of venture capital funds affiliated with Oak Investment Partners. From June 1987 to June 1994, Mr. Harman was employed by Morgan Stanley, where he served as a General Partner of Morgan Stanley Venture Capital, L.P. Mr. Harman serves as a director of Internap Network Services, an Internet infrastructure company, as well as several privately held companies. Mr. Harman holds a BS and a MS in electrical engineering from Stanford University and a MBA from Harvard University.

Daniel J. Nova has served as one of our directors since September 2004. Since August 1999, Mr. Nova has served as a managing general partner at Highland Capital Partners, a venture capital firm. From August 1996 to August 1999, Mr. Nova was a general partner at Highland Capital Partners. Mr. Nova holds a BS in Computer Science and Marketing from Boston College and a MBA from Harvard University. Mr. Nova also serves as director for several privately held companies.

Each executive officer serves at the discretion of our board of directors and holds office until his successor is elected and qualified or until his earlier resignation or removal. There are no family relationships among any of our directors or executive officers.

Composition of the Board of Directors after this Offering

Our board of directors currently consists of four members and upon completion of this offering will consist of members. Pursuant to the terms of his employment agreement, Mr. Johnson is entitled to membership on our board of directors. Upon completion of this offering, our common stock will be quoted on the Nasdaq National Market and we will be subject to the rules of The Nasdaq National Market. These rules require that at least one member of our board be "independent" as of the date of this offering, two members of our board to be independent by 90 days after this offering and a majority of our board of directors to be independent by the first anniversary of this offering. We intend to comply with these requirements and prior to the offering our board of directors will determine which of our directors will be designated as independent.

Classified Board. Upon completion of this offering, our certificate of incorporation will provide that our board of directors will be divided into three classes of directors, with the classes as nearly equal in number as possible. As a result, approximately one-third of our board of directors will be elected each year. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board. Upon completion of this offering, our certificate of incorporation and bylaws will provide that the number of directors will range from three to nine members, with the exact number to be fixed at the discretion of the board.

Board Committees

Upon completion of this offering, our board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directors may also establish from time to time any other committees that it deems necessary or advisable.

Audit Committee

Upon completion of this offering, our board of directors will have an audit committee initially consisting of three directors. Our audit committee will recommend, and our board of directors will adopt, a written charter for our audit committee, which will be posted on our website. Our audit committee, among other things, will:

•: select a firm to serve as independent auditors to audit our financial statements;
•: help to ensure the independence of the auditors;
•: discuss the scope and results of the audit with the independent auditors, and review, with management and the independent auditors, our interim and year-end operating results;
•: develop procedures for employees to anonymously submit concerns about questionable accounting or audit matters;
•: consider the adequacy of our internal accounting controls and audit procedures; and
•: approve (or, as permitted, pre-approve) all audit and non-audit services to be performed by the independent registered public accounting firm.

The audit committee will have the sole and direct responsibility for appointing, evaluating and retaining our independent auditors and for overseeing their work. At least one member of the audit committee will be "independent," as defined under Nasdaq National Market and SEC rules, at the time of this offering, a majority of the members of the audit committee will be independent by 90 days after this offering and all of the members of the audit committee will be independent by the first anniversary of this offering. Each member of our audit committee will be financially literate at the time such director is appointed. In addition, our audit committee will include a financial expert within the meaning of Item 401(h) of Regulation S-K of the Securities Act and at least one member who has the financial sophistication required under the Nasdaq National Market rules. All audit services to be provided to us and all permissible non-audit services, other than de minimis non-audit services, to be provided to us by our independent auditors will be approved in advance by our audit committee.

Compensation Committee

We currently have a compensation committee comprised of Messrs. Nova, Davis and Harman. Upon completion of this offering, our board of directors will have a compensation committee initially consisting of three directors. At least one member of the compensation committee will be "independent" as defined under Nasdaq National Market rules at the time of this offering, a majority of the members of the compensation committee will be independent by 90 days after this offering and

all of the members of the compensation committee will be independent by the first anniversary of this offering. The purpose of our compensation committee will be to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee will recommend, and our board of directors will adopt, a written charter for our compensation committee, which will be posted on our website. Our compensation committee, among other things, will:

•: review and determine the compensation of our executive officers;
•: administer our stock plans;
•: review and make recommendations to our board with respect to incentive compensation and equity plans; and
•: establish and review general policies relating to compensation and benefits of our employees.

Corporate Governance and Nominating Committee

Upon completion of this offering, our board of directors will have a corporate governance and nominating committee initially consisting of three directors. At least one member of the corporate governance and nominating committee will be "independent" as defined under Nasdaq National Market rules at the time of this offering, a majority of the members of the corporate governance and nominating committee will be independent by 90 days after this offering and all of the members of the corporate governance and nominating committee will be independent by the first anniversary of this offering. The corporate governance and nominating committee will recommend, and our board of directors will adopt, a written charter for our corporate governance and nominating committee, which will be posted on our website. Our corporate governance and nominating committee, among other things, will:

•: identify, evaluate and recommend nominees to our board of directors and committees of our board of directors;
•: conduct searches for appropriate directors;
•: evaluate the performance of our board of directors and of individual directors;
•: consider and make recommendations to the board of directors regarding the size and composition of the board and its committees;
•: review developments in corporate governance practices;
•: evaluate the adequacy of our corporate governance practices and reporting; and
•: make recommendations to our board of directors concerning corporate governance matters.

Code of Ethics

Upon completion of this offering, we will adopt a written code of ethics applicable to our directors, officers and employees in accordance with the rules of the Nasdaq National Market and the SEC. Our code of ethics will be designed to deter wrongdoing and to promote:

•: honest and ethical conduct;
•: full, fair, accurate, timely and understandable disclosure in reports and documents that we file with the SEC and in our other public communications;
•: compliance with applicable laws, rules and regulations, including insider trading compliance; and
•: accountability for adherence to the code and prompt internal reporting of violations of the code, including illegal or unethical behavior regarding accounting or auditing practices.

The code of ethics will include a code of ethics that applies to our senior financial officers, as described in Item 406 of Regulation S-K of the SEC. The audit committee of our board of directors will review our code of ethics on a regular basis and will propose or adopt additions or amendments as it determines are required or appropriate. Our code of ethics will be posted on our website.

Director Compensation

Our directors historically have not received any compensation for their services. We reimburse our directors for their reasonable out-of-pocket travel expenditures.

Upon consummation of this offering, non-employee directors will receive an annual retainer of $25,000, plus $1,000 for each board meeting attended in person, $500 for each board meeting attended by telephone, $1,000 for each committee meeting attended in person and $500 for each committee meeting attended by telephone. In addition, the audit committee chairperson will receive an annual retainer of $10,000 and each audit committee member (other than the chairperson) will receive an annual retainer of $5,000. Non-employee directors will also receive an annual grant of an option to purchase shares of our common stock at an exercise price equal to the fair market value of our common stock at the time of grant. We will continue to reimburse all of our directors for costs associated with attending board and committee meetings.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee has at any time been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

EXECUTIVE COMPENSATION

The following table summarizes the compensation we paid during 2004 to our President and Chief Executive Officer, former Chief Executive Officer, and each of our executive officers, who earned more than $100,000.

Summary Compensation Table

						Long-Term Compensation Awards
		Annual Compensation(2)				Long-Term Compensation Awards
Name and Principal Position		Annual Compensation(2)				Securities Underlying Options	All Other Compensation(3)
Name and Principal Position	Year	Salary		Bonus		Securities Underlying Options	All Other Compensation(3)
Kurt A. Johnson(1) President and Chief Executive Officer	2004	$	220,000	$	220,000	50,491	$	6,640
Fred J. Krupica(4) Chief Financial Officer	2004	$	60,768	$	75,000	51,147	$	1,711
James Aviani(5) Chief Technology Officer	2004	$	158,333	$	100,000	34,000	$	4,589
Shayne G. Mihalka Executive Vice President of Operations	2004	$	150,416	$	125,000	10,000	$	4,496
David R. Gross(6) Former Chief Executive Officer	2004	$	118,086		—	—	$	3,759

(1): Mr. Johnson became our Chief Executive Officer on March 3, 2004. Prior to March 3, 2004, Mr. Johnson served as our President and Chief Financial Officer. On September 7, 2004, Mr. Johnson relinquished his duties as our Chief Financial Officer upon our hiring of Mr. Krupica.
(2): Includes annual compensation earned and expensed in 2004, although paid in 2005.
(3): Consists of matching contributions made by us pursuant to our 401(k) plan and payment of life insurance premiums.
(4): Mr. Krupica became our Chief Financial Officer on September 7, 2004.
(5): Mr. Aviani became our Chief Technology Officer on March 15, 2004.
(6): Mr. Gross resigned as our Chief Executive Officer on March 3, 2004.

Stock Option Grants

The following tables set forth certain information for 2004 with respect to stock options granted to our named executive officers. The percentage of total options granted is based on an aggregate of options to purchase 328,436 shares of common stock granted in 2004.

Option Grants in 2004

								Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(3)
		Individual Grants
		Number of Shares Underlying Options Granted	% of Total Options Granted to Employees in 2004
Name					Exercise Price Per Share(1)		Expiration Date(2)
Name					Exercise Price Per Share(1)		Expiration Date(2)	5%	10%
Kurt A. Johnson		50,491	15.4	%	$	12.75	9/28/14
Fred J. Krupica		51,147	15.6	%	$	12.75	9/7/14
James Aviani
	2004 Plan	14,000	4.3	%	$	12.75	9/28/14
	2000 Plan	20,000	6.1	%	$	12.75	3/15/14
Shayne G. Mihalka		10,000	3.0	%	$	12.75	9/28/14

(1)

The exercise price for each grant is equal to the fair market value of our common stock on the date of grant.

(2)

The options have a term of up to four years, subject to earlier termination in certain events related to termination of employment. The options must vest at least as rapidly as 20% on each of the first five anniversaries of the date of grant. Pursuant to the terms of their employment agreements, upon the completion of this offering 50% of Mr. Krupica's and Mr. Aviani's remaining unvested options will vest.

(3)

Potential realizable values are calculated by:

•: multiplying the number of shares of our common stock subject to a given option by $ per share, the midpoint of the range set forth on the front cover of this prospectus;
•: assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rates shown in the table for the entire ten-year term of the option; and
•: subtracting from that result the total option exercise price.

The 5% and 10% assumed rates of appreciation are required by the rules of the Securities and Exchange Commission and do not represent our estimate or projection of the future common stock price. There can be no assurance that any of the values reflected in the table will be achieved.

Aggregated Option Exercises in 2004 and Year-End Option Values

The following table sets forth, for 2004, certain information with respect to stock options exercised by our named executive officers and the number and value of unexercised options held by our named executive officers. The "Value Realized" column reflects the difference between the market value of the underlying securities at the exercise date and the exercise price of the options. "Value of Unexercised In-the-Money Options at Fiscal Year-End" assumes a per-share fair market value equal to $ , the midpoint of the range set forth on the front cover of this prospectus.

Name	Shares Acquired on Exercise	Value Realized		Number of Securities Underlying Unexercised Options at Fiscal Year-End Exercisable/Unexercisable
Kurt A. Johnson	—	$	—	50,000/120,491
Fred J. Krupica	—	$	—	3,196/47,951
James Aviani	—	$	—	3,750/30,250
Shayne G. Mihalka	3,438	$	28,835	1,875/22,187

Agreements with Employees

On October 16, 2003, we entered into an employment agreement with Kurt A. Johnson under which Mr. Johnson agreed to serve as our President and Chief Financial Officer. On March 3, 2004 Mr. Johnson became our Chief Executive Officer. In September 2004, Mr. Johnson relinquished his duties as our Chief Financial Officer upon our hiring of Fred J. Krupica. On February 11, 2005, we entered into an amended and restated employment agreement, which has an effective date of January 1, 2005, with Mr. Johnson under which he agreed to continue to serve as our President and

Chief Executive Officer and pursuant to which he is entitled to membership on our board of directors. Mr. Johnson receives an annual base salary of $275,000, and is eligible to participate in our bonus plan for an initial target bonus of $175,000 for the current fiscal year, which may be increased to up to $245,000 under the current bonus plan adopted by our board of directors. Calculation of the bonus shall be based on achievement of reasonable business goals for revenue and profitability set annually by our board of directors. Mr. Johnson's employment agreement has a term of five years and may be terminated with or without cause by us immediately upon delivery to Mr. Johnson of written notice of termination or by Mr. Johnson upon our receipt of written notice of termination at least 10 business days before the specified effective date of such termination. The agreement shall automatically renew on its anniversary date for successive additional one year periods unless either party provides written notice of an intention not to renew at least 60 days in advance of the anniversary date. If Mr. Johnson is terminated without cause, he will be entitled to all compensation earned through the date of termination, and for a period of 12 months after termination and execution of a release, base salary plus target bonus for the current fiscal year and continued health and welfare benefits. All of Mr. Johnson's unvested stock options and any other stock awards outstanding shall immediately vest and become exercisable for a period of six months after the date of termination. If Mr. Johnson is terminated without cause either three months before or 13 months after a change of control he will be entitled to the same compensation and benefits as if he were terminated without cause. For purposes of Mr. Johnson's employment agreement, "cause" means, gross negligence, embezzlement, breach of fiduciary duty, willful misconduct or fraud in the performances of his services under the employment agreement, commission of or being charged with any felony or crime of moral turpitude, material breach of the employment agreement and failure to cure such breach, or material breach of our code of business conduct. Mr. Johnson also received grants of 120,000 stock options with an exercise price of $7 per share in 2003 and 50,491 with an exercise price of $12.75 per share in 2004. Mr. Johnson's 2003 stock option grant is governed by the 2000 Stock Plan and his 2004 stock option grant is governed by the 2004 Stock Plan. The stock options granted to Mr. Johnson in 2003 vest quarterly in equal portions over a period of three years beginning April 1, 2004. 25% of the stock options granted to Mr. Johnson in 2004 vest on the first anniversary of the date of the grant, with the remaining amount vesting in equal amounts on a quarterly basis through the fourth anniversary of the date of grant. 100% of Mr. Johnson's 2004 stock options will vest if Mr. Johnson is terminated without cause due to a change of control, which includes an acquisition, certain mergers, a complete liquidation, or a disposition of substantially all our assets, during the 12 month period after a change of control. For purposes of the 2004 stock option, "cause" means fraud, gross negligence, willful misconduct, insubordination, material failure to comply with our policies, violation of our employee inventions assignment agreement, or conviction of a felony or misdemeanor involving moral turpitude.

On August 2, 2004, we entered into an employment agreement with Fred J. Krupica under which Mr. Krupica acts as our Chief Financial Officer. Mr. Krupica receives an annual base salary of $200,000, and is eligible for a maximum bonus of $150,000, which may be increased to up to $210,000 under the current bonus plan adopted by our board as determined by the board of directors and based on achievement of reasonable business goals for revenue and profitability. Mr. Krupica's employment agreement has a term of three years, and automatically renews for successive additional one-year periods. The agreement may be terminated, with or without cause, by either party upon 30 days written notice. If Mr. Krupica is terminated without cause, he will be entitled to all compensation earned through the date of termination, and, for a period of 12 months after termination, continued salary and health and welfare benefits. If Mr. Krupica is terminated without cause due to a change of control of our company, or during the 12 month period after a change of control, he will be entitled to compensation earned through the date of termination, and for a period of 12 months after termination, continued salary and health and welfare benefits. For purposes of Mr. Krupica's employment agreement, "cause" means fraud, gross negligence, willful misconduct, insubordination, material failure to comply with our general policies, violation of our employee inventions assignment agreement, failure to carry out instructions of the CEO, or conviction of any felony or a misdemeanor involving moral

turpitude. Mr. Krupica also received stock options to purchase 51,147 shares of our common stock, which is equal to 1.5% of the fully diluted shares of the company that were outstanding immediately following the close of the Series A Preferred Stock financing. The stock option grant is governed by the 2004 Stock Plan and has an exercise price of $12.75 per share. As of December 31, 2004 6.25% of the stock options had vested with the remaining amount vesting in equal portions on a quarterly basis through the fourth anniversary of the date of his employment agreement. Upon completion of this offering, 50% of Mr. Krupica's remaining unvested options will vest. If Mr. Krupica is terminated without cause within 12 months following a change of control of our company, which includes an acquisition, certain mergers, liquidation or sale or other disposition of substantially all of our assets, 100% of his remaining unvested options will vest. For purposes of the 2004 stock option, "cause" means fraud, gross negligence, willful misconduct, insubordination, material failure to comply with our general policies, violation of our employee inventions assignment agreement, failure to carry out instructions of the CEO, or conviction of any felony or a misdemeanor involving moral turpitude. The "cause" definition in the 2004 stock option has the same meaning as "cause" for purposes of Mr. Krupica's employment agreement.

On February 11, 2004, we entered into an employment agreement with James Aviani under which Mr. Aviani acts as our Chief Technology Officer. Mr. Aviani receives an annual base salary of $200,000, and is eligible for a bonus as determined by the board of directors and based on achievement of reasonable business goals for revenue and profitability. Mr. Aviani's employment agreement may be terminated, with or without cause, by either party upon 15 days written notice. If Mr. Aviani is terminated without cause, he will be entitled to all compensation earned through the date of termination, and for a period of six months after termination, continued salary, continued vesting and exercise of his stock options, and continued health and welfare benefits. For purposes of his employment agreement, "cause" means fraud, gross negligence, willful misconduct, insubordination, failure to comply with our general policies, or violation of our employee and contractor confidentiality non-disclosure agreement. If Mr. Aviani is terminated due to a change of control of our company, or if he is terminated or resigns because of a material change in duties or office location, a discontinuation of any material benefit without equivalent substitution or a reduction in salary during the 12-month period after a change of control, he will be entitled, for a period of 12 months after termination, to continued salary, continued vesting and exercise of his stock options, and health and welfare benefits. Mr. Aviani also received stock options to purchase 20,000 shares of our common stock. The stock option grant is governed by the 2000 Stock Plan, and has an exercise price of $12.75 per share. On October 1, 2004, 12.5% of the stock option grant vested and thereafter an equal portion vests quarterly over a period of four years. Upon the completion of this offering or a change of control, which includes an acquisition, certain mergers, liquidation, or sale or other disposition of substantially all of our assets, 50% of Mr. Aviani's remaining unvested options under the 2000 Stock Plan will vest. In addition, on September 28, 2004, Mr. Aviani received stock options to purchase 14,000 shares of our common stock. This stock option grant is governed by the 2004 Stock Plan and has an exercise price of $12.75 per share. 25% of the stock options granted to Mr. Aviani in 2004 vest on the first anniversary of the date of grant, with the remaining amount vesting in equal amounts on a quarterly basis through the fourth anniversary of the date of grant. 100% of Mr. Aviani's 2004 stock options will vest if Mr. Aviani is terminated without cause due to a change of control, which includes an acquisition, certain mergers, a complete liquidation, or disposition of substantially all our assets, during the 12 month period after a change of control. For purposes of the 2004 stock option, "cause" means fraud, gross negligence, willful misconduct, insubordination, material failure to comply with our policies, violation of our employee inventions assignment agreement, or conviction of a felony or misdemeanor involving moral turpitude.

On December 1, 2004, we entered into an employment agreement with Michael S. Hughes under which Mr. Hughes acts as our Chief Marketing Officer. Mr. Hughes receives an annual base salary of $200,000, and is eligible for a maximum bonus of $100,000 as determined by the board of directors and

based on achievement of reasonable business goals as defined by the Chief Executive Officer or the board of directors, which may be increased to up to $140,000 under the current bonus plan adopted by our board. The agreement has an initial term of three years and automatically renews for successive additional one-year periods. The agreement may be terminated, with or without cause, by either party upon 30 days written notice and we may choose to pay Mr. Hughes salary for the duration of the notice period instead of giving him advance notice. If Mr. Hughes is terminated without cause, he will be entitled to all compensation earned through the date of termination, immediate vesting of 18.75% of the stock options not then-vested, and, for a period of nine months after termination, continued salary and health and welfare benefits. If Mr. Hughes is terminated due to a change of control of our company, which includes an acquisition, certain mergers, liquidation, sale or other disposition of substantially all of our assets, or terminated during the 12-month period after a change of control other than for cause, he will be entitled to compensation earned through the date of termination, immediate vesting of 100% of any remaining unvested options, and, for a period of 12-months after termination, continued salary and health and welfare benefits. For purposes of Mr. Hughes' employment agreement, "cause" means fraud, gross negligence, willful misconduct, insubordination, material failure to comply with our general policies, violation of our employee inventions assignment agreement, or conviction of any felony or a misdemeanor involving moral turpitude. Mr. Hughes also received stock options to purchase 34,098 shares of our common stock, which was equal to 1% of the combined common and preferred shares outstanding on a fully-diluted basis as of the date of the grant. The stock option grant is governed by the 2004 Stock Plan and has an exercise price of $17.50 per share. 25% of the stock option vests on the first anniversary date of the date of grant, with the remaining amount vesting in equal amounts on a quarterly basis through the fourth anniversary of the date of grant. 100% of Mr. Hughes' stock options will vest if Mr. Hughes is terminated without cause due to a change of control, which includes an acquisition, merger, a complete liquidation, or disposition of substantially all our assets, during the 12 month period after a change of control. For purposes of the 2004 stock option, "cause" means fraud, gross negligence, willful misconduct, insubordination, material failure to comply with our general policies, violation of our employee inventions assignment agreement, or conviction of any felony or a misdemeanor involving moral turpitude.

Stock Incentive Plans

The following table sets forth certain information related to our equity compensation plans as of December 31, 2004.

		Equity Compensation Plan Information
Plan Category		Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price		Number of Securities Remaining available for future issuance under Equity Compensation Plans
Plans Approved by Stockholders		476,073	$	11.23	187,149
Plans Not Approved by Stockholders.		—		—	—

	Total	476,073	$	11.23	187,149

2005 Equity Incentive Plan

In 2005, we intend to present to our board of directors for adoption, and to our stockholders for their approval, the 2005 Equity Incentive Plan, or 2005 Equity Plan. The 2005 Equity Plan will provide for the grant to our employees of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, or Code, and the grant of nonstatutory stock options, stock awards (in the form of restricted stock or stock units), stock appreciation rights and cash awards (in the form of bonus opportunities based on achievement of certain performance criteria) to our employees, directors and consultants. Each of these is referred to as an "award". The following is a description of the expected features of the 2005 Equity Plan.

Number of Shares of Common Stock Available Under the 2005 Equity Plan. A total of shares of our common stock are expected to be reserved for issuance pursuant to the 2005 Equity Plan.

If an option or other award expires or is terminated or canceled without having been exercised or settled in full, the shares subject to the expired, terminated or canceled award will be returned to the pool of shares available for future grant or sale under the 2005 Equity Plan (unless the 2005 Equity Plan has terminated).

Administration of the 2005 Equity Plan. Our board, or a committee appointed by our board, will act as the administrator of the 2005 Equity Plan. In the case of awards intended to qualify as "performance based compensation" within the meaning of Section 162(m) of the Code, the committee will consist of two or more "outside directors" within the meaning of Section 162(m). The administrator will have the power to determine the terms of the awards, including the exercise price, the number of shares subject to each award, the exercisability of the awards and the form of consideration payable upon exercise. The administrator will also have the power to implement an award transfer program, whereby awards may be transferred to a financial institution or other person or entity selected by the administrator.

Stock Options. A stock option is the right to purchase shares of our common stock at a fixed exercise price for a fixed period of time. With respect to nonstatutory stock options, including nonstatutory stock options intended to qualify as "performance based compensation" within the meaning of Section 162(m) of the Code and all incentive stock options, the exercise price of options granted under our 2005 Equity Plan shall be no less than 100% of the fair market value of our common stock on the date of grant. After termination of one of our employees, directors or consultants, he or she may exercise his or her option for the period of time stated in the option agreement. If termination is due to death or disability, the option generally will remain exercisable for 12 months following such termination. In all other cases, the option generally will remain exercisable for three months. However, an option may never be exercised later than the expiration of its term. The term of any stock option may not exceed ten years, and with respect to any participant who owns 10% or more of the voting power of all classes of our outstanding capital stock, the term must not exceed five years. Awards granted under the 2005 Equity Plan will vest over the period determined by the administrator.

Stock Awards. Stock awards are awards or issuances of shares of our common stock that vest in accordance with terms and conditions established by the administrator. Stock awards include stock units, which are bookkeeping entries representing an amount equivalent to the fair market value of a share of common stock, payable in cash, property or other shares of stock. The administrator will determine the number of shares to be granted and impose whatever conditions to vesting it determines to be appropriate, including performance criteria and level of achievement versus the criteria that the administrator determines, which criteria may be based on financial performance, personal performance evaluations and completion of service by the participant. The administrator will determine the purchase price of any grants of restricted stock. Unless the administrator determines otherwise, shares that have not vested typically will be subject to forfeiture or to our right of repurchase, which we may exercise on the voluntary or involuntary termination of the purchaser's service with us for any reason, including death or disability.

Stock Appreciation Rights. A stock appreciation right is the right to receive the appreciation in the fair market value of our common stock between the date of grant and the exercise date, for a number of shares of our common stock specified in the award at the time of grant. We must pay the appreciation in shares of our common stock with equivalent value. The exercise price of stock appreciation rights granted under our 2005 Equity Plan shall be no less than 100% of the fair market value of our common stock on the date of grant. The administrator will determine the term of the stock appreciation rights, the vesting schedule and other terms and conditions of stock appreciation rights; however, stock appreciation rights terminate under the same rules that apply to stock options.

Cash Awards. Cash awards are awards that give the participant the opportunity to earn future cash payments tied to the level of achievement with respect to one or more performance criteria established by the administrator for a performance period. The administrator will establish the performance criteria and level of achievement versus the criteria, which criteria may be based on financial performance or personal performance evaluations. When awards are intended to qualify as "performance based compensation" within the meaning of Section 162(m) of the Code the administration must specify the measures in writing.

Adjustment for Changes in Capital Stock. The number of shares of our common stock subject to outstanding awards under the 2005 Equity Plan, as well as the exercise price of outstanding options, will be proportionately adjusted for any stock split, reverse stock split, stock dividend, combination or reclassification of our common stock, or similar change in our capital structure.

Transferability of Awards. Unless the administrator determines otherwise, the 2005 Equity Plan will not allow for the transfer of awards other than by will or by the laws of descent and distribution, and only the participant may exercise an award during his or her lifetime.

Merger or Change in Control. The 2005 Equity Plan will provide that in the event of a merger or consolidation where we are not the surviving corporation or a "change in control," including the sale of all or substantially all of our assets, and certain other events, the board of directors or appropriate committee of the board may, in its discretion, provide for the assumption or substitution of, or adjustment to, each outstanding award, accelerate the vesting of options and SARs, and terminate any restrictions on stock awards or cash awards or provide for the cancellation of awards in exchange for a cash payment to the participant.

Amendment and Termination of the 2005 Equity Plan. The 2005 Equity Plan will automatically terminate in 2015, unless we terminate it sooner. In addition, our administrator will have the authority to amend, alter or discontinue the 2005 Equity Plan, subject to the approval of the stockholders. No amendment may impair the rights of a participant under any outstanding award, unless the participant and the administrator mutually agree.

2004 Stock Incentive Plan

On September 8, 2004, our board of directors adopted, and on September 9, 2004, our stockholders approved, the 2004 Stock Incentive Plan, or 2004 Stock Plan. The 2004 Stock Plan provides for the grant to our employees of incentive stock options to our employees, within the meaning of Section 422 of the Code, and the grant of stock awards to our employees, directors and consultants.

Number of Shares of Common Stock Available Under the 2004 Stock Plan. As of December 31, 2004, we had reserved 495,585 shares of our common stock for issuance under our 2004 Stock Plan. As of December 31, 2004, 187,149 shares of our common stock remained available for grant under our 2004 Stock Plan, 308,436 shares are subject to outstanding awards and no shares of our common stock have been issued. We do not intend to issue any additional shares under the 2004 Stock Plan following the effective date of the registration statement of which this prospectus is a part.

While the 2004 Stock Plan permits shares to be reissued after unvested options lapse or restricted stock is forfeited, we do not intend to issue any further shares under the 2004 Stock Plan after the effective date of the registration statement of which this prospectus is a part.

Administration of the 2004 Stock Plan. The 2004 Stock Plan is administered by a committee appointed by the board of directors or, if no committee is appointed, the full board of directors. The administrator has the power to grant to us the right of repurchase and the right of first refusal with respect to any shares issued pursuant to an award.

Section 280G Approval. No acceleration of exercisability or payment will occur upon or in relation to a change in control (as defined below) to the extent that such acceleration or payment would result in a "parachute payment" as defined in Section 280G(b)(2) of the Internal Revenue Code, unless stockholder approval has been obtained in compliance with Section 280G.

Stock Options. The board granted all options under the 2004 Stock Plan at an exercise price equal to the board's good faith estimate of the fair market value of the common stock at the time of grant. Options granted under the 2004 Stock Plan generally vest over a period of four years and are exercisable for a term of no more than ten years. If an option grant recipient's employment or other service relationship terminates for any reason other than his or her death or disability, his or her otherwise exercisable options will expire 90 days after termination. In the case of a recipient's death or disability, options will expire 12 months after the death or disability. If we terminate a recipient of an option grant for cause, the options will expire on such recipient's date of termination.

Stock Purchase Awards. A stock purchase award is the right to purchase shares of our common stock at a fixed purchase price for 30 days. The administrator determines the purchase price of the award, however, the minimum purchase price must be at least 85% of the fair market value of our common stock on the date of the grant. Shares issued under stock purchase awards must vest at a rate of at least 20% per year. The common stock issued pursuant to stock purchase awards may be subject to our right to repurchase the stock at the recipient's purchase price on the terms determined by the administrator.

Adjustment for Change in Capital Stock. The number of shares of our common stock subject to outstanding awards under the 2004 Stock Plan as well as the exercise price of outstanding options will be proportionately adjusted for any stock split, reverse stock split, stock dividend, combination or reclassification of our common stock, or similar change in our capital structure.

Transferability of Awards. Unless the administrator determines otherwise, the 2004 Stock Plan will not allow for the transfer of awards other than by will or by the laws of descent and distribution, and only the participant may exercise an award during his or her lifetime.

Change in Control. Our 2004 Stock Plan provides that in the event of a "change in control," including an acquisition of 51% or more of our outstanding voting stock by another party, a transaction requiring stockholder approval for our acquisition, or certain changes in the composition of our board of directors, we may, in our discretion, provide for the assumption or substitution of, or adjustment to, each outstanding award, accelerate the vesting of the options or provide for the cancellation of awards in exchange for a cash payment to the participant.

Amendments and Termination of the 2004 Stock Plan. Our board of directors may amend, suspend or terminate the 2004 Stock Plan at any time. Some amendments may require stockholder approval under applicable state and federal law and rules of any stock exchange or national market system on which our common stock is then listed or traded.

2000 Equity Participation Plan

On July 1, 2000, our board of directors adopted, and on July 20, 2000, our stockholders approved, the 2000 Equity Participation Plan, or the 2000 Stock Plan. The 2000 Stock Plan was first revised in April 2002, with our board of directors adopting the revised plan on May 1, 2002. The board of directors revised the 2000 Stock Plan a second time on September 8, 2004. We granted stock options under the 2000 Stock Plan to our officers and employees.

Number of Shares of Common Stock Available Under the 2000 Stock Plan. As of December 31, 2004, we had reserved 167,637 shares of our common stock for issuance under our 2000 Stock Plan. As of December 31, 2004, zero shares of our common stock remained available for grant under our 2000

Stock Plan. 167,637 shares of our common stock are subject to outstanding awards under the 2000 Stock Plan and a total of 318,263 shares of our common stock have been issued under the 2000 Stock Plan. We do not intend to issue any additional shares under the 2000 Stock Plan.

While the 2000 Stock Plan permits shares to be reissued after unvested options lapse or restricted stock is forfeited, we do not intend to issue any further shares under the 2000 Stock Plan.

Administration of the 2000 Stock Plan. The 2000 Stock Plan is administered by a committee appointed by the board of directors. The administrator also has the power to modify, extend or assume outstanding awards. In addition, the administrator has the power to grant to us the right of repurchase with respect to any shares issued pursuant to an award.

Stock Options. The board granted all options under the 2000 Stock Plan at an exercise price equal to the board's good faith estimate of the fair market value of the common stock at the time of grant. Options granted under the 2000 Stock Plan generally vest over a period of four years and are exercisable for a term of no more than ten years. If recipient's employment or other service relationship terminates for any reason other than his or her death or disability, his or her otherwise exercisable options will expire 90 days after termination. In the case of a recipient's death or disability, options will expire 12 months after the death or disability.

Adjustment for Changes in Capital Stock. The number of shares of our common stock subject to outstanding awards under the 2000 Stock Plan, as well as the exercise price of outstanding options will be proportionately adjusted for any stock split, reverse stock split, stock dividend, combination or reclassification of our common stock, or similar change in our capital structure.

Transferability of Awards. Unless the administrator determines otherwise, the 2000 Stock Plan will not allow for the transfer of awards other than by will or by the laws of descent and distribution, and only the participant may exercise an award during his or her lifetime.

Merger, Consolidation or Asset Sale. In a merger or consolidation where we are not the surviving corporation, or a sale of all or substantially all of our assets, the acquiring or surviving entity may assume all outstanding options or issue substitute substantially similar rights in the acquiring or surviving entity. If the acquiring or surviving entity does not assume the options or issue substitute options, each outstanding option under the 2000 Stock Plan will automatically accelerate and become exercisable in whole or in part for 15 days (or a longer period determined by the administrator) following written notice of acceleration. If not exercised within that period, the option terminates.

Amendments and Termination of the 2000 Stock Plan. Our board of directors may amend, suspend or terminate our 2000 Stock Plan at any time. Some amendments may require stockholder approval under applicable state and federal law and rules of any stock exchange or national market system on which our common stock is listed or traded. Our 2000 Stock Plan will automatically terminate on December 31, 2009, unless sooner terminated by our board of directors.

Bonus Plan

On February 2, 2005, our board of directors established a bonus plan under which officers and salaried employees will be eligible to receive cash bonuses, payable quarterly, in an amount to be determined by the board of directors. The potential bonus amounts will be determined annually by the board of directors and the payment of these bonuses will be dependent on the achievement of certain corporate revenue and earnings goals. For 2005, the maximum target bonuses for the executive officers are as follows: Kurt A. Johnson's target bonus is $245,000, Fred J. Krupica's target bonus is $210,000, Michael S. Hughes' target bonus is $140,000, James Aviani's target bonus is $105,000 and Shayne G. Mihalka's target bonus is $140,000.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Indemnification and Director and Officer Insurance

Our certificate of incorporation contains provisions that limit the liability of our directors. Prior to completion of this offering, we will enter into indemnification agreements with our directors and executive officers. The indemnification agreements will obligate us to pay defense costs and any damages that result from third-party claims against directors and officers for their actions on our behalf, so long as they acted in good faith and in a manner they believed to be in the best interests of our Company. We intend to obtain insurance that insures our directors and officers against certain losses and which insures us against our obligations to indemnify our directors and officers.

Series A Recapitalization

On September 28, 2004, we sold 2,131,285 shares of our Series A Preferred Stock at a price per share of $35.19, for an aggregate purchase price of approximately $75 million. Approximately $55 million of these proceeds were used to repurchase 1,562,944 shares of our common stock held by our founders, employees and investors and family members of our founders, at the issuance price. The amounts that we paid to our executive officers, directors and affiliates, and their respective family members, in the repurchase transaction after expenses, included approximately $21,846,787 paid to Jeff Pryor, one of our founders, $2,265,133 paid to family members of Mr. Pryor, $10,433,435 paid to David R. Gross, one of our founders, $794,506 paid to family members of Mr. Gross, and $217,361 paid to Shayne G. Mihalka, our Executive Vice President of Operations.

Investors' Rights Agreement

We have entered into the Investors' Rights Agreement, dated September 27, 2004, with the purchasers of our outstanding Series A Preferred Stock, and some of our executive officers, including Kurt A. Johnson, Fred J. Krupica, James Aviani and Shayne G. Mihalka. Some of our directors are affiliated with the purchasers of our outstanding Series A Preferred Stock, including Robert J. Davis who is a venture partner of Highland Capital Partners, Fredric W. Harman who is a managing member of the general partner of venture capital funds affiliated with Oak Investment Partners, and Daniel J. Nova who is a managing general partner at Highland Capital Partners. See "Description of Capital Stock—Registration Rights."

Internet Domain Name Agreement

On April 15, 2000, we entered into an agreement with one of our founders, Jeff Pryor, with respect to our use of the Internet domain "www.fastclick.com." Under the agreement we were obligated to pay royalties to Mr. Pryor for use of the domain name. We accrued royalty obligations of $3,000, $19,955, $21,940 and $0 for the years ended 2001, 2002, 2003 and 2004, respectively. On May 6, 2004, we entered into an assignment agreement with Mr. Pryor pursuant to which we acquired ownership of the domain name "www.fastclick.com" and satisfied all of our accrued royalty obligations for use of the domain name for a payment to Mr. Pryor of $125,000.

Employment Agreement

Pursuant to the terms of his employment agreement, Mr. Johnson is entitled to membership on our board of directors. See "Executive Compensation—Agreements with Employees."

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2004, and as adjusted to give effect to this offering, by the following persons and entities:

•: each of our directors;
•: each of our named executive officers;
•: all of our executive officers and directors as a group;
•: each person, or group of affiliated persons, known to us to beneficially own 5% or more of our outstanding common stock; and
•: each selling stockholder.

Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Percentage of beneficial ownership is based on 2,746,604 shares of common stock outstanding as of December 31, 2004 and shares of common stock outstanding after the completion of this offering, in each case, assuming, upon completion of this offering, the conversion of all of our outstanding Series A Preferred Stock into an aggregate of 2,131,285 shares of our common stock. Shares of common stock subject to options that are currently exercisable or exercisable within 60 days of December 31, 2004, are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated below, the address of each individual listed below is 360 Olive Street, Santa Barbara, California 93101.

We have granted to the underwriters an option to purchase up to an additional shares of common stock and the selling stockholders have granted to the underwriters an option to purchase up to an additional shares of common stock, in each case, exercisable to cover over-allotments, if any, at the public offering price less the underwriting discount shown on the cover page of this prospectus. The

underwriters may exercise this option at any time until 30 days after the date of this prospectus. The numbers shown below assume no exercise by the underwriters of their over-allotment option.

			Shares Beneficially Owned After this Offering
Name and Address	Shares Beneficially Owned Prior to this Offering	Shares Sold in this Offering(9)	Shares Beneficially Owned After this Offering
Name and Address	Shares Beneficially Owned Prior to this Offering	Shares Sold in this Offering(9)	Number	Percentage
5% Stockholders
Entities affiliated with Highland Capital Partners(1) c/o Highland Capital Partners LLC 92 Hayden Avenue Lexington, MA 02421
Oak Investment Partners XI, Limited Partnership(2) 525 University Avenue, Suite 1300 Palo Alto, CA 94301
Entities affiliated with Steamboat Ventures, LLC(3) 3601 West Olive Avenue, Suite 501 Burbank, CA 91505
Jeff Pryor
Executive Officers and Directors
Kurt A. Johnson(4)
Fred J. Krupica(5)
James Aviani(6)
Michael S. Hughes(7)
Shayne G. Mihalka(8)
Robert J. Davis(1)
Frederic W. Harman(2)
Daniel J. Nova(1)
All executive officers and directors as a group (8 persons)

*: Less than 1%
(1): Includes shares held by Highland Capital Partners VI Limited Partnership ("Highland Capital VI"), shares held by Highland Capital Partners VI-B Limited Partnership ("Highland Capital VI-B"), shares held by Highland Entrepreneurs' Fund VI Limited Partnership ("Highland Entrepreneurs' Fund" and together with Highland Capital VI and Highland Capital VI-B, the "Highland Investing Entities"). Highland Management Partner VI Limited Partnership is the general partner of Highland Capital VI and Highland Capital VI-B. HEF VI Limited Partnership is the general partner of Highland Entrepreneurs' Fund. Highland Management Partners VI, Inc. ("Highland Management") is the general partner of both Highland Management Partners VI Limited Partnership and HEF VI Limited Partnership. Robert F. Higgins, Paul A. Maeder, Sean M. Dalton, Josaphat K. Tango, Fergal J. Mullen, Jon G. Auerbach and Daniel J. Nova, a member of our board of directors, are the managing directors of Highland Management (together, the "Managing Directors"). Robert J. Davis, a member of our board of directors, is a venture partner of Highland Capital Partners, LLC. Highland Management, as the general partner of the general partners of the Highland Investing Entities, may be deemed to have beneficial ownership of the shares held by the Highland Investing Entities. The Managing Directors have shared voting and investment control over all the shares held by Highland Management and therefore may be deemed to share beneficial ownership of the shares held by Highland Management by virtue of their status as controlling persons of Highland Management. Each Managing Director disclaims beneficial ownership of the shares held by the Highland Investing Entities, except to the extent of each such Managing Director's pecuniary interest therein.
(2): Includes shares beneficially owned by Oak Investment Partners XI, Limited Partnership ("Oak Partners"). Oak Partners is managed by its general partner, Oak Associates XI, LLC ("Oak Associates").

Fredric W. Harman, a member of our board of directors, Bandel L. Carano, Ann H. Lamont, Edward F. Glassmeyer, Gerald R. Gallagher and David B. Walrod collectively serve as Managing Members (the "Managing Members") of Oak Associates. Oak Associates, as the general partner of Oak Partners, may be deemed to have beneficial ownership of the shares held by Oak Partners. The Managing Members have shared voting and investment control over all of the shares held by Oak Associates and therefore may be deemed to share beneficial ownership of the shares held by Oak Associates by virtue of their status as the controlling persons of Oak Associates. Each Managing Member disclaims beneficial ownership of the shares held by Oak Partners, except to the extent of each such Managing Member's pecuniary interest therein.

(3): Includes shares beneficially owned by Steamboat Ventures, LLC ("Steamboat Ventures") and shares beneficially owned by Steamboat Ventures Manager, LLC ("Steamboat Manager" and together with Steamboat Ventures, the "Steamboat Entities"). John R. Ball serves as the sole Managing Director of the Steamboat Entities. Mr. Ball has sole voting and investment control over all of the shares held by the Steamboat Entities and therefore may be deemed to have beneficial ownership of the shares held by the Steamboat Entities by virtue of his status as the Managing Director of the Steamboat Entities. Mr. Ball disclaims beneficial ownership of the shares held by the Steamboat Entities, except to the extent of his pecuniary interest therein.
(4): Includes shares underlying options to purchase our common stock issued to Mr. Johnson under our stock plans. of the options have an exercise price of $ and have an exercise price of $ . Does not include shares underlying options to purchase our common stock under our stock plans with an exercise price of $ and with an exercise price of $ which will vest in quarterly installments through .
(5): Includes shares underlying options to purchase our common stock issued to Mr. Krupica under our stock plans with an exercise price of $ . of these options vest upon the completion of this offering. Does not include shares underlying options to purchase our common stock issued to Mr. Krupica under our stock plans with an exercise price of $ which will vest in quarterly installments through .
(6): Includes shares underlying options to purchase our common stock issued to Mr. Aviani under our stock plans with an exercise price of $ . of these options vest upon the completion of this offering. Does not include shares underlying options to purchase our common stock issued to Mr. Aviani with an exercise price of $ which will vest in quarterly installments through .
(7): Includes shares underlying options to purchase our common stock issued to Mr. Hughes under our stock plans with an exercise price of $ . Does not include shares underlying options to purchase our common stock issued to Mr. Hughes with an exercise price of $ which will vest in quarterly installments through .
(8): Includes shares underlying options to purchase our common stock issued to Mr. Mihalka under our stock plans with an exercise price of $ . Does not include shares underlying options to purchase our common stock issued to Mr. Mihalka with an exercise price of $ which will vest in quarterly installments through .
(9): If the underwriters' over-allotment option is exercised in full, the additional shares sold would be allocated among the selling stockholders as follows:

Selling Stockholders		Shares Subject to the Over-allotment Option

		—
All selling stockholders as a group ( persons)		—

If the underwriters' over-allotment option is exercised in part, the additional shares sold would be allocated pro rata based upon the share amounts set forth in the preceding table.

DESCRIPTION OF CAPITAL STOCK

The following is a summary of the rights of our common stock and preferred stock and related provisions of our certificate of incorporation and bylaws, as they will be in effect upon the closing of this offering. This summary is not complete. For more detailed information, please see our certificate of incorporation, bylaws and Investors' Rights Agreement, which are filed as exhibits to the registration statement of which this prospectus is a part.

We plan to reincorporate in the state of Delaware prior to this offering. The following description of our capital stock gives effect to the reincorporation and the related changes in our certificate of incorporation and bylaws.

Pursuant to our certificate of incorporation, our authorized capital stock consists of shares, each with no par value per share, of which:

•: shares are designated as common stock; and
•: shares are designated as preferred stock.

As of December 31, 2004, there were 63 holders of record of our common stock and 6 holders of record of our Series A Preferred Stock. Upon the closing of this offering, there will be no outstanding shares of our Series A Preferred Stock.

Common Stock

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. Common stockholders do not have the right to cumulate their votes in the election of directors. Accordingly, a plurality of the votes cast in any election may elect all of the directors standing for election. Holders of common stock are entitled to receive any dividends ratably, if declared by the board of directors out of assets legally available for the payment of dividends, subject to any preferential dividend rights of any outstanding preferred stock. If we liquidate, dissolve or wind up, the holders of common stock are entitled to share ratably in all assets remaining after we satisfy all liabilities and the liquidation preference of any shares of preferred stock outstanding at that time. Holders of common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock, which we may designate and issue in the future without further stockholder approval.

Common Stock Outstanding at Consummation of Offering

Upon the consummation of this offering, there will be shares of common stock issued and outstanding.

Preferred Stock

The board of directors is authorized to issue, without further stockholder approval, up to 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 series, including the dividend rights, dividend rates, conversion rights, voting rights, term of redemption, including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of any series. We may issue shares of preferred stock in ways that may delay, defer or prevent a change in control of us without further action by our stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with

voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to the holder of preferred stock issued in the future.

Preferred Stock Outstanding at Consummation of Offering

As of the consummation of this offering, there will be no outstanding shares of preferred stock.

Options

As of December 31, 2004, options to purchase a total of 476,073 shares of common stock with a weighted average exercise price of $11.23 were outstanding. Of these options, options to purchase 61,611 shares were vested at December 31, 2004. All of the options, other than options to purchase shares to be sold in this offering, will be subject to 180 day lock-up agreements with the underwriters. See "Underwriting" for a description of the terms of the lock-up agreements.

Registration Rights

The holders of 2,131,285 shares of our common stock issuable upon the automatic conversion of our Series A Preferred Stock upon completion of this offering have the right to require us to register their shares for resale under the Securities Act. The following stockholders have registration rights: Highland Capital Partners VI Limited Partnership, Highland Capital Partners VI-B Limited Partnership, Highland Entrepreneurs' Fund VI Limited Partnership, Oak Investment Partners XI, Limited Partnership, Steamboat Ventures, LLC and Steamboat Ventures Manager, LLC. These registration rights are contained in our investors' rights agreement and are described below. The registration rights under the investors' rights agreement will expire five years following the completion of this offering, or, with respect to an individual holder's S-3 registration rights described below, when that holder is able to sell all of its shares pursuant to Rule 144 under the Securities Act in any three month period.

•: Demand registration rights. Six months after the date on which the registration statement, of which this prospectus is a part, is declared effective the holders of shares of common stock who are parties to our investors' rights agreement have the right to require us to register their common stock. The holders exercising the demand rights must hold at least one-third of the shares of common stock subject to the investors' rights agreement. We are obligated to effect two registrations in response to these demand registration rights, and no request for a demand registration may be made within 180 days after the effective date of any registration statement on Form S-1 that we file. We may postpone the filing of a registration statement for up to 90 days once in any 12-month period if, in our reasonable opinion, material non-public information exists about us that should not be disclosed. The managing underwriter or underwriters of any underwritten offering have the right to limit the number of shares to be included in a registration statement filed in response to the exercise of these demand registration rights due to marketing reasons. We must pay all expenses, except for underwriting discounts and commissions, incurred in connection with these demand registration rights, except that our obligation to reimburse the reasonable fees and disbursements of one counsel to the exercising holders is limited to $20,000 and except that if the registration statement is withdrawn at the request of a majority of the exercising holders, those holders must pay all expenses.
•: Piggyback registration rights. If we register any securities for public sale, the stockholders who are parties to our investors' rights agreement have the right to include their shares of common stock in such registration, subject to specified exceptions. The managing underwriter or underwriters of any underwritten offering have the right to limit the number of shares registered for these stockholders due to marketing reasons, subject to certain exceptions. We must pay all expenses,

except for underwriting discounts and commissions, incurred in connection with these piggyback registration rights.

•: S-3 registration rights. If we are eligible to file a short-form registration statement on Form S-3, the stockholders who are parties to our investors' rights agreement can request that we register their shares on a registration statement on Form S-3, provided that the total value of such common stock offered to the public is at least $2,500,000 (based on the current market price of our common stock). Pursuant to the terms of our investors' rights agreement we are required to file only one Form S-3 registration statement in any 12-month period and we are not required to effect any registration of Form S-3 for any stockholder who is then entitled to sell all of the common stock held by such stockholder within any three month period under Rule 144 of the Securities Act. We may postpone the filing of a registration statement for up to 90 days once in any 12-month period if, in our reasonable opinion, material non-public information exists about us that should not be disclosed. We must pay all expenses, except for underwriting discounts and commissions, incurred in connection with these S-3 registration rights.

Anti-Takeover Provisions

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws.

Delaware law, our certificate of incorporation and our bylaws, as amended and restated prior to the closing of this offering, contain provisions that may delay, defer or discourage another party from acquiring control of us. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they also give the board the power to discourage acquisitions that some stockholders may favor.

Special Approval for Amendment of Certificate of Incorporation and Bylaws.

Our certificate of incorporation and bylaws provide that the holders of a majority of our capital stock entitled to vote constitute a quorum for the conduct of business at a meeting of stockholders. However, the holders of at least two-thirds of our outstanding voting stock must approve any amendments to the protective provisions of our certificate of incorporation or bylaws, which include the requirements that actions by stockholders be taken at duly called meetings and not by written consent, and that our board of directors be divided into three classes with staggered terms.

Limits on Ability of Stockholders to Act by Written Consent.

Our certificate of incorporation and bylaws provide that our stockholders may not act by written consent. This limit on the ability of our stockholders to act by written consent may lengthen the amount of time required to take stockholder actions. In addition, our bylaws provide that special meetings of our stockholders may be called only by the board of directors, chairman of the board or president, and not by any stockholder. As a result, one or more persons controlling a majority of our voting stock would not be able to amend our certificate of incorporation or remove directors without a stockholders meeting.

Undesignated Preferred Stock.

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with super voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us. These and other

provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.

Classified Board of Directors.

Our certificate of incorporation provides for the board of directors to be divided into three classes, each with a staggered three-year term. As a result, only one class of directors will be elected at each annual meeting of stockholders, and each of the two other classes of directors will continue to serve for the remainder of their respective three-year terms. The classification of directors has the effect of making it more difficult for stockholders to change the composition of our board. Our certificate of incorporation provides that the number of directors will be fixed in the manner provided in our bylaws. Our bylaws provide that the number of directors will be fixed from time to time solely pursuant to a resolution adopted by the board, but must consist of not less than three or more than nine directors. Upon completion of this offering, our board of directors will have members. Our certificate of incorporation contains a provision prohibiting cumulative voting for the election of directors. Members of our board of directors may only be removed for cause and upon the affirmative vote of the holders of a majority of our capital stock entitled to vote.

Requirements for Advance Notification of Stockholder Meetings, Nominations and Proposals.

Our bylaws provide that special meetings of our stockholders can be called only by the board of directors, the chairman of the board or the president, and not by any stockholder. Our bylaws also prohibit the conduct of any business other than as specified in the notice of special meeting or as otherwise brought before the meeting by the board of directors. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. Additionally, vacancies and newly created directorships may be filled only by a vote of a majority of the directors then in office, even though less than a quorum, and not by the stockholders. Our bylaws allow the board of directors or the presiding officer at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquiror from conducting a solicitation of proxies to elect the acquiror's own slate of directors or otherwise attempting to obtain control of our company.

Limitations on Liability and Indemnification of Directors and Officers.

For a description of the limitations on liability and indemnification of our officers and directors, see "Certain Relationships and Related Party Transactions—Indemnification and Director and Officer Insurance."

Amendment Provisions.

Our certificate of incorporation grants our board of directors the authority to amend and repeal our bylaws without a stockholder vote in any manner not inconsistent with the laws of the State of Delaware or our certificate of incorporation.

Delaware Anti-Takeover Statute.

We plan to reincorporate in Delaware prior to the effective date of the registration statement of which this prospectus is a part. Once we reincorporate in Delaware, we will be subject to the provisions

of Section 203 of the Delaware General Corporation Law, which regulates corporate takeovers. In general, Section 203 prohibits a publicly held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder unless at least one of the following conditions applies:

•: prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
•: on completion of the transaction that resulted in the stockholder becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•: on or subsequent to the date of the transaction, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66²/3% of the outstanding voting stock which is not owned by the interested stockholder.

Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with the stockholder's affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's outstanding voting securities. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors do not approve in advance. We also anticipate that Section 203 may discourage attempts that might result in a premium over the market price for the shares of our common stock held by stockholders.

The provisions of Delaware law, our certificate of incorporation and our bylaws could have the effect of deferring, delaying or discouraging hostile takeovers and, consequently, they may inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in control or management of our company. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is EquiServe Trust Company, N.A. and its address is 250 Royall Street, Canton, MA 02021.

Quotation

We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol "FSTC."

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. We cannot predict the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Sales of our common stock in the public market after the offering, or the perception that those sales may occur, could cause the prevailing market price to decrease or to be lower than it might be in the absence of those sales or perceptions.

Following the completion of this offering, we will have shares of common stock outstanding assuming the automatic conversion of all of our outstanding preferred stock, no exercise of the over-allotment option by the underwriters and no exercise of outstanding options. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless one of our existing affiliates, as that term is defined in Rule 144 under the Securities Act, purchases the shares.

The remaining shares of common stock held by existing stockholders are restricted shares as that term is defined in Rule 144 under the Securities Act. We issued and sold the restricted shares in private transactions in reliance upon exemptions from registration under the Securities Act. Restricted shares may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration, such as the exemptions provided under Rules 144 or 701 under the Securities Act, which are summarized below.

Taking into account the lock-up agreements described below, the number of shares that will be available for sale in the public market 180 days after the date of this prospectus under the provisions of Rules 144 and 144(k) and Rule 701 under the Securities Act will be shares, of which approximately shares will be vested and eligible for sale upon the exercise of options.

Lock-Up Agreements

We and our officers, directors and existing stockholders, who collectively hold shares of our common stock, have entered into lock-up agreements with the underwriters in connection with this offering. These lock-up agreements provide that, subject to limited exceptions, neither we nor any of our directors or executive officers nor any of those stockholders may dispose of or hedge any shares of common stock or securities convertible into or exchangeable for shares of common stock. These restrictions will be in effect for a period of 180 days after the date of this prospectus. At any time and without notice, the underwriters may release all or some of the securities from these lock-up agreements. The underwriters have informed us that they have no current intention to release any of the shares subject to the lock-up agreements. Any determination by the underwriters to release any of the shares subject to the lock-up agreements will be made on a case-by-case basis, taking into consideration such factors as market conditions, the possible impact on the market price of our common stock and the identity or special circumstances of the person requesting the release. See "Underwriting" for a description of the lock-up agreements.

Rule 144

In general, under Rule 144, as currently in effect, a person who owns shares that were acquired from us or one of our affiliates at least one year prior to the proposed sale is entitled to sell upon expiration of the selling restrictions described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

•: 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or
•: the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. Rule 144 also provides that our affiliates who sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares with the exception of the holding period requirement.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our affiliates for purposes of the Securities Act 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, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation, or notice provisions of Rule 144. Therefore, unless otherwise restricted such as through the lock-up agreements, "144(k) shares" may be sold immediately upon the completion of this offering.

Rule 701

In general, under Rule 701 as currently in effect, any of our employees, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement in a transaction that was completed in reliance on Rule 701 and complied with the requirements of Rule 701, is eligible, subject to the terms of the lock-up agreements, to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period and notice requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144.

Form S-8 Registration Statements

Shortly after the effectiveness of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock reserved for issuance under our 2000 Stock Plan, 2004 Stock Plan and 2005 Equity Plan. Upon the filing of the Form S-8, shares of common stock issued upon the exercise of options under our 2000 Stock Plan, 2004 Stock Plan, and 2005 Equity Plan will be available for sale in the public market, subject to Rule 144 volume limitations applicable to affiliates and subject to the lock-up agreements described above.

Registration Rights

The holders of 2,131,285 shares of our common stock issuable upon the automatic conversion of our Series A Preferred Stock upon completion of this offering are entitled to rights with respect to the registration of their shares under the Securities Act. These registration rights are contained in our investors' rights agreement and are described above. The registration rights provided for under our investors' rights agreement will expire five years following the completion of this offering, or, with respect to an individual holder's S-3 registration rights, when the holder is able to sell all of its shares pursuant to Rule 144 under the Securities Act in any three month period.

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. STOCKHOLDERS

The following is a summary of the material U.S. federal income tax consequences of the ownership and disposition of our common stock to non-U.S. holders (as described below), but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This discussion does not address tax consequences of the purchase, ownership or disposition of our common stock to holders of our common stock other than those holders who acquired their beneficial ownership in the common stock in this offering. This summary is based upon the provisions of the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. We have not sought any ruling from the Internal Revenue Service, or IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.

This summary also does not address estate tax considerations or the tax considerations arising under the laws of any foreign, state, local or other tax jurisdiction. In addition, except where noted, this discussion addresses only those holders who hold the common stock as capital assets and does not address tax considerations applicable to an investor's particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

•: banks, insurance companies or other financial institutions;
•: persons subject to the alternative minimum tax;
•: tax-exempt organizations or government entities;
•: brokers or dealers in securities or currencies;
•: traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
•: persons that own, or are deemed to own, more than five percent of our equity securities;
•: certain former citizens or long-term residents of the United States;
•: certain foreign entities that are owned by U.S. persons, including "controlled foreign corporations" and "passive foreign investment companies;"
•: persons who hold our common stock as a position in a hedging transaction, "straddle," "conversion transaction" or other risk reduction transaction;
•: persons deemed to sell our common stock under the constructive sale provisions of the Code; or
•: partnerships or entities taxable as partnerships.

If a partnership holds our common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships which hold our common stock and partners in such partnerships should consult their tax advisors.

YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

Non-United States Holder Defined

For purposes of this discussion, you are a non-U.S. holder if you are a holder that, for U.S. federal income tax purposes, is not a U.S. person or a partnership. For purposes of this discussion, you are a U.S. person if you are:

•: an individual citizen or resident of the United States;
•: a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States any state thereof or the District of Columbia;
•: an estate whose income is subject to U.S. federal income tax regardless of its source; or
•: a trust (i) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (ii) which has made an election to be treated as a U.S. person.

Distributions

Other than a final cash distribution to our former subchapter S stockholders of approximately $3.2 million on December 16, 2004, we have not made any distributions on our common stock since becoming a C Corporation on September 28, 2004. We do not plan to make any distributions for the foreseeable future. However, if we do make distributions on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed our current and accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock.

Subject to the discussion below under "Income or Gain Effectively Connected with a United States Trade or Business," any dividend paid to you generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. If a non-U.S. holder holds the common stock through a foreign intermediary, a reduced rate of withholding may be obtained if the foreign intermediary provides a properly executed IRS Form W-8IMY, stating that such holder of the common stock is holding the common stock on behalf of non-U.S. holders and attaching properly executed IRS Form W-8BENs of such non-U.S. holders (unless such intermediary is a qualified intermediary) to the Form W-8IMY. In all situations, the applicable form must be delivered pursuant to applicable procedures and must be promptly transmitted to the U.S. paying/withholding agent.

If you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may obtain a refund of any excess amounts currently withheld if you file an appropriate claim for refund with the IRS.

Gain on Disposition of Common Stock

You generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

•: the gain is effectively connected with your conduct of a U.S. trade or business (and if a tax treaty applies, such gain is attributable to your permanent establishment in the United States) (in either case, see the discussion below under "Income or Gain Effectively Connected with a United States Trade or Business);

•: you are an individual who holds our common stock as a capital asset (generally, an asset held for investment purposes) and who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or
•: our common stock constitutes a U.S. real property interest by reason of our status as a "U.S. real property holding corporation" for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or your holding period for our common stock.

Unless an applicable treaty provides otherwise, if you are an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax on the gain derived from the sale, which gain may be offset by U.S. source capital losses (even though you are not considered a resident of the United States). We believe we are not and do not anticipate becoming a "U.S. real property holding corporation."

Income or Gain Effectively Connected with a United States Trade or Business

If you are engaged in a trade or business in the United States and if gain realized on the sale or other disposition of the common stock is effectively connected with your conduct of such trade or business (and, if an applicable tax treaty requires, is attributable to a U.S. permanent establishment maintained by you in the United States), you will generally be subject to U.S. federal income tax on such dividends or gain on a net income basis in the same manner as if you were a U.S. taxpayer, although you will be exempt from U.S. withholding tax if you deliver, pursuant to applicable procedures, a properly executed IRS Form W-8ECI to the U.S. paying/withholding agent. In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable U.S. income tax treaty) of a portion of your effectively connected earnings and profits for the taxable year.

Backup Withholding and Information Reporting

Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address, and the amount of tax withheld, if any. A similar report is sent to you. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in your country of residence.

Payments of dividends or of proceeds on the disposition of stock made to you may be subject to information reporting and backup withholding unless you establish an exemption, for example by properly certifying your non-United States status on an IRS Form W-8BEN or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a U.S. person.

Backup withholding is currently imposed at a rate of 28%; however, it is not an additional tax. Rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may be obtained, provided that the required information is furnished to the IRS.

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement dated , we and the selling stockholders have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston LLC, Citigroup Global Markets Inc., Thomas Weisel Partners LLC and Jefferies Broadview, a division of Jefferies & Company, Inc., are acting as representatives, the following respective numbers of shares of common stock:

Underwriter			Number of Shares
Credit Suisse First Boston LLC
Citigroup Global Markets Inc.
Thomas Weisel Partners LLC
Jefferies Broadview, a division of Jefferies & Company, Inc.

	Total

The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.

We and the selling stockholders have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares from us and an aggregate of additional outstanding shares from the selling stockholders at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the representatives may change the public offering price and concession and discount to broker/dealers.

The following table summarizes the compensation and estimated expenses we and the selling stockholders will pay:

	Per Share		Total
	Without Over-allotment	With Over-allotment	Without Over-allotment	With Over-allotment
Underwriting Discounts and Commissions paid by us	$	$	$	$
Expenses payable by us	$	$	$	$
Underwriting Discounts and Commissions paid by selling stockholders	$	$	$	$
Expenses payable by the selling stockholders	$	$	$	$

The representatives have informed us that they do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the shares of common stock being offered.

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, or the Securities Act, relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of

Credit Suisse First Boston LLC and Citigroup Global Markets Inc. for a period of 180 days after the date of this prospectus, except in certain limited circumstances.

Our officers, directors and existing stockholders, who collectively hold shares of our common stock, have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston LLC and Citigroup Global Markets Inc. for a period of 180 days after the date of this prospectus.

The underwriters have reserved for sale at the initial public offering price up to shares of the common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.

We and the selling stockholders have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.

We have applied to list the shares of common stock on The Nasdaq National Market, under the symbol "FSTC".

Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiations between the underwriters and our board of directors. Among the factors to be considered in determining the initial public offering price will be our future prospects and those of our industry in general, our sales, earnings and certain other financial operating information in recent periods, the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours, the ability of our management, the general conditions of the securities markets at the time of the offering and the information in this prospectus and otherwise available to the underwriters. The estimated public offering price range listed on the cover page of this preliminary prospectus may change as a result of the market conditions and other factors.

We offer no assurances that the initial public offering price will correspond to the price at which the common stock will trade in the public market subsequent to this offering or that an active trading market for the common stock will develop and continue after the offering.

In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934 (the "Exchange Act").

•: Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
•: Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number

of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.

•: Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
•: Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.

A prospectus in electronic format may be made available by one or more of the underwriters. The representatives may agree to allocate a number of shares of our common stock to underwriters for sale to their online brokerage account holders. The representatives will allocate shares of our common stock to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares of our common stock may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.

NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we and the selling stockholders prepare and file a prospectus with the securities regulatory authorities in each province where trades of the common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock.

Representations of Purchasers

By purchasing common stock in Canada and accepting a purchase confirmation a purchaser is representing to us, the selling stockholders and the dealer from whom the purchase confirmation is received that:

•: the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws,
•: where required by law, that the purchaser is purchasing as principal and not as agent, and
•: the purchaser has reviewed the text above under Resale Restrictions.

Rights of Action—Ontario Purchasers Only

Under Ontario securities legislation, a purchaser who purchases a security offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the common stock, for rescission against us and the Selling Stockholders in the event that this circular contains a misrepresentation. A purchaser will be deemed to have relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the common stock. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the common stock. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us or the Selling Stockholders. In no case will the amount recoverable in any action exceed the price at which the common stock were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we and the Selling Stockholders, will have no liability. In the case of an action for damages, we and the Selling Stockholders, will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.

Enforcement of Legal Rights

All of our directors and officers as well as the experts named herein and the Selling Stockholders may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.

Taxation and Eligibility for Investment

Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation.

LEGAL MATTERS

Selected legal matters with respect to this offering and the validity of the common stock offered by this prospectus will be passed upon for us by Sheppard, Mullin, Richter & Hampton LLP, Los Angeles, California. Selected legal matters in connection with this offering will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, Palo Alto, California.

EXPERTS

The financial statements of Fastclick, Inc. at December 31, 2003 and 2004, and for each of the three years in the period ended December 31, 2004, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 with respect to the common stock offered by this prospectus. This prospectus does not contain all of the information contained in the registration statement and the exhibits to the registration statement. Please refer to the registration statement and exhibits for further information with respect to the common stock offered by this prospectus. Statements contained in this prospectus regarding the contents of any contract or other document are only summaries. With respect to any contract or document filed as an exhibit to the registration statement, you should refer to the exhibit for a copy of the contract or document, and each statement in this prospectus regarding that contract or document is qualified by reference to the exhibit. A copy of the registration statement and its exhibits and schedules may be inspected without charge at the SEC's public reference room, located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC's website at www.sec.gov.

Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act, and we intend to file reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference room and the website of the SEC referred to above.

Fastclick, Inc.

INDEX TO FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		F-2
Balance Sheets as of December 31, 2003 and 2004		F-3
Statements of Income for the Years Ended December 31, 2002, 2003 and 2004		F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2002, 2003 and 2004		F-5
Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004		F-6
Notes to Financial Statements		F-7

F-1

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
of Fastclick, Inc.

We have audited the accompanying balance sheets of Fastclick, Inc. as of December 31, 2003 and 2004, and the related statements of income, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fastclick, Inc., at December 31, 2003 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Los Angeles, California
January 28, 2005

F-2

FASTCLICK, INC.

BALANCE SHEETS

		As of December 31,			As of December 31, 2004
		2003			Actual			Pro Forma
		($ in thousands, except share data)
								(unaudited) (Note 1)
ASSETS
Current assets:
	Cash and cash equivalents	$	1,657		$	12,397
	Short-term investments		—			7,954
	Accounts receivable, net of allowance of $70 (2003) and $591 (2004)		4,413			9,003
	Prepaid expenses and other current assets		213			232

Total current assets			6,283			29,586
Property and equipment, net			793			2,078
Other assets			778			2,219

Total assets		$	7,854		$	33,883

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Accounts payable	$	1,027			5,695
	Deferred revenue		491			738
	Accrued payroll		300			2,048
	Accrued other liabilities		174			410
	Income taxes payable		—			77
	Current portion of loans payable		111			46
	Deferred income taxes		49			500

Total current liabilities			2,152			9,514
Long-term portion of loans payable, net of current portion			45			75
Deferred tax liabilities			—			806

Total long-term liabilities			45			881

	Total liabilities		2,197			10,395
Commitments and contingencies
Redeemable convertible preferred stock, no par value per share; 0 shares authorized at December 31, 2003 and 2,131,285 authorized at December 31, 2004; 0 issued and outstanding as of December 31, 2003 and 2,131,285 issued and outstanding at December 31, 2004 (liquidation preference of $75,000)			—			73,416			—


Stockholders' equity (deficit):
	Preferred stock, no par value per share; 800,000 shares authorized at December 31, 2003 and 0 at December 31, 2004; 0 outstanding at December 31, 2003 and 2004		—			—			—
	Common stock, $0 par value; 3,750,000 shares authorized; 2,035,125 shares issued and 2,135,125 shares outstanding as of December 31, 2003, and 2,398,263 shares issued and 615,319 shares outstanding as of December 31, 2004		457			8,395		$	81,811
	Deferred compensation		—			(7,249	)		(7,249	)
	Less: Treasury stock		(30	)		(54,386	)		(54,386	)
	Retained earnings		5,230			3,312			3,312

Total stockholders' equity (deficit)			5,657			(49,928	)	$	23,488

Total liabilities and stockholders' equity (deficit)		$	7,854		$	33,883

See accompanying notes.

F-3

FASTCLICK, INC.

STATEMENTS OF INCOME

		Year Ended December 31,
		2002		2003			2004
		(in thousands, except share data)
Revenue		$	17,664	$	28,663		$	58,015
Cost of revenue			11,766		19,246			38,055

Gross profit			5,898		9,417			19,960

Operating costs:
	Sales and marketing		995		2,160			6,810
	Technology		345		402			2,287
	General and administrative		422		1,045			2,787
	Stock-based compensation(a)		—		—			644

Total operating costs			1,762		3,607			12,528

Operating income			4,136		5,810			7,432
Interest and dividend income			19		19			124
Interest expense			—		(5	)		(8	)
Loss on sale/disposal of equipment			—		(12	)		(2	)

Income before income taxes			4,155		5,812			7,546
Provision for income taxes			97		55			2,412

Net income		$	4,058	$	5,757		$	5,134

Unaudited pro forma statement of income data (see Note 1 and Note 4):
Income before income taxes		$	4,155	$	5,812		$	7,546
Pro forma provision for income taxes			1,581		2,167			2,786

Pro forma net income		$	2,574	$	3,645		$	4,760

(a): Stock-based compensation charges are excluded from the following operating expense categories:

Cost of revenue	$	11
Sales and marketing		305
Technology		130
General and administrative		198

	$	644

See accompanying notes.

F-4

FASTCLICK, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

		Preferred Stock			Common Stock
		Preferred Stock			Common Stock				Deferred Stock Based Compensation						Retained Earnings			Total Stockholders' Equity (Deficit)
		Shares	Amount		Shares		Amount		Deferred Stock Based Compensation			Treasury Stock			Retained Earnings			Total Stockholders' Equity (Deficit)
		(in thousands)
Balance at December 31, 2001		—	$	—	1,800		$	401		—		$	—			406		$	807
	Sale of common stock	—		—	120			—		—			—			—			—
	Exercises of stock options	—		—	175			20		—			—			—			20
	Treasury stock	—		—	(60	)		—		—			(30	)		—			(30	)
	Distributions to stockholders	—		—	—			—		—			—			(607	)		(607	)
	Net income	—		—	—			—		—			—			4,058			4,058

Balance at December 31, 2002		—		—	2,035			421		—			(30	)		3,857			4,248
	Exercises of stock options	—		—	100			36		—			—			—			36
	Distributions to stockholders	—		—	—			—		—			—			(4,384	)		(4,384	)
	Net income	—		—	—			—		—			—			5,757			5,757

Balance at December 31, 2003		—		—	2,135			457		—			(30	)		5,230			5,657
	Exercises of stock options	—		—	43			45		—			—			—			45
	Distributions to stockholders	—		—	—			—		—			—			(7,052	)		(7,052	)
	Treasury stock repurchased	—		—	(1,563	)		—		—			(54,356	)		—			(54,356	)
	Deferred stock-based compensation related to issuance of stock options to employees	—		—	—			7,893		(7,893	)		—			—			—
	Amortization of stock-based compensation	—		—	—			—		644			—			—			644
	Net income	—		—	—			—		—			—			5,134			5,134

Balance at December 31, 2004		—	$	—	615		$	8,395	$	(7,249	)	$	(54,386	)	$	3,312		$	(49,928	)

See accompanying notes.

F-5

FASTCLICK, INC.

STATEMENTS OF CASH FLOWS

			Year Ended December 31,
			2002			2003			2004
			(in thousands)
Cash flow from operating activities:
Net income			$	4,058		$	5,757		$	5,134
Adjustments to reconcile net income to net cash provided by operating activities:
	Amortization of deferred compensation			—			—			644
	Deferred income taxes			(177	)		18			1,257
	Depreciation and amortization			113			192			475
	Loss on sale/disposal of equipment			—			27			2
	Changes in operating assets and liabilities:
		Accounts receivable		(1,222	)		(1,845	)		(4,590	)
		Prepaid expenses and other assets		(914	)		709			(19	)
		Other assets		(24	)		10			(8	)
		Accounts payable		878			(311	)		4,668
		Deferred revenue		58			335			247
		Accrued payroll		100			102			1,748
		Income taxes payable		25			(25	)		77
		Accrued other liabilities		51			97			236

Net cash provided by operating activities				2,946			5,066			9,871

Cash flow from investing activities:
Purchase of property and equipment				(145	)		(717	)		(1,596	)
Purchase of domain names				(129	)		(5	)		(87	)
Purchase of short-term investments				—			—			(7,954	)
Website development costs				—			(28	)		—
Software development costs				(120	)		(489	)		(716	)

Net cash used in investing activities				(394	)		(1,239	)		(10,353	)

Cash flow from financing activities:
Net borrowings under loans payable				—			155			(35	)
Proceeds from sale of common stock				20			36			45
Net proceeds from the sale of preferred stock				—			—			73,416
Payments to repurchase common stock				(30	)		—			(54,356	)
Financing costs				—			—			(796	)
Distributions to S corporation stockholders				(608	)		(4,384	)		(7,052	)

Net cash (used in) provided by financing activities				(618	)		(4,193	)		11,222

(Decrease) increase in cash and cash equivalents				1,934			(366	)		10,740
Cash and cash equivalents, beginning of year				89			2,023			1,657

Cash and cash equivalents, end of year			$	2,023		$	1,657		$	12,397

Supplemental disclosures to the statements of cash flows were as follows:

		Year Ended December 31,
		2002		2003		2004
Cash paid for interest		$	—	$	5	$	9

Cash paid for income taxes			252		75		1,055

Supplemental disclosure of cash flow information:
	Equity based deferred compensation	$	—	$	—	$	7,249

See accompanying notes.

F-6

FASTCLICK, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004

1. The Company and Summary of Significant Accounting Policies

The Company—Fastclick, Inc. (Fastclick or the Company) is a provider of Internet advertising technologies and services. Advertisers pay the Company to place their Internet ads on third-party websites in its network and the Company shares the revenue it receives from placing those ads with the website owners, or publishers, that provided the ad space. The Company's technologies and services, including its proprietary Optimization Engine, Internet ad placement bidding system and reporting and campaign management tools are designed to improve the effectiveness of Internet ad campaigns, provide advertisers with an increased return on their advertising expenditures and enhance the value of Internet ad space available on its network of third-party websites.

Fastclick was incorporated on March 31, 2000, under the laws of California and plans to reincorporate under the laws of Delaware prior to the effective date of the registration statement (see Note 14). The Company's headquarters are located in Santa Barbara, California.

Pro Forma Balance Sheet—The unaudited pro forma balance sheet as of December 31, 2004 reflects the automatic conversion of all outstanding shares of the Company's redeemable convertible Series A preferred stock on a one-for-one basis into 2,131,285 shares of common stock upon completion of the Company's initial public offering. (See Note 14)

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents—Cash and cash equivalents include cash on hand, in banks, and short-term investments with original maturities of three months or less on the date of purchase.

Short-term Investments—The Company considers its marketable securities available-for-sale as defined in SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." Realized gains and losses and declines in value considered to be other than temporary are included in income. The cost of securities sold is based on the specific identification method. For short-term marketable securities, there were no material realized or unrealized gains or losses, nor any material differences between estimated fair values, based on quoted market prices, and the costs of securities in the investment portfolio as of December 31, 2004. The Company's short-term marketable securities consist primarily of Euro dollar commercial paper.

Fair Value of Financial Instruments—The carrying value of financial instruments, which includes cash and cash equivalents, accounts receivable, accounts payable and borrowings approximates fair values at December 31, 2003 and 2004, due to their short-term maturities and the relatively stable interest rate environment.

Prepaid Expenses—Prepaid expenses consist primarily of prepayments to website publishers and amounts paid for operating expenses, such as rent, insurance, and trade show fees, that will be recognized in the following period.

Property and Equipment, Net—Property and equipment are stated at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Expenditures for additions

F-7

and major improvements are capitalized. Depreciation is provided using the straight-line method. Depreciation expense was $87,022, $140,187 and $309,279 for 2002, 2003 and 2004, respectively.

Software Development Costs for Internal Use—According to SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," (SOP 98-1) software development costs incurred during the application development stage including (1) external direct costs of materials and services consumed in developing or obtaining the software, (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the project, and (3) interest costs incurred, when material, while developing the software are capitalized.

Costs incurred in the preliminary project and post-implementation stages of an internal use software project are expensed as incurred.

The Company capitalized software development costs for internal use amounting to $488,786 during 2003 and $716,149 during 2004.

Software development costs for internal use are being amortized using the straight-line method over four years. Amortization of software development costs was $24,082, $49,150 and $161,164 for 2002, 2003 and 2004, respectively. Management expects all costs to be recovered during the amortization periods. Management routinely assesses whether recovery periods should be reduced based on changes in market and other external factors.

Website Development Costs—Under EITF 00-2, "Accounting for Website Development Costs," the Company accounts for its website development costs by applying SOP 98-1. During 2003, $27,800 was capitalized. Of that amount, $19,000 was for the enhancement of the "fastclick.com" website. Website development costs are being amortized using the straight-line method over four years. Amortization of website development costs was $1,009, $2,197 and $5,338 for 2002, 2003 and 2004, respectively.

Domain Names—The Company has capitalized costs paid to acquire certain domain names, and management believes that the purchased domain names will have an infinite life and, therefore, does not amortize the cost of acquiring these domain names.

Impairment of Long-Lived Assets—The Company evaluates impairment of long-lived assets, which includes property and equipment and identifiable intangible assets whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Events and circumstances that may indicate that an asset is impaired may include significant decreases in the market value of an asset or common stock, a significant decline in actual or projected revenue, a change in the extent or manner in which an asset is used, shifts in technology, loss of key management or personnel, changes in the Company's operating model or strategy, and competitive forces as well as other factors. To date, the Company has identified no such impairment losses.

Revenue Recognition—The Company recognizes revenue in accordance with accounting principles generally accepted in the United States and with Securities and Exchange Commission Staff Accounting Bulletin No. 104, "Revenue Recognition." Recognition occurs when there is persuasive evidence of an arrangement, delivery has occurred (as indicated below), the fees are fixed and determinable, and collection is reasonably assured.

F-8

The Company offers its advertisers multiple pricing options, including (1) cost-per-action, where the advertiser pays Fastclick a fee based on the number of specified Internet user responses, such as registrations, requests for information or sales that its advertisements produce; (2) cost-per-click, where the advertiser pays Fastclick a fee based on the number of clicks its advertisements generate; and (3) cost-per-thousand impressions, where the advertiser pays Fastclick a fee based on the number of times its advertisements are displayed, referred to as impressions. Under the cost-per-click and cost-per-action pricing models, Fastclick's revenue is recognized when an Internet user performs a specific action, such as clicking on an advertiser's banner. Under the cost-per-thousand impressions pricing model, Fastclick recognizes revenue based on the number of advertisements delivered.

The Company provides some advertisers services under cost-per-click, cost-per-action and cost-per-thousand impressions pricing models simultaneously. Management believes that services under each model represent separate units of accounting pursuant to EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" (EITF 00-21). EITF 00-21 addresses certain aspects of accounting by a vendor of arrangements under which it will perform multiple revenue generating activities, specifically, how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. These separate services are provided simultaneously to the advertisers and are recognized as revenue in the periods delivered (as indicated above).

Deferred revenue is recorded when payments are received in advance of the Company providing advertising services.

Cost of Revenue—Cost of revenue consists primarily of amounts the Company incurs and pays to website publishers for their share of revenue the Company derives from their advertising space and, to a lesser extent, the cost of maintaining the computer systems infrastructure which supports the Company's proprietary technologies, salaries and benefits of network operations personnel, bandwidth and communications costs, depreciation of network infrastructure equipment and the cost of database maintenance and support.

Sales and Marketing—The Company's sales and marketing expenses relate primarily to the compensation and associated costs for sales and marketing personnel, marketing and advertising, public relations and other promotional activities, general business development activities, website acquisition and product development expenses.

Advertising costs included in sales and marketing expenses were $996, $50,545 and $151,645 for 2002, 2003 and 2004, respectively.

Technology—Technology costs include expenses for the research and development of new technologies designed to enhance the Company's Internet advertising technologies and services and costs associated with the maintenance and administrative support of the Company's technology team, including the salaries and related expenses for the Company's research and development, as well as costs for contracted services and supplies. Also included in technology is the amortization of capitalized software development costs. Costs incurred for research and development are expensed as incurred.

General and Administrative—The Company's general and administrative expenses relate primarily to the compensation and associated costs for general and administrative personnel, professional fees and facility costs.

F-9

Sales and Concentration of Credit Risk—Fastclick extends credit to its advertisers based on an ongoing evaluation of their financial condition. The Company generally does not require collateral or other security to support accounts receivable. To date, credit losses have not been significant and are within management's expectations.

The Company encounters a certain amount of risk as a result of a concentration of revenue from a few significant advertisers, and website advertising space provided by a few significant website publishers.

The Company's top 10 advertisers accounted for 49.7%, 47.6% and 45.8% of revenue in 2002, 2003 and 2004, respectively. One advertiser accounted for 11.2% of revenue for 2003. No advertiser accounted for more than 10% of revenue for 2002 or 2004.

Expenses for the Company's top 10 website publishers accounted for 44.3%, 22.6% and 21.6% of publisher expenses for 2002, 2003 and 2004, respectively. No publisher of websites accounted for more than 10% of publisher expenses for 2003 and 2004. One publisher of websites accounted for 25.9% of publisher expenses in 2002.

Stock-Based Compensation—The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of shares at the date of grant. As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company accounts for stock option grants to employees using the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25).

In conjunction with the Company's recapitalization transaction discussed in Note 9, the Company reviewed its historical exercise prices through December 31, 2004 and, as a result, revised the estimate of fair value for all stock options granted subsequent to January 1, 2004. With respect to these options granted, the Company had a deferred stock compensation balance of $7,249,090 at December 31, 2004, for the difference between the original exercise price per share determined by the Board of Directors and the revised estimate of fair value per share at the respective grant dates. The Company expects to record significant additional deferred compensation and compensation expense from January 1, 2005 through the initial public offering date. Deferred stock compensation is recognized and amortized on a straight-line basis over the vesting period of the related options, generally four years. The Company recorded no deferred compensation or compensation expense in 2002 and 2003 under APB No. 25 as all grants of options were at fair market value. Compensation expense under APB No. 25 related to stock options granted to the Company's employees was $644,395 for the year ended December 31, 2004.

In accordance with SFAS 123, the Company provides the pro forma disclosures in Note 11 of the effect on net income if SFAS 123 had been applied in measuring compensation expense for all periods presented.

Income Taxes—From inception to December 31, 2001, the Company operated as a C corporation. Effective January 1, 2002, the Company elected to be taxed as a subchapter S corporation for federal and state income tax purposes. Income, deductions, gains, losses, tax credits and other tax attributes of the Company passed through and were taxed directly to the stockholders for all of 2002 and 2003 and

F-10

the period from January 1, 2004 through September 27, 2004. On September 28, 2004, Fastclick completed a private placement of preferred shares, which resulted in the revocation of its subchapter S corporation status. The Company now operates as a C corporation and is subject to tax in the United States. Consequently, no federal income tax provision is recorded in the accompanying financial statements for the years ended December 31, 2002, 2003 and for the period January 1, 2004 through September 27, 2004. Under state laws, certain taxes (net of available tax credits) are imposed upon subchapter S corporations and are provided for in the accompanying financial statements. As a subchapter S corporation, the Company's policy was to disburse the necessary amount of funds to satisfy the stockholders' estimate of income tax liabilities based upon the Company's taxable income. The pro forma income tax provision on the face of the statements of operations reflects the pro forma effects as if the Company had been established as a C corporation for all periods presented. (See Note 4)

As a result of changing from a subchapter S corporation to a C corporation, the Company has recorded a tax provision amounting to $2.0 million for federal taxes and $0.4 million for California state taxes. The Company will be taxed at statutory corporate rates going forward. Deferred tax assets and liabilities will be recognized for the tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities will be 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. A deferred tax asset valuation allowance will be recorded if it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized.

Recent Accounting Pronouncements—On December 16, 2004, the Financial Accounting Standards Board (FASB) issued its final standard on accounting for Share-Based Payment in FASB Standard 123R, which requires all companies to measure compensation cost for all share-based payments (including stock options) at fair value, would be effective for public companies for interim or annual periods beginning after June 15, 2005. The Company will adopt the standard in the quarter ending September 30, 2005 or earlier and could adopt the new standard in one of two ways—the modified prospective transition method or the modified retrospective transition method.

The Company has not concluded how it will adopt this new standard. This standard will have a significant impact on the Company's consolidated statement of operations as the Company will be required to expense the fair value of its stock options rather than disclosing the pro forma impact on its consolidated result of operations within its footnotes in accordance with the disclosure provisions of SFAS 123. This will result in lower reported earnings per share, which could negatively impact the Company's future stock price. In addition, this could impact the Company's ability to utilize broad based employee stock plans to reward employees and could result in a competitive disadvantage to us in the employee marketplace.

F-11

2. Property and Equipment

Property and equipment, net consisted of the following:

		As of December 31,
	Useful Life	2003			2004
	(in thousands)
Computer equipment and purchased software	3 years	$	529		$	1,960
Furniture and equipment	7 years		126			281
Leasehold improvements	20 years		384			390

			1,039			2,631
Less accumulated depreciation			(246	)		(553	)

		$	793		$	2,078

3. Loans Payable

Loans payable consist of the following:

		As of December 31,
		2003		2004
		(in thousands)
Current portion of loans payable:
	Bank of the West loan	$	83	$	17
	Caterpillar loan		28		29

Total current loans payable		$	111	$	46

Long-term portion of loans payable:
	Bank of the West	$	—	$	60
	Caterpillar loan		45		15

Total long-term portion		$	45	$	75

The Company obtained a loan from Caterpillar Financial Services (Caterpillar) to finance the purchase of a generator for emergency electricity supply. Caterpillar holds a security interest in this equipment and has recorded a UCC filing in California. The loan bears annual interest at 6.75%, and the Company began repaying the loan in July 2003 in 36 equal monthly installments of $2,660.

The Company signed a promissory note with Bank of the West and obtained a short-term credit line of $350,000 in 2003. This is an unsecured loan, and bears a variable interest rate of 1.5% over prime. The interest rate was 5.25% and 6.5% at December 31, 2003 and 2004, respectively. During September 2004, this loan was converted to a term loan due in installments through May 2009. In January 2005 the Company paid the entire balance in full (unaudited).

F-12

4. Income Taxes

From inception to December 31, 2001, the Company operated as a C corporation. Effective January 1, 2002, the Company elected to be taxed as a subchapter S corporation for federal and state income tax purposes. As a result, the Company was subject to federal and California built-in gains taxes in 2002. The unpaid amount of built-in gains tax as of December 31, 2002, was included in the current income tax liability at December 31, 2002. In addition to the built-in gains tax, the Company was also subject to a 1.5% California S corporation income tax.

Because of the subchapter S corporation election, the income, deductions, gains, losses, tax credits, and other tax attributes of the corporation pass through and were taxed directly to the stockholders for 2002 and 2003 and for the period from January 1, 2004 through September 27, 2004.

Effective September 27, 2004, the Company revoked its subchapter S corporation status for federal and state income tax purposes. Beginning September 28, 2004, the Company was taxed as a C corporation.

The components of the income tax expense were as follows:

		Year Ended December 31,
		2002			2003		2004
		(in thousands)
Current:
	Federal	$	221		$	—	$	854
	California		53			37		301

Total current portion			274			37		1,155

Deferred:
	Federal		(179	)		—		1,163
	California		2			18		94

Total deferred portion			(177	)		18		1,257

Total income tax provision		$	97		$	55	$	2,412

The Company's effective tax rate of 32.0% for 2004 differs from the statutory federal income tax rate of 34% due to state tax provision, net of federal tax effect, of 6% and stock-based compensation of 3%, offset by tax benefits of subchapter S corporation of 10%.

F-13

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for state income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

		As of December 31,
		2003			2004
		(in thousands)
Deferred tax assets (liabilities):
	Accounts receivable	$	(65	)		—
	Prepaid expenses		(3	)		—
	Difference in book versus tax basis accumulated depreciation		(1	)		(340	)
	Internally developed software capitalized for book and expensed for tax, net of amortization		(9	)		(466	)
	Accounts payable		16			—
	Payroll liabilities		3			—
	IRC Section 481(a) adjustment		—			(796	)
	Deferred revenue		7			—
	Allowance for doubtful accounts		—			235
	Other		3			61

Total deferred tax assets (liabilities)		$	(49	)	$	(1,306	)

Deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. 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. A deferred tax asset valuation allowance will be recorded if it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized.

For informational purposes, the statements of income include a pro forma adjustment for income taxes that would have been recorded if the Company had been a C corporation from inception, calculated in accordance with FAS No. 109, "Accounting for Income Taxes."

On a pro forma basis, the Company's effective tax rate differs from the statutory federal income tax rate of 34% as per the following table:

	Year Ended December 31,
	2002		2003		2004
Provision on earnings at federal statutory tax rate	34	%	34	%	34	%
State tax provision, net of federal tax effect	6	%	6	%	7	%
Tax credits and other	(2	)%	(3	)%	(4	)%

Total provision for income taxes	38	%	37	%	37	%

F-14

The components of the income tax provision, on a pro-forma basis, for the periods presented are as follows:

		Year Ended December 31,
		2002		2003		2004
		(in thousands)
Current:
	Federal	$	1,214	$	1,514	$	2,284
	State and local		310		396		588

Total current provision			1,524		1,910		2,872

Deferred:
	Federal		48		235		(43	)
	State and local		9		22		(43	)

Total deferred provision			57		257		(86	)

Total income tax provision		$	1,581	$	2,167	$	2,786

5. Allowance of Doubtful Accounts

The following schedule reflects the changes in the allowance for doubtful accounts (in thousands):

Balance, December 31, 2001	$	—
Provision expense		—
Charge to allowance		—

December 31, 2002	$	—
Provision expense		70
Charge to allowance		—

December 31, 2003	$	70
Provision expense		611
Charge to allowance		(90	)

December 31, 2004	$	591

The Company extends credit to its advertisers based on evaluation of credit references, financial condition and payment history. The Company generally does not require collateral or other security to support accounts receivable. The allowance for doubtful accounts for estimated losses results from management's judgment based on historical experience and specific customer collection issues that have been identified.

6. Related Party Transactions

On April 15, 2000, the Company entered into a licensing agreement with one of its founders, Jeff Pryor. Under the agreement, the Company utilized the "fastclick.com" Internet domain name (which was owned by the founder) and was obligated to pay certain royalty fees to the founder. Accordingly, the Company accrued royalties fees totaling $19,955, $21,940 and $0 for the years ended December 31,

F-15

2002, 2003 and 2004, respectively. On May 6, 2004, the Company entered into an assignment agreement with Mr. Pryor, acquired the Internet domain name "Fastclick.com" and paid off the previous accrued royalties for a total of $125,000, the total cost of the domain name "fastclick.com."

Mr. Pryor operates websites that offer advertising space on the Company's network. Our payments to Mr. Pryor totaled $28,024, $16,244 and $22,297 for the years ended December 31, 2002, 2003 and 2004, respectively and are included in cost of revenue.

7. Commitments and Contingencies

On January 1, 2003, the Company began leasing office space in downtown Santa Barbara, California, for administration, research, and operations. The lease term is for 40 months, through April 2006, with a renewal option at the Company's discretion. On June 1, 2004, the Company entered into a sublease for a second office location in Santa Barbara, California with a lease term of 23 months through April 2006. Rent expense under the Company's building operating leases was $48,498, $257,641 and $369,463 for 2002, 2003 and 2004, respectively. The Company does not have any capital leases.

The Company has existing legal claims against it and may encounter future legal claims in the normal course of business. In the opinion of the Company, the resolution of the existing legal claims are not expected to have a material impact on the Company's financial position or results of operations. The Company believes an accrual is not necessary in connection with the above litigation.

8. Redeemable Convertible Series A Preferred Stock

On September 28, 2004, the Company issued 2,131,285 shares of Series A Preferred Stock at a price of $35.19 per share resulting in net proceeds of $73.4 million. Issuance costs amounted to approximately $1.6 million.

The Series A Preferred Stock has the rights, preferences and privileges set forth below.

Voting

Each holder of the Preferred Stock shall be entitled to the number of votes equal to the number of shares of common stock issuable upon conversion of such shares of Preferred Stock and shall have voting rights and powers equal to the voting rights and powers of the common stock. Each holder of common stock shall be entitled to one vote for each share of common stock held.

The Company will have a Board consisting of seven directors. The Preferred Stockholders will be entitled to elect three directors. The Preferred Stockholders and Common Stockholders voting together as a single class on an as-converted to common stock basis, will be entitled to elect four directors.

Conversion

Each share of Series A Preferred Stock will be convertible, at the option of the holder, into the number of shares of common stock determined by dividing $35.19 (the "Original Series A Issue Price") by the conversion price (the "Conversion Price"). The initial Conversion Price will be the Original Series A Issue Price and initially each share of Series A Preferred Stock will convert into one share of common stock. The Conversion Price is adjustable based on stock splits, combinations and weighted

F-16

average anti-dilution protection in the event the Company issues any securities at a price deemed to be less than $35.19 per share. The Series A Preferred Stock will automatically convert into common stock at the Conversion Price if i) there is an initial public offering of the common stock at $70.38 per share and resulting in gross proceeds to the Company of at least $50,000,000, or ii) the holders of at least two-thirds of the Series A Preferred Stock consent to a conversion.

Dividends

The holders of shares of Series A Preferred Stock will be entitled to receive dividends prior and in preference to any dividend on the common stock, at the annual rate of 8% of the purchase price per annum, payable when, as and if declared by the Board. The dividends will not be cumulative.

Liquidation

If there is a liquidation, dissolution or winding up of the Company, the Series A Preferred Stock holders will be entitled to receive, prior and in preference to any distribution to the holders of common stock, an amount equal to $35.19 per share. Any remaining assets will be distributed to the Preferred Stock holders and common stock holders on a pro rata basis (assuming conversion of the Series A Preferred Stock) until the Series A Preferred Stock holders have received (i) $70.38 per share if the liquidation, dissolution or winding up of the Company occurs on or prior to September 30, 2006, or (ii) $87.975 per share if the liquidation, dissolution or winding up of the Company occurs after September 30, 2006, in each case including the initial payment to the Preferred Stock holders. The common stock holders will receive all remaining assets on a pro rata basis.

Redemption

The Series A Preferred Stock holders may require the Company to redeem their shares of Series A Preferred Stock at anytime after September 30, 2009 by written request of the holders of at least two-thirds of the Series A Preferred Stock. The redemption price will be $35.19 per share and will be payable in three (3) equal annual installments.

Protective Provisions

If at least 410,443 of the originally issued shares of Series A Preferred Stock are outstanding, the Company must obtain the approval of the holders of at least two-thirds of the Series A Preferred Stock before the Company may 1) consent to (i) any liquidation, dissolution or winding up of the Company, (ii) any issuance, sale or other disposition of a majority by voting power of the voting shares of the Company, or (iii) any merger or consolidation with or into, or permit any subsidiary to merge or consolidate with or into, any other corporation, corporations, entity or entities (except as provided in the Amended and Restated Articles), 2) sell, abandon, transfer, lease, license, mortgage, hypothecate or otherwise encumber or otherwise dispose of all or substantially all of the Company's properties or assets 3) alter or change the rights, preferences or privileges of the Series A Preferred Stock so as to affect adversely the Series A Preferred Stock, 4) increase the total number of authorized shares of Series A Preferred Stock, 5) authorize or issue, or obligate itself to issue, any equity security, other than the common stock authorized and issued as of the date of the Amended and Restated Articles, having rights, preferences or privileges senior to or over, or being on a parity with, the Series A

F-17

Preferred Stock, 6) redeem, repurchase or otherwise acquire shares of Preferred Stock or common stock, except as provided in the Amended and Restated Articles, 6) amend, alter or repeal the Amended and Restated Articles or Bylaws, except as otherwise provided, 7) increase or decrease the size of the Board, 8) increase the number of shares reserved for issuance to employees, directors, consultants or advisors performing services for the Company or any subsidiary pursuant to a stock option plan, restricted stock plan or other arrangement, or 9) change the principal business of the Company or exit the Company's current line of business.

9. Stockholders' Equity

Preferred Stock

As of December 31, 2003, the Company was authorized to issue 800,000 shares of preferred stock, none of which were outstanding. As of December 31, 2004, the Company was authorized to issue 2,131,285 shares of Series A Preferred Stock of which 2,131,285 were outstanding.

On December 31, 2001 400,000 shares of preferred stock were converted to common on a one-to-one basis.

Common Stock

As of December 31, 2004, the Company was authorized to issue 3,750,000 shares of common stock. As of December 31, 2004, 187,149 shares of common stock were reserved for issuance, 2,398,263 shares were issued and 615,319 shares were outstanding.

In connection with the issuance of redeemable convertible Series A preferred stock on September 28, 2004, the Company simultaneously repurchased common stock from the Company's founders, stockholders and employees at the same $35.19 per share price as the Series A preferred. As a result, the new preferred stockholders acquired approximately 78% of the Company. The Company structured and treated this transaction as a recapitalization, for accounting purposes given that existing common stockholders maintained approximately 22% of the Company, the transaction did not include leverage, and a new company was not utilized to effect the transaction.

10. Stock Options

2000 Stock Plan

On July 20, 2000, the Company adopted the 2000 Equity Participation Plan (the 2000 Stock Plan). The 2000 Stock Plan permits the issuance of both qualified stock options herein referred to as incentive stock options (ISO), and nonqualified stock options. The ISOs may only be awarded to employees, while the nonqualified stock options may be awarded to directors, officers, employees, and consultants. Options granted under the 2000 Stock Plan are subject to vesting and certain forfeiture provisions related to non-competition with the Company. The outstanding options, which expire ten years from date of grant, have exercise prices that range between $1.00 to $7 per share. The exercise price of ISOs may not be less than the fair market value of the shares on the date of grant, while nonqualified options may be granted at an exercise price not less than 85% of the fair market value of the stock on the date of grant. No nonqualified options have been granted under the 2000 Stock Plan.

F-18

The Company reserved 800,000 shares of common stock for grants of ISOs and nonqualified stock options under the 2000 Stock Plan. On September 8, 2004, the Board determined to cease granting shares under the 2000 Stock Plan. As of December 31, 2004 the Company had 167,637 shares of common stock reserved for issuance, and zero shares of common stock remained available for grant.

A summary of the Company's 2000 Stock Plan is as follows:

		Shares		Weighted- Average Price per Share
Outstanding at December 31, 2001		234,500		$	0.10
	Granted	60,000			0.75
	Exercised	(175,125	)		0.11

Outstanding at December 31, 2002		119,375		$	0.41
	Granted	171,400			5.81
	Exercised	(100,000	)		0.36

Outstanding at December 31, 2003		190,775		$	5.29
	Granted	20,000			12.75
	Exercised	(43,138	)		1.19

Outstanding at December 31, 2004		167,637		$	7.27

Information regarding stock options pursuant to the 2000 Stock Plan outstanding and exercisable as of December 31, 2004, is as follows:

Exercise Prices	Number of Options Outstanding	Weighted- Average Contractual Life in Years	Number of Options Exercisable
$1.00	11,625	8.20	3,000
$7.00	136,012	8.82	40,937
$12.75	20,000	9.21	2,500

Total	167,637	—	46,437

2004 Stock Plan

On September 8, 2004, the Company adopted the 2004 Stock Incentive Plan (the 2004 Stock Plan). The 2004 Stock Plan permits the issuance of both qualified stock options herein referred to as incentive stock options (ISO), and nonqualified stock options. The ISOs may only be awarded to employees, while the nonqualified options may be awarded to directors, officers, employees, and consultants. Options granted under the 2004 Stock Plan are subject to vesting and certain forfeiture provisions related to non-competition with the Company. The outstanding options expire ten years from date of grant. The exercise price of ISOs may not be less than the fair market value of the shares on the date of grant, while nonqualified options may be granted at an exercise price not less than 85% of the fair

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market value of the stock on the date of grant. No nonqualified options have been granted under the 2004 Stock Plan.

The Company reserved 495,585 shares of common stock for grants of ISOs and nonqualified stock options under the 2004 Stock Plan. As of December 31, 2004 the Company had 308,436 shares of common stock available for grant under the 2004 Stock Plan. No new options will be issued under the 2004 Stock Plan following the closing of the Company's initial public offering.

A summary of the Company's 2004 Stock Plan is as follows:

		Shares	Weighted- Average Price per Share
Outstanding at December 31, 2003		—	$	—
	Granted	308,436	$	13.38

Outstanding at December 31, 2004		308,436	$	13.38

Information regarding stock options pursuant to the 2004 Stock Plan outstanding and exercisable as of December 31, 2004, is as follows:

Exercise Prices	Number of Options Outstanding	Weighted- Average Contractual Life in Years	Number of Options Exercisable
$12.75	267,588	9.72	15,174
$17.50	40,848	9.92	—

Total	308,436	—	15,174

11. Stock Compensation

The Company accounts for stock options using the intrinsic-value method under APB No. 25. Accordingly, no compensation expense has been recorded for the stock options granted since the exercise price was equal to the fair market value of the shares at the grant date. However, if the Company recognized employee stock option related compensation expense in accordance with SFAS No. 123 and used the minimum-value method for determining the weighted average fair value of options granted, the pro forma net income would have been as follows:

	Year Ended December 31,
	2002			2003			2004
	(in thousands)
Net income as reported	$	4,058		$	5,757		$	5,134
Less: Stock compensation as if the fair value method was used		(4	)		(13	)		(127	)

Pro forma income	$	4,054		$	5,744		$	5,007

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The compensation portion of the Company's stock option grants was estimated at the date of the grant using the minimum-value option-pricing model with the following assumptions:

	2002		2003		2004
Risk-free interest rate	3.34	%	2.11	%	3.38	%
Expected option life (years)	5.00		5.00		5.00
Dividend yield	0.00	%	0.00	%	0.00	%

For purposes of pro forma disclosures, the estimated fair value of the options is amortized ratably over the option's vesting period. The pro forma effect on net income for the years presented is not representative of the pro forma effect on net income in future years because compensation expense in future years could reflect the amortization of a greater or lesser number of stock options granted in succeeding years. Should the Company complete an initial public offering of its common stock, stock-based awards granted thereafter will be valued using the Black-Scholes option pricing model. In addition to the factors used to estimate the fair value of stock options issued using the minimum-value method, the Black-Scholes model considers the expected volatility of the Company's stock price, determined in accordance with SFAS 123, in arriving at an estimated fair value. The minimum-value method does not consider stock price volatility.

12. Ownership Equivalency Plan

In 2003 the Company established an Ownership Equivalency Plan (OEP) to provide a means through which it was able to grant its directors, officers, employees, and consultants the right to realize similar economic benefits that would otherwise result from the ownership of equity securities of the Company. The Company reserved 400,000 ownership equivalent units with automatic quarterly vesting over two to four years. As of December 31, 2003, 60,600 equivalent units had been granted, of which 7,700 units were vested. From January 1, 2004 through September 28, 2004 an additional 23,200 ownership equivalent units were granted, 900 were cancelled and a total of 25,723 had vested by September 28, 2004. The units had strike prices ranging from $1 to $12.75, which equaled the deemed fair market value of the unit at the grant date.

The Company treated the OEP under APB Opinion 25 as a fixed plan (as the number of shares and exercise price were known at the grant date) with a contingent appreciation right, which would only be triggered in the event of a liquidation of the Company, pro rata redemption of the Company's common stock or termination of the OEP. Upon termination, the Company has the right to repurchase the equivalent units from the holders at fair market value. On September 8, 2004, the Board approved the termination of the OEP on a pro rata basis, in connection with the recapitalization that occurred on September 28, 2004. As a result, all outstanding equivalent units were cancelled. The Company recorded a compensation charge in the amount of $952,000 which was based on the fair market value of the common stock at $35.19 per share (as evidenced by the recapitalization transaction), plus additional compensation to the equivalent units holders for forfeiting their rights under the OEP.

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13. Retirement Plan

The Company sponsors a 401(k) salary deferral plan (the 401(k)Plan) that qualifies under Section 401(k) of the Internal Revenue Code. The 401(k) plan became effective in January 2002. Under the 401(k) Plan, eligible employees may defer a percentage of their pre-tax salaries and wages up to specified limits. All full-time employees of the Company are eligible to participate in the 401(k) Plan. The 401(k) Plan does not invest 401(k) Plan assets in the stock of the Company. The Company can make discretionary contributions as a percentage of each participating employee's salary. Discretionary contributions made by the Company were as follows:

Year		Amount
2003		$	76,806
2002			22,288

As of December 31, 2004, the Company intends on contributing 3% of eligible wages and has accrued $192,447.

14. Registration Statement

On December 21, 2004, the Board of Directors authorized, and on December 22, 2004 the Company filed a registration statement with the Securities and Exchange Commission for the Company's initial public offering.

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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

Other than the pro rata underwriting discounts and commissions to be paid by the selling stockholders, all costs and expenses incurred in connection with the sale and distribution of the common stock being registered for sale will be paid by the registrant. The following table sets forth the various expenses expected to be incurred by the registrant in connection with the sale and distribution of the securities being registered hereby, other than underwriting discounts and commissions. All amounts are estimated except the Securities and Exchange Commission registration fee, the National Association of Securities Dealers, Inc. filing fee and the Nasdaq National Market listing fee.

Securities and Exchange Commission registration fee	$	10,828
National Association of Securities Dealers, Inc. filing fee		9,700
Nasdaq National Market listing fee		5,000
Blue Sky fees and expenses		10,000
Accounting fees and expenses		450,000
Legal fees and expenses		650,000
Printing and engraving fees		250,000
Registrar and Transfer Agent's fees		12,000
Miscellaneous fees and expenses

Total	$

Item 14. Indemnification of Directors and Officers.

Delaware General Corporate Law

The registrant plans to reincorporate in Delaware prior to the effective date of this registration statement. Section 145 of the Delaware General Corporation Law provides that a corporation may 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 (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. Section 145 provides further that a corporation may indemnify any such person against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of any action or suit by or in the right of the corporation, if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification may be made in respect of any claim, issue or matter as to which such person has been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described in this paragraph, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith.

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In addition, Section 102(b)(7) of the Delaware General Corporation Law allows a corporation to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except liability for the following:

•: any breach of their duty of loyalty to the corporation or its stockholders;
•: acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
•: unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or
•: any transaction from which the director derived an improper personal benefit.

The registrant's certificate of incorporation contains provisions that limit the liability of its directors for monetary damages to the fullest extent permitted by Delaware law.

The registrant's bylaws provide that the registrant shall indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding (other than an action by or in the right of the registrant) by reason of the fact that he or she is or was a director or officer of the registrant or is or was serving at the registrant's request as a director officer of another corporation, partnership, joint venture, trust or other enterprise. The registrant's bylaws provide that the registrant may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding, by reason of the fact that he or she is or was an employee or agent of the registrant or is or was serving at the registrant's request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The registrant's bylaws also provide that it may advance expenses incurred by or on behalf of a director, officer, employee or agent in advance of the final disposition of any action or proceeding.

Directors' and Officers' Liability Insurance

Section 145 of the Delaware General Corporation Law further provides that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145.

The registrant's bylaws permit the registrant to secure insurance on behalf of any officer, director, employee or other agent of the registrant and any person serving at the registrant's request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or member of any committee or similar body, for any liability arising out of his or her actions in that capacity, regardless of whether the registrant's bylaws would otherwise permit indemnification.

The registrant expects to obtain policies of insurance under which, subject to the limitations of such policies, coverage will be provided to the registrant's directors and officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to the registrant with respect to payments which may be made by the registrant to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law.

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Indemnification Agreements

Prior to completion of this offering, the registrant will enter into indemnification agreements with each of its directors and officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements may require the registrant, among other things, to indemnify its directors and officers against liabilities that may arise by reason of their status or service. These indemnification agreements may also require the registrant to advance all expenses incurred by the directors and officers in investigating or defending any such action, suit or proceeding. The registrant believes that these agreements are necessary to attract and retain qualified individuals to serve as directors and officers.

At present, the registrant is not aware of any pending litigation or proceeding involving any person who is or was a director, officer, employee or other agent of the registrant or is or was serving at the registrant's request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and the registrant is not aware of any threatened litigation that may result in claims for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.

Underwriting Agreement

The underwriting agreement provides for indemnification by the underwriters of the registrant and its officers, directors and employees for certain liabilities arising under the Securities Act, or otherwise.

Item 15. Recent Sales of Unregistered Securities.

During the registrant's last three fiscal years, the registrant issued unregistered securities to a limited number of purchasers as described below:

(1) The registrant issued and sold an aggregate of 2,131,285 shares of Series A Preferred Stock for aggregate consideration of approximately $75 million. The securities were sold pursuant to the Recapitalization Agreement, dated September 9, 2004. The closing of the transaction occurred on September 28, 2004. The investors in this financing were Highland Capital Partners VI Limited Partnership, Highland Capital Partners VI-B Limited Partnership, Highland Entrepreneurs' Fund VI Limited Partnership, Oak Investment Partners XI, Limited Partnership, Steamboat Ventures, LLC and Steamboat Ventures Manager, LLC. The registrant issued these securities in a transaction exempt from registration under Section 4(2) of the Securities Act.

In the transaction described above the recipients of the securities represented that they were accredited investors and that their intentions were to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof. Appropriate legends were affixed to the share certificates and other instruments issued in such transactions. The sales of these securities were made without general solicitation or advertising.

(2) During the registrants last three fiscal years, the registrant made stock option grants to employees under its 2000 Stock Plan and 2004 Stock Plan covering an aggregate of 559,636 shares of common stock, at a weighted average exercise price of $9.69 per share. None of these options were canceled without being exercised. The registrant issued these stock options in transactions exempt from registration under the Securities Act pursuant to Rule 701 promulgated thereunder.

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(3) During the registrants last three fiscal years, the registrant issued an aggregate of 318,263 shares of common stock, no par value, upon exercise of stock options for aggregate consideration of $0.1 million. The registrant issued these stock options in transactions exempt from registration under the Securities Act pursuant to Rule 701 promulgated thereunder.

In each transaction described above that was exempt under Rule 701 promulgated under the Securities Act, the recipients of the securities were either employees, directors or officers of the registrant. In addition, the amounts of securities issued at any time conformed to the limits of Rules 701(d) of the Securities Act.

(4) On February 22, 2002 the registrant issued and sold 40,000 shares of common stock to Alexis Brown, one of the registrant's employees, for aggregate consideration of $25.00. The registrant issued these securities in a transaction exempt from registration under Section 4(2) of the Securities Act.

(5) On February 22, 2002 the registrant issued and sold 80,000 shares of common stock to Stephen Szu-chien Chang, one of the registrant's employees, for aggregate consideration of $50.00. The registrant issued these securities in a transaction exempt from registration under Section 4(2) of the Securities Act.

In each transaction described above that was exempt from registration under Section 4(2) of the Securities Act, the recipients of the securities represented that their intentions were to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof. Appropriate legends were affixed to the share certificates and other instruments issued in such transactions. The sales of these securities were made without general solicitations or advertising.

Item 16. Exhibits and Financial Statement Schedules.

(a): Exhibits. See Index of Exhibits.
(b): Schedules. The required schedules are set forth in Part I of this registration statement.

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing(s) specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

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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 registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Barbara, State of California, on this 17^th day of February, 2005.

		FASTCLICK, INC.

		By:	/s/ KURT A. JOHNSON Kurt A. Johnson President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Title	Date

/s/ KURT A. JOHNSON Kurt A. Johnson	President, Chief Executive Officer (Principal Executive Officer) and Director	February 17, 2005
* Fred J. Krupica	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	February 17, 2005
* Robert J. Davis	Director	February 17, 2005
* Daniel J. Nova	Director	February 17, 2005
* Fredric W. Harman	Director	February 17, 2005

*By:

/s/ KURT A. JOHNSON

Kurt A. Johnson
Attorney-in-fact

II-6

INDEX OF EXHIBITS

The following documents are filed as exhibits to this registration statement:

Exhibit No.		Description
*1.1		Form of Underwriting Agreement.
**3.1		Amended and Restated Articles of Incorporation of Fastclick, Inc., as filed with the Secretary of State of the State of California on September 24, 2004, as amended.
3.2		Certificate of Amendment of Amended and Restated Articles of Incorporation of Fastclick.com, Inc. as filed with the Secretary of State of California on December 20, 2004 changing the Company name to Fastclick, Inc.
*3.3		Form of Restated Certificate of Incorporation of Fastclick, Inc., to be filed upon the closing of the offering to which this Registration Statement relates.
**3.4		Amended and Restated Bylaws of Fastclick, Inc.
*3.5		Form of Amended and Restated Bylaws of Fastclick, Inc., to be effective upon the closing of the offering to which this Registration Statement relates.
4.1		Investors' Rights Agreement dated September 27, 2004.
4.2		Amended and Restated Offer to Purchase for Cash Shares of Common Stock of Fastclick, Inc. dated September 9, 2004.
*4.3		Form of common stock certificate.
*5.1		Opinion of Sheppard, Mullin, Richter & Hampton LLP.
10.1		Recapitalization Agreement by and among Fastclick, Inc., the Purchasers named therein and Jeff Pryor and David R. Gross dated September 9, 2004.
10.2		Key Employee Agreement effective as of January 1, 2005 by and between Fastclick, Inc. and Kurt A. Johnson.
10.3		Key Employee Agreement dated August 1, 2004 by and between Fastclick, Inc. and Fred Krupica.
10.4		Key Employee Agreement dated February 11, 2004 by and between Fastclick, Inc. and James Aviani.
10.5		Key Employee Agreement dated December 1, 2004 by and between Fastclick, Inc. and Michael S. Hughes.
*10.6		2005 Equity Incentive Plan.
**10.7		2004 Stock Incentive Plan.
**10.8		Amended and Restated 2000 Stock Incentive Plan.
**10.9		Sublease dated November 25, 2002 by and between Fastclick, Inc. and Openwave Systems, Inc.
**10.10		Lease Agreement dated April 21, 2004 by and between Fastclick, Inc. and Citi Corp.
*10.11		Form of Director and Officer Indemnification Agreement.
10.12		Summary of Bonus Plan adopted February 2, 2005.
23.1		Consent of Ernst and Young LLP.
*23.3		Consent of Sheppard, Mullin, Richter & Hampton LLP, counsel to the registrant (included in 5.1).
**24.1		Power of Attorney.

*: To be filed by amendment.
**: Previously filed.

II-7

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TABLE OF CONTENTS
PROSPECTUS SUMMARY
Fastclick, Inc.
Company Information
Summary Financial Data
RISK FACTORS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
EXECUTIVE COMPENSATION
Summary Compensation Table
Option Grants in 2004
Aggregated Option Exercises in 2004 and Year-End Option Values
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PRINCIPAL AND SELLING STOCKHOLDERS
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. STOCKHOLDERS
UNDERWRITING
NOTICE TO CANADIAN RESIDENTS
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
Fastclick, Inc. INDEX TO FINANCIAL STATEMENTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FASTCLICK, INC. BALANCE SHEETS
FASTCLICK, INC. STATEMENTS OF INCOME
FASTCLICK, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FASTCLICK, INC. STATEMENTS OF CASH FLOWS
FASTCLICK, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
INDEX OF EXHIBITS
EX-3.2 2 a2151215zex-3_2.htm EXHIBIT 3.2

Exhibit 3.2

[STATE OF CALIFORNIA SEAL]

[OFFICE OF THE SECRETARY OF STATE SEAL]

SECRETARY OF STATE

I, Kevin Shelley, Secretary of State of the State of California, hereby certify:

The the attached transcript of 2 page(s) has been compared with the record on file in this office, of which it purports to be a copy, and that it is full, true and correct.

	IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this day of
[STATE OF CALIFORNIA SEAL]	DEC 21 2004 /s/ KEVIN SHELLEY Secretary of State

CERTIFICATE OF AMENDMENT

OF

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

FASTCLICK.COM, INC.

ENDORSED — FILED
In the office of the Secretary of State
of the State of California

DEC 20 2004

KEVIN SHELLEY
Secretary of State

KURT JOHNSON and FRED KRUPICA hereby certify that:

1. They are the President and the Secretary, respectively, of FASTCLICK.COM, INC., a California corporation (the "Corporation").

2. Article I of the Amended and Restated Articles of Incorporation of the Corporation is amended to read as follows:

"The name of this corporation is Fastclick, Inc."

3. The foregoing Certificate of Amendment of Amended and Restated Articles of Incorporation has been duly approved by the unanimous written consent of the Board of Directors of this Corporation.

4. The foregoing Certificate has been duly approved by the required vote of the shareholders of this Corporation in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of Common Stock of the Corporation is 612,044 shares. The total number of outstanding shares of Series A Preferred Stock of the Corporation is 2,131,285. The number of shares in favor of the Certificate of Amendment of Amended and Restated Articles of Incorporation equaled or exceeded the vote required. The percentage of votes required was more than fifty percent (50%) of the Common Stock and more than sixty-six percent (66.6%) of the Series A Preferred Stock.

We further declare, under penalty of perjury, under the laws of the State of California, that the matters set forth in this Certificate are true and correct of our own knowledge.

Date:	12/17/04
		/s/ KURT JOHNSON KURT JOHNSON, President

		/s/ FRED KRUPICA FRED KRUPICA Secretary

[OFFICE OF THE SECRETARY OF STATE SEAL]

EX-4.1 3 a2151215zex-4_1.htm EXHIBIT 4.1
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Exhibit 4.1

FASTCLICK.COM, INC.

INVESTORS' RIGHTS AGREEMENT

September 27, 2004

INVESTORS' RIGHTS AGREEMENT

This INVESTORS' RIGHTS AGREEMENT is made as of the 27th day of September, 2004, by and among Fastclick.com, Inc., a California corporation (the "Company"), the investors listed on Schedule A hereto, each of which is herein referred to as an "Investor," and the shareholders listed on Schedule B hereto, as amended from time to time, each of which is herein referred to as a "Restricted Person."

RECITALS

WHEREAS, the Company and the Investors are parties to that certain Recapitalization Agreement dated as of September 9, 2004 (the "Series A Agreement");

WHEREAS, as a condition of the obligations of, and an inducement to, the Investors to consummate the purchase of Series A Preferred Stock contemplated by the Series A Agreement, this Agreement shall be executed and delivered;

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:

1. Registration Rights. The Company covenants and agrees as follows:

1.1. Definitions. For purposes of this Agreement:

(a) The term "Act" means the Securities Act of 1933, as amended.

(b) The term "Common Stock" shall mean the Common Stock of the Company.

(c) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

(d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof.

(e) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended.

(f) The term "Person or Persons" shall mean an individual, corporation, partnership, joint venture, trust, or unincorporated organization, or a government or any agency or political subdivision thereof.

(g) The term "Qualified Public Offering" shall mean a fully underwritten, firm commitment public offering pursuant to an effective registration under the Act covering the offer and sale by the Company of its Common Stock in which the aggregate net proceeds to the Company equal or exceed $50,000,000, in which the price per share of such Common Stock equals or exceeds $70.38 per share (such price subject to equitable adjustment in the event of any stock split, stock dividend, combination, reorganization, reclassification or other similar event).

(h) The term "register", "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.

(i) The term "Registrable Securities" means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, (ii) any other Common Stock (including Common Stock issuable upon the conversion, exercise or exchange of any warrant, right or

other security convertible thereinto or exercisable or exchangeable therefor) acquired by an Investor, including, without limitation, pursuant to Section 2.4 and Section 3.1 of this Agreement, and (iii) any Common Stock issued as (or issuable upon the conversion, exercise or exchange of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) and (ii) above, excluding in all cases, however, any Registrable Securities (a) sold by a person in a transaction in which the rights under this Section 1 are not assigned, (b) registered under the Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them, or (c) publicly sold pursuant to Rule 144 under the Act.

(j) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock then outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable, exchangeable or convertible securities which are, Registrable Securities

(k) The term "SEC" shall mean the Securities and Exchange Commission.

(l) The term "Series A Directors" shall have the meaning ascribed to it in the Company's Articles of Incorporation, as amended from time to time.

(m) The term "Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock of the Company.

1.2. Request for Registration.

(a) If the Company shall receive at any time after the earlier of (i) September 15, 2007, or (ii) six (6) months after the effective date of the first registration statement for a public offering of securities of the Company, a written request from the Holders (other than the Restricted Persons) of one-third (¹/3) of the Registrable Securities then outstanding and owned by such Holders that the Company file a registration statement under the Act covering all or any portion of the registration of Registrable Securities, then the Company shall:

(i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders, and such Holders shall then be entitled within twenty (20) days thereafter to request the Company to include in the requested registration all or any portion of their shares of Registrable Securities; and

(ii) effect as soon as possible the registration under the Act of all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 1.2(b).

Notwithstanding anything to the contrary contained herein, no request may be made under this Section 1.2 within 180 days after the effective date of any registration statement on Form S-1 filed by the Company.

(b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein.

All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the managing underwriter(s) advises the Company and the Initiating Holders that marketing factors require the limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, as follows: the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders in proportion (as nearly as practicable) to the amount of Registrable Securities owned by each such Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.

(c) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2 after the Company has effected two (2) registrations pursuant to this Section 1.2; provided, however, that such obligation shall be deemed satisfied only when a registration statement covering all shares of Registrable Securities specified in notices received as aforesaid for sale in accordance with the method of disposition specified by the requesting holders shall have become effective or if such registration statement has been withdrawn prior to the consummation of the offering at the request of the holders of Registrable Securities (other than as a result of a material adverse change in the business or condition, financial or otherwise, of the Company) and, if such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto (not including shares eligible for sale pursuant to the underwriters' over-allotment option).

(d) The Company shall be entitled to include in any registration statement referred to in this Section 1.2 shares of Common Stock to be sold by the Company for its own account, except as and to the extent that, in the opinion of the managing underwriter, such inclusion would adversely affect the marketing of the Registrable Securities to be sold. Except for registration statements on Form S-4, S-8 or any successor thereto, the Company will not file with the SEC any other registration statement with respect to its Common Stock, whether for its own account or that of other stockholders, from the date of receipt of a notice from requesting holders requesting sale pursuant to an underwritten offering pursuant to this Section 1.2 until the completion of the period of distribution of the registration contemplated thereby.

1.3. Incidental Registration. If the Company at any time proposes to register any of its securities under the Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public), each such time it will give written notice to all holders of outstanding Registrable Securities of its intention so to do. Upon the written request of any such Holder, received by the Company within twenty (20) days after the giving of any such notice by the Company, to register any of its Registrable Securities, the Company will use best efforts to cause the Registrable Securities as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the holder of such Registrable Securities so registered. In the event that any registration pursuant to this Section 1.3 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Registrable Securities to

be included in such an underwriting may be reduced if and to the extent that the managing underwriter(s) advise the Company that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein, provided, however, that such number of shares of Registrable Securities shall not be reduced if any shares are to be included in such underwriting for the account of any person other than the Company or requesting holders of Registrable Securities, and provided, further, however, that in no event may less than ten percent (10%) of the total number of shares of Common Stock to be included in such underwriting be made available for shares of Registrable Securities unless the managing underwriter(s) shall advise the Company that such level of participation would materially adversely affect the offering price or its ability to complete the offering and shall specify the number of shares of Registrable Securities which can be included in the registration and underwriting without such an effect.

1.4. Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use best efforts to cause such registration statement to become and remain effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days (provided, however, that the period of distribution of Registrable Securities in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it).

(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period.

(c) Furnish to the Holders and to each underwriter such numbers of copies of a registration statement and a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the public sale or disposition of the Registrable Securities covered by such registration statement.

(d) Use best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, or in the case of an underwritten public offering, the managing underwriter; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a

material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.

(g) Use its best efforts to list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed.

(h) Provide a transfer agent and registrar for all such Registrable Securities, not later than the effective date of such registration statement.

(i) If the offering is underwritten and at the request of any seller of Registrable Securities, use its best efforts to furnish on the date that Registrable Securities are delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Act (except that such counsel need not express any opinion as to financial statements contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request.

(j) Advise each selling Holder of Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use all reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued.

(k) Cooperate with the selling Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, such certificates to be in such denominations and registered in such names as such Holders or the managing underwriters may request at least two (2) business days prior to any sale of Registrable Securities.

In connection with each registration pursuant to Section 1 covering an underwritten public offering, the Company and each participating Holder of Registrable Securities agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature.

Notwithstanding the provisions of Section 1.4, the Company's obligation to file a registration statement, or cause such registration statement to become and remain effective, shall be suspended for a period not to exceed 90 days in any twelve (12) month period if there exists at the time

material non-public information relating to the Company which, in the reasonable opinion of the Company, should not be disclosed.

1.5. Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. (b) The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.10 if, other than due to the operation of subsection 1.2(b), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a) or Section 1.10, whichever is applicable.

1.6. Expenses of Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2. 1.3 or 1.10, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company (provided that the Company's obligation to pay the reasonable fees and disbursements of one counsel for the Holders shall not exceed $20,000 in such registration); provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2.

1.7. Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

1.8. Indemnification and Contribution. In the event any Registrable Securities are included in a registration statement under this Section 1:

(a) The Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of any material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action as incurred;

provided, however, that the indemnity agreement contained in this subsection 1.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person.

(b) Each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person entitled to be indemnified pursuant to this subsection 1.8(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.8(b) exceed the gross proceeds from the offering received by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 1.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve the indemnifying party of any liability that it may have to the indemnified party hereunder unless such failure materially and adversely prejudices the ability of the indemnifying party to defend such action, and the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.8.

(d) If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying

such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violations that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations; provided, however, that no such indemnifying party will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered by it pursuant to such registration statement. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant to this Section 1.8 were determined by pro rata allocation or by any other method of allocation which does not take into account of the equitable considerations referred to above. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(f) The obligations of the Company and Holders under this Section 1.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

1.9. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Act, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public;

(b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and

(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 under the Act (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.

1.10. Form S-3 Registration. If at any time (i) a Holder or Holders of Registrable Securities request that the Company file a registration statement on Form S-3 or any successor thereto for a

public offering of all or any portion of the shares of Registrable Securities held by such requesting holder or holders, having an aggregate value of $2,500,000 (based on the then current market price), and (ii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, then the Company shall use best efforts to register under the Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Registrable Securities specified in such notice. Whenever the Company is required by this Section 1.10 to use best efforts to effect the registration of Registrable Securities, each of the procedures and requirements of Section 1.2 (including but not limited to the requirement that the Company notify all holders of Restricted Stock from whom notice has not been received and provide them with the opportunity to participate in the offering) shall apply to such registration, provided, however, that there shall be no limitation on the number of registrations on Form S-3 which may be requested and obtained under this Section 1.10, and provided, further, however, that the requirements contained in the first sentence of Section 1.2(a) shall not apply to any registration on Form S-3 which may be requested and obtained under this Section 1.10.

Notwithstanding anything to the contrary in this Section 1.10, the Company shall not be required to effect more than one (1) registration pursuant to this Section 1.10 in any twelve (12) month period or, to effect a registration statement pursuant to this Section 1.10 as to any Holder, if such Holder is then entitled to sell all of the Registrable Securities held by such Holder within any three (3) month period under Rule 144 of the Act.

1.11. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least 500,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations), provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.12 below by executing an Instrument of Accession in the form of Schedule C hereto. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1.

1.12. Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of two-thirds (²/3) of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders, including the Restricted Person, which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2.

1.13. "Market Stand-Off" Agreement. Each Holder and each Restricted Person hereby agrees that, if requested in writing, during the period of duration specified by an underwriter of Common Stock or other securities of the Company, following the date of the initial sale to the public pursuant to a registration statement of the Company filed under the Act, it shall not, to the extent requested by such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees of Holders who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration (including, without limitation, pursuant to this Section 1); provided, however, that;

(a) such market stand-off time period shall not exceed 180 days; and

(b) all persons entitled to registration rights with respect to shares of Common Stock who are not parties to this Agreement, all other persons selling shares of Common Stock in such offering, all persons holding in excess of 1% of the capital stock of the Company on a fully diluted basis, and all executive officers and directors of the Company shall also have agreed not to sell publicly Common Stock under the circumstances and pursuant to the terms set forth in this Section 1.13.

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

1.14. Termination of Registration Rights. The obligations of the Company to register shares of Registrable Securities, and the obligations of each Holder and each Restricted Person, under Section 1 shall terminate on the fifth anniversary of the date of a Qualified Public Offering.

2. Covenants of the Company.

2.1. Delivery of Financial Statements The Company shall deliver to each Investor who (together with its affiliates) holds a minimum of 100,000 shares of Series A Preferred Stock:

(a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholders' equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and audited and certified by independent public accountants of nationally recognized standing selected by the Company;

(b) within thirty (30) days of the end of each calendar month, an unaudited income statement and schedule as to the sources and application of funds and balance sheet for and as of the end of such month, in reasonable detail, as well as the number of employees, comparison to monthly budgets and other reasonably requested information; and

(c) prior to the end of each fiscal year, a budget and business plan for the next fiscal year, including balance sheets, projected profits and losses and sources and applications of funds statements for such fiscal year.

2.2. Inspection. The Company shall permit each Investor, at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information.

2.3. Termination of Information and Inspection Covenants. The covenants set forth in Section 2.1 and Section 2.2 shall terminate as to Investors and be of no further force or effect upon (i) a Qualified Public Offering, (ii) the Company first becomes subject to the periodic reporting requirements of Sections 13(a) or Section 15(d) of the 1934 Act, or (iii) the date upon which there are no Registrable Securities outstanding, whichever event shall first occur.

2.4 Right of First Offer.

Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined).

Each time the Company proposes to offer any shares of, or securities convertible into or exercisable or exchangeable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Investor in accordance with the following provisions:

(a) The Company shall deliver a notice by certified mail ("Notice") to the Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares.

(b) By written notification received by the Company, within twenty (20) calendar days after receipt of the Notice, each Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series A Preferred Stock then held, by such Investor bears to the total number of shares of Common Stock outstanding as of the date of the Notice (assuming full conversion and exchange of all the then outstanding shares of the capital stock of the Company convertible into or exchangeable for Common Stock) (such proportion hereinafter referred to as such Investor's "Pro Rata Share"). If all of the Shares offered to the Investors are not purchased by the Investors, the Company shall reoffer any remaining Shares to the Investors purchasing their full allotment upon the terms set forth in Sections 2.4(a) and 2.4(b), except that such Investors must exercise or decline such additional purchase rights within ten (10) days after the receipt of such reoffer.

(c) If all Shares referred to in the Notice are not elected to be obtained as provided in subsection 2.4(b) hereof, the Company may, during the 60-day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Investors in accordance herewith.

(d) The right of first offer in this Section 2.4 shall not be applicable (i) to shares of capital stock (or options, warrants or other rights to purchase or subscribe for such capital stock) issuable or issued to (x) employees, consultants, directors or advisors of the Company pursuant to a stock option plan, restricted stock plan or other similar arrangement approved by the Company's Board of Directors, not to exceed 981,485 shares of Common Stock (subject to adjustment for any stock dividends, combinations, stock splits or recapitalization affecting the number of shares of Common Stock outstanding) less the number of shares of Common Stock (as so adjusted) issued pursuant thereto as of the date of this Agreement, or (y) vendors, financial institutions, equipment leasing companies, lessors or customers of the

Company pursuant to arrangements approved by the Company's Board of Directors, which approval shall include the approval of no less than two (2) of the Series A Directors, (ii) to a public offering pursuant to an effective registration statement under the Act of the Company's equity securities, (iii) to the issuance of securities pursuant to the conversion, exercise or exchange of convertible, exercisable or exchangeable securities outstanding as of the date of this Agreement, (iv) to the issuance of securities in connection with a bona fide acquisition by the Company of any business or assets or any joint venture or strategic allegiance or similar transaction, the terms of which are approved by the Board of Directors, which approval shall include the approval of no less than two (2) of the Series A Directors, (v) to the issuance of securities in connection with any stock split, stock dividend, combination or other recapitalization of the Company, and (vi) to the issuance of any securities pursuant to any transactions approved by the Board of Directors, which approval shall include the approval of no less than two (2) of the Series A Directors, primarily for the purpose of (a) the purchase of domain names and related trademarks and trade names, (b) joint ventures, licensing or research and development activities, (c) distribution or manufacture of this corporation's products or services or (d) the purchase of advertising placement.

(e) Notwithstanding any other provision of this Section 2.4, any Investor may waive his, her or its rights with respect to any particular offer or right given under, or any provision contained in, Section 2.4 by notice in writing to the Company. Additionally, in the event that the Investors holding at least 60% of the shares of Series A Preferred Stock then outstanding elect with respect to any offer covered by, any right given under or any provision contained in, this Section 2.4 by notice in writing to the Company and all other non-waiving Investors, then such waiver shall be binding upon all of the Investors.

2.5. Termination of Rights. The rights set forth in Section 2.4 hereof shall terminate and be of no further force or effect upon the earlier of (i) a Qualified Public Offering, or (ii) the closing of any merger or consolidation of the Company in which the shareholders of the Company immediately prior to such merger or consolidation retain less than fifty percent (50%) of the voting power of the Company immediately following such merger or consolidation. Rights set forth in Section 2.4 hereof shall not apply to either of the terminating events described in the preceding sentence.

3. Covenants of Restricted Persons.

3.1 Right of First Refusal on Dispositions by the Restricted Persons.

(a) If at any time any Restricted Person wishes to sell, assign, transfer or otherwise dispose of any or all of his, her or its Shares pursuant to the terms of a bona fide offer received from a third party, such Restricted Person shall submit a written offer to sell such shares of the Company's capital stock (the "Offered Shares") to the Company and the Investors on terms and conditions, including price, not less favorable to the Company and the Investors than those on which he proposes to sell such Offered Shares to such third party (the "Offer"). The Offer shall disclose the identity of the proposed purchaser or transferee, the Offered Shares proposed to be sold or transferred, the agreed terms of the sale or transfer, including price, and any other material facts relating to the sale or transfer. Within twenty (20) calendar days after receipt of the Offer, the Company shall give notice to such Restricted Person of its intent to purchase all or any portion of the Offered Shares on the same terms and conditions as set forth in the Offer. If, for any reason whatever, the Company shall not exercise its right to purchase all of the Offered Shares as provided herein, then each of the Investors shall have the right to purchase, on the same terms and conditions set forth in the Offer, that portion of the Offered Shares which the Company shall not have agreed to purchase from such Restricted Person (all such remaining shares being referred to as the

"Remaining Offered Shares") to be determined in the manner set forth herein. Each Investor shall have the right to purchase that number of the Remaining Offered Shares as shall be equal to the aggregate Remaining Offered Shares multiplied by a fraction, the numerator of which is the number of issued and outstanding shares of Common Stock then owned by such Investor (including any shares deemed to be beneficially owned by such Investor pursuant to Rule 13d-3 promulgated under the 1934 Act ("Rule 13d-3")) and the denominator of which is the aggregate number of issued and outstanding shares of Common Stock then owned by (including any shares deemed to be beneficially owned pursuant to Rule 13d-3 by) all the Investors (assuming, in each case, full conversion and exchange of all of the then outstanding shares of the capital stock of the Company convertible into or exchangeable for Common Stock). The amount of Offered Shares each Investor or Qualified Transferee, as that term is defined below, is entitled to purchase under this Section 3.1 shall be referred to as such Investor's "Pro Rata Fraction." Each Investor shall have the right to transfer his, her or its right to purchase any Pro Rata Fraction or part thereof to any Qualified Transferee. In the event an Investor does not wish to purchase or to transfer his, her or its right to purchase his, her or its Pro Rata Fraction, then any Investors who so elect shall have the right to purchase, on a pro rata basis with any other Investors who so elect, any Pro Rata Fraction not purchased by an Investor or Qualified Transferee. Each Investor and Qualified Transferee shall act upon the Offer as soon as practicable after receipt from the Company of notice that it has not elected to purchase all of the Offered Shares, and in all events within fifteen (15) calendar days after receipt thereof. Each Investor shall have the right to accept the Offer as to all or part of the Remaining Offered Shares offered thereby. In the event that an Investor shall elect to purchase all or part of the Remaining Offered Shares covered by the Offer, said Investor shall individually communicate in writing such election to purchase to the Restricted Person who has made the Offer, which communication shall be delivered by hand or mailed to such Restricted Person in accordance with Section 4.5 below and shall, when taken in conjunction with the Offer be deemed to constitute a valid, legally binding and enforceable agreement for the sale and purchase of the Remaining Offered Shares covered thereby. If any Investor or Qualified Transferee does not deliver to the Restricted Person within the foregoing 15 calendar day period written notice that it has elected to purchase the Offered Shares, the Investor or Qualified Transferee shall be deemed to have elected not to purchase the Offered Shares.

(b) In the event that the Company and the Investors, taken together, do not purchase all of the Offered Shares by a Restricted Person pursuant to and within forty-five (45) calendar days after the Offer, such Restricted Person may sell all, but not less than all, of the Offered Shares at any time within 90 calendar days after the expiration of the Offer, but subject to the provisions of Section 3.2 below. Any such sale of the Offered Shares shall be at not less than the price and upon other terms and conditions, if any, not more favorable to the purchaser than those specified in the Offer. Any Shares not sold within such 90-day period shall continue to be subject to the requirements of a prior offer and re-sale pursuant to this Section 3.

(c) For purposes of this Section 3.1, a "Qualified Transferee" of an Investor shall mean any person (i) who is an Investor, (ii) who is an "affiliated person" of an Investor, as that term is defined in the Investment Company Act of 1940, or (iii) who is a partner of an Investor.

3.2 Right of Co-Sale. If at any time any Restricted Person wishes to sell, assign, transfer or otherwise dispose of any or all of his, her or its Offered Shares to any person (the "Purchaser") in a transaction which is subject to the provisions of Section 3.1 hereof and subject to the exercise of rights under such Section 3.1, each Investor shall have the right to require, as a condition to such

sale or disposition, that the Purchaser purchase from said Investor at the same effective price per share of Common Stock and on the same terms and conditions as involved in such sale or disposition by the Restricted Person that number of Shares owned (and deemed to be beneficially owned under Rule 13d-3) by such Investor as is equal to the product of the number of Offered Shares that the Restricted Person wishes to sell, assign, transfer or dispose to the Purchaser of multiplied by a fraction, the numerator of which is the number of issued and outstanding Shares of Common Stock then owned by such Restricted Person or such participating Investor (including any Shares deemed to be owned under Rule 13d-3) and the denominator of which is the aggregate number of issued and outstanding Shares of Common Stock held by (including any Shares deemed to be held pursuant to Rule 13d-3 by) the Restricted Person and all of the participating Investors (assuming, in each case, full conversion and exchange of all the then outstanding Shares convertible into or exchangeable for Common Stock). Each Investor wishing so to participate in any such sale, assignment, transfer or disposition shall notify the selling Restricted Person of such intention as soon as practicable after receipt of the Offer made pursuant to Section 3.1, and in all events within twenty (20) calendar days after receipt thereof. In the event that an Investor shall elect to participate in such sale, assignment, transfer or disposition, said Investor shall individually communicate such election to the selling Restricted Person in accordance with Section 4.5. The Restricted Person and/or each participating Investor shall sell to the Purchaser all, or at the option of the Purchaser, any part of the Offered Shares proposed to be sold by them at not less than the price and upon other terms and conditions, if any, not more favorable to the Purchaser than those originally offered; provided, however, that any purchase of less than all of such Shares by the Purchaser shall be made from the Restricted Person and/or each participating Investor on a pro rata basis based upon the foregoing calculation. The selling Restricted Person or Investor shall use his, her or its reasonable efforts to obtain the agreement of the Purchaser to the participation of the participating Investors in the contemplated sale, and shall not sell any Shares to such Purchaser if such Purchaser declines to permit the participating Investors to participate pursuant to the terms of this Section 3. The provisions of this Section 3.2 shall not apply to the sale of any Shares by a Restricted Person to the Company or an Investor pursuant to Section 3.1. If any Investor does not deliver to the Restricted Person within the foregoing 20-calendar day period written notice that it has elected to exercise its rights under this Section 3.2, the Investor shall be deemed to have elected not to exercise such rights.

3.3 Exempt Transfers.

(a) Notwithstanding anything in this Agreement to the contrary, the provisions of this Section 3 shall not apply to: (a) any transfer, assignment or disposition of Shares by a Restricted Person by gift or bequest or through inheritance to, or for the benefit of, any member or members of his or her immediate family (which shall include any spouse, lineal ancestor or descendant or sibling) or to a trust, partnership, limited partnership or limited liability company for the benefit of such members; (b) any transfer, assignment or disposition of Shares by a Restricted Person to a trust in respect of which he or she serves as trustee, provided that the trust instrument governing said trust shall provide that such Restricted Person, as trustee, shall retain sole and exclusive control over the voting and disposition of said Shares until the termination of this Agreement or such Restricted Person's death, whichever the earlier to occur; and (c) any repurchase of Shares by the Company pursuant to agreements under which the Company has the option to repurchase such shares upon the occurrence of certain events, including termination of employment.

(b) In the event of any such transfer, assignment or disposition, the transferee of the Shares shall hold the Shares so acquired with all the rights conferred, and subject to all the restrictions imposed, by this Agreement, and as a condition to such transfer, assignment or disposition, each such transferee shall execute and deliver an instrument of accession in the

form of Schedule C hereto agreeing to be bound by the provisions of this Agreement, as if such transferee was a Restricted Person.

(c) Notwithstanding anything in this Section 3 to the contrary, the provisions of this Section 3 shall not apply to the sale of any securities to the public in connection with a Qualified Public Offering.

3.4. Legend.

(a) Each certificate representing shares of stock now or hereafter owned by a Restricted Person or issued to any person in connection with a transfer to a third party by a Restricted Person shall be endorsed with the following legend:

THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTORS' RIGHTS AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.

3.5. Termination of Rights. The rights set forth in this Section 3 shall terminate and be of no further force or effect upon the earlier of (i) a Qualified Public Offering, (ii) the closing of any merger or consolidation of the Company in which the voting shares of the Company immediately prior to such merger or consolidation represent less than fifty percent (50%) of the voting power of the voting shares of the Company or the resulting or surviving entity immediately following such merger or consolidation., or (iii) the closing of any sale, license, lease or other disposition of all or substantially all of the assets of the Company, other than a sale, license, lease or other disposition to a wholly-owned subsidiary of the Company.

4. Miscellaneous

4.1. Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Company shall amend Schedule A and Schedule B as necessary (which amendments shall not require the consent of the holders of Registrable Securities in accordance with Section 4.7) to include any successor or assign of an Investor or any successor or permitted assign of a Restricted Person upon the execution by such successor or assign of an instrument of accession, in the form of Schedule C hereto.

4.2. Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California.

4.3. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

4.4. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

4.5. Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be sent to the address/fax number indicated for such party on the signature page hereof or an instrument of accession attached in the form of Schedule C hereto, as appropriate (provided that any party may at any time change its address/fax number for notice by providing ten (10) days advance written notice to the other parties), and shall be deemed effectively given upon (i) personal delivery to the party to be notified, (ii) the time of successful facsimile transmission to the party to be notified, (iii) one (1) day following sending by reputable overnight delivery service or (iv) five (5) days following deposit with the United States Post Office, by registered or certified mail, postage prepaid.

4.6. Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

4.7. Amendments and Waivers. Except as otherwise set forth herein, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least two-thirds (²/3) of the Registrable Securities then outstanding, provided that any amendment that adversely affects the rights, obligations or interests of a Restricted Person hereunder shall require the written consent of such Restricted Person, and provided further that no amendment or waiver of (a) Section 3.1, Section 3.2 or Section 3.3 will be effective against a Restricted Person hereunder without the written consent of such Restricted Person, and (b) the minimum number of shares of Series A Preferred Stock set forth in Section 2.1 will be effective against Steamboat Ventures, LLC hereunder without the written consent thereof. Subject to the forgoing, any amendment or waiver effected in accordance with this Section 4.7 shall be binding upon each holder (and future holder) of any Registrable Securities then outstanding (whether or not such holder in fact consented to such amendment or waiver) and the Company.

4.8. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

4.9. Aggregation of Stock. All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

4.10. Entire Agreement. This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.

4.11. Additional Parties. The Company shall cause each of its employees, consultants, directors and advisors who shall, after the date of this Agreement, acquire any Shares, to become a party to this Agreement, as if he, she or it was a Restricted Person, by executing an instrument of accession in the form of Schedule C hereto, in which event such person shall become bound by the terms of this Agreement and shall be deemed a Restricted Person hereunder, provided, however, that the Company shall not be required to take any action that would result in the loss of its exemption under California Code Section 25102(o) related to its employee stock option plans. The Company shall not issue any Shares to such employees, consultants, directors or advisors, nor transfer on its books any Shares which are subject to this Agreement, unless the provisions of this Section 4.11 or Section 3.3, as the case may be, have been complied with in full. Any purported transfer of Shares without full compliance with the provisions of this Agreement shall be null and void. Any Investor may transfer Shares to any Person provided that the transferee of the Shares

shall hold the Shares so acquired with, subject to Section 1.11, all the rights conferred by, and subject to all the restrictions imposed by, this Agreement, and as a condition to such transfer each such transferee shall execute and deliver an instrument of accession in the form of Schedule C hereto agreeing to be bound by the provisions of this Agreement, as if he, she or it was an Investor. The Company shall amend (which amendments shall not require the consent of the holders or Registrable Securities in accordance with Section 4.7) (a) Schedule B to include any additional Restricted Person or to reflect any permitted transfer by a Restricted Person and (b) Schedule A to reflect any transfer by an Investor, upon the execution by such Restricted Person or transferee, as the case may be, of an instrument of accession, in the form of Schedule C hereto.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	FASTCLICK.COM, INC., a California corporation
	By:	/s/ Kurt Johnson Kurt Johnson, Chief Executive Officer
Address:	360 Olive Street Santa Barbara, CA 93101
	INVESTORS:
	HIGHLAND CAPITAL PARTNERS VI LIMITED PARTNERSHIP
	By:	Highland Management Partners VI Limited Partnership, its General Partner
	By:	Highland Management Partners VI, Inc., its General Partner
	By:	/s/ Bob Davis Authorized Officer
	HIGHLAND CAPITAL PARTNERS VI-B LIMITED PARTNERSHIP
	By:	Highland Management Partners VI Limited Partnership, its General Partner
	By:	Highland Management Partners VI, Inc., its General Partner
	By:	/s/ Bob Davis Authorized Officer
	HIGHLAND ENTREPRENEURS' FUND VI LIMITED PARTNERSHIP
	By:	HEF VI Limited Partnership, its General Partner
	By:	Highland Management Partners VI, Inc., its General Partner
	By:	/s/ Bob Davis Authorized Officer
	OAK INVESTMENT PARTNERS XI, LIMITED PARTNERSHIP
	By:	Oak Associates XI, LLC, its General Partner
	By:	/s/ Fredric W. Harman Managing Member
[Signature Page to Investors' Rights Agreement]

		STEAMBOAT VENTURES, LLC
		By:		/s/ John Ball
		Name:		John Ball
		Title:		Managing Director
		STEAMBOAT VENTURES MANAGER, LLC
		By:		/s/ John Ball
		Name:		John Ball
		Title:		Managing Director
		RESTRICTED PERSONS:
		/s/ Jeff Pryor Jeff Pryor
		Address:
		960 Camino Del Rio
		Santa Barbara, CA 93110
		/s/ David Gross David Gross
		Address:
		753 Walcott Ave.
		Ventura, CA 93003
		/s/ Stephen Szu-chien Chang Stephen Szu-chien Chang
		Address:
		7371 Freeman Pl Unit B
		Goleta, CA 93117
		/s/ Kurt Johnson Kurt Johnson
		Address:
		4731 Paseo Maravilla
		Camarilla, CA 93012
		/s/ Jeffrey Hirsch Jeffrey Hirsch
		Address:
		1306 Morrison St.
		Santa Barbara, CA 93103
		/s/ Fred Krupica Fred Krupica
		Address:
		121 Calle Palo Colorado
		Santa Barbara, CA 93105

		/s/ James Aviani James Aviani
		Address:
		170 Olive Mill Road
		Santa Barbara, CA 93108
		/s/ Shayne Mihalka Shayne Mihalka
		Address:
		2590 Bayshore
		Ventura, CA 93001
		Barry Anderson
		Address:


		/s/ Alexis Weaver Alexis Weaver
		Address:
		39 E. Calle Crespis
		Santa Barbara, CA 93105

SCHEDULE A

INVESTORS

Highland Capital Partners VI Limited Partnership
Highland Capital Partners VI-B Limited Partnership
Highland Entrepreneurs' Fund VI Limited Partnership
Oak Investment Partners XI, Limited Partnership
Steamboat Ventures, LLC
Steamboat Ventures Manager, LLC

SCHEDULE B

RESTRICTED PERSONS

Jeff Pryor
David Gross
Stephen Szu-chien Chang
Kurt Johnson
Jeffrey Hirsch
Fred Krupica
James Aviani
Shayne Mihalka
Barry Anderson
Alexis Weaver

SCHEDULE C

FASTCLICK.COM, INC.

INSTRUMENT OF ACCESSION

The undersigned, , as a condition precedent to becoming the owner or holder of record of ( ) shares of the Stock, no par value, of Fastclick.com, Inc., a California corporation (the "Company"), hereby agrees to become an [Investor/Restricted Person] under that certain Investors' Rights Agreement dated as of September , 2004 by and among the Company and the other parties thereto. This Instrument of Accession shall take effect and shall become an integral part of, and the undersigned shall become a party to and bound by, said Investors' Rights Agreement immediately upon execution and delivery to the Company of this Instrument.

IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed by or on behalf of the undersigned, as a sealed instrument under the laws of the State of California, as of the date below written.

		Signature:

		(Print Name)
		Address:


		Date:
		Accepted:
		FASTCLICK.COM, INC.
		By:
		Name:
		Title:
		Date:

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FASTCLICK.COM, INC. INVESTORS' RIGHTS AGREEMENT September 27, 2004
EX-4.2 4 a2151215zex-4_2.htm EXHIBIT 4.2
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Exhibit 4.2

CONFIDENTIAL AND NOT FOR DISTRIBUTION OR RECIRCULATION

AMENDED AND RESTATED OFFER TO PURCHASE FOR CASH
SHARES OF COMMON STOCK
OF FASTCLICK.COM, INC.

September 9, 2004

On August 3, 2004, Fastclick.com, Inc. (the "Company" or "Fastclick"), delivered to its shareholders an Offer to Purchase for Cash Shares of Common Stock of Fastclick.com, Inc. (the "Original Offer") in connection with transactions contemplated in the Recapitalization Agreement (as defined below). On August 27, 2004, the Company extended the expiration of the Original Offer from August 31, 2004 at 5:00 p.m. to September 10, 2004 at 5:00 p.m., as a result of the Company's and the Investors' (as defined below) continued negotiations regarding the terms of the Recapitalization Agreement and related transactions (collectively, the "Transactions").

The Company and the Investors subsequently reached agreement on the terms of the Transactions and executed a definitive Recapitalization Agreement. Certain material terms, including the price at which the Company will repurchase stock from its shareholders, have changed from the terms set forth in the documents sent to you on August 3, 2004. These changes were made as a result of several factors, including current market conditions.

The Board of Directors approved the changes to the Transactions and determined that it to be in the best interest of the Company and its shareholders for the Company to enter into the Recapitalization Agreement and other Transactions.

WE HAVE EXTENDED THE OFFER PERIOD AS A RESULT OF CHANGES TO THE MATERIAL TERMS OF THE TRANSACTIONS. THE EXPIRATION OF THE OFFER HAS BEEN CHANGED FROM SEPTEMBER 10, 2004 AT 5:00 P.M. TO SEPTEMBER 23, 2004 AT 5:00 P.M. AS A RESULT OF THIS EXTENSION, THE DULY EXECUTED LETTER OF TRANSMITTAL MUST BE RECEIVED BY THE COMPANY BY 5:00 P.M. ON SEPTEMBER 23, 2004.

Certain of the material changes to the terms of the Transactions include:

1. The per share price at which the Company will sell the Series A Preferred Stock has been reduced from $45.6823 per share to $35.19 per share.

2. The per share price at which the Company will repurchase Common Stock has been reduced from $45.6823 per share to $35.19 per share.

3. The amount of shares of Common Stock that the Company must repurchase from its shareholders in order to close the Investment Transaction has been changed from 1,200,000 to 1,136,686.

4. The Escrow Holdback has been decreased from $6,500,000 to $3,000,000.

5. The Company plans to pay the S election distribution on or before December 31, 2004, subject only to compliance with California Corporations Code Section 500 et. seq.

In addition to the foregoing, other changes to the Transactions include modifications to the Drag-Along Agreement (as defined below) and other changes as described in the Amended and Restated Offer to Purchase below and accompanying documents.

THE INFORMATION SET FORTH ABOVE REGARDING THE TRANSACTIONS HIGHLIGHTS ONLY SELECTED INFORMATION. IT DOES NOT CONTAIN OR DISCUSS ALL OF THE

INFORMATION THAT MAY BE IMPORTANT TO YOU REGARDING THE TRANSACTIONS, AND IS QUALIFIED IN ITS ENTIRETY BY THE AMENDED AND RESTATED OFFER TO PURCHASE BELOW AND ACCOMPANYING DOCUMENTS. YOU SHOULD READ THE AMENDED AND RESTATED OFFER TO PURCHASE AND ACCOMPANYING DOCUMENTS IN THEIR ENTIRETY.

As a result of these and other changes, we are amending and restating the Original Offer and related documents sent to you on August 3, 2003 as well as extending the Offer as described below.

The Company hereby offers to repurchase outstanding shares of its Common Stock (the "Shares") upon the terms and subject to the conditions set forth in this Amended and Restated Offer to Purchase and the related Letter of Transmittal (which together with any amendments or supplements hereto or thereto collectively constitute the "Offer"). The Shares will be repurchased at a gross purchase price of $35.19 per share, as adjusted in accordance with the formula described below, that will result in an approximate net purchase price of $34.79 per share. The final net purchase price will depend upon the total Fees (as defined below) and the total number of Shares purchased by the Company pursuant to this Offer.

The Company has entered into a Recapitalization Agreement dated September 9, 2004 (the "Recapitalization Agreement"), with, among others, Highland Capital Partners VI Limited Partnership, Highland Capital Partners VI-B Limited Partnership, Highland Entrepreneurs' Fund VI Limited Partnership, Oak Investment Partners XI, Limited Partnership, Steamboat Ventures, LLC and Steamboat Ventures Manager, LLC (collectively, the "Investors"). Pursuant to and on the terms and conditions set forth in the Recapitalization Agreement, the Company will sell to the Investors, and the Investors will purchase from the Company, a minimum of 1,705,029 shares and a maximum of 2,131,285 shares of the Company's Series A Preferred Stock at a price per share of $35.19 for a minimum aggregate purchase price of approximately $60,000,000 and a maximum aggregate purchase price of approximately $75,000,000. A minimum of approximately $40,000,000 and up to a maximum of approximately $55,000,000 of the proceeds from the sale of the Series A Preferred Stock (such final amount to be determined by the Company in its sole discretion) will be used to finance the Company's purchase of a minimum of 1,136,686 (the "Minimum Amount") shares of Common Stock and up to a maximum of 1,562,944 (the "Maximum Amount") shares of Common Stock as set forth below. As a condition precedent to closing of any sale of the Series A Preferred Stock under the Recapitalization Agreement, the Company is required to obtain agreements from the holders of the Company's Shares for the repurchase of the Minimum Amount of Shares. The Company anticipates repurchasing all Shares tendered pursuant to this Offer up to the Maximum Amount.

PARTICIPATION IN THE OFFER IS COMPLETELY VOLUNTARY. NEITHER FASTCLICK NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION WHETHER YOU SHOULD ACCEPT THE OFFER AND TENDER ANY SHARES. YOU MUST MAKE YOUR OWN DECISION WHETHER TO ACCEPT THE OFFER AND TO TENDER YOUR SHARES. IN ORDER TO ACCEPT THE OFFER, YOU MUST DULY AND TIMELY EXECUTE AND RETURN THE ENCLOSED LETTER OF TRANSMITTAL AS EXPLAINED HEREIN.

UNLESS THE EXPIRATION DATE IS EXTENDED, THE DULY EXECUTED LETTER OF TRANSMITTAL MUST BE RECEIVED BY THE COMPANY BY 5:00 P.M. ON SEPTEMBER 23, 2004.

Each shareholder that elects to sell Shares pursuant to this Offer (collectively, the "Selling Shareholders") shall be required to bear his or her equitable portion of the fees and expenses due and payable in connection with the transactions contemplated in the Recapitalization Agreement (all such transactions, collectively, the "Recapitalization"). Therefore, the per share price at which the Company shall repurchase the Selling Shareholders' Shares shall be reduced by the per share amount of the

following approximate fees (collectively, the "Fees") per share sold: (i) $7,500 representing the fifty percent (50%) of the approximate fees and expense of the Escrow Agent (as defined below); (ii) $50,000 representing the approximate fees and expenses of Reicker, Pfau, Pyle, McRoy & Herman, LLP ("Shareholder Counsel"), special counsel for the Selling Shareholders; and (iii) $571,740 representing approximately 73.3% of the fees of Perseus Group, LLC(1) ("Broker") for its services in connection with the transactions contemplated in the Recapitalization Agreement. Notwithstanding the foregoing estimated Fees, the Selling Shareholders shall be responsible for the actual amount of the Fees.

(1) The percentage shown assumes that the Company repurchases the Maximum Amount of Shares. The total fees owed the Broker are $780,000. The percentage of the total fees of the Broker for which the shareholders are responsible is equal to a ratio, the numerator of which is the aggregate purchase price for the Shares repurchased by the Company in the Offer and the denominator of which is the aggregate purchase price for the Series A Preferred Stock purchased by the Investors pursuant to the Recapitalization Agreement. To the extent the Company repurchases less than the Maximum Amount of Shares, the percentage of the total fees of the Broker for which the shareholders shall be responsible shall adjusted accordingly.

The Investors have placed in escrow with American Stock Transfer & Trust Company (the "Escrow Agent") an aggregate amount of up to $75,000,000, of which up to $55,000,000 (the "Aggregate Repurchase Amount") may be used for the repurchase of Shares and funding the Escrow Holdback described below. Upon closing of the Offer, the "net offer price" (calculated in accordance with the formula described below) (the "Net Offer Price"), less the Escrow Holdback (as defined below), will be paid to Selling Shareholders out of the escrow for each Share purchased by the Company and the difference between the Offer Price (as defined below) and the Net Offer Price will be paid to Escrow Agent, Shareholder Counsel and Broker to pay their Fees.

The Net Offer Price for each outstanding Share will be an amount of cash equal to $35.19 per share (the "Offer Price") less an amount representing the Fees to be paid by the Selling Shareholders per share of Common Stock sold. The Fees per share to be paid by the Selling Shareholders shall be calculated by dividing the total amount of the Fees by the total number of Shares that the Company purchases from Selling Shareholders pursuant to this Offer.

For example purposes only, assuming each Selling Shareholder of the Company sells its full Pro Rata Share (as defined below) and assuming the estimated Fees referenced above were the actual Fees, the Net Offer Price would be:

$34.79 = $35.19 - ($629,240/1,562,944).

An amount equal to approximately 5.5%(2) of the Offer Price for each Share purchased by the Company pursuant to this Offer (for an aggregate of $3,000,000, hereinafter, the "Escrow Holdback"), shall be held by the Escrow Agent and not distributed to Selling Shareholders except as provided below. The Escrow Holdback shall be used to satisfy any of the Company's indemnification obligations owed to the Investors under the Recapitalization Agreement.

(2) This assumes the Maximum Amount of Shares are repurchased by the Company pursuant to the Offer. The dollar amount of the Escrow Holdback will remain the same and will not be reduced if less than the Maximum Amount of Shares is repurchased by the Company. Thus, if the Company repurchases less than the Maximum Amount, the percentage will be adjusted upward accordingly.

Pursuant to the Recapitalization Agreement, the Company and the Selling Shareholders are obligated to indemnify the Investors from any damages incurred by the Investors as a result of the misrepresentation, violation or breach of any representation, warranty, covenant, agreement or

obligation of the Company under the Recapitalization Agreement or the other agreements contemplated therein. The Company's representations and warranties in the Recapitalization Agreement relate to various matters, including, without limitation, the due organization of the Company, the capitalization of the Company, required consents and approvals, the absence of undisclosed liabilities and material claims affecting the Company, and the Company's compliance with applicable law.

Subject to limited exceptions set forth in the Recapitalization Agreement, in the event the Company and the Selling Shareholders become liable to the Investors for damages pursuant to the indemnification obligations, the Investors' sole and exclusive remedy with respect to the Selling Shareholders shall be limited to the Escrow Holdback. The Selling Shareholders shall have no recourse against the Company if all or any portion of the Escrow Holdback is used to meet such obligations. Except as otherwise provided in the Recapitalization Agreement, the representations and warranties of the Company set forth in the Recapitalization Agreement and its indemnification obligations will terminate at 5:00 PM (Pacific time) on April 30, 2006 and be of no further force or effect after such time. Upon the termination of the Selling Shareholders' indemnification obligation, the Escrow Agent will distribute to each Selling Shareholder such Selling Shareholder's pro rata share of the entire amount then-remaining in the Escrow Holdback not then subject to indemnification claims. If notice for indemnification under the Repurchase Agreement is given prior to termination of the Selling Shareholders' indemnification obligation, the representation and warranty that is the subject of such indemnification claim will survive, and the amount of such claim shall be retained by the Escrow Agent until the claim is finally resolved. Resolution of any indemnification claims shall be in accordance with the procedures set forth in the escrow agreement to be entered into among the Escrow Agent, the Company and the Investors (the "Escrow Agreement"). Interest will accrue on the Escrow Holdback for the benefit of the Selling Shareholders in accordance with the terms and conditions of the Escrow Agreement.

In addition to the foregoing, pursuant to the Recapitalization Agreement, Jeff Pryor and David Gross, as founders of the Company, have agreed to additionally indemnify the Company for certain tax matters.

Pursuant to the Recapitalization Agreement, at or before the Closing under the Recapitalization Agreement, the Company will declare a distribution to its shareholders of record the day immediately prior to the Closing Date equal to the amount of the Company's taxable income for the portion of calendar year 2004 prior to and through the end of the Closing Date less amounts of such taxable income previously distributed. This distribution will be paid in one or more installments after the Closing Date pursuant to the terms and conditions of the Recapitalization Agreement.

By agreeing to sell Shares pursuant to this Offer each Selling Shareholder agrees to execute and be bound by the enclosed Drag-Along Agreement (the "Drag-Along Agreement") (as generally set forth in Section 2 below and more particularly described in the Drag-Along Agreement) requiring such Selling Shareholder to vote his or her Shares in favor of certain transactions (including, without limitation, a sale or merger involving the Company, or the amending of the Company's charter documents in connection with a public offering of the Company's securities) approved by the holders of at least two-thirds (2/3) of the then outstanding shares of Series A Preferred Stock at any time from and after July 1, 2005.

The Offer will expire on September 23, 2004, unless otherwise extended. Interest on the Offer Price will not be paid.

By this Offer, and subject to the terms and conditions herein (including, without limitation, the limitations set forth in Section 2 below and the conditions set forth in Section 13 below), the Company agrees to purchase from the holders of Common Stock of the Company any and all Shares validly tendered, and not validly withdrawn by such Selling Shareholders. If, at the Expiration Date (as defined

in Section 2 below), one or more conditions to the Offer has not been satisfied, the Company may, but shall not be required to, extend the Offer for a period determined in its sole discretion.

Any Selling Shareholder or other payee who fails to legibly complete and sign the Substitute Form W-9 that is included in the Letter of Transmittal may be subject to a required backup federal income tax withholding of a portion of the gross proceeds payable to such shareholder or other payee pursuant to the Offer.

1. Purpose of the Offer

The Company has entered into the Recapitalization Agreement to obtain additional working capital from the sale of the Company's Series A Preferred Stock contemplated therein. The consummation of the Offer, as a condition to closing the purchase and sale of the Series A Preferred Stock pursuant the Recapitalization Agreement, is therefore necessary for the Company to obtain needed funds. The Company's Board of Directors believes that purchasing the Shares at the Offer Price is in the best interests of the Company's shareholders because it will enable the Company to provide liquidity to existing shareholders. The Company cannot be certain it will be able to provide comparable liquidity to its shareholders at a later date.

Whether or not the Company purchases Shares pursuant to the Offer, the Company may seek in the future to acquire additional Shares on terms and at prices that may be more or less favorable than those of the Offer. The Company currently has no plans to do so.

2. Terms of the Offer

The Offer

Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Company will accept for payment, and thereby purchase, at a price equal to the Offer Price, any and all Shares validly tendered and not validly withdrawn by holders of record as of July 20, 2004 (the "Record Date") on or prior to the Expiration Date; provided, however, that the Company shall not be obligated to purchase from any Selling Shareholder any Shares in excess of such Selling Shareholder's Pro Rata Share. As previously noted herein, as a condition precedent to the closing of the sale of the Series A Preferred Stock to the Investors, the Company is required to obtain agreements from shareholders of the Company for the repurchase of the Minimum Amount of Shares. If the Company is unable to obtain agreements from shareholders for the repurchase of the Minimum Amount of Shares, the closing of the sale of the Series A Preferred Stock may not occur and the Company will not be obligated to repurchase the Shares hereunder.

"Pro Rata Share" for any Selling Shareholder shall mean such number of Shares equal to (i) the Aggregate Repurchase Amount of $54,999,999.36 divided by the Offer Price, multiplied by (ii) a fraction, the numerator of which shall equal the sum of (x) the total number of Shares outstanding held by such Selling Shareholder as of the Record Date plus (y) the total number of Qualifying Options (as defined below) held by such Selling Shareholder, and the denominator of which shall equal the sum of (x) the total number of Shares outstanding as of the Record Date plus (y) the total number of Qualifying Options. Assuming all shareholders of the Company tender their respective full Pro Rata Share, then at the closing of the Offer, each Selling Shareholder will sell, and the Company will purchase, approximately 71.86%(3) of all of his or her Shares.

(3) This figure assumes that the Company repurchases the Maximum Amount of Shares. The percentage is equal to a ratio, the numerator of which is the aggregate number of shares repurchased in the Offer, and the denominator of which is the aggregate number of Shares outstanding as of the Record Date. To the extent the Company repurchases less than the Maximum Amount of Shares, the percentage shown would be adjusted downward accordingly. If the Company repurchases the Minimum Amount the percentage shown would be 52.26%.

An "Option" is a stock option issued pursuant to the Company's 2000 Equity Participation Plan. An Option is "Qualifying" if it is vested and is exercised after the consummation of the sale of the Series A Preferred Stock and prior to the repurchase of Shares by the Company.

The Company anticipates that as of the closing of the sale of the Series A Preferred Stock pursuant to the Recapitalization Agreement, there shall be outstanding and eligible for participation in the Offer 2,174,988 Shares and 31,463 Qualifying Options. (See the table in Section 9 for a summary of the Company's capitalization.)

For example purposes only, the Pro Rata Share of a Selling Shareholder who holds 900 Shares and 100 Qualifying Options would be (assuming an aggregate of 2,174,988 Shares outstanding as of the Record Date and 31,463 Qualifying Options and rounded to the next lowest whole share):

Pro Rata Share = 708 shares = ($54,999,999.36 / $35.19) × (1,000 / 2,206,451))

To the extent shareholders elect to sell less than their respective full Pro Rata Share and the Aggregate Repurchase Amount has not been exhausted after giving effect to purchases by the Company of all tendered Shares not in excess of each Selling Shareholder's Pro Rata Share (such remaining amount, the "Excess Repurchase Funds"), then, with respect to each Selling Shareholder tendering in his or her Letter of Transmittal a number of Shares in excess of such Selling Shareholder's Pro Rata Share (each such Selling Shareholder, a "Participating Shareholder" and such excess Shares, the "Excess Shares"), the Company shall be entitled to purchase (but without obligation to do so), and each such Participating Shareholder shall be obligated to sell to the Company, such number of such Participating Shareholder's Excess Shares as the Company elects to purchase, in its sole discretion, up to such Participating Shareholder's Maximum Participating Share (as defined below).

"Maximum Participating Share" for any Participating Shareholder shall mean such number of Shares equal to (i) the Excess Repurchase Funds divided by the Offer Price, multiplied by (ii) a fraction, the numerator of which shall be the sum of (x) the total number of outstanding Shares held by such Participating Shareholder as of the Record Date plus (y) the total number of Qualifying Options held by such Participating Shareholder, and the denominator of which shall be the sum of (a) the total number of outstanding Shares held by all Participating Shareholders as of the Record Date plus (b) the total number of Qualifying Options held by all Participating Shareholders.

To the extent the Offer requires any Selling Shareholder to sell a fraction of a Share, the number of Shares such Selling Shareholder shall be required to sell shall be rounded to the next lowest whole Share.

For example purposes only, assuming the following:

(i) shareholders elect not to sell their respective full Pro Rata Share resulting in Excess Repurchase Funds in the amount of $1,000,000; and

(ii) Participating Shareholders own 1,000,000 shares of Common Stock and 20,000 Qualifying Options;

then, the Maximum Participating Share of a Participating Shareholder owning 10,000 Shares and 1,000 Qualifying Options would be:

306 shares = ($1,000,000 / $35.19) × (11,000 / (1,000,000 + 20,000).

Once Shares are tendered, the Selling Shareholder will be able to withdraw the Shares from the Offer only by following the procedures set forth in Section 5 below.

The term "Expiration Date" means 5:00 p.m., Pacific Time, on September 23, 2004, unless the Company shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the time and date at which the Offer, as so extended by the Company in

writing, shall expire. The Offer Price will be paid promptly following the Expiration Date and upon satisfaction or waiver (by the Company) of each of the conditions set forth in the Offer.

Representations and Warranties

By executing the Letter of Transmittal, a shareholder will be making certain representations and warranties to the Company. These representations and warranties include that:

(i) the shareholder has the requisite capacity and full power and authority to tender, sell, assign and transfer the Shares tendered;

(ii) the shareholder has good and valid title to the Shares, free and clear of all liens, restrictions, charges, encumbrances or other adverse claims;

(iii) the shareholder is the holder of record as of the Record Date and the beneficial owner of all Shares tendered;

(iv) when the Shares are accepted for payment by the Company, the Company will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, voting trusts, proxies, charges and encumbrances and the same will not be subject to any adverse claim;

(v) the shareholder acknowledges that no representation has been made that the Offer Price is fair to the shareholder or equal to any purchase price that may be offered to other parties in the future, nor that the Offer Price reflects the actual fair market value of the applicable Shares, which actual fair market value may be less or more than the Offer Price;

(vi) the shareholder acknowledges that neither the Company nor its Board of Directors expresses an opinion or makes any recommendation as to whether the shareholder should sell the Shares to the Company pursuant to the terms of the Offer;

(vii) the shareholder has had the opportunity to review with its own tax and legal advisors the tax and legal consequences of the sale of the Shares by it pursuant to the Offer;

(viii) the shareholder is aware that if the Shares are purchased by the Company pursuant to the Offer, it will have no future participation in any Company gains, profits or distributions with respect to such Shares, or any appreciation in the price of such Shares;

(ix) the shareholder has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management, and has had an opportunity to ask questions of the Company's management and has fully reviewed all materials sent to the undersigned pursuant to the Offer;

(x) the Letter of Transmittal and all other agreements contemplated hereby to which the shareholder is a party, when executed and delivered by such shareholder in accordance with the terms hereof, shall each constitute a valid and binding obligation of such shareholder, enforceable against such shareholder in accordance with its terms (except as such enforceability may be limited by laws of general application relating to bankruptcy, insolvency and relief of debtors and general principles of equity);

(xi) the execution and delivery by the shareholder of the Letter of Transmittal and all other agreements contemplated thereby, the repurchase of the Shares from the shareholder and the fulfillment of and compliance with the respective terms thereof by the shareholder, do not and shall not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default under (whether with or without the passage of time, the giving of notice or both), (c) result in the creation of any lien, security interest, charge or encumbrance upon the shareholder's repurchased Shares, or (d) require any authorization, consent, approval, exemption or other action by notice or declaration to, or filing with, any court or administrative or

governmental body or agency, pursuant to any law, statute, rule, regulation, order or decree to which the shareholder is subject, or any agreement or instrument to which the shareholder is subject which, in each case, would be likely to materially affect the shareholder's performance of its obligations under the Letter of Transmittal;

(xii) there are no actions, suits, proceedings (including any arbitration proceedings), orders, investigations or claims pending or, to the shareholder's knowledge, threatened against or affecting the shareholder in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with the transactions contemplated hereby; and

(xiii) notwithstanding any discussions with the Company's management as contemplated by (ix) above, except for the statements contained in this Offer, the shareholder has not relied upon any statements or representations made by any director, officer, employee, representative or other advisor of the Company in making his or her decision to tender his or her Shares pursuant to the Offer.

Drag-Along Agreement

By executing the Letter of Transmittal and agreeing to sell Shares to the Company pursuant to this Offer (and as a condition precedent to the Company's obligation to purchase Shares from a Selling Shareholder), each Selling Shareholder also agrees to execute, deliver and be subject to and bound by the Drag-Along Agreement, a copy of which is attached hereto as Exhibit D. Furthermore, as a result of the uncertainty as of the date of this Offer regarding the number of Selling Shareholders that will accept the Offer and the number of Shares that the Company will repurchase upon consummation of its purchase of the Shares, each Selling Shareholder agrees and acknowledges that the Company is authorized to make such administrative changes, modifications or additions to the recital section and exhibits of the Drag-Along Agreement as may be necessary to complete the Drag-Along Agreement with respect to the identity and number of Selling Shareholders and the Shares held thereby. It is a condition to the Company's sale of the Series A Preferred Stock, and therefore the Offering, that the Drag-Along Agreement must be executed by the holders of record of at least 95% of the shares of Common Stock outstanding immediately after the closing of the Offering.

Pursuant to the Drag-Along Agreement, in the event the holders of at least two-thirds (²/3) of the then outstanding shares of Series A Preferred Stock (such approving parties referred to herein as the "Requisite Parties") approve a transaction resulting in a change of control of the Company (such transactions include a merger or consolidation involving the Company or a sale of substantially all of the assets of the Company), at any time from and after July 1, 2005, each Selling Shareholder must consent to and vote his, her or its Shares of voting stock of the Company in favor of such transaction. Furthermore, if such transaction is structured as (i) a merger or consolidation of the Company, or a sale of all or substantially all of the Company's assets, each Selling Shareholder must waive any dissenters' rights, appraisal rights or similar rights in connection with such merger, consolidation or asset sale, or (ii) a sale of the stock of a Company, each Selling Shareholder agrees to sell a pro rata portion of his, her or its Shares on the terms and conditions approved by the Board. Under the Drag-Along Agreement, each Selling Shareholder appoints each of the holders of Series A Preferred Stock voting in favor of the change of control, as his, her or its attorney in fact to provide any consents and to vote his, her or its Shares of voting stock of the Company in favor of the change of control and to take the other actions, including the sale of a pro rata portion of his, her or its Share in the change of control transaction, if the Selling Shareholder fails or refuses to so act.

In addition to the foregoing obligation, pursuant to the Drag-Along Agreement, in the event of, and in connection with, a proposed sale of the Company's Common Stock in an underwritten public offering pursuant to a registration statement on Form S-1 under the Securities Act, each Selling Shareholder is obligated to vote in favor of and approve all (i) amendments to the Company's Articles of Incorporation and Bylaws (including, without limitation, amendments to increase the number of

authorized shares of any class of the Company's capital stock and increase the size of the Company's Board of Directors) and (ii) other actions (including, without limitation, actions to elect persons to serve as directors on the Company's Board of Directors, create committees of the Company's Board of Directors, fix the terms of persons serving as directors on the Company's Board of Directors and comply with any listing requirements of a securities exchange or securities market), as are approved by the Company's Board of Directors and the Requisite Parties in connection with the initial proposed sale of the Company's securities in the public offering.

Notwithstanding the foregoing, the obligations of the Selling Shareholders under the Drag-Along Agreement are subject to the satisfaction of certain conditions with respect to the subject transaction, including limitations on permitted representations and warranties of the Selling Shareholders, limitations on the obligation of the Selling Shareholders to enter into covenants not to compete or not to solicit and, with respect to a merger with another private company, the treatment of the merger as a transaction that will trigger the liquidation preference of the Series A Preferred Stock.

Conditions to the Offer

The Company's obligations to purchase Shares validly tendered and not otherwise validly withdrawn are subject to certain conditions including, without limitation, (i) the consummation of the sale of the Series A Preferred Stock pursuant to the Recapitalization Agreement, (ii) the absence of any material adverse change in the financial condition, business, results of operations or prospects of the Company or the Company's status under any securities laws, (iii) the satisfaction of all applicable legal requirements of California General Corporations Law Section 500 et seq., (iv) the absence of threatened or instituted actions related to the Offer, and (v) the enactment or enforcement of laws which may have an adverse effect on the Company or the Offer. See Section 13 for a complete explanation of the conditions to the Company's obligation to purchase Shares validly tendered.

In addition to the conditions listed above, the Company's obligations to purchase Shares from each Selling Shareholder, individually, is conditioned on such Selling Shareholder executing the Drag-Along Agreement.

The Company reserves the right (but shall not be obligated), in accordance with applicable state and federal law or regulation, to waive any or all of such conditions. If any or all of such conditions have not been satisfied prior to consummation of the repurchase contemplated by this Offer, the Company may elect to (i) extend the Offer in the manner described in Section 3 below, (ii) waive the unsatisfied conditions and, subject to complying with applicable state and federal law and regulations, accept for payment all Shares so tendered and not extend the Offer or (iii) terminate the Offer and not accept for payment any Shares and return all tendered Shares to Selling Shareholders. If the waiver of any condition set forth in Section 13 is deemed to constitute a material change to the information previously provided to the shareholders, the Company may be required to keep the Offer open for an additional period of time or disseminate information concerning such waiver.

3. Acceptance for Payment and Payment for Shares

Subject to the terms and the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of the Offer as so extended or amended), the Company will purchase, by accepting for payment, and will pay for, any and all Shares validly tendered (subject to the limitations in Section 2) and not otherwise validly withdrawn prior to the Expiration Date promptly after (i) the satisfaction or waiver of the conditions to the Offer set forth in Section 13 and (ii) the Expiration Date.

In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Escrow Agent, pursuant to the procedures set forth in Section 4, of:

(i) Share certificates for such Shares (each, a "Share Certificate") duly endorsed or accompanied by appropriate stock powers (in form provided herewith as Exhibit A) executed by the Selling Shareholder (or an Affidavit of Lost Certificate (in the form attached hereto as Exhibit B) duly executed by such Selling Shareholder in the event that such Selling Shareholder has lost, misplaced, had stolen or is otherwise unable to locate the original Share Certificate);

(ii) the Letter of Transmittal, validly completed and duly executed;

(iii) a Substitute Form W-9, if applicable;

(iv) the Drag-Along Agreement, duly executed;

(v) if the Selling Shareholder is exercising Qualifying Options and tendering the Shares acquired on exercise of the Option under the Offer, the Notice of Stock Option Exercise in the form attached hereto as Exhibit C (the "Option Notice") validly completed and duly executed; and

(vi) any other documents required by the Instructions Forming Part of the Terms and Conditions of the Offer.

IF YOU HAVE ALREADY PROPERLY DELIVERED SHARE CERTIFICATES OR AN AFFIDAVIT OF LOST CERTIFICATE (IN ACCORDANCE WITH ITEM 3(i) ABOVE) REPRESENTING THE SHARES TENDERED PURSUANT TO THE LETTER OF TRANSMITTAL, YOU DO NOT NEED TO REDELIVER SUCH CERTIFICATES OR AFFIDAVIT. HOWEVER, IN ORDER TO PARTICIPATE IN THE OFFER YOU DO NEED TO COMPLY WITH EACH OF THE REMAINING PROCEDURES SET FORTH ABOVE.

The Company expressly reserves the right, at any time and from time to time, to extend the period during which the Offer is open if any of the conditions to the Offer have not been satisfied on or before the Expiration Date. Such extension shall be effective only if notice of such extension is deposited in the United States mail, postage paid, addressed to the holders of Shares prior to 5:00 p.m. Pacific Time on the Expiration Date.

Acceptance of Tendered Shares

For purposes of the Offer, the Company will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered as, if and when the Company gives written notice of such acceptance to the holder(s) of the Shares to be purchased. The Company may give such notice at any time after the Shares have been validly tendered, rather than wait until the occurrence of the Expiration Date (subject to a Selling Shareholder's right to withdraw set forth herein), but the Company shall not be obligated to pay for such Shares until the satisfaction of the conditions set forth above in this Section 3 and elsewhere in this Offer; provided, however, that the Company may not accept the Offer with respect to any validly tendering Selling Shareholders unless it accepts the Offer with respect to all validly tendering Selling Shareholders.

In all cases, subject to the terms and conditions of the Offer, payment for Shares purchased pursuant to the Offer will be made by mailing to the holders of the Shares purchased a check for the applicable Net Offer Price, less required withholdings and the pro rata share of the Escrow Holdback. If mailed, the check will be mailed to the address shown below the holder's name on the Letter of Transmittal. Under no circumstances will interest on the Offer Price be paid.

If any tendered Shares are not purchased pursuant to the Offer for any reason, Share Certificates representing Shares not purchased will be returned, without expense to the Selling Shareholder, as promptly as practicable following the expiration, termination or withdrawal of the Offer.

4. Procedures for Accepting the Offer and Tendering Shares

Valid Tender of Shares

In order for Shares to be validly tendered pursuant to the Offer, in all cases, the Letter of Transmittal, properly completed and duly executed, Share Certificates, duly endorsed to the Company or accompanied by executed stock powers, together in each case with any required signature guarantees and any other documents required by the Letter of Transmittal, including a Substitute Form W-9, if applicable, must be received by the Escrow Agent at its address set forth on the Letter of Transmittal on or prior to the Expiration Date.

THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE SELLING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY SHEPPARD, MULLIN, RICHTER & HAMPTON, LLP. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. WE RECOMMEND YOU DELIVER ALL DOCUMENTS IN THE ENCLOSED FEDEX ENVELOP.

Signature Guarantees

No signature guarantee is required on the Letter of Transmittal if the Letter of Transmittal is signed by the registered holder of Shares tendered therewith and payment is to be made solely to the registered holder at the address set forth in the Company's shareholder records. In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an eligible institution as provided in the Letter of Transmittal.

The tendered Share Certificates must be duly endorsed or accompanied by appropriate stock powers, signed exactly as the name or names of the registered holder or holders appear on the certificates, and, if required as provided in the preceding paragraph, with the signatures on the certificates, or stock powers guaranteed by an eligible institution as provided in the Letter of Transmittal.

Backup Federal Income Tax Withholding

Under the backup federal income tax withholding applicable to certain shareholders (other than certain exempt shareholders, including, among others, all corporations and certain foreign individuals), the Company may be required to withhold a portion of the amount of any payments made to such shareholders pursuant to the Offer.

TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING, EACH SHAREHOLDER MUST PROVIDE THE ESCROW AGENT WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 6 OF THE LETTER OF TRANSMITTAL.

5. Withdrawal Rights

Once Shares are tendered, the shareholder will not be able to withdraw the Shares from the Offer except pursuant to the provisions of this Section 5. Shareholders who wish to exercise their right of withdrawal with respect to previously tendered Shares must give written notice of withdrawal (a "Withdrawal Notice") to Sheppard, Mullin, Richter & Hampton, LLP at the address set forth in the Letter of Transmittal. A Withdrawal Notice will only be effective if it (i) is received by Sheppard,

Mullin, Richter & Hampton, LLP prior to 5:00 p.m. Pacific Time on the Expiration Date, (ii) specifies the name of the person who signed the Letter of Transmittal on behalf of such shareholder and, if different, the name of the registered holder of the Shares to be withdrawn, (iii) specifies, by number, the Share Certificates to be withdrawn, and (iv) is signed exactly as the name or names of the registered holder or holders appear on the Share Certificates to be withdrawn, with the signatures guaranteed by an eligible institution to the same extent and in the same manner that such signatures were required by the terms of the Letter of Transmittal to be guaranteed when the applicable Share Certificates were tendered. Selling Shareholders may deliver a Withdrawal Notice by facsimile.

Any Shares properly withdrawn may thereafter be re-tendered by a Selling Shareholder by following the procedures for validly tendering shares set forth in this Offer and the Letter of Transmittal.

6. Determination of Validity

All questions as to the interpretation of the terms of the Letter of Transmittal or any other document included herewith, the form of documents and the validity, eligibility and acceptance for payment of any tender of Shares or any Withdrawal Notice will be determined solely by the Company, whose determination shall be final and binding on all parties. The Company reserves the absolute right, in accordance with applicable state and federal law or regulation, to reject any or all tenders and Withdrawal Notices determined by it not to be in proper form or the acceptance of or payment for which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in any tender of Shares, Withdrawal Notice or any other document hereunder delivered by any particular Selling Shareholder whether or not similar defects or irregularities are waived in the case of other Selling Shareholders.

No tender of Shares or Withdrawal Notice will be deemed to have been validly made until all defects and irregularities with respect to such tender or Withdrawal Notice have been cured or waived by the Company. None of the Company nor any of its affiliates or assigns will be under any duty to give any notification of any defects or irregularities in tenders, Withdrawal Notices or any other document delivered in connection with the Offer or incur any liability for failure to give any such notification.

7. Certain United States Income Tax Consequences

Sale of Shares. The sale of Shares pursuant to the Offer will be a taxable transaction for United States federal income tax purposes and, as such, may be treated as either a sale or exchange transaction or a distribution taxable as a dividend. It may also be taxable under applicable state, local, foreign and other tax laws. The discussion in this Section relates to Shares that were acquired by the Selling Shareholder other than upon exercise of stock options issued by the Company to the Selling Shareholder. The discussion in the following Section titled "Exercise of Options and Sale of Shares" relates to Shares that were acquired by the Selling Shareholder upon exercise of stock options issued by the Company to the Selling Shareholder.

A redemption of the Shares of Common Stock by the Company will be treated as a sale or exchange if, immediately after the closing of the Offer, the holder of the Shares redeemed holds less than 50% of the total combined voting power of all classes of stock of the Company entitled to vote and the holder's percentage stock interest in the Company is less than 80% of his or her percentage stock interest in the Company immediately before the closing of the Offer (as such percentage stock interest is determined both with reference to voting power and fair market value of the outstanding stock of the Company and after the application of special ownership attribution rules that treat a person as the owner of stock held by certain of the person's relatives and related entities). If a

repurchase of Shares Common Stock is treated as a sale or exchange, the Selling Shareholder will recognize capital gain or loss based on the difference between the amount the Net Offer Price realized and the tax basis of the holder in the Shares repurchased, and such capital gain or loss would be long-term capital gain or loss if the Shares were held for more than one year at the time of repurchase.

If a redemption of Shares pursuant to the Offer is not treated as a sale or exchange, then the amount received on repurchase would be considered a distribution for federal income tax purposes that would be treated as follows: (a) first, as a distribution of any income of the Company allocable to such Shares while the Company was an S corporation and that has not yet been distributed, (b) second, as a dividend to the extent of any C corporation earnings and profits of the Company allocable to such Shares, (c) third, as a distribution of basis in the holder's Shares, and (d) finally as capital gain. The Company believes that it has some C corporation earnings and profits.

Exercise of Options and Sale of Shares. A holder who exercises a Nonqualified Stock Option will have compensation income equal to the excess of the fair market value of the Common Stock acquired upon exercise over the exercise price paid and will be subject to income and employment taxes and withholding on such compensation income, and the shares of Common Stock so acquired will have a tax basis equal to such fair market value. Any gain or loss upon sale of such Common Stock pursuant to the Offer will be taxed as described in the above Section titled "Sale of Shares", provided, however, that any capital gain or loss will be treated as short-term capital gain or loss as the shareholder will not have held the Shares for more than one year at the time of repurchase.

The tax treatment of a holder who exercises an Incentive Stock Option will vary depending on whether the holder tenders in the Offer the shares acquired upon exercise of the Option or continues to hold such shares. A holder who exercises an Incentive Stock Option and continues to hold the acquired shares will not have compensation income as a result of such exercise, but will have alternative minimum taxable income equal to the excess of the fair market value of the Common Stock acquired upon exercise of the Option over the exercise price paid. A holder who exercises an Incentive Stock Option and tenders the acquired shares in the Offer will be deemed to have made a "disqualifying disposition" of the shares and will have compensation income equal to the excess of the fair market value of the Common Stock acquired upon exercise over the exercise price paid and will be subject to income and employment taxes and withholding on such compensation income. In addition, upon the holder's sale of the acquired shares in the Offer, any gain or loss realized by the holder upon sale of the acquired shares will be taxed as described in the above Section titled "Sale of Shares", provided, however, that any capital gain or loss will be treated as short-term capital gain or loss as the shareholder will not have held the Shares for more than one year at the time of repurchase.

THE FOREGOING DOES NOT PURPORT TO BE AN ANALYSIS OF ALL OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO PARTICIPATION IN THE OFFER, AND IS NOT TAX ADVICE. IN ADDITION, THE FOREGOING ASSUMES THAT ALL SHARES ARE HELD AS CAPITAL ASSETS AND THE HOLDER HAS NOT ENGAGED IN ANY SHORT SALE, HEDGE OR OTHER TRANSACTION THAT COULD AFFECT THE TAX CONSEQUENCES OF THE REPURCHASE OF THE SHARES PURSUANT TO THE OFFER. ALL SHAREHOLDERS DESIRING TO PARTICIPATE IN THIS OFFER ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF TENDERING INTO THE OFFER, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

8. Certain Information Concerning the Company

Description of Business

The Company is a leader in online advertising services, providing cost-effective customer acquisition and brand awareness solutions for direct marketers, brand marketers and advertising

agencies. The Company provides these services through its growing network of over 7,500 small to medium-sized websites ("SMWs"), delivering more than 6.5 billion advertisements, and reaching over 68 million unique Internet users each month. Fastclick's proprietary optimization technology enables advertisers to improve advertising campaign performance, while maximizing the media value of publishers' websites. Fastclick brings together advertisers and publishers creating a highly valuable network effect, where both groups benefit through Fastclick's transparent "managed market bidding system."

With one of the highest average payouts in the industry (65% net to publishers), consistent 25-day payment terms, a lucrative referral program and detailed activity reporting, Fastclick has created a loyal and rapidly growing network of publishers. Additionally, through its proprietary optimization technology, Fastclick increases the performance, and therefore revenue, generated by the publisher's website. This comprehensive service has positioned Fastclick as one of the premier revenue programs for the Internet publisher community.

Similarly, Fastclick's offerings and return-on-investment ("ROI") driven results have created a growing and recurring group of advertising clients. Fastclick's technology automatically tracks, optimizes and reports the results of advertising campaigns, thereby maximizing performance. Advertisers have the option to change the creative and targeting of their campaigns to enhance performance, as well as further optimize results based on click-through-rate ("CTR") or cost-per-acquisition ("CPA"). As advertising campaigns deliver better performance, advertisers can scale their media buys through the Company's managed-market bidding system, and control pricing and subsequent volume. With conservative frequency of delivery, automated optimization technology and an intense focus on ROI, Fastclick has developed a reputation for delivering consistently high levels of advertising performance that meet or exceed client expectations.

Fastclick Solutions

Fastclick enables advertising customers and Internet publishers to deliver advertising on websites and manage the campaign planning, execution, analysis and optimization.

Fastclick Ad Network. The Fastclick Ad Network has aggregated more than 7,500 active websites and delivers over 6.5 billion advertisements per month. This network enables web publishers to maximize revenues from advertisement inventories, while maintaining control and flexibility to choose which advertising campaigns they run. For advertisers, Fastclick provides a cost-effective platform for reaching and building large online audiences, as well as the option to manage Internet campaigns actively by personally managing the campaign or passively by utilizing Fastclick's automated optimization technology.

The Company's web-based technology platform enables advertisers to manage and optimize online advertising campaigns. It offers the following features and functionalities:

• Performance Targeting. Advertisers can maximize their ROI, with an array of simultaneous targeting filters, including content channel or category, visitor geography, time of day, bandwidth, internet service provider ("ISP") and browser. The Company also provides the ability to manage advertising campaigns through a variety of pricing models, such as by impressions ("CPM"), clicks ("CPC"), actions, leads or sales ("CPA"). Additionally, advertisers can employ conservative frequency of delivery to ensure that campaigns generate the desired reach in a cost-effective manner.

• Proprietary Optimization Technology. The Company's automated optimization technology enables advertisers to easily and cost-effectively test a campaign's site placement and creative to meet the specific advertising campaign objectives. Campaign optimization is achieved by automatically (or manually) selecting only the publishers that are performing well for a particular campaign based on CTR and/or CPA. Impressions, clicks and actions are tracked by category, sub-category and individual

website, as well as ad format. Performance is tracked back to the source of the inventory and the creative used. Through this feedback, advertisers can automatically (or manually) refine the campaign to maximize their ROI.

• Interactive Reporting/Management Interface. Fastclick's user-friendly interface offers a variety of interactive features with reporting, analytics and decision support tools so that advertising campaigns can be managed entirely online. Hourly updates disclose impressions, clicks and actions by campaign, creative and website in both tabular and graphical formats. Through this interface, advertisers can optimize their campaigns with the click of a mouse and publishers can choose which campaigns they want to run on their websites. Other key interactive features include the ability to pause campaigns, the flexibility to upload creative content and purchase ad inventory via credit card.

• Ad Format Flexibility. Fastclick offers a variety of creative formats and rich media ads, including banners, pop-unders, interstitials and InVues, as well as new larger formats like leaderboards, skyscrapers and rectangles. These ads can also incorporate rich audio and video content.

• Managed-Market Bidding System. Through Fastclick's "managed-market bidding system" advertisers and publishers receive a high degree of pricing transparency, with true marketplace timing based on current supply and demand levels of ad inventories. Advertisers select appropriate price levels, based on campaign objectives and in the context of historical inventory and pricing information. The value of publisher inventory is maximized using delivery algorithms that focus on preference by effective CPM (eCPM).

• Scalable, Automated Platform. The Company's serving engine and back-end network designs combine with fully redundant content delivery to provide an ad serving and management system currently delivering more than 250 million impressions per day. The sales and service infrastructure is grounded in fundamental principles of efficiency and automation, allowing the Company to pay publishers more and charge advertisers less, and to provide excellent customer service and achieve industry leading margins.

AdServer®. Fastclick's AdServer currently serves over 4.5 billion ads per month (i.e., non-Fastclick network ads) and accounting for approximately 2% of Fastclick's revenues, AdServer is a third-party ad-serving solution enabling advertisers, publishers and agencies to manage their advertising activity across all of their online media. The web-based solution enables the implementation, management, optimization and reporting of online advertising campaigns through a highly interactive user interface. AdServer offers the following features:

• Customization and Support. AdServer accounts are highly customized to provide unique functionality and tailored reporting for each customer. AdServer provides the ability to manage advertising using any and all campaign pricing models: impressions, clicks, actions, leads, sales, or any other user-defined event. The flexibility to incorporate multiple pricing points in the same campaign enables accurate accounting for the value of various metrics. Additionally, AdServer allows users to create new ad formats in minutes, based on their own definition of size, structure and frequency cap. AdServer's customer support is included with the contracted CPM and content delivery rates.

• Automated Optimization. Similar to the Ad Network, AdServer provides a suite of optimization techniques that automatically select the best creative and placements to attain the highest possible ROI. Impressions, clicks, and multiple post-click events can be tracked and assigned a CPM, CPC or CPA value. Performance is then tracked back to the source of the inventory and the creative used, closing the loop and providing the algorithm with the necessary data to deliver a higher ROI for the campaign.

[Financial Highlights Table]

Strategy

Broaden Base of High Quality Inventory on the Network. Fastclick has become one of the fastest growing advertising networks on the Internet for SMWs because it offers an industry leading payment program, easy-to-use online advertising campaign control and superior customer service. The Company will continue to build its network to increase available inventory for its advertisers, adding more branded website representation as well as a broader catalog of specialty sites to reach desired demographics. The Company maintains its commitment to quality content by carefully reviewing each network applicant site to ensure they meet specific standards.

Increase the Value of Media by Delivering High ROI to Advertisers. The Company has maintained premium pricing on its network by focusing on delivering a superior ROI to its clients. Fastclick continually upgrades its technology to improve its performance through new filtering, targeting and optimization methods, such as demographic filters, contextual targeting and local advertising. Moreover, the Company is constantly working with new creative ad formats to maximize the success of advertising campaigns. For example, it provides a variety of media options to reach the consumer, including banners, pop-unders, interstitials and InVues, as well as new larger in-page formats like leaderboards, skyscrapers and rectangles. These ads can incorporate rich audio and video content to further enhance their effectiveness.

Target Advertisers through Agency and Direct Marketing Channels. The Company attracts advertisers to its network through relationships with direct marketers and advertising agencies. The Company works primarily with direct marketers, which it supports with a fast-growing internal team of account managers. The Company also works with approximately 50 advertising agencies to bring advertisers into its network and intends to grow this channel by adding new agency relationships and deepening existing ones. The Company recently added sales representatives in New York, San Francisco and Chicago to increase traction and focus towards advertising agencies.

Expand the Set of Marketing Programs Offered. The Company intends to generate additional revenue from its network of publishers and advertisers by creating additional marketing programs. The Company will extend its existing online advertising inventory business to complimentary areas such as a representation model, international expansion, search engine marketing and other services enabling the Company to generate additional revenue from its current and future user base.

Further Develop AdServer's Features and Functionality. Fastclick is further developing its AdServer product to add new features and functionality, including an enhanced reporting suite and inventory management.

Competitive Landscape

The domestic online advertising market is made up of a number of direct and indirect competitors including: Advertising.com (under agreement to be purchased by America Online, Inc.), Tribal Fusion, ValueClick, DoubleClick, Burst Media, TrafficMarketPlace (Vendare Group) and AdvertismentBanners.com. Fastclick believes it competes favorably with these companies because of its automated optimization technology and large, loyal network of website publishers. The Company has in excess of 6,000 active websites, whereas competitors such as Burst! (2,000 sites) and Tribal Fusion (500 sites) have far fewer sites. Moreover, Fastclick has a highly efficient operating model resulting in industry leading operating margins in excess of 19%, outpacing larger competitors such as ValueClick (8%) and DoubleClick (1%). Fastclick's competitive advantage is sustained through its proprietary automation and optimization technologies, outstanding service and value-driven approach to the advertiser-publisher relationship.

Management

Kurt Johnson, Chief Executive Officer. Kurt brings 18 years of management and investment banking experience to Fastclick. Most recently Kurt served as Chief Financial Officer for ValueClick from 1999 to 2002. During that period, Kurt was instrumental in leading ValueClick through an $85 million pre-IPO financing, the company's $76 million IPO and $280 million of strategic acquisitions, including OnResponse, MediaPlex and BeFree, to position ValueClick as a global provider of Internet advertising solutions.

Fred Krupica, Chief Financial Officer. Prior to joining Fastclick, Fred was Chief Financial Officer of WJ Communications, a developer and manufacturer of microwave devices for government electronics and space communications systems. Fred was responsible for directing WJ Communications' accounting, finance and information technology organizations. Fred also previously served as Chief Financial Officer of Magnetic Data Technologies LLC, an international repair manufacturer that was acquired by Solectron Corporation in June 2002. Prior to that, he was chief financial officer and chief operating officer at Patel Ventures and founder, president and chief financial officer of F&G Financial Services.

Dave Gross, Director. As co-founder of Fastclick, Dave has successfully led the Company from inception. During the first years of the Company's existence, Dave filled all executive roles, developing the business model, company practices and overall infrastructure to support the growing organization. Dave has 12 years of management and technical experience in online advertising, aerospace and automotive industries.

Jeffrey Hirsch, Chief Revenue Officer. Jeff brings to Fastclick 25 years of media, advertising, marketing and management experience. Jeff has successfully led the strategic planning, sales channel development, product development and corporate marketing activities for companies ranging from start-up to international in scope. Prior to joining Fastclick, Jeff was the VP of Business Development for ValueClick where he expanded the company's media network, more than doubling the available inventory prior to ValueClick's IPO.

James Aviani, Chief Technology Officer. James brings more than 16 years of experience in both technology innovation and engineering management to Fastclick. Prior to joining Fastclick, James led technology development for new business ventures at Cisco Systems, where he was responsible for a multitude of corporate initiatives and managed a team of 40 engineers. In addition to his extensive experience, James has authored five patents based on Internet content delivery.

Shayne Mihalka, Executive Vice President, Strategic Development. Shayne is a 5-year veteran of the Internet advertising industry and played a key role in the evolution of online advertising networks. Prior to joining Fastclick, Shayne was the VP of Business Operations and Network Development for ValueClick, where he was instrumental in the growth of the company from a startup to a publicly-traded corporation.

Barry Anderson, Executive Vice President and General Counsel. Barry brings to Fastclick over 30 years of international human resources, administration and legal experience. Prior to joining Fastclick, Barry served as SVP of Global Human Resources at VeriSign, Inc., where he managed all human resources, facilities and security functions for over 3,000 employees in 11 countries.

Alexis Weaver, EVP Operations. Alexis has 6 years of experience. Prior to joining Fastclick, Alexis managed the advertising and publicity for an international publishing company, ABC/CLIO, after having held general marketing positions in that company.

Recent Developments

Chief Financial Officer

Pursuant to an employment agreement effective as of September 9, 2004, the Company hired Fred Krupica as its new Chief Financial Officer.

Amendment and Restatement of Articles of Incorporation

Contemporaneous with this Offer, the Company will submit to its shareholders for their consent a proposal to amend and restate its Articles of Incorporation in order to (i) increase the authorized number of shares of capital stock to 5,856,285, (ii) increase the authorized number of shares of Common Stock to 3,725,000, (iii) increase the authorized number of shares of preferred stock to 2,131,285, (iv) designate 2,131,285 shares of Series A Preferred Stock, and (v) designate the rights and preferences of the Series A Preferred Stock. Written shareholder consents approving the amendments from the holders of more than 50% of the outstanding shares of the Company's Common Stock are required to duly approve the amendment and restatement of the Company's Articles of Incorporation in accordance with Sections 902 and 903 of the California Corporations Code. Upon obtaining the requisite written consents, the Company shall amend and restate its Articles of Incorporation by filing with the California Secretary of State its Amended and Restated Articles of Incorporation.

Equity Incentive Plans

The Company anticipates that, prior to closing the repurchase of the Shares, it will terminate its 2003 Ownership Equivalency Plan, cease issuing stock options under its 2000 Equity Participation Plan and adopt a new 2004 Stock Incentive Plan and reserve up to 499,839 shares of Common Stock for issuance thereunder.

Board of Directors

Upon consummation of the Recapitalization, the Company's Board of Directors shall consist of seven directors. Pursuant to a Voting Agreement to be entered into by the Company, the Investors, the Founders and certain employees of the Company, the Investors shall have the right to nominate and elect three directors, who shall initially be Dan Nova, Bob Davis and Fredric W. Harman, the Chief Executive Officer of the Company, Kurt Johnson currently, shall be a director, the holders of a majority of the outstanding Common Stock shall have the right to nominate and elect a director, who shall initially be David Gross, and the remaining two directors shall be mutually acceptable to the Investors holding two-thirds of the outstanding shares of Series A Preferred Stock and the holders of a majority of the outstanding Common Stock. As of the date hereof the two remaining directors have not been identified.

Bob Davis is a Venture Partner at Highland Capital Partners focusing on information technology investments and specializing in digital media and software start-ups. He represents Highland on the boards of Navic Networks, Performix Technologies, Quigo and Turbine Entertainment. Prior to joining Highland, Bob served as the Chief Executive Officer of Terra Lycos and was responsible for the day-to-day operations of the company. Before the combination of Terra and Lycos in October 2000, Bob was President and Chief Executive Officer of Lycos, Inc., and was the company's first employee in June of 1995.

Dan Nova is a Managing General Partner at Highland Capital Partners focusing on technology with specific experience and interest in emerging broadband, interactive television and media technologies. Dan currently serves on the boards of CMI Marketing, Coremetrics, GlobalStreams, Gotuit Media, N2 Broadband, Navic Networks, Topica and Whole Body. His portfolio also includes Ask Jeeves (Nasdaq:ASKJ), Be Free (Nasdaq:BFRE), Digital Market (acquired by Agile Software), eToys (Nasdaq:ETYS), Gamesville (acquired by Lycos), MapQuest.com (acquired by AOL), New York Times Digital, NextCard (Nasdaq:NXCD), Quote.com (acquired by Lycos) Raindance Communications (Nasdaq:RNDC), RoweCom (Nasdaq:ROWE) and Terra Lycos (Nasdaq: TRLY). Prior to joining Highland in 1996, Dan was a Partner at CMG@Ventures where he co-led the partnership's investment activities in early-stage Internet companies. While at CMG@Ventures, Dan co-founded Lycos, Inc. in June of 1995, and played an integral role from its inception to its IPO in April of 1996, and finally through its sale to Terra Networks in 2000.

Fredric W. Harman joined Oak Investment Partners as a General Partner in July 1994 after seven years with Morgan Stanley's Venture Capital Group where he was a General Partner. Fred's primary focus is on Internet/Enterprise software and services. While at Oak, Fred has led Internet infrastructure investments in Aventail, Exodus, Inktomi (Yahoo) and Internap. Other Internet service companies include aQuantive, Campus Pipeline (SCT), Cobalt, NetBlue, and Qpass. Enterprise application investments include Business Engine, Captura (Concur), Knowledge Networks, Concerto (merged with Melita), Pivotal, Primus Knowledge Solutions, Quintus (Avaya), Securant (RSA), and Talisma. He also has led outsourced services investments in Sutherland Global Services and in International Manufacturing Services ("IMS") and VXI Electronics (both acquired by Celestica). Prior to joining Morgan Stanley, Fred worked in Business Development at Hughes Communications where he was involved in the formation of the predecessor to DirectTV.

Value of the Company

As of July 31, 2004, the Company's cash balance was approximately $3,030,696.00. The Company anticipates receiving a gross amount of up to $75,000,000 from the sale of its Series A Preferred Stock, up to $55,000,000 (less the Fees) of which will be set aside in an escrow account to fund this Offer. The sale of the Series A Preferred Stock pursuant to the Recapitalization Agreement implies an equity valuation of approximately $100,000,000 immediately prior to the Recapitalization, and approximately

$120,000,000 immediately after the closing of the Recapitalization (assuming full participation by all shareholders up to their respective Pro Rata Share).

The Company's estimated value was not determined with the help of, or reviewed or analyzed by, a professional appraiser or similar valuation expert at the Company's request. As a result of the foregoing, the actual value of the Company's outstanding stock may vary, perhaps materially, from the estimate given herein. The Company cannot be certain that it is aware of all information that is material to a determination of the value of any of its holdings. You are strongly cautioned not to put undue reliance on these estimates in making a decision about whether or not to tender any or all of your Shares.

Fastclick.com, Inc. Capitalization

As of July 30, 2004, the fully diluted Common Stock ownership of the Company prior to the Recapitalization is as follows (assuming an expansion of the Option Pool by 264,385 shares of Common Stock and the purchase or termination by the Company of all outstanding Ownership Equivalent Rights granted under the 2003 Ownership Equivalency Plan):

Owner	Shares	Percentage (approx.)
Common Stock	2,174,988	76.5	%
Options Granted (vested and unvested)	170,913	6.0	%
Option Pool Available	495,585	17.5	%
Total	2,841,486	100	%

Assuming the Company repurchases the Minimum Amount of Shares in the Offer, the fully diluted Common Stock ownership of the Company immediately following the consummation of the Recapitalization shall be as follows:

Owner	Shares	Percentage (approx.)
Common Stock	1,038,302	30.5	%
Options Granted (vested and unvested)	170,913	5.0	%
Option Pool Available	495,585	14.5	%
Series A Preferred	1,705,029	50.0	%
Total	3,409,829	100	%

Assuming the Company repurchases the Maximum Amount of Shares in the Offer, the fully diluted Common Stock ownership of the Company immediately following the consummation of the Recapitalization shall be as follows:

Owner	Shares	Percentage (approx.)
Common Stock	612,044	18.0	%
Options Granted (vested and unvested)	170,913	5.0	%
Option Pool Available	495,585	14.5	%
Series A Preferred	2,131,285	62.5	%
Total	3,409,827	100	%

9. Determination of Net Offer Price

The Net Offer Price shall be calculated as follows: (a) $35.19 (the Offer Price) minus (b) the quotient of (i) the amount of the Fees estimated to be approximately $629,240 and (ii) the total number of Shares that the Company purchases from Selling Shareholders pursuant to this Offer.

NOTWITHSTANDING THE FOREGOING, NO REPRESENTATION IS MADE BY ANY PARTY THAT THE OFFER PRICE OR NET OFFER PRICE IS FAIR TO THE HOLDERS OF THE SHARES. THE OFFER PRICE OR NET OFFER PRICE MAY BE LESS OR MORE THAN THE ACTUAL FAIR MARKET VALUE OF THE SHARES. THE COMPANY'S MANAGEMENT AND BOARD MAKE NO RECOMMENDATION AS TO WHETHER SHAREHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER AND TAKE NO POSITION WITH RESPECT TO THE FAIRNESS OF THE OFFER PRICE OR NET OFFER PRICE OR ANY OTHER TERMS OF THE OFFER. THE COMPANY'S BOARD OF DIRECTORS DID NOT REQUEST, AND DID NOT RECEIVE, A FAIRNESS OPINION FROM ANY FINANCIAL ADVISOR WITH RESPECT TO THE OFFER PRICE OR NET OFFER PRICE.

The most recent price at which the Company granted compensatory Common Stock options to Company employees was $12.75 per share on June 2, 2004. This value was determined in good faith by the Company's Board of Directors. The Company has not issued any shares of Common Stock or options or rights to acquire shares of Common Stock after June 2, 2004. The Company expects that the fair market value of the Company's Common Stock will increase as a result of the closing of the transactions contemplated in the Recapitalization Agreement. The fair market value of the Company's Common Stock may also be affected, positively or negatively, as a result of this Offer.

10. Shareholder Access to Company Information

Together with the Offer, the Company has included the unaudited financial statements of the Company as of and for the year ended December 31, 2003 and the unaudited financial statements of the Company as of and for the six (6) months ended June 30, 2004, all of which are incorporated by reference into the Offer. The Company is not subject to the public information and reporting requirements of the Exchange Act and is not required to file periodic reports, proxy statements and other information with the Securities and Exchange Commission relating to its business, financial condition and other matters. However, we invite you to call Kurt Johnson, the Company's Chief Executive Officer, at (805) 568-5334 to further discuss the Company's business, management and financial affairs before you make a decision whether or not to sell us your Shares. Reicker, Pfau, Pyle, McRoy & Herman LLP ("Shareholder Counsel") has been retained to act as special counsel to the shareholders in connection with this Offer. If you have any legal questions regarding this Offer or its terms please call Bruce McRoy, Esq. of Reicker Pfau, at (805) 966-2440.

NOTHING IN THIS DOCUMENT CONSTITUTES SPECIFIC LEGAL ADVICE TO ANY SHAREHOLDER WITH RESPECT TO HIS OR HER PARTICIPATION IN THE OFFER OR THE TAX CONSEQUENCES OF SUCH PARTICIPATION IN THE OFFER. SHAREHOLDER COUNSEL HAS NO OBLIGATION TO INVESTIGATE ANY MATTERS RELATING TO THE COMPANY OR THE OFFER OCCURRING AFTER THE DATE OF THIS DOCUMENT OR TO ADVICE ANY SHAREHOLDER WITH RESPECT TO ANY SUCH EVENT.

11. Risk Factors

Shareholders should carefully consider the risks described below before making a decision whether or not to tender Shares. The Offer contains forward-looking statements based on current expectations which involve risks and uncertainties. The Company's results of operations could differ materially from those anticipated in these forward-looking statements as a result of many factors, including the risk factors set forth below and elsewhere in the Offer. The cautionary statements made in the Offer should be read as being applicable to all forward-looking statements wherever they appear in the Offer.

Consequences and Risks of Tendering Shares

The Investors will have significant control of our management and affairs.

Following the completion of this Offer, the Investors will beneficially own a substantial percentage of the outstanding capital stock of the Company. As a result, the Investors may be able to control our management and affairs and matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control. In addition, pursuant to the Drag-Along Agreement, the Investors could require the shareholders of the Company to approve a transaction resulting in a change of control of the Company. Furthermore, depending on the structure of the transaction, such transaction could also require a sale of such shareholders' Shares.

Shareholders who tender Shares will have no future participation in Company gains or profits with respect to Shares sold.

The sale of Shares pursuant to the Offer will mean that, with respect to Shares sold, Selling Shareholders will no longer have the opportunity to continue their interests in the Company and therefore will not share in the Company's future earnings, if any, and potential growth. In the event that the Company's business significantly increases in value, any Selling Shareholder would forfeit the opportunity to share in any resulting increase in value of the Company's capital stock or distributions thereon with respect to the Shares sold in the Offer. The industry in which the Company is operating is new and rapidly evolving and therefore it is difficult to predict the future growth rate, if any, and size of the market. If the size of the market were to experience significant growth, and the Company gains significant acceptance for its services and offerings in the market, the value of the Company's capital stock may consequently rise.

Certain Tax Consequences

Set forth in Section 7 above is a discussion of the income tax consequences of a Selling Shareholder's sale of Shares in the Offer. While the Company believes that it is more likely than not that the tax treatment of a Selling Shareholder's sale of Shares in the Offer will be as described in such Section, the Company has not requested a ruling from the Internal Revenue Service as to such tax treatment and it is possible that the Internal Revenue Service will attempt to tax a Selling Shareholder's sale of Shares in the Offer in a manner different from that described in such Section. In addition, the tax treatment of any particular Selling Shareholder's sale of Shares in the Offer will depend upon that Shareholder's particular tax and financial position and may differ from the treatment described in such Section. Also, any distribution of the Company's taxable income for the portion of calendar year 2004 prior to and through the end of the Closing Date is subject to compliance with California Corporations Code Section 500 et. seq. at the time of such distribution. As a result, it is possible that Shareholders may not ultimately receive distributions for such portion of calendar year 2004 equal to the amount of the Company's taxable income allocated to them for that period, or the Shareholders may receive such distributions later than the time or times they are required to make estimated or final income tax payments for 2004.

ALL SHAREHOLDERS DESIRING TO PARTICIPATE IN THIS OFFER ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF TENDERING INTO THE OFFER, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

There is no guarantee of any future offer to purchase Shares or other market for Shares.

Shareholders who decide not to tender their Shares pursuant to this Offer should be aware that the Company is under no obligation to extend this Offer or make a similar offer at any time in the future and that there is no commitment on the part of the Company ever to offer to purchase any Shares in the future. However, in the event the Company does seek to acquire additional Shares through private purchases, additional tender or exchange offers or otherwise offers to purchase any Shares in the future, which it currently does not have any plans to do, the terms and prices offered may be more or less favorable than, or the same as, those of the Offer. Shareholders who do not tender their Shares may have no opportunity to realize a liquidity event with respect to their Shares and face substantial risks and uncertainties with respect to the value of their Shares.

Risks Affecting the Company

The Company's growth could be impaired if it remains or becomes more difficult for the Company to raise capital.

The Company may require access to capital markets to fund its operations. If the market for the securities of technology companies in its industry were to deteriorate for an extended period of time, or at a time when the Company needed to raise capital, the Company may not be able to raise any required capital and the Company's business and financial condition could be seriously harmed.

The Company may need to raise additional funds at a later date and cannot be certain that additional financing will be available to it on favorable terms when required, or at all. The Company's ability to issue debt securities or to service any debt it does issue may also be limited by the Company's ability to generate cash flow. If the Company issues equity or securities convertible into equity, its shareholders will be diluted.

The Company's key personnel may leave which could disrupt its operations and harm its business.

The Company's future success depends upon the continued service of its executive officers and other key personnel. Other than Kurt Johnson (Chief Executive Officer), Fred Krupica (Chief Financial Officer) and James Aviani (Chief Technology Officer), none of the Company's officers or key employees is bound by an employment agreement for any specific term (though the Company may elect to enter into employment agreements with one or more officers or key employees in the future). If the Company lost the services of one or more of its key employees, or if one or more of its executive officers or employees decided to join a competitor or otherwise compete directly or indirectly with the Company, the Company's business could be harmed. The Company cannot assure that it will be able to successfully retain its key personnel or, in the event the Company were to lose the services of any key personnel, to replace such personnel.

Misappropriation of the Company's intellectual property and proprietary rights could impair the Company's competitive position. Claims of intellectual property infringement by third parties could cause the Company to incur expenses or become involved in litigation.

The Company regards its trade secrets, patentable inventions and similar intellectual property as critical to its success, and it relies on copyright law, trade secret protection, trademark and patent law and confidentiality and/or license agreements with employees, contractors, companies, partners and others to protect its proprietary rights. The Company may not, however, apply for or be issued patents covering all of its patentable inventions. Moreover, the laws of some foreign countries may not provide protection of the Company's intellectual property rights to the same extent as those of the United States. Unauthorized third parties might copy or reverse engineer and use information or technology that the Company regards as proprietary. If proprietary information were misappropriated, the Company might have to litigate to protect it. The Company may also face claims made against it, either

directly or through contractual indemnification provisions with other companies. The Company may not have insurance to cover the claims, or its insurance may not provide sufficient coverage. If the Company incurs substantial costs because of this type of liability, its expenses will increase and its profits, if any, will decrease. Intellectual property litigation is expensive and time-consuming. The outcome of any such litigation will be uncertain, and the litigation could divert management's attention away from running its business. The Company cannot assure that the Company's products and services do not infringe on the intellectual property rights of third parties. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all. A successful claim of infringement against the Company, and its failure or inability to license the infringed or similar technology could adversely affect the Company's business.

The Company may fail if its products and services are not commercially successful or if competitors provide superior offerings.

The development efforts of the Company may not result in commercially successful products and services or products and services may be rendered obsolete by changing technology, new industry standards or new products introduced by competitors. Barriers to entry may not be high enough to discourage new competitors. Many well-established companies offer solutions that compete with those offered by the Company. The Company expects that additional companies will offer competing solutions in the future. Rapid technological changes make it difficult for technology companies to remain current with their technical resources in order to maintain competitive product and service offerings. Significant technological changes could render the Company's existing technology or other products and services rapidly obsolete. If the Company does not successfully respond to continuing technological developments or does not respond in a cost-effective way, the Company's business, financial condition and operating results will be adversely affected. The Company's competitors may develop products or services that are superior to, or have greater market acceptance than the products and services offered by the Company. The Company's competitors may have greater brand recognition and greater financial, marketing and other resources than does the Company. This may place the Company at a disadvantage in responding to its competitors' pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiatives. If the Company is unable to compete successfully against its competitors, it may fail.

From time to time, we may be subject to a variety of claims and lawsuits and it is possible that one or more of those matters could be resolved in a manner that ultimately would have a material adverse impact on our business.

From time to time, we may be subject to a variety of claims and lawsuits in the ordinary course of business. Adverse outcomes in any such claims or lawsuits could result in significant monetary damages or injunctive relief against us. If there occurs an unfavorable final outcome in any litigation against us, our financial position and results of operations may be materially adversely impacted.

The enactment of new laws or changes in government regulations could adversely affect the businesses of the Company.

Government regulations and legal uncertainties may place financial burdens on the Company's business. The adoption or modification of laws or regulations relating to the areas in which the Company operates could adversely affect the Company's business by increasing costs and administrative burdens or otherwise disrupting its business. Compliance with any newly adopted laws may prove difficult for the Company to comply with, may increase the Company's compliance and operating costs and may reduce the Company's net income and negatively affect its business. For example, the government has adopted and may adopt additional laws and regulations with respect to such areas as online advertising, user privacy, pricing, content, taxation, intellectual property protection, governance and disclosure.

If we fail to manage our growth effectively, our expenses could increase and our management's time and attention could be diverted.

As we continue to increase the scope of our operations, we will need an effective planning and management process to implement our business plan successfully in the rapidly evolving Internet advertising market. Our business, results of operations and financial condition will be substantially harmed if we are unable to manage our expanding operations effectively. We plan to continue to expand our sales and marketing, customer support and research and development organizations. Past growth has placed, and any future growth will continue to place, a significant strain on our management systems and resources. We will likely need to continue to improve our financial and managerial controls and our reporting systems and procedures. In addition, we will need to expand, train and manage our work force. Our failure to manage our growth effectively could increase our expenses and divert management's time and attention.

We have a limited operating history and therefore our business may be difficult to evaluate.

Because we have a relatively limited operating history, it may be difficult to evaluate our business and prospects. You should consider our prospects in light of the risks, expenses and difficulties frequently encountered by early-stage companies in the rapidly-changing Internet market. These risks include, but are not limited to, our ability to:

• maintain and increase the number of advertisers that use our products and services;

• continue to expand the number of products and services we offer and the capacity of our systems;

• adapt to changes in Internet advertisers' promotional needs and policies, and the technologies used to generate Internet advertisements;

• respond to challenges presented by the large number of competitors in the industry;

• adapt to changes in legislation regarding Internet usage, advertising and commerce;

• adapt to changes in technology related to online advertising filtering software; and

• adapt to changes in the competitive landscape.

If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations and financial condition could be materially and adversely affected.

Our revenue growth could be negatively impacted if Internet usage and the development of Internet infrastructure do not continue to grow.

Our business and financial results will depend on continued growth in the use of the Internet. Internet usage may be inhibited for a number of reasons, such as inadequate network infrastructures; security concerns; inconsistent quality of service and unavailability of cost-effective, high-speed service. If Internet usage grows, our infrastructure may not be able to support the demands placed on it and our performance and reliability may decline. In addition, web sites have experienced interruptions in their service as a result of outages, other delays occurring throughout the Internet infrastructure or sabotage. The Internet could lose its viability as a commercial medium due to delays in the development or adoption of new technology required to accommodate increased levels of Internet activity. If use of the Internet does not continue to grow, or if the Internet infrastructure does not effectively support our growth, our revenue could be materially and adversely affected.

Our long-term success may be materially adversely affected if e-commerce does not grow or grows slower than expected.

Because many of our customers' advertisements encourage online purchasing, our long-term success may depend in part on the growth and market acceptance of e-commerce. Our business will be adversely affected if e-commerce does not continue to grow or grows slower than now expected. A number of factors outside of our control could hinder the future growth of e-commerce, including the following:

• the network infrastructure necessary for substantial growth in Internet usage may not develop adequately or our performance and reliability may decline;

• insufficient availability of telecommunication services or changes in telecommunication services could result in inconsistent quality of service or slower response times on the Internet;

• negative publicity and consumer concern surrounding the security of e-commerce could impede our acceptance and growth; and

• financial instability of e-commerce customers.

In particular, any well-publicized compromise of security involving web-based transactions could deter people from purchasing items on the Internet, clicking on advertisements, or using the Internet generally, any of which could cause us to lose clients and advertising inventory and could materially, adversely affect our revenue.

12. Source and Amount of Funds/Effect on Future Operations

The Offer is expressly conditioned upon the consummation of the sale of the Series A Preferred Stock pursuant to the Recapitalization Agreement. Subject to compliance with California Corporations Code Section 500 et. esq., the Company will pay a distribution of taxable income allocable to the shareholders for the portion of calendar year 2004 during which the Company was a subchapter S corporation. The amount paid by the Company in termination of the Ownership Equivalents granted under its 2003 Ownership Equivalency Plan will be treated as an expense of the Company and has been included in calculating the foregoing approximate amount to be distributed to the shareholders. As of July 31, 2004, the Company's cash balance was approximately $3,030,696.00. The Company anticipates receiving approximately $75,000,000 from the sale of its Series A Preferred Stock pursuant to the Recapitalization Agreement, up to $55,000,000 of which (less the Fees) will be set aside in an escrow account to fund the Offer. The Company intends to use the cash from the sale of the Series A Preferred Stock remaining after the completion of the Offer for general operations. The Company does not believe that consummation of the Offer will adversely impact its future operations.

13. Certain Conditions of the Offer

Notwithstanding any other provision of the Offer, the Company shall not be required to accept for payment or, subject to any applicable state or federal law or regulation, to pay for any Shares tendered and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered, and may amend the Offer or terminate the Offer if, at any time on or after the date of this Offer and before acceptance for payment of, or payment for, such Shares, any of the following events shall have occurred and be continuing:

(a) the consummation of the sale of the Series A Preferred Stock pursuant to the Recapitalization Agreement has not occurred;

(b) one or more conditions to the Offer has not been satisfied;

(c) the Company in its sole discretion determines that there has occurred a material adverse change in (i) the financial condition, business, results of operations or prospects of the Company or (ii) or the Company's status under any securities laws;

(d) there shall have been threatened, instituted or pending any suit, action, proceeding, inquiry, application, claim or counterclaim (collectively, "Actions") by or before any court, government, or governmental, regulatory or administrative agency, authority or tribunal, domestic, foreign or supranational of competent jurisdiction (each, a "Governmental Entity"), which (i) challenges the acquisition by the Company of the Shares (or any of them), or seeks to obtain any damages in connection with the foregoing, (ii) challenges the Company's amendment and restatement of the Company's articles of incorporation, (iii) makes or seeks to make the purchase of or payment for some or all of the Shares pursuant to the Offer otherwise illegal, or results in or may reasonably be expected to result in a delay in the ability of the Company to accept for payment or pay for some or all of the Shares, (iv) imposes or seeks to impose voting, procedural, price or other requirements in addition to those under California law and federal securities laws (each as in effect on the date of this Offer) in connection with the transactions contemplated by the Offer or any material condition to the Offer that is unacceptable to the Company, or (v) otherwise relates to the Offer, or which otherwise may reasonably be expected to materially and adversely affect the Company or the value of the Shares;

(e) any statute, rule, regulation, judgment, decree, order or injunction shall have been proposed, sought, promulgated, enacted, entered, enforced or deemed applicable to the Offer or any other action shall have been taken, by any Governmental Entity that may reasonably be expected to, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or

(f) the purchase of Shares tendered pursuant to the Offer does not satisfy the limitations set forth in the California General Corporation Law (the "CGCL") Sections 500 et seq. (as described in more detail in Section 14 below);

and such event or events, in the judgment of the Company, in its sole discretion, makes it inadvisable to proceed with such acceptance of Shares for payment or the payment for such at any scheduled Expiration Date.

The foregoing conditions are for the sole benefit of the Company and may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time prior to the Expiration Date. If the Company closes the Offer and accepts the tender of any Shares, the Company shall be deemed to have waived its right to postpone the acceptance for payment or payment for any Shares tendered or amend or terminate the Offer by reason of the occurrence of any of the foregoing events.

If the Company terminates the Offer by reason of the occurrence of any of the foregoing events, the obligations of the Selling Shareholders who have tendered Shares shall terminate and the Company shall promptly return to such Selling Shareholders all stock certificates and other documents delivered by them in connection with the Offer.

14. Certain Legal Matters

Because the Offer contemplates that the Company will pay cash for any and all Shares tendered, the purchase and sale of Shares pursuant to the Offer will qualify as a distribution under Section 166 of the CGCL and therefore will be lawful only if the distribution satisfies three general limitations, set

forth in CGCL Sections 500 et seq., that are intended to protect the interests of creditors of the Company. These general limitations are described below.

First, the consideration for Shares tendered must either be paid out of the Company's retained earnings or, alternatively, after giving effect to the purchase of Shares pursuant to the Offer, the Company must maintain certain minimum ratios of assets to liabilities. More specifically, any distribution that results from the purchase of Shares must not reduce the Company's total assets below 1.25 times its total liabilities, nor its current assets below current liabilities. Second, the purchase of Shares pursuant to the Offer must not impair the Company's ability to pay its debts as they mature. Finally, the purchase of Shares pursuant to the Offer must not impair any liquidation or dividend priorities on outstanding preferred shares that are senior to the Shares.

Under CGCL Section 506(a), any Selling Shareholder who receives payment for Shares pursuant to the Offer with knowledge of facts indicating that such transaction is improper under the distribution limitations of CGCL Sections 500 et seq. may be liable to the Company for the amount received by such Selling Shareholder, plus interest, until such amounts are repaid. Actions to enforce Section 506(a) may be brought in the Company's name by creditors of the Company.

Given the Company's current financial position, the Company believes that it will be able to purchase Shares tendered pursuant to the Offer (subject to the limitations set forth in Section 2 above) without violating the distribution limitations of CGCL Sections 500 et seq.; however, if the Company in its sole discretion determines that any purchase or purchases of Shares pursuant to the Offer would lead the Company to violate such provisions of the CGCL, the Company shall not be required to accept for payment or, subject to any applicable state or federal law or regulation, to pay for any Shares tendered and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered and may amend the Offer or terminate the Offer.

15. Miscellaneous

The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, the Company may, in its discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. The Company presently believes that it may make the Offer in all jurisdictions in which it is currently aware that any of the Selling Shareholders reside.

EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS OFFER, NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATION ON BEHALF OF THE COMPANY NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. Neither the delivery of the Offer nor any purchase pursuant to the Offer shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or its affiliates since the date as of which information is furnished or the date of this Offer.

EXHIBIT A

IRREVOCABLE STOCK POWER

FOR VALUE RECEIVED, the undersigned, , does hereby sell, assign and transfer to FASTCLICK.COM, INC., a California corporation (the "Company"), shares of the Common Stock of the Company, represented by Certificate(s) No(s). , inclusive, standing in the name of the undersigned on the books of the Company.

The undersigned does hereby irrevocably constitute and appoint Secretary of the Company to transfer said stock on the books of the Company, with full power of substitution in the premises.

Dated:	, 2004
		Signed by:
		Print name:

EXHIBIT B

AFFIDAVIT OF LOST CERTIFICATE

The undersigned ("Shareholder") hereby declares under penalty of perjury under the laws of the State of California as follows:

Shareholder is the true and lawful, present and sole owner of the following certificate(s) (the "Lost Certificate(s)") evidencing ( ) shares of Common Stock (the "Shares") issued by Fastclick.com, Inc., a California corporation (the "Company"):

Certificate No.		Principal Amount		Name in Which Issued

Shareholder believes the Lost Certificate(s) to be lost. Shareholder believes that the Lost Certificate(s) has/have been lost because Shareholder has searched all of its records and made appropriate inquiries regarding the Lost Certificate(s) and remains unable to locate the Lost Certificate(s).

A new certificate representing the Shares has not previously been issued to Shareholder. The Lost Certificate(s) was/were not endorsed, has/have not been pledged, sold, delivered, transferred or assigned, and Shareholder hereby agrees that in the event of recovery of the Lost Certificate(s) at any time, Shareholder will cause the same to be returned to the Company for cancellation.

Shareholder agrees to indemnify and hold free and harmless the Company and its other equity holders from and against all manner of loss, damage and liability arising from, or in connection with, the loss of the Lost Certificate(s) or any person or entity claiming any rights or privileges in respect thereof.

Date:	, 2004	By:
			Name:
			Title:

EXHIBIT C

NOTICE OF EXERCISE OF STOCK OPTIONS

EXHIBIT D

DRAG-ALONG AGREEMENT

EXHIBIT E

FINANCIAL STATEMENTS

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Consequences and Risks of Tendering Shares
Risks Affecting the Company
EXHIBIT A IRREVOCABLE STOCK POWER
EXHIBIT B AFFIDAVIT OF LOST CERTIFICATE
EXHIBIT C NOTICE OF EXERCISE OF STOCK OPTIONS
EXHIBIT D DRAG-ALONG AGREEMENT
EXHIBIT E FINANCIAL STATEMENTS
EX-10.1 5 a2151215zex-10_1.htm EXHIBIT 10.1
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Exhibit 10.1

RECAPITALIZATION AGREEMENT

BY AND AMONG

FASTCLICK.COM, INC.,

THE PURCHASERS NAMED HEREIN

AND

JEFF PRYOR AND DAVID GROSS

September 9, 2004

TABLE OF CONTENTS

		Page
Section 1.	Recapitalization	1
(a)	Authorization	1
(b)	Investment Transaction	1
(c)	Repurchase Transaction	2
(d)	Funding	2
(e)	Closing	2
Section 2.	Representations and Warranties of the Company	3
(a)	Organization, Good Standing and Qualification	3
(b)	Capitalization	3
(c)	Subsidiaries	4
(d)	Authorization	4
(e)	Valid Issuance of Preferred and Common Stock	5
(f)	Governmental Consents	5
(g)	Offering	5
(h)	Litigation	5
(i)	Compliance with Laws and Instruments	6
(j)	Intellectual Property	6
(k)	Registration Rights, Rights to Acquire Company Securities and Voting Obligations	8
(l)	Title to Property and Assets	8
(m)	Employees	8
(n)	Employee Benefit Plans	9
(o)	Tax Returns and Payments	9
(p)	Permits	10
(q)	Environment and Safety Laws	11
(r)	Corporate Documents	11
(s)	Foreign Corrupt Practices Act	11
(t)	Insurance	11
(u)	Related-Party Transactions	11
(v)	Financial Statements; Material Liabilities	12
(w)	Absence of Changes	12

(x)	Agreements; Action	12
(y)	Brokerage	14
(z)	No Insolvency	14
(aa)	Computer Programs	14
(bb)	Disclosure; Reliance	15
Section 3.	Representations and Warranties of the Purchasers	15
(a)	Organization, Power and Authority	15
(b)	Authorization	15
(c)	Noncontravention	16
(d)	Brokerage	16
(e)	Investment Representations	16
Section 4.	Covenants and Other Agreements	17
(a)	Press Release and Announcements	17
(b)	Further Assurances	17
(c)	Certain Tax Matters	17
(d)	Use of Proceeds	17
(e)	Key-Man Life Insurance	17
(f)	Post-Closing Distributions	17
(g)	Exclusivity	18
(h)	S Corporation Status	19
(i)	Vesting of Reserved Employee Shares	19
(j)	Inventions Assignment and Confidentiality Agreement	19
(k)	Voting Agreement; Drag-Along Agreement; Investors' Rights Agreement	19
(l)	Payment of Taxes and Trade Debt	20
(m)	Preservation of Corporate Existence	20
(n)	Compliance with Laws	20
(o)	Keeping of Records and Books of Account	20
(p)	Maintenance of Properties	20
(q)	Budget Approval	20
(r)	By-laws	21
(s)	Expenses of Directors	21
(t)	Continued Business Operations	21
(u)	Restrictions on Indebtedness	21

(v)	Dealings with Affiliates and Others	21
(w)	Cancellation of Treasury Stock	21
Section 5.	Conditions to Closing	21
(a)	Conditions to Closing of the Purchasers	21
(b)	Conditions to the Company's Obligations at Closing	23
Section 6.	Definitions	23
Section 7.	Indemnification and Survival	26
Section 8.	Miscellaneous	27
(a)	Expenses; Attorneys' Fees	27
(b)	Remedies	28
(c)	Consent to Amendments	28
(d)	Successors and Assigns	28
(e)	Severability	28
(f)	Counterparts	28
(g)	Descriptive Headings; Interpretation	28
(h)	Entire Agreement	29
(i)	No Third-Party Beneficiaries	29
(j)	Cooperation on Tax Matters	29
(k)	Governing Law	29
(l)	Notices	29
(m)	No Strict Construction	30
(n)	No Waiver; Cumulative Remedies	30
(o)	Understanding Among the Purchasers	30
(p)	Termination	31

iii

EXHIBITS AND SCHEDULES

Exhibit A		Restated Articles
Exhibit B		Investors' Rights Agreement
Exhibit C-1		Voting Agreement
Exhibit C-2		Drag-Along Agreement
Exhibit D		Form of Repurchase Agreement
Exhibit E		Escrow Agreement
Exhibit F		Indemnification Escrow Agreement
Exhibit G		Opinion of Counsel for the Company
Exhibit H		Opinion of Counsel for the Sellers
Exhibit I		Management Rights Letter

Schedules

Schedule of Purchasers
Schedule 1(b)Disbursement Schedule
Schedule 2 Disclosure Schedule
Schedule 5(a)

RECAPITALIZATION AGREEMENT

THIS RECAPITALIZATION AGREEMENT (this "Agreement") is made and entered into as of September 9, 2004 by and among Fastclick.com, Inc., a California corporation (the "Company"), the Persons listed on the Schedule of Purchasers attached hereto (each, a "Purchaser" and collectively, the "Purchasers") and Jeff Pryor, an individual, and David Gross, an individual (each, a "Founder" and collectively the "Founders"). The Company, the Purchasers and the Founders are sometimes collectively referred to herein as the "Parties" and individually as a "Party." Capitalized terms used herein and not otherwise defined herein have the meanings given to such terms in Section 6 below.

WHEREAS, the Company desires to reconstitute its capital structure through the sale of certain newly issued equity securities and the repurchase of certain of its outstanding equity securities, in each case on the terms set forth herein;

WHEREAS, the Purchasers, severally, desire to purchase certain newly issued equity securities of the Company on the terms set forth herein; and

WHEREAS, concurrently with the issuance of such equity securities, certain shareholders of the Company (each a "Seller" and collectively, the "Sellers"), each of whom will be listed on the Disbursement Schedule (as defined below), desire the Company to repurchase certain equity securities of the Company owned by the Sellers.

NOW, THEREFORE, in consideration of the mutual covenants, agreements and understandings herein contained and intending to be legally bound, the Parties hereby agree as follows:

Section 1. Recapitalization.

(a) Authorization.

(i) The Company shall authorize and the shareholders of the Company shall approve the amendment and restatement of the Company's current Articles of Incorporation (the "Articles of Incorporation") in the form of Exhibit A attached hereto (as so amended and restated, the "Restated Articles"). The Restated Articles shall be duly executed by the Company on the Closing Date and shall be in full force and effect under the laws of the State of California as of the Closing.

(ii) The Company shall authorize the issuance and sale to the Purchasers of an aggregate of up to 2,131,285 shares of its Series A Convertible Preferred Stock (the "Preferred Securities") having the rights and preferences set forth in the Restated Articles.

(iii) The Company shall authorize the repurchase from the Sellers of a minimum of 1,136,686 shares of its Common Stock up to a maximum of 1,562,944 shares of its Common Stock (collectively, the "Repurchased Shares") at a price per share of $35.19 for an aggregate repurchase price of $39,999,980.34 for the repurchase of the minimum number of Repurchased Shares up to $54,999,999.36 for the repurchase of the maximum number of Repurchased Shares (the "Repurchase Price").

(b) Investment Transaction. On the basis of the representations, warranties, covenants and agreements set forth herein, each of the Purchasers and the Company agrees to and shall consummate, at the Closing, the following transaction (the "Investment Transaction"): the Company shall issue and sell to each Purchaser, and each Purchaser shall purchase from the Company, that number of shares of Preferred Securities as is determined pursuant to this Section 1(b), up to the maximum number set forth opposite such Purchaser's name on the Schedule of Purchasers attached hereto, upon payment of immediately available funds in a maximum amount as set forth opposite such Purchaser's name on the Schedule of Purchasers attached hereto, payable in the manner set forth in Section 1(d) below. The price per share of the Preferred Securities shall be $35.19, resulting in a maximum aggregate purchase

price for such Preferred Securities of up to $74,999,919.15 (the "Preferred Securities Purchase Price"). Each Purchaser shall purchase that number of shares of Preferred Securities as is equal to such Purchaser's pro rata portion (based upon the amount of the Preferred Securities Purchase Price set forth opposite such Purchaser's name on the Schedule of Purchasers relative to the aggregate maximum amount of the Preferred Securities Purchase Price) of the sum of (A) 568,341 plus (B) that number of Repurchased Shares that the Company has determined to accept for repurchase pursuant to the Repurchase Transaction, as reflected in a disbursement schedule in the form attached hereto as Schedule 1(b) executed at the Closing by the Company and the Purchasers (the "Disbursement Schedule"). In connection with the Investment Transaction the Company, the Purchasers, the Founders, certain key employees and other shareholders of the Company shall enter into an Investors' Rights Agreement in the form of Exhibit B attached hereto (the "Investors' Rights Agreement"), a Voting Agreement in the form attached hereto as Exhibit C-1 (the "Voting Agreement") and a Drag-Along Agreement in the form attached hereto as Exhibit C-2 (the "Drag-Along Agreement").

(c) Repurchase Transaction. Immediately subsequent to the Investment Transaction pursuant to the terms of one or more repurchase agreements or letters of transmittal in the form attached hereto as Exhibit D (collectively, the "Repurchase Agreements"), the terms of the Paying Agent Escrow Agreement attached hereto as Exhibit E (the "Escrow Agreement") and the terms of the Indemnification Escrow Agreement attached hereto as Exhibit F (the "Indemnification Escrow Agreement"), the Company and each of the Sellers shall consummate, at the Closing, the following transaction: the Company shall repurchase from each Seller and each Seller shall sell to the Company the number of Repurchased Shares set forth opposite such Seller's name on the Disbursement Schedule (the "Repurchase Transaction"). The Company and the Escrow Agent shall be entitled to deduct and withhold from the Repurchase Price otherwise payable to any Seller such amounts as the Company or the Escrow Agent determines it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any other provision of state, local or foreign Tax law. To the extent that amounts are so withheld, such amounts shall be treated for all purposes of this Agreement and the Repurchase Agreements as having been paid to the Seller with respect to which such deduction or withholding was made.

(d) Funding. Upon execution of this Agreement, each of the Purchasers shall deliver to American Stock Transfer & Trust Company (or such other escrow agent acceptable to the Company and the Purchasers), as escrow agent (the "Escrow Agent") such Purchaser's portion of the Preferred Securities Purchase Price set forth opposite such Purchaser's name on the Schedule of Purchasers attached hereto by wire transfer of immediately available funds to be held by the Escrow Agent pursuant to the terms of the Escrow Agreement and released in accordance with the terms of the Escrow Agreement upon the Closing pursuant to the Disbursement Schedule.

(e) Closing. The closing of each of the Investment Transaction and the Repurchase Transaction (the "Closing") shall take place at the offices of Sheppard, Mullin, Richter & Hampton LLP, 800 Anacapa Street, Santa Barbara, California 93101, at 10:00 a.m., local time, on the second business day after the date on which the last condition set forth in Section 5 hereof shall have been satisfied or waived, or upon such other date as the Purchasers purchasing at least two-thirds (²/3) of the Preferred Securities to be sold hereunder and the Company may agree (the "Closing Date"). The Investment Transaction and the Repurchase Transaction shall each constitute a separate transaction hereunder. At the Closing, the Parties shall consummate the transactions contemplated by this Agreement in the following order:

(i) Pursuant to the Disbursement Schedule the Escrow Agent, on behalf of each Purchaser, shall deliver to the Company the amounts set forth opposite the Company's name on the Disbursement Schedule by wire transfer of immediately available funds and the Company shall issue and sell to each Purchaser the number of Preferred Securities set forth opposite such Purchaser's name on the Schedule of Purchasers attached hereto.

(ii) Pursuant to the Disbursement Schedule the Escrow Agent, shall deliver (A) to the Sellers in immediately available funds an amount equal to the Repurchase Price (less the Indemnification Escrow Amount and the Sellers' portion of the applicable fees and expenses related to the Repurchase Transaction as set forth in the Disbursement Schedule), and (B) on behalf of the Sellers, to the escrow agent pursuant to the Indemnification Escrow Agreement, an amount equal to the Indemnification Escrow Amount. Pursuant to the Escrow Agreement, at the Closing the Escrow Agent shall deliver to the Company and the Company shall repurchase from each Seller the number of Repurchased Shares set forth opposite such Seller's name on the Disbursement Schedule. The Escrow Agent shall pay to each of the Sellers by draft or check the portion of the Repurchase Price set forth opposite such Seller's name on the Disbursement Schedule (less such Sellers' pro rata portion of the Indemnification Escrow Amount and the applicable fees and expenses related to the Repurchase Transaction as set forth in the Disbursement Schedule).

(iii) Pursuant to the Disbursement Schedule the Escrow Agent shall deliver to the other parties set forth on the Disbursement Schedule the amounts set forth opposite such parties names by wire transfer of immediately available funds.

(iv) To the extent that the Company repurchases less than 1,562,944 Repurchased Shares for an aggregate repurchase price of $54,999,999.36 pursuant to the Repurchase Transaction, pursuant to the Disbursement Schedule the Escrow Agent shall refund to each Purchaser, such Purchaser's portion of the difference (determined in proportion to such Purchaser's portion of the Preferred Securities Purchase Price set forth opposite such Purchaser's name on the Schedule of Purchasers attached hereto) between $54,999,999.36 and the aggregate Repurchase Price actually paid for the Repurchased Shares.

Section 2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Purchaser that the following statements are true and correct as of the date hereof, except as set forth on the Disclosure Schedule attached hereto as Schedule 2 (the "Disclosure Schedule"):

(a) Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing, in good standing under the laws of the State of California and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly licensed or qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such license or qualification is required, except where the failure to be so qualified would not have a material adverse effect on the Company's assets, properties, liabilities, financial condition, affairs, business, prospects or results of operations (a "Material Adverse Effect").

(b) Capitalization. The authorized capital stock of the Company consists of 4,000,000 shares of common stock, no par value per share (the "Common Stock"), of which 2,174,988 shares are issued and outstanding prior to giving effect to the Repurchase Transaction and 800,000 shares of preferred stock, no par value per share (the "Preferred Stock"), of which no shares are issued and outstanding. Pursuant to the Restated Articles, and assuming issuance of the maximum number of Preferred Securities pursuant to the Investment Transaction, the authorized capital of the Company consists of 3,750,000 shares of Common Stock, no par value, and 2,131,285 shares of Preferred Stock, no par value, of which a series of Preferred Stock has been created consisting of shares which are designated as the "Series A Convertible Preferred Stock" (the "Preferred Securities"), of which none are issued and outstanding prior to the consummation of the transactions contemplated by this Agreement. The rights, powers, preferences, qualifications, limitations and restrictions of the Preferred Securities are as stated in the Restated Articles. Except for (i) the conversion privileges of the Preferred Securities to be issued under this Agreement, (ii) the rights provided for in the Investors' Rights Agreement, (iii) restricted stock grants and outstanding options that have been granted under the Company's 2000 Equity Participation

Plan, as such may be amended from time to time (collectively the "2000 Plan"), (iv) the Company's 2004 Equity Participation Plan (the "2004 Plan") and (v) as set forth on Section 2(b) of the Disclosure Schedule, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or other agreements for the purchase or acquisition from the Company of any shares of its capital stock or securities exercisable or exchangeable for or convertible into its capital stock. Other than as set forth in the Investors' Rights Agreement and the Voting Agreement, the Company is not a party to or bound by any agreement or understanding between any persons and/or entities with respect to any shares of its capital stock and the Company has not granted or agreed to grant any registration rights to any person or entity. The 2000 Plan and the 2004 Plan have been duly adopted by the Board of Directors and approved by the shareholders of the Company. An aggregate of 600,000 shares of Common Stock have been reserved for issuance under the 2000 Plan of which no shares of Common Stock have been issued pursuant to restricted stock grants, and options to purchase 485,585 shares of Common Stock have been granted, 170,912 of which are currently outstanding, and no shares of Common Stock are available for future issuance. An aggregate of 200,000 share equivalents have been allocated to the 2003 Ownership Equivalency Plan, of which 82,900 have been granted. Prior to the Closing, all grants under the 2003 Ownership Equivalency Plan will be terminated. An aggregate of 495,585 shares of Common Stock have been reserved for issuance under the 2004 Plan of which no shares of Common Stock have been issued pursuant to restricted stock grants, and no options to purchase shares of Common Stock have been granted. Except as set forth on Schedule 2(b) of the Disclosure Schedule, the vesting of restricted stock grants or options to purchase shares of Common Stock under the 2000 Plan or the 2004 Plan is not subject to acceleration. All outstanding shares of Common Stock and Preferred Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Securities Act and from any applicable state securities laws or pursuant to valid exemptions therefrom. The Company is not a party or subject to any agreement or understanding, and, to knowledge of the Company, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security of the Company or by a director of the Company. A complete list of the capital stock of the Company which has been previously issued and the names in which such capital stock is registered on the stock transfer books of the Company is set forth in Section 2(b) of the Disclosure Schedule. Upon delivery to the Company at the Closing of certificates representing the Repurchased Shares and the payment of the Repurchase Price as provided in this Agreement, the Company will acquire all of the Sellers' right, title and interest in and to the Repurchased Shares and will receive good and valid title to the Repurchased Shares, free and clear of any and all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever.

(c) Subsidiaries. The Company does not own or control, directly or indirectly, any Subsidiary. The Company does not (i) own of record or beneficially, directly or indirectly, (A) any shares of capital stock or securities exercisable or exchangeable for or convertible into capital stock of any other corporation or (B) any participating interest in any partnership, joint venture or other non-corporate business enterprise, or (C) any assets comprising the business or obligations of any other corporation, partnership, joint venture or other non-corporate business enterprise or (ii) control, directly or indirectly, any other entity.

(d) Authorization. The Restated Articles have been approved by the Board of Directors of the Company and the shareholders of the Company. The Company has all requisite corporate power to enter into and perform the Investment Transaction, the Repurchase Transaction and its other obligations under this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, the Repurchase Agreements, the Escrow Agreement, the Indemnification Escrow Agreement and all other agreements contemplated hereby and thereby and to issue the shares of Preferred Securities and repurchase the Repurchase Shares in accordance with the terms hereof. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the

authorization, execution and delivery of this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, the Repurchase Agreements, the Escrow Agreement, the Indemnification Escrow Agreement and all other agreements and obligations contemplated hereby and thereby, the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Preferred Securities to be issued hereunder and of the Common Stock issuable upon conversion of the Preferred Securities (collectively, the "Conversion Stock"), and the repurchase of the Repurchased Shares, has been taken. This Agreement constitutes, and at the Closing, the Restated Articles, the Investors' Rights Agreement, the Drag-Along Agreement, the Escrow Agreement, the Indemnification Escrow Agreement, the Repurchase Agreement and the Voting Agreement will constitute, valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and by the possible unavailability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws.

(e) Valid Issuance of Preferred and Common Stock. The Preferred Securities being issued hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, and applicable state and federal securities laws. The Conversion Stock has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Articles, will be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer other than restrictions under this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, and applicable state and federal securities laws.

(f) Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the valid execution of this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, the Repurchase Agreements, the Indemnification Escrow Agreement and the Escrow Agreement and the consummation of the transactions contemplated by this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, the Repurchase Agreements, the Indemnification Escrow Agreement and the Escrow Agreement except for filings pursuant to applicable state and federal securities laws in connection with the issuance and sale of the Preferred Securities which will be made following the Closing.

(g) Offering. Subject in part to the truth and accuracy of each Purchaser's representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Preferred Securities and Conversion Stock as contemplated by this Agreement are exempt from the registration requirements of the Securities Act and will not result in the violation of the qualification or registration requirements of any applicable state securities laws subject to filings pursuant to applicable federal and California securities laws that may be made following the Closing. Neither the Company nor any authorized agent acting on its behalf (including, without limitation, the Agent) will take any action that would cause the loss of such exemptions.

(h) Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company, or any of its officers, directors or shareholders, that questions the validity of this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, the Repurchase Agreements, the Escrow Agreement, the Indemnification Escrow

Agreement or the Restated Articles, or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any (i) Material Adverse Effect, (ii) any material adverse change in the assets of any shareholder (iii) any liability on the part of the Company or its shareholders or (iv) the current equity ownership of the Company. The foregoing includes, without limitation, (i) actions, suits, proceedings or investigations (pending or threatened) involving the prior employment of any of the Company's employees, (ii) the use, in connection with the Company's business, of any information or techniques allegedly proprietary to any of the former employers of the Company's employees, or (iii) obligations of the Company's employees under any agreements with former employers. Neither the Company nor (with respect to matters relating to the Company) any of its officers, directors or shareholders is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate.

(i) Compliance with Laws and Instruments. The Company is not in violation or default of its Articles of Incorporation or Bylaws, or of any instrument, judgment, order, writ, decree, mortgage, agreement, statute or contract to which it is a party or by which it is bound, or of any provision of any federal or state statute, rule or regulation applicable to the Company. The execution, delivery, compliance with and the performance of the Company's obligations under this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, the Repurchase Agreements, the Escrow Agreement, the Indemnification Escrow Agreement and the other agreements, documents and transactions contemplated hereby and thereby, will not and do not (A) violate or conflict with, with or without the passage of time and giving of notice, (i) any provision of the Company's Articles of Incorporation or Bylaws, (ii) any instrument, judgment, order, writ, decree, mortgage, contract or agreement to which the Company is a party or by which it is bound, or (iii) any provision of any federal or state statute, rule or regulation applicable to the Company, the violation of or conflict with which could reasonably be anticipated to have a Material Adverse Effect or (B) result in the creation of any material lien, charge or encumbrance upon any assets or properties of the Company or the suspension, revocation, impairment, forfeiture or non-renewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, any of its assets or properties, or any of its officers, directors or shareholders.

(j) Intellectual Property.

(i) Intellectual Property Rights Owned or Exclusively Licensed by the Company. Except for those Intellectual Property Rights expressly identified in Section 2(j)(i) of the Disclosure Schedule, the Company owns, possesses perpetual irrevocable exclusive licenses or otherwise has the legally enforceable perpetual irrevocable exclusive right to use, and has the right to bring actions for infringement of, all Intellectual Property Rights necessary for the conduct of its business as now conducted or as now proposed to be conducted in its written business documents. The consummation of the transactions contemplated herein will not result in the loss or impairment of the Company's right to own, license or use any Intellectual Property Rights, and, except as set forth in Section 2(j)(i) of the Disclosure Schedule, will not require the consent of any governmental authority or third party in respect of any such Intellectual Property Rights.

(ii) Intellectual Property Rights Licensed to Company. All licensors of Intellectual Property Rights that are material to the operation of the Company's business are listed in Section 2(j)(ii) of the Disclosure Schedule, along with the title and date of the license agreement and a brief description of the Intellectual Property Rights licensed and the applicable jurisdiction, registration number (or application number), and date issued (or date filed), and whether the license is assignable or non-assignable, exclusive or non-exclusive, perpetual or term, and revocable or irrevocable. To the knowledge of the Company, the Intellectual Property Rights licensed to the Company, are valid, in full force and effect, and have not been canceled, expired, or abandoned.

To the knowledge of the Company, there is no threatened opposition, interference or cancellation proceeding before any court or registration authority in any jurisdiction against the applications and registrations listed in Section 2(j)(ii) of the Disclosure Schedule.

(iii) List of Company Intellectual Property Rights. Set forth in Section 2(j)(iii) of the Disclosure Schedule is a list and brief description of all:

(I) Patents (including without limitation patent applications),

(II) Trademarks (including without limitation trademark, service mark and domain name applications),

(III) registered copyrights, and applications for such that are in the process of being prepared, and

(IV) registered mask works and applications for such that are in the process of being prepared,

that are owned by or registered in the name of the Company in any jurisdiction worldwide, and in each case a brief description of the nature of such right and indicating for each, the applicable jurisdiction, registration number (or application number), and date issued (or date filed). The Company is listed in the records of the appropriate United States, state or foreign agency as the sole or joint owner of record for each application and registration listed in Section 2(j)(iii) of the Disclosure Schedule, and all joint owners, if applicable, are listed in Section 2(j)(iii) of the Disclosure Schedule and identified as joint owners. The Intellectual Property Rights owned by the Company are valid and subsisting, in full force and effect, and have not been canceled, expired, or abandoned. There is no pending or, to the knowledge of the Company, threatened, opposition, interference, re-examination, or cancellation proceeding before any court or registration authority in any jurisdiction against the applications and registrations listed in Section 2(j)(iii) of the Disclosure Schedule.

(iv) Intellectual Property Rights Licensed by Company. A list of all licensees of the Company are listed in Section 2(j)(iv) of the Disclosure Schedule, along with the title and date of the license agreement and a brief description of the Intellectual Property Rights licensed.

(v) No Claims Against Company. To the knowledge of Company, the conduct of the Company's business as now conducted, all products and processes now manufactured, marketed, licensed, distributed, offered or used by the Company and the Company's Intellectual Property Rights do not and will not violate any license, misappropriate any Trade Secrets, or infringe (either directly or indirectly, including without limitation through contributory infringement or inducement to infringe) any Intellectual Property Rights of any other Person. No claim is pending or, to the Company's knowledge, threatened, to the effect that any Intellectual Property Right owned or licensed by the Company, or which the Company otherwise has the right to use, is invalid or unenforceable by the Company. The Company has no reason to believe that any Intellectual Property Rights owned or used by the Company may be invalid or unenforceable.

(vi) No Third Party Infringement of Company Intellectual Property Rights. To the knowledge of the Company, no third party is misappropriating, infringing, diluting or violating any Intellectual Property Rights owned or exclusively licensed by the Company; and no such claims have been brought against any third party by the Company.

(vii) No Obligations, Grants or Agreements. Except as set forth in Section 2(j)(vii) of the Disclosure Schedule, the Company has no obligation to compensate any Person for the use of any Intellectual Property Rights, and, except as set forth in Section 2(j)(vii) of the Disclosure Schedule, the Company has not granted any Person any license to any Intellectual Property Right(s) of the Company, whether requiring the payment of royalties or not. The Company has not entered into

any agreement to indemnify any other Person against any claim of infringement or misappropriation of any Intellectual Property Right. Except as set forth in Section 2(j)(vii) of the Disclosure Schedule, there are no settlements, covenants not to sue, consents, judgments, or orders or similar obligations that: (1) restrict the Company's rights to use any Intellectual Property Right(s), (2) restrict the Company's business as now conducted or as now proposed to be conducted in its written business documents, in order to accommodate a third party's Intellectual Property Rights, or (3) permit third parties to use any Intellectual Property Right(s) owned or controlled by the Company.

(viii) Trade Secrets. The Company has taken and takes reasonable measures to protect the confidentiality of Trade Secrets that are material to the operating of the Company's business, including requiring its current and former personnel, including without limitation employees, agents, consultants and contractors, having access thereto, to execute written non-disclosure agreements. To the knowledge of the Company, no Trade Secret that is material to the operation of the Company's business has been disclosed or authorized to be disclosed to any third party other than pursuant to a non-disclosure agreement that protects the Company's proprietary interests in and to such Trade Secrets. Neither the Company nor, to the knowledge of the Company, any other party to any non-disclosure agreement relating to the Company's Trade Secrets is in breach or default thereof.

(ix) Personnel. All current personnel, including without limitation, employees, agents, consultants and contractors, who have contributed to or participated in the creation, conception, reduction to practice or development of any of the Intellectual Property Rights of Company either (i) have been party to a "work-for-hire" arrangement or agreement with the Company, in accordance with applicable federal and state law, that has accorded the Company full, effective, exclusive and original ownership of all copyrightable works thereby arising, or (ii) have executed appropriate instruments of assignment in favor of the Company as assignee that have conveyed to the Company full, effective and exclusive ownership of all rights such person may have in the Intellectual Property Rights.

(k) Registration Rights, Rights to Acquire Company Securities and Voting Obligations. Except as set forth in the Investors' Rights Agreement and Section 2(k) of the Disclosure Schedule, as of the Closing, the Company shall not be under any contractual obligation to register any of its presently outstanding securities or any of its securities that may hereafter be issued. Except as set forth in the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement and Section 2(k) of the Disclosure Schedule, there are no agreements, written or oral, between the Company and any of its shareholders or among any shareholders, relating to the acquisition or disposition of the capital stock of the Company. Other than the Voting Agreement and the Drag-Along Agreement, to the knowledge of the Company, no shareholder of the Company has entered into any agreements with respect to the voting of capital shares of the Company.

(l) Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and holds a valid leasehold interest free of any liens, claims or encumbrances.

(m) Employees. Except as set forth in Section 2(m) of the Disclosure Schedule, the employment of each officer and employee of the Company is terminable at will. The Company is not aware of any key employee of the Company who has any plans to terminate his or her employment with the Company nor does the Company have a present intention to terminate the employment of any employee. Except as set forth in Section 2(m) of the Disclosure Schedule, the Company is not a party to or obligated in connection with its business with respect to (i) outstanding contracts with employees,

agents, consultants, advisers, sales representatives, distributors, sales agents or dealers or (ii) collective bargaining agreements or contracts with any labor union or other representative of employees or any employee benefits provided for by any such agreement. The Company has complied in all material respects with all applicable laws relating to wages, hours and collective bargaining. To the knowledge of the Company, no officer or key employee of the Company is in violation of any term of any employment contract, patent disclosure agreement, proprietary information agreement, noncompetition agreement, or any other contract or agreement or any restrictive covenant relating to the right of any such officer or key employee to be employed by the Company because of the nature of the business conducted or to be conducted by the Company or relating to the use of trade secrets or proprietary information of others, and the continued employment of the Company's officers and key employees does not subject the Company or any Purchaser to any liability to third parties.

(n) Employee Benefit Plans. Section 2(n) of the Disclosure Schedule sets forth a complete list of all "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") which are maintained or contributed to for past or present employees of the Company (the "Company Benefit Plans") and copies of any such Company Benefit Plans have been provided to the Purchasers and their counsel along with the three most recent annual reports (Form Series 5500 and all schedules, financial statements and accountant opinions attached thereto), if any, required under ERISA or the Code in connection with each Company Benefit Plan and the most recent Internal Revenue Service determination or opinion letter issued with respect to each Company Benefit Plan intended to be qualified under Section 401(a) of the Code. Neither the Company nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to, any Company Benefit Plan in which stock of the Company or any ERISA Affiliate is or was held as a plan asset. Each Company Benefit Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period from its adoption to date, and each trust forming a part thereof is exempt from tax pursuant to Sections 401(a) and 501(a) of the Code. Neither the Company nor any ERISA Affiliate has ever maintained, established, sponsored, participated in, or contributed to any multiemployer plan as defined in Section 4001(a)(3) of ERISA, a multiple employer plan as defined in Section 210 of ERISA, a plan subject to Title IV of ERISA or Section 412 of the Code, or except as set forth in Section 2(n) of the Disclosure Schedule any plan subject to the laws of any jurisdiction outside the United States. Except as set forth in Section 2(n) of the Disclosure Schedule, the Company does not maintain or contribute to any deferred compensation, bonus, stock option, severance or other similar employee benefit plan or arrangement for past or present employees of the Company (the "Company Benefit Arrangements"), and copies of documents relating to any such Company Benefit Arrangements have been provided to or made available to the Purchasers. Each Company Benefit Plan and Company Benefit Arrangement has been established and maintained substantially in accordance with its terms and in all material respects in compliance with all applicable laws. The Company has made all contributions and other payments required by and due under the terms of each Company Benefit Plan and Company Benefit Arrangement. No Company Benefit Plan nor any agreement establishes (except at no cost to the Company)any liability of the Company to provide, retiree life insurance, retiree health benefits or other retiree employee welfare benefits to any person for any reason, except as may be required by law.

(o) Tax Returns and Payments.

(i) The Company has timely filed all Tax returns and reports as required by law, and these returns and reports were true and correct in all material respects.

(ii) The Company has paid all Taxes and other assessments due. The provision for Taxes of the Company as shown in the Financial Statements (as defined below) is adequate for Taxes due or accrued as of the date thereof. No deficiency for Taxes has been proposed or assessed against the Company, and there is no Tax audit or proceeding by any Tax authority pending with respect to any Tax return of the Company. There is no lien or encumbrance for Taxes on any assets of the

Company, except for liens and encumbrances imposed by law for Taxes not yet due. There is no settlement, closing or collection agreement in effect for taxes imposed on the Company.

(iii) The Company has complied in all material respects with provisions of Tax law relating to withholding and remittance of Taxes on amounts paid to employees, independent contractors, creditors, stockholders or other third parties. Except as set forth on Section 2(o) of the Disclosure Schedule, none of the shares of outstanding capital stock of the Company (including without limitation the Repurchased Shares) is subject to a "substantial risk of forfeiture" within the meaning of Section 83 of the Code.

(iv) The Company is not a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code (without regard to the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the Code).

(v) The Company is not a party to any Tax sharing or tax indemnity agreement.

(vi) No property owned by the Company is Tax exempt use property within the meaning of Section 168(h)(1) of the Code or Tax-exempt bond financed property within the meaning of Section 168(g) of the Code.

(vii) The Company does not have and has never had any obligation to register a Tax shelter under Section 6111 of the Code or to file any disclosure or maintain any list pursuant to Sections 6011 or 6112 of the Code and regulations promulgated thereunder.

(viii) The Company has not made or agreed to make any adjustment under Section 481(a) of the Code (or any corresponding provision of state, local or foreign Tax law) by reason of a change in accounting method that will result in recognition of income by the Company after the Closing, and the amount of any adjustments required to be made by the Company as a result of the transactions contemplated by this Agreement is set forth on Schedule 2(o).

(ix) The Company and its shareholders made (i) a valid election for the Company to be treated as an "S corporation," as that term is defined in Section 1361(a) of the Code, for federal income tax purposes, and (ii) a similar valid election under the laws of California and such elections will be in effect at the Closing Date (such elections in (i) and (ii) are collectively referred to herein as "S Elections"). The S Elections have been in effect with respect to the Company for each of its current and all prior taxable years since the beginning of its 2002 taxable year (the "S Effective Date"). There are no grounds for the revocation of any S Election and no such election will be revoked retroactively or otherwise without the consent of the Purchasers except at the Closing Date by reason of the transactions contemplated by this Agreement. Neither the Company nor any Founder nor, to the knowledge of the Company, any other of its shareholders has taken any action that would cause, or would result in, the termination of the S corporation status of the Company, other than pursuant to this Agreement.

(x) No Tax will be imposed under Section 1374 of the Code or any corresponding provisions of the laws of California or any other applicable jurisdiction as a result of the transactions contemplated by this Agreement.

(p) Permits. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, and the lack of which would have a Material Adverse Effect. All of such franchises, permits, licenses or other similar authority are in full force and effect. The Company is not in default under any of such franchises, permits, licenses or other similar authority.

(q) Environment and Safety Laws. To the knowledge of the Company, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, the violation of which would have a Material Adverse Effect, and to the knowledge of the Company, no material expenditures are required in order to comply with any such existing statute, law or regulation.

(r) Corporate Documents. The Bylaws and the Restated Articles of the Company are in the form provided to counsel for the Purchasers. The minute books of the Company contain minutes of all meetings of directors and shareholders and all actions by written consent without a meeting by the directors and shareholders since the date of incorporation, and fully and accurately reflect all actions by the directors (and any committee of directors) and shareholders with respect to all transactions referred to in such minutes in all material respects.

(s) Foreign Corrupt Practices Act. None of the activities or types of conduct below has been or may have been engaged in by the Company, either directly or indirectly:

(i) Any bribes or kickbacks to government officials or their relatives, or any other payments to such persons, whether or not legal, to obtain or retain business or to receive favorable treatment with regard to business; or

(ii) Any bribes or kickbacks to persons other than government officials, or to relatives of such persons, or any other payments to such persons or their relatives, whether or not legal, to obtain or retain business or to receive favorable treatment with regard to business; or

(iii) Any illegal contributions made to any political party, political candidate or holder of governmental office; or

(iv) Any bank accounts, funds or pools of funds created or maintained without being reflected on the corporate books of account, or as to which the receipts and disbursements therefrom have not been reflected on such books; or

(v) Any receipts or disbursements, the actual nature of which has been "disguised" or intentionally misrecorded on the corporate books of account; or

(vi) Fees paid to consultants or commercial agents which exceeded the reasonable value of the services purported to have been rendered.

(t) Insurance. The Company maintains valid insurance policies, with extended coverage, in commercially reasonable amounts (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. Set forth on Section 2(t) of the Disclosure Schedule is a true and complete list of all material insurance policies maintained by the Company in force as of the date of this Agreement (including name of insurer, agent, annual premium, coverage, deductible amounts and expiration date). All premiums due from the Company with respect to the insurance policies listed on Section 2(t) of the Disclosure Schedule have been paid.

(u) Related-Party Transactions. Except as set forth in Section 2(u) of the Disclosure Schedule, no employee, officer, director or shareholder of the Company or member of his or her immediate family (or any corporation or other entity controlled by any employee, officer, director or shareholder of the Company or member of his or her immediate family) is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them, and except as contemplated hereby or consented to by the Purchasers in accordance with this Agreement, there are no leases, royalty agreements or other continuing transactions between the Company and any employee, officer, director or shareholder of the Company or member of his or her immediate family (or any corporation or other entity controlled by any employee, officer, director or shareholder of the Company or member of his or her immediate family). Except as set forth in Section 2(u) of the Disclosure Schedule, to the knowledge of the Company, none of such persons has any direct or indirect

ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers, directors or shareholders of the Company and members of their immediate families may own stock in publicly-traded companies that may compete with the Company. No member of the immediate family of any officer or director of the Company is directly or indirectly interested in any material contract with the Company.

(v) Financial Statements; Material Liabilities. The Company has delivered to the Purchasers true, correct and complete copies of its audited balance sheet and income statement at and for the years ended December 31, 2002 and December 31, 2003, and its unaudited balance sheet and income statement at and for the seven-month period ended July 31, 2004, which have been in each case prepared in accordance with generally accepted accounting principles consistently applied, except, in the case of the unaudited balance sheet and income statement, for the absence of footnotes not customarily included in such interim statements and normal recurring year-end adjustments (collectively, the "Financial Statements"). The Financial Statements are set forth in Section 2(v) of the Disclosure Schedule. The Financial Statements fairly and accurately present the Company's financial position as of such date and the results of operations and changes in its financial position for such period ended. Except as otherwise disclosed in the Financial Statements, the Company has no material liability or obligation, absolute or contingent (individually or in the aggregate), other than (i) liabilities incurred after December 31, 2003, in the ordinary course of business, that are not material, individually or in the aggregate, and (ii) obligations under contracts and commitments incurred in the ordinary course of business consistent with past practices and that would not be required to be reflected in financial statements prepared in accordance with generally accepted accounting principles.

(w) Absence of Changes. Except as set forth in the Section 2(w) of the Disclosure Schedule or as contemplated by this Agreement, since December 31, 2003, (a) the Company has not entered into any transaction which was not in the ordinary course of business consistent with past practices, (b) there has been no adverse change in the condition (financial or otherwise) of the business, property, assets, liabilities or prospects of the Company other than changes in the ordinary course of business consistent with past practices, none of which, individually or in the aggregate, has had a Material Adverse Effect, (c) there has been no damage to, destruction of or loss of physical property (whether or not covered by insurance) having a Material Adverse Effect, (d) the Company has not declared or paid any dividend or made any distribution on its capital stock, or redeemed, purchased or otherwise acquired any of its capital stock, (e) the Company has not, other than the declaration or payment of bonuses to the Company's executive officers, changed any compensation arrangement or agreement with any of its key employees or officers, or changed the rate of pay of its employees as a group, (f) the Company has not changed or amended any material contract by which the Company or any of its assets is bound or subject, (g) there has been no resignation or termination of employment of any key officer or service provider of the Company, and the Company does not know of any impending resignation or termination of employment of any such officer or service provider that if consummated would have a Material Adverse Effect, and (h) there has been no other event or condition of any character having a Material Adverse Effect.

(x) Agreements; Action.

(i) Except as set forth in Section 2(x)(i) of the Disclosure Schedule and for agreements contemplated hereby and by the Drag-Along Agreement, there are no material agreements between the Company and any of its officers, directors, affiliates or any affiliate thereof.

(ii) Except as set forth herein, in Section 2(x)(ii) of the Disclosure Schedule, there are no agreements (whether written or oral), understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound that may involve (I) obligations (contingent or otherwise) of, or payments to the Company

in excess of $100,000 or (II) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, except for off-the-shelf software, or (III) provisions restricting the development, manufacture or distribution of the Company's products or services, including, without limitation:

(I) distributor, dealer or manufacturer's representative contract or agreement which is not terminable on less than ninety (90) days' notice without cost or other liability to the Company (except for contracts which, in the aggregate, are not material to the business of the Company);

(II) sales agreement which entitles any customer to a rebate or right of set-off, to return any product to the Company after acceptance thereof or to delay the acceptance thereof, or which varies in any material respect from the Company's standard form contracts (except for contracts which, in the aggregate, are not material to the business of the Company);

(III) agreement with any supplier containing any provision permitting any party other than the Company to renegotiate the price or other terms, or containing any pay-back or other similar provision, upon the occurrence of a failure by the Company to meet its obligations under the agreement when due or the occurrence of any other event (except for contracts which, in the aggregate, are not material to the business of the Company);

(IV) agreement for the future purchase of fixed assets or for the future purchase of materials, supplies or equipment in excess of its normal operating requirements;

(V) agreement or indenture relating to the borrowing of money or to the mortgaging or pledging of, or otherwise placing a lien or security interest on, any material asset of the Company;

(VI) agreement, or group of related agreements with the same party or any group of affiliated parties, under which the Company has advanced or agreed to advance money, has agreed to lease any real property as lessee or lessor, or has agreed to lease any personal property as lessee or lessor if such lease for personal property was not entered into in the ordinary course of business;

(VII) agreement or obligation (contingent or otherwise) to issue, sell or otherwise distribute or to repurchase or otherwise acquire or retire any shares of its capital stock or any of its other equity securities (other than in connection with the transactions contemplated by this Agreement);

(VII) agreement under which it has limited or restricted its right to compete with any person in any respect;

(VIII) except as set forth above, any other agreement or group of related contracts with the same party involving more than $100,000 or continuing over a period of more than six months from the date or dates thereof (including renewals or extensions of options with another party), which agreement or group of agreements is not terminable by the Company without penalty upon notice of thirty (30) days or less, but excluding any agreement or group of agreements with a customer of the Company for the sale, lease or rental of the Company's products or services if such agreement or group of agreements was entered into by the Company in the ordinary course of business; or

(IX) other contract, instrument, commitment, plan or arrangement, a copy of which would be required to be filed with the Securities and Exchange Commission as an exhibit to a registration statement on Form S-1 if the Company were registering securities under the Securities Act.

(iii) Except as set forth in Section 2(x)(iii) of the Disclosure Schedule, the Company has not (I) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (II) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $50,000 or in excess of $100,000 in the aggregate, (III) made any loans or advances to any person, other than ordinary advances for travel expenses, (IV) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business, or (V) assumed, guaranteed, endorsed or otherwise become directly or contingently liable on (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss), any indebtedness of any other Person.

(y) Brokerage. Except for the fee of $780,000 payable to the Agent in connection with the transactions contemplated by this Agreement of which up to $572,000 will be paid by the Sellers, there are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement to which the Company is a party. The Company shall pay and hold the Purchasers harmless against, any liability, loss or expense (including reasonable attorneys' fees and out-of-pocket expenses) arising in connection with any such claim.

(z) No Insolvency. The Company is not a party to any insolvency proceeding of any character, including, without limitation, bankruptcy, receivership, reorganization, voluntary or involuntary, affecting any of its assets or properties and, to the knowledge of the Company, no such insolvency proceeding is threatened. The Company has not taken any action in contemplation of, or that would constitute the basis for, the institution of any such insolvency proceedings. After giving effect to the Repurchase Transaction, including, without limitation, the payment by the Company of the Repurchase Price, the Company will not (i) be insolvent (either because the sum of its debts is greater than the value of its assets at a fair valuation or because the present fair saleable value of its assets will be less than the amount required to pay its probable liability on its debts as they become absolute and matured), (ii) be unable to generally pay its debts as they become due, (iii) have unreasonably small capital with which to engage in its existing and anticipated businesses and perform its obligations under this Agreement and any agreements contemplated hereby, (iv) have assets that are unreasonably small in relation to the business in which the Company engages or intends to engage, and (v) have incurred, and does not believe, it would incur debts beyond its ability to pay such debts as they become due, mature or both, or (vi) have violated California General Corporate Law Sections 500 et seq.

(aa) Computer Programs.

(i) List of Computer Programs. Set forth in Section 2(aa) of the Disclosure Schedule is a list and brief description of the Computer Programs (other than generally available commercial off-the-shelf Computer Programs used internally by the Company in accordance with the applicable license agreement) which are in whole or in part owned, licensed, distributed, copied, modified, displayed, sublicensed or otherwise used by the Company and which are material to the operation of its business as now conducted or as now proposed to be conducted in its written business documents (such Computer Programs being referred to herein as the "Company Software"), identifying with respect to each such Computer Program whether it is owned or licensed by the Company.

(ii) Software Contracts. Each and every Computer Program included in whole or in part in the Company Software is either: (i) owned by the Company, (ii) currently in the public domain or otherwise available for use, modification and distribution by the Company without a license from or the approval or consent of any third party, or (iii) licensed or otherwise used by the Company pursuant to the terms of a valid, binding written agreement ("Software Contract"). Section 2(aa) of

the Disclosure Schedule identifies all Software Contracts and classifies each such Software Contract under one or more of the following categories: (A) license to use third party software; (B) development contract, work-for-hire agreement, or consulting agreement; (C) distributor, dealer or value-added reseller agreement; (D) license or sublicense to a third party (including agreements with end-users); (E) maintenance, support or enhancement agreement; or (F) other. No Software Contract creates, or purports to create, obligations or immunities with respect to any Intellectual Property Rights of the Company, including but not limited to, obligations requiring the disclosure or distribution of all or a portion of the source code for any Company Software. For example, except as set forth in Section 2(aa) of the Disclosure Schedule, no portion of the Company software is licensed to the Company pursuant to any version of the General Public License, Lesser General Public License or Common Public License.

(iii) Conformity to Technical Specifications. The Company Software conforms in all material respects to the technical specifications for the design, performance, operation, test, support and maintenance of the Company Software, and to all other documentation relating to such technical specifications. No portion of Company Software:

(I) sold or licensed by the Company directly or indirectly to end users contained, on the date of shipment by the Company;

(II) currently for sale or license directly or indirectly to end users contains; and,

(III) other than that specified in the preceding (I) and (II) in this sentence, to the knowledge of the Company, contains;

any software routines or hardware components designed to permit unauthorized access; to disable or erase software, hardware or data; or to perform any other such actions. Company uses industry standard methods to detect and prevent viruses and other code covered by the preceding sentence (and subsequently to correct or remove such viruses) that may be present in Company Software. Company Software does not include or install any spyware, adware, or other similar software which monitors the use of any remote computer without the knowledge and express consent of the users of such remote computer.

(iv) Policies and Procedures. The Company has adopted policies and procedures to control the use of (i) Computer Programs, including without limitation object code and source code portions thereof available for download on the internet; and (ii) any other Computer Programs not introduced into the Company's development environment through a formal procurement process and pursuant to a license agreement determined to be appropriate for establishing the Company's rights and obligations with respect to Computer Programs.

(bb) Disclosure; Reliance. To the knowledge of the Company, there is no fact that has not been disclosed herein or in writing to the Purchasers that would have a Material Adverse Effect. The representations and warranties in this Section 2 are made with the knowledge and expectation that the Purchasers are placing reliance thereon.

Section 3. Representations and Warranties of the Purchasers. Each Purchaser, severally with respect to itself only and not jointly with respect to any of the other Purchasers, hereby represents and warrants to the Company as of the date hereof as follows:

(a) Organization, Power and Authority. Such Purchaser (if not a natural person) is a duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Such Purchaser possesses all requisite power and authority necessary to enter into and carry out the transactions contemplated by this Agreement.

(b) Authorization. The execution, delivery and performance of this Agreement and all of the other agreements contemplated hereby to which such Purchaser is a party and the purchase of the

Preferred Securities by such Purchaser have been duly authorized by such Purchaser. This Agreement and all other agreements contemplated hereby to which such Purchaser is a party when executed and delivered by such Purchaser in accordance with the terms hereof, shall each constitute a valid and binding obligation of such Purchaser, enforceable in accordance with its terms.

(c) Noncontravention. The execution, delivery, compliance with and performance of such Purchaser's obligations pursuant to this Agreement and the other agreements, documents and transactions contemplated hereby will not and do not violate or conflict with, with or without the passage of time and giving or notice, the organizational documents of such Purchaser.

(d) Brokerage. There are no claims against such Purchaser for brokerage commissions, finders' fees or similar compensation in connection with the purchase of the Preferred Securities by such Purchaser contemplated by this Agreement. Such Purchaser shall pay and hold the Company and the other Purchasers harmless against, any liability, loss or expense (including reasonable attorneys' fees and out-of-pocket expenses) arising in connection with any such claim.

(e) Investment Representations

(i) Such Purchaser understands that (I) the Preferred Securities and the Conversion Stock have not been registered under the Securities Act on the basis that the sale provided for in this Agreement is exempt from the registration provisions thereof and that the Company's reliance on such exemption is predicated in part upon the representations of such Purchaser set forth herein and (II) there is no public trading market for the Preferred Securities or Conversion Stock, that none may develop and that the Preferred Securities or Conversion Stock must be held indefinitely unless such Preferred Securities or Conversion Stock are registered under the Securities Act or an exemption from registration is available.

(ii) Such Purchaser acknowledges that the offer and sale of the Preferred Securities to such Purchaser has not been accomplished by the publication of any advertisement and that such Purchaser has had access to such information concerning the Company and its business as such Purchaser has requested in connection with the transactions contemplated hereby.

(iii) Such Purchaser is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act.

(iv) Such Purchaser will acquire the Preferred Securities to be acquired by it for its own account and that the Preferred Securities are being and will be acquired by it for the purpose of investment and not with a view to distribution or resale thereof.

(v) Such Purchaser understands that the Preferred Securities and the Conversion Stock are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Preferred Securities and Conversion Stock may be resold without registration under the Securities Act only in certain limited circumstances. Such Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as presently in effect and understands the resale limitations imposed thereby and by the Securities Act.

(vi) Such Purchaser understands that the certificates evidencing the Preferred Securities to be purchased hereunder shall have endorsed upon them a legend substantially as follows:

"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH SUCH ACT AND ALL APPLICABLE SECURITIES LAWS."

Section 4. Covenants and Other Agreements.

(a) Press Release and Announcements. Unless required by law (in which case each Party agrees to consult with the other Parties prior to any such disclosure as to the form and content of such disclosure), no press releases or other releases of information related to this Agreement or the transactions contemplated hereby will be issued or released at the Closing by any Purchaser without the consent of the Company or by the Company or any Founder without the consent of the Purchasers holding two-thirds (²/3) in interest of the Preferred Securities.

(b) Further Assurances. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement or the transactions contemplated hereby, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party may reasonably request.

(c) Certain Tax Matters. The Company shall make a timely election under Treasury Regulations §1.1368-1(g)(2) to treat the taxable year of the Company within which the Closing occurs as if it consisted of separate taxable years, the first of which ends at the close of the date of the Closing. Each Purchaser (i) hereby consents to an election by the Company pursuant to Section 1362(e)(3) of the Code not to have paragraph (2) of Section 1362(e) of the Code apply and (ii) agrees to execute such documents and instruments to evidence such consent as the Company reasonably may request.

(d) Use of Proceeds. As further set forth on the Disbursement Schedule, the proceeds of the Investment Transaction shall be used as follows: (i) up to $55,000,000.00 to consummate the Repurchase Transaction and pay expenses and fees related thereto, (ii) to pay expenses in connection with the transactions contemplated hereunder and other expenses related to the Closing (including attorneys' fees and the fees of Agent), including, without limitation, those expenses contemplated by Section 8(a) and (iii) for working capital and general corporate purposes.

(e) Key-Man Life Insurance. The Company shall within 60 days of Closing obtain from, and at all times thereafter maintain with, a responsible and reputable insurance company or association a term life insurance policy on the life of the Company's chief executive officer in the amount of not less than $2,000,000, with proceeds payable to the Company. The Company shall add each of Highland Capital Partners VI Limited Partnership and Oak Investment Partners XI, Limited Partnership as a notice party to such policy and will request that the issuer(s) of such policy provide such designee with at least ten (10) days' notice before such policy is terminated (for failure to pay premiums or otherwise) or assigned, or before any change is made in the designation of the beneficiary thereof.

(f) Post-Closing Distributions.

(i) At or before the Closing, the Company shall declare a distribution (the "2004 S Period Distribution") to its shareholders of record on the day immediately prior to the Closing Date in an amount equal to the Distributable S Period Taxable Income, payable subject to the satisfaction of the conditions set forth in Section 4(f)(ii) below. For purposes of this Section 4(f), the "Distributable S Period Taxable Income" means (i) the sum (without duplication) of the items of income, gain, loss, deduction and expense that are required to be reflected on Internal Revenue Service Form 1120S, Schedule K, Lines 1, 2, 3, 4a through 4f, 5 through 11a and 16b, for the period beginning on January 1, 2004 and ending on (and through) the Closing Date minus (ii) the aggregate amount of distributions made during the period beginning on January 1, 2004 and ending on the day immediately prior to the Closing Date that are not attributable to taxable income of the Company generated prior to January 1, 2004.

(ii) At any time, and from time to time, after the Determination Date (as defined below) and prior to December 31, 2004, the Company shall pay, in one or more installments, the 2004 S Period Distribution, subject only to compliance, at all times, with California Corporations Code Section 500 et. seq. provided, however, that if all or part of the 2004 S Period Distributions are

delayed as a result of such compliance with California Corporations Code Section 500 et. seq., such 2004 S Period Distributions shall be made as soon as thereafter possible prior to the end of the Company's "post-termination transition period" (as defined in Section 1377(b) of the Code, subject only to compliance with California Corporations Code Section 500 et. seq. Each installment of the 2004 S Period Distribution paid after Closing shall be treated in the manner described in Section 1371(e)(1) of the Code, and the Company shall not make the election provided for in Section 1371(e)(2) of the Code.

(iii) As soon as practicable following the Closing Date, and in any event within 30 days thereof, the Company shall prepare and deliver to the Purchasers a calculation of Distributable S Period Taxable Income (and all supporting financial statements and information on which such calculation is based or from which such calculation is derived, directly or indirectly), which shall be reviewed and certified in writing by Ernst & Young LLP (or such other independent, nationally-recognized accounting firm reasonably acceptable to Purchasers). The supporting financial statements shall be prepared in accordance with generally accepted accounting principals consistently applied and shall fairly present the Company's results of operation for the applicable period, and the calculation of Distributable S Period Taxable Income shall be prepared in accordance with the income tax accounting principles consistently applied. The Purchasers may dispute any element of the calculation of Distributable S Period Taxable Income (or supporting financial statements and information on which such calculation is based or from which such calculation is delivered, directly or indirectly) by notifying the Company of such disagreement in writing, setting forth in reasonable detail the particulars of such disagreement, within 15 days after its receipt of the calculation. In the event that the Purchasers do not provide such a notice of disagreement within such 15-day period, the Purchasers shall be deemed to have accepted, for purposes of this Section 4(f), the calculation of Distributable S Period Taxable Income delivered by the Company, which shall be final, binding and conclusive for all purposes hereunder. In the event any such notice of disagreement is timely provided, the Company and the Purchasers shall use their commercially reasonable efforts for a period of ten (10) days (or such longer period as they may mutually agree) to resolve any disagreements with respect to the calculation of Distributable S Period Taxable Income (or supporting financial statements and information on which such calculation is based or from which such calculation is derived, directly or indirectly). If, at the end of such 10-day period, the Company and the Purchasers are unable to resolve such disagreements, then an independent nationally recognized accounting firm, other than the firm that reviewed and certified the calculation, reasonably acceptable to the Company and the Purchasers (the "Accounting Referee"), shall resolve any remaining disagreements. The Accounting Referee shall determine as promptly as practicable, but in any event within 15 days of the date on which such dispute is referred to the Accounting Referee, whether the calculation of Distributable S Period Taxable Income (or supporting financial statements and information on which such calculation is based or from which such calculation is derived, directly or indirectly), as the case may be, was properly prepared in accordance with the standards set forth in this Section 4(f)(iii) and shall deliver to the Company and the Purchasers a written report setting forth its findings, which shall be final, conclusive and binding on the Company and the Purchasers for purposes of this Section 4(f). The date on which the calculation of Distributable S Period Taxable Income (or supporting financial statements and information on which such calculation is based or from which such calculation is derived, directly or indirectly) is finally determined in accordance with this Section 4(f)(iii) shall be the "Determination Date." Each Party shall, and shall cause its representatives to, cooperate with the other and provide timely access to information for purposes of verifying the calculation of Distributable S Period Taxable Income resolving any dispute pursuant to this Section 4(f)(iii).

(g) Exclusivity. From and after the date hereof through the earlier of the Closing, and the termination of this Agreement, the Company agrees not to initiate any contacts or negotiate with or

provide information to or otherwise aid in the due diligence of any other potential investor or strategic investor or acquirer. The Company shall promptly notify the Purchasers if any potential financial or strategic investor or acquirer contacts the Company.

(h) S Corporation Status. The Founders jointly and severally agree that, if it is determined by a finding or order in connection with any governmental or judicial audit or proceeding, including any settlement of such a proceeding to which any of the parties hereto are parties, that any of the Company's S Elections was not validly in effect, or the S corporation status of the Company was otherwise terminated, in each case for any period after such election was purportedly made, then the Founders shall promptly remit to the Company in cash any federal, state and/or local Tax liability (including any penalties, additions to Tax or interest assessed with respect thereto) of the Company in connection with Taxes that are imposed on the Company as a result of such invalid election or termination of S corporation status; provided, however, that the maximum liability of any Founder under this Section 4(h) shall not exceed 50% of the Repurchase Price set forth opposite such Founder's name, or the name of the Seller affiliated with such Founder, on the Disbursement Schedule. Such payment shall be made within 30 days after the date on which the Company delivers to the Founders written notice that such Tax liability has been so determined. The obligations to remit such cash to Company as described in this Section shall be treated as separate from and in addition to the Sellers' other indemnification obligations hereunder, including, without limitation, indemnification obligations under Section 7. Notwithstanding anything to the contrary contained in this Agreement, the provisions of this Section 4(h) shall remain in effect as personal obligations of the Founders until the until the expiration of the applicable statutes of limitations (taking into account all extensions thereof). The Company shall promptly notify the Founders of its agreement to or filing for any extension with respect to any Tax liability described in this Section 4(h). The Company shall promptly deliver to the Founders and the Founders shall promptly deliver to the Company, if applicable, written notice of the commencement of any governmental or judicial audit or proceeding questioning or investigating whether any of the Company's S Elections was validly in effect or the S corporation status of the Company was otherwise terminated and each of the Founders, or the Company, if applicable, shall have the right to participate in any such audit or proceeding. The Company shall not settle any such audit or proceeding on a basis that would subject the Founders to liability under this Section 4(h) without the prior written consent of the Founders, which consent shall not be unreasonably withheld. If the Company or the Founders pay any federal, state and/or local Tax liability (including any penalties, additions to Tax or interest assessed with respect thereto) of the Company in connection with Taxes that are imposed on the Company as a result of an invalid election or termination of S corporation status and it is subsequently determined that the Company is entitled to a refund of all or any portion of the such amount, the amount of the refund (including any interest with respect thereto) shall be paid to the Founders within thirty (30) days after the Company's receipt thereof.

(i) Vesting of Reserved Employee Shares. Except as set forth in Section 4(i) of the Disclosure Schedule, from and after the date hereof, without the written consent of a majority of the Series A Directors, the Company shall not grant to any of its current or future employees, consultants, directors or advisors options to purchase shares of Common Stock which will become exercisable, or awards of Common Stock which will vest, at a rate in excess of 25% at the first anniversary of such grant or award and 6.25% per quarter thereafter.

(j) Inventions Assignment and Confidentiality Agreement. The Company will obtain a duly executed Inventions Assignment and Confidentiality Agreement, in a form agreed upon by the Board of Directors, from each employee and consultant.

(k) Voting Agreement; Drag-Along Agreement; Investors' Rights Agreement. From and after the date hereof, the Company shall, as a condition to the award of common stock, or the issuance of common stock upon exercise of options to purchase, to its employees, consultants, directors or advisors, cause such Persons receiving such awards or exercising such options to become a party to the Investors'

Rights Agreement and become subject to the restrictions set forth therein including, without limitation, pursuant to Section 3 thereof. From and after the date hereof, the Company shall use its best efforts to cause its employees, consultants, directors or advisors that receive common stock, upon the exercise of options or otherwise, to become a party to the Voting Agreement and the Drag-Along Agreement and become subject to the restrictions set forth therein, provided, however, that the Company shall not be required to take any action that would result in the loss of its exemption under California Code Section 25102(o) related to its employee stock option plans.

(l) Payment of Taxes and Trade Debt. The Company shall pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income, profits or business, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any properties of the Company; provided, however, that the Company shall not be required to pay any such Tax, assessment, charge, levy or claim which is being contested in good faith and by appropriate proceedings if the Company shall have set aside on its books sufficient reserves with respect thereto. The Company shall pay when due, or in conformity with customary trade terms, all lease obligations, all trade debt, and all other Indebtedness incident to the operations of the Company, except such as are being contested in good faith and by proper proceedings if the Company shall have set aside on its books sufficient reserves with respect thereto. The Company shall withhold and remit, or cause to be withheld and remitted, any portion of the Repurchase Price that is subject to the Tax withholding provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of any other provision of law.

(m) Preservation of Corporate Existence. The Company shall preserve and maintain, and, unless the Company deems it not to be in its best interests, cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each of its Subsidiaries to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership or lease of its properties. The Company shall secure, preserve and maintain, and cause each of its Subsidiaries to secure, preserve and maintain, all licenses and other rights to use Intellectual Property Rights owned or possessed by it and deemed by the Company to be necessary to the conduct of its business and the businesses of its Subsidiaries, taken as a whole.

(n) Compliance with Laws. The Company shall comply, and cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, where noncompliance would have a Material Adverse Effect.

(o) Keeping of Records and Books of Account. The Company shall keep, and cause each of its Subsidiaries to keep, adequate records and books of account in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company and any of its Subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, returns of merchandise, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

(p) Maintenance of Properties. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties and assets, necessary for the proper conduct of its business, in good repair, working order and condition, ordinary wear and tear excepted.

(q) Budget Approval. The Company shall not later than 30 days prior to the commencement of each fiscal year, prepare and submit to, and obtain the approval of the Board of Directors of the Company of, a business plan and monthly operating budgets in detail for the upcoming fiscal year, including capital and operating expense budgets, cash flow projections and profit and loss projections, all itemized in reasonable detail (including itemization of provisions for officers' compensation). The

Company shall review the budget and business plan periodically, and resubmit all material changes therein and all material deviations therefrom to the Board of Directors of the Company.

(r) By-laws. The Company shall, at all times, cause its bylaws to provide that, unless otherwise required by the laws of the State of California, (i) any two directors and (ii) any holder or holders of at least 25% the then outstanding Series A Preferred Stock shall have the right to call a meeting of the Board of Directors or shareholders of the Company. At all times maintain provisions in the bylaws or articles of incorporation of the applicable Company indemnifying all directors against liability to the maximum extent permitted under the applicable laws.

(s) Expenses of Directors. The Company shall promptly reimburse in full each director of the Company who is not an employee of the Company for all of his or her reasonable out-of-pocket expenses incurred in attending each meeting of the Board of Directors or any committee thereof.

(t) Continued Business Operations. The Company shall use commercially reasonable efforts to cause its officers and Key Employees to refrain from carrying on any for-profit business activity outside of the Company.

(u) Restrictions on Indebtedness. The Company shall not, and shall cause each of its Subsidiaries not to, create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any liability with respect to any indebtedness for money borrowed without the consent of a majority of the Company's Board of Directors. The Company shall not, and shall cause each of its Subsidiaries not to, assume, guarantee, endorse or otherwise become directly or contingently liable on (including without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) any indebtedness of any other Person, except for guarantees by endorsement of negotiable instruments for deposit or collection in the ordinary course of business, and except for the guaranties of the permitted obligations of any wholly owned Subsidiary, without the consent of a majority of the Company's Board of Directors.

(v) Dealings with Affiliates and Others. Other than as contemplated by this Agreement and transactions in the ordinary course of business involving less than $60,000, the Company shall not, and shall cause each of its Subsidiaries not to, enter into, after the date of this Agreement, any transaction, including, without limitation, any loans or extensions of credit or royalty agreements, with any officer, director or affiliate of the Company or any of its Subsidiaries or any member of their respective immediate families or any corporation or other entity directly or indirectly affiliated with one or more of such officers, directors or members of their immediate families unless such transaction is approved in advance by a majority of the disinterested members of the Company's Board of Directors.

(w) Cancellation of Treasury Stock. The Company shall take all actions necessary to return the Repurchased Shares to the status of unissued and authorized shares of Common Stock within 30 days after the Closing.

Section 5. Conditions to Closing.

(a) Conditions to Closing of the Purchasers. The obligations of the Purchasers under this Agreement are subject to the fulfillment on or before Closing, of each of the following conditions (or the written waiver by the Purchasers of any condition that is not so fulfilled):

(i) Representations and Warranties. The representations and warranties of the Company contained in Section 2 hereof shall be true and correct on the date of the Closing.

(ii) Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.

(iii) Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Preferred Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing.

(iv) Board of Directors. The Company shall have taken all necessary corporate action such that immediately following the Closing: (i) the number of directors constituting the full Board of Directors shall be fixed at seven (7) members, and (ii) the directors of the Company shall include Dan Nova, Bob Davis, Fredric W. Harman, Kurt Johnson and David Gross. In addition, the election of Dan Nova, Bob Davis and Fredric W. Harman shall have been unanimously approved by the Company's Board of Directors.

(v) Repurchase Agreements. The Company and the Sellers shall have executed and delivered Repurchase Agreements with respect to the Company's repurchase of at least 1,136,686 Repurchased Shares from the Sellers.

(vi) Deliveries at Closing. At the Closing, the Company shall have delivered to the Purchasers all of the following:

(I) The Investors' Rights Agreement duly executed and delivered by the Company and the parties set forth on Schedule 5(a) attached hereto.

(II) The Voting Agreement duly executed and delivered by the Company and the parties set forth on Schedule 5(a) attached hereto.

(III) An opinion from Sheppard, Mullin, Richter & Hampton LLP, counsel for the Company, in the form of Exhibit G attached hereto, and an opinion ("Sellers' Opinion") from Reicker, Pfau, Pyle, McRoy & Herman LLP, counsel for the Sellers ("Sellers' Counsel"), in the form of Exhibit H attached hereto, each of which shall be addressed to the Purchasers and dated as of the Closing Date.

(IV) A management rights letter in the form attached hereto as Exhibit I.

(V) A certificate signed by an officer of the Company stating that the conditions specified in the foregoing Sections 5(a)(i) and 5(a)(ii) have been fulfilled.

(VI) A certificate of the Secretary or other officer of the Company certifying the names of the officers of the company authorized to sign this Agreement, the certificates for the Preferred Securities and the other documents, instruments or certificates to be delivered pursuant to this Agreement by the Company or any of its officers, together with the true signatures of such officers, together with copies of:

(1) The Restated Articles (certified by the California Secretary of State as of a date not more than two days prior to the Closing) and the Bylaws of the Company (as amended through the date of the Closing), in each case certified by the Secretary of the Company as true and correct copies thereof as of the Closing.

(2) The resolutions of the Board of Directors and, if required, the shareholders of the Company approving the Restated Articles, this Agreement and the other matters contemplated hereby, certified by the Secretary of the Company to be true, complete and correct.

(3) A good standing certificate California Secretary of State dated within five (5) days of the Closing with applicable "bring-down" certificates dated as of the date hereof.

(VII) The Drag-Along Agreement duly executed and delivered by the Company and the holders of record of at least 95% of the outstanding shares of Common Stock (immediately after giving effect to the Repurchase Transaction).

(vii) Disqualified Person Certificate. A Certificate as to Disqualified Persons in form and substance reasonably acceptable to Highland Capital Partners VI Limited Partnership.

(viii) Escrow Agreement; Indemnification Escrow Agreement. The Escrow Agreement shall have been executed and delivered by all parties thereto. The Indemnification Escrow Agreement shall have been executed and delivered by all parties thereto.

(ix) Waivers. The Company shall have obtained all consents or waivers, if any, necessary to execute and deliver this Agreement, the Investors' Rights Agreement, the Voting Agreement, the Drag-Along Agreement, the Repurchase Agreements, the Indemnification Escrow Agreement and the Escrow Agreement, to issue the Preferred Securities and to repurchase the Repurchased Shares, and to carry out the transactions contemplated hereby and thereby, and all such consents and waivers shall be in full force and effect.

(x) Payment of Fees. The Company shall have paid in accordance with Section 8(a) the fees, expenses and disbursements of Testa, Hurwitz & Thibeault, LLP, special counsel for the Purchasers, and any consultants retained by the Purchasers in connection with their purchase of Preferred Securities, in an amount not to exceed $50,000 in the aggregate.

(xi) 2003 Ownership Equivalency Plan. The Company shall have terminated the 2003 Ownership Equivalency Plan.

(b) Conditions to the Company's Obligations at Closing. The obligations of the Company under this Agreement are subject to the fulfillment on or before Closing, of each of the following conditions (or the waiver by the Company of any condition that is not so fulfilled):

(i) Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true and correct at the Closing.

(ii) Performance. The Purchasers shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by the Purchasers on or before the Closing.

(iii) Authorizations. The Company shall have obtained from its shareholders all of the waivers, authorizations, approvals and consents needed to consummate the transaction contemplated by this Agreement, including, without limitation, the filing of the Restated Articles, the issuance and sale of the Preferred Securities, and the execution and delivery of the Investors' Rights Agreement, the Voting Agreement and the Drag-Along Agreement.

(iv) Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Preferred Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing.

(v) Repurchase Agreements. The Company shall have received executed Repurchase Agreements from the Sellers with respect to the Company's repurchase of at least 1,136,686 Repurchased Shares from such Sellers.

Section 6. Definitions. For the purposes of this Agreement, the following terms have the meanings set forth below:

"2004 S Period Distribution" has the meaning set forth in Section 4(f)(i).

"Accounting Referee" has the meaning set forth in Section 4(f)(iii).

"Agent" means Perseus Advisors, LLC.

"Agreement" has the meaning set forth in the Preamble.

"Articles of Incorporation" has the meaning set forth in Section 1(a)(i).

"Closing" has the meaning set forth in Section 1(d).

"Closing Date" has the meaning set forth in Section 1(d).

"Common Stock" has the meaning set forth in Section 2(b).

"Company" has the meaning set forth in the Preamble.

"Computer Program(s)" means (i) any and all computer programs (consisting of sets of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result) and portions thereof, and (ii) all associated data and compilations of data, regardless of their form or embodiment. "Computer Programs" shall include, without limitation, all source code, object code, natural language code, all versions, all screen displays and designs, all component modules, all descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, and all documentation, including without limitation user manuals and training materials, relating to any of the foregoing.

"Confidential Information" means all information of a confidential or proprietary nature (whether or not specifically labeled or identified as "confidential"), in any form or medium, that relates to the business (including proprietary databases), products, services, research or development of the Company or its Subsidiaries or their respective suppliers, distributors, customers, vendors or other trade related business relations. Confidential Information includes, but is not limited to, the following: (i) internal business and financial information (including information relating to strategic and staffing plans, business, training, marketing, promotional and sales plans, cost, rate and pricing structures); (ii) identities of, individual requirements of, and specific contractual arrangements with, the Company's suppliers, distributors, customers, vendors and other business relations and their confidential information; (iii) trade secrets, know-how, compilations of data and analyses, specifications, systems, records, reports, manuals, documentation, models, data and databases relating thereto (including information contained in the Company's proprietary databases and the use and functions thereof); (iv) inventions, innovations, improvements, processes, developments, plans, designs, formulas, analyses, drawings, reports and all similar or related information (whether or not patentable) and (v) all other Intellectual Property Rights of the Company. Confidential Information shall not include information that a receiving party can demonstrate is publicly known through no wrongful act or breach of any obligation of confidentiality.

"Conversion Stock" has the meaning set forth in Section 2(d).

"Determination Date" has the meaning set forth in Section 4(f)(iii).

"Disbursement Schedule" has the meaning set forth in Section 1(b).

"Disclosure Schedule" has the meaning set forth in Section 2.

"Distributable S Period Taxable Income" has the meaning set forth in Section 4(f)(i).

"ERISA Affiliate" means any Person who is in the same controlled group of corporations or who is under common control with the Company (within the meaning of Section 414 of the Code).

"Escrow Agent" has the meaning set forth in Section 1(d).

"Escrow Agreement" has the meaning set forth in Section 1(c).

"Financial Statements" has the meaning set forth in Section 2(v).

"Indemnification Escrow Agreement" has the meaning set forth in Section 1(c).

"Indemnification Escrow Amount" means $3,000,000.

"Indemnification Escrow Fund" means the escrow fund to be governed by the terms of the Indemnification Escrow Agreement, initially constituted by the Indemnification Escrow Amount delivered pursuant to Section 1.1(e)(ii).

"Intellectual Property Rights" means any and all of the following in any and all legal jurisdictions around the world: (i) patents, patent applications, patent disclosures and all related continuations, continuations-in-part, divisionals, reissues, re-examinations and renewals (together "Patents"), (ii) trademarks, service marks, trade dress, logos, trade names, service names, domain names and corporate names, and registrations and applications for registration thereof (together "Trademarks"), (iii) copyrights, and registrations and applications for registration thereof, (iv) mask works, and registrations and applications for registration thereof, (v) trade secrets and confidential business information, including without limitation, know-how, manufacturing and product processes and techniques, research and development information, financial, marketing and business data, pricing and cost information, technical data, business and marketing plans, and customer and supplier lists and information (together "Trade Secrets"), (vi) other proprietary rights relating to any of the foregoing (including without limitation associated goodwill and remedies against infringements thereof and rights of protection of an interest therein under the laws of all jurisdictions)..

"Investment Transaction" has the meaning set forth in Section 1(b).

"Investors' Rights Agreement" has the meaning set forth in Section 1(b).

"Material Adverse Effect" has the meaning set forth in Section 2(a).

"Party" or "Parties" has the meaning set forth in the Preamble.

"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

"Preferred Securities" has the meaning set forth in Section 1(a)(ii).

"Preferred Securities Purchase Price" has the meaning set forth in Section 1(b).

"Preferred Stock" has the meaning set forth in Section 2(b).

"Purchaser" has the meaning set forth in the Preamble.

"Qualified Public Offering" shall mean a fully underwritten, firm commitment public offering pursuant to an effective registration under the Act covering the offer and sale by the Company of its Common Stock in which the aggregate net proceeds to the Company equal or exceed $50,000,000 million, in which the price per share of such Common Stock equals or exceeds $70.38 per share (such price subject to equitable adjustment in the event of any stock split, stock dividend, combination, reorganization, reclassification or other similar event).

"Repurchase Price" has the meaning set forth in Section 1(a)(iii).

"Repurchase Transaction" has the meaning set forth in Section 1(c).

"Repurchased Shares" has the meaning set forth in Section 1(a)(iii).

"Restated Articles" has the meaning set forth in Section 1(a)(i).

"Securities Act" means the Securities Act of 1933, as amended, or any similar federal law then in force.

"Seller" or "Sellers" has the meaning set forth in the Preamble.

"Series A Directors" has the meaning set forth in the Restated Articles.

"Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors, Board of Directors or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of the limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing shareholder or general partner of such limited liability company, partnership, association or other business entity.

"Tax" or "Taxes" means federal, state, county, local, foreign or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital interests, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not.

"Voting Agreement" has the meaning set forth in Section 1(b).

Section 7. Indemnification and Survival.

(a) Subject to the terms of this Agreement, including, without limitation, Section 7(c) hereof, the Company and each Seller shall, jointly and severally, indemnify, pay, defend and hold the Purchasers and each of the Purchasers' officers, directors, employees and agents and their respective affiliates (the "Indemnitees") harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever, including, without limitation, the actual and reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto, which may be (i) imposed on such Indemnitee, (ii) incurred by such Indemnitee, or (iii) asserted against such Indemnitee by a third party, as a result of the misrepresentation, violation or breach of any representation, warranty, covenant, agreement or obligation of the Company under this Agreement or the other agreements contemplated herein. Without limiting the generality of the foregoing, the Purchasers shall be deemed to have suffered liability, loss or damage as a result of the untruth, inaccuracy or breach of any such representations, warranties, covenants, agreements or obligations if such liability, loss or damage shall be suffered by the Company as a result of, or in connection with, such untruth, inaccuracy or breach of any facts or circumstances constituting such untruth, inaccuracy or breach.

(b) The representations and warranties of the Company set forth in this Agreement and the indemnification obligations set forth in Section 7(a) shall survive the execution and delivery of this Agreement, any investigation by or on behalf of any Party and the Closing and shall terminate at 5:00 PM (Pacific time) on April 30, 2006 and be of no further force or effect after such time, except that (i) the representations and warranties set forth in Section 2(b), Sections 2(j)(i), (ii) and (v) and

Section 2(z), and the indemnification obligations set forth in Section 7(a) related thereto, shall survive forever and shall not terminate, and (ii) the representations and warranties set forth in Section 2(n), Section 2(o), Section 2(q) and Section 2(s), and the indemnification obligations set forth in Section 7(a) related thereto, shall survive the Closing until the expiration of the applicable statutes of limitations (taking into account all extensions thereof); provided, however, that in the event notice for indemnification under Section 7(a) shall have been given within the applicable survival period, the representation and warranty that is the subject of such indemnification claim shall survive until such time as such claim is finally resolved. The respective covenants, agreements and obligations of the Parties (exclusive of their respective representations and warranties which shall survive as indicated in the first sentence hereof) set forth in this Agreement or in any certificate, document or other instrument delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement, any investigation by or on behalf of any other party hereto, and the Closing without limitation; provided, however, that the covenants, agreements and obligations of the Company set forth in Section 4(e) and Sections 4(i) through 4(v) shall terminate and be of no further force and effect immediately upon the earlier to occur of a Qualified Public Offering or the conversion into Common Stock of at least 75% of all issued shares of Series A Preferred Stock.

(c) Notwithstanding the provisions of Section 7(a), (i) no Seller shall have any liability pursuant Section 7(a) unless the aggregate amount of all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements incurred, or deemed to have been incurred, by the Indemnitees exceeds $250,000, in which event the entire aggregate amount thereof (subject to clause (ii) of this Section 7(c)) shall be indemnified by the Sellers pursuant to Section 7(a), and (ii) the maximum aggregate liability of the Sellers under Section 7(a) shall not exceed, and shall be limited solely and exclusively to, the Indemnification Escrow Fund; provided, however, that nothing in this Section 7(c) shall limit the liability of the Founders pursuant to Section 4(h). No Seller shall have any right of contribution from the Company for any indemnification claim by the Indemnitees.

(d) Pursuant to the Repurchase Agreement, the Sellers shall agree and acknowledge that the Company shall deposit the Indemnification Escrow Amount with the escrow agent pursuant to the Indemnification Escrow Agreement. The Indemnification Escrow Fund shall be governed by the terms set forth in the Indemnification Escrow Agreement. Payment from the Indemnification Escrow Fund, of any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements indemnified by the Sellers pursuant to Section 7(a), shall be made pursuant to the terms of the Indemnification Escrow Agreement.

Section 8. Miscellaneous.

(a) Expenses; Attorneys' Fees. Each Party shall pay its own costs and expenses with respect to the negotiation, execution, delivery and performance of this Agreement, provided, however, that at the Closing, the Company shall reimburse the reasonable fees, expenses and disbursements of Testa, Hurwitz & Thibeault, LLP, special counsel for the Purchasers, and of any consultants retained by the Purchasers in connection with their purchase of Preferred Securities, in an amount not to exceed $50,000 in the aggregate. Each Purchaser acknowledges that payment of such fees by the Company raises a potential conflict of interest and hereby consents to the payment arrangement set forth herein. The fees and expenses of Seller's Counsel shall be paid by the Sellers from the aggregate Repurchase Price. The Company and the Sellers shall each pay 50% of the fees and expenses of the Escrow Agent and the escrow agent pursuant to the Indemnification Escrow Agreement.

(b) Remedies. Subject to the limitations of Section 7(c) of this Agreement, the Parties shall have all rights and remedies set forth in this Agreement and all rights and remedies which the Parties have been granted at any time under any other agreement or contract executed in connection with the transactions contemplated hereby and, with respect to the additional rights the Parties may have against the Company in connection with the transactions contemplated hereby, all of the rights which the Parties have under applicable law.

(c) Consent to Amendments. This Agreement may be amended, or any provision of this Agreement may be waived; provided that any such amendment or waiver shall be binding upon the Company only if set forth in a writing executed by the Company and referring specifically to the provision alleged to have been amended or waived, and any such amendment or waiver shall be binding upon the Purchasers only if set forth in a writing executed by the Purchasers holding two-thirds (²/3) in interest of the Preferred Securities and referring specifically to the provision alleged to have been amended or waived. No course of dealing between or among the Parties shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Party under or by reason of this Agreement. Notwithstanding anything to the contrary contained in this Section 7(c), (i) any amendment which (I) increases any Purchaser's obligations hereunder, or (II) grants to any one or more Purchasers any rights more favorable than any rights granted to all other Purchasers hereunder, must be approved by each Purchaser so as to be effective against such Purchaser, and (ii) any amendment which increases any Seller's obligations hereunder must be approved by such Seller so as to be effective against such Seller.

(d) Successors and Assigns. This Agreement and all of the covenants and agreements contained herein and all of the rights, interests and obligations hereunder, by or on behalf of any of the Parties hereto, shall bind and inure to the benefit of the respective successors and assigns of the Parties hereto whether so expressed or not; provided, however, that the Company shall not have the right to delegate any of its respective obligations hereunder or to assign its respective rights hereunder or any interest herein without the prior written consent of the Purchasers holding of two-thirds (²/3) in interest of the Preferred Securities.

(e) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or the application of any such provision to any Person or circumstance shall be held to be prohibited by, illegal or unenforceable under applicable law in any respect by a court of competent jurisdiction, such provision shall be ineffective only to the extent of such prohibition or illegality or unenforceability, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(f) Counterparts. This Agreement may be executed simultaneously in counterparts (including by means of facsimile signature pages), any one of which need not contain the signatures of more than one Party, but all such counterparts taken together shall constitute one and the same Agreement.

(g) Descriptive Headings; Interpretation. The headings and captions used in this Agreement and the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized terms used in any Schedule or Exhibit attached hereto and not otherwise defined therein shall have the meanings set forth in this Agreement. The use of the word "including" herein shall mean "including without limitation." The Parties intend that each representation, warranty and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty or covenant.

(h) Entire Agreement. This Agreement and the agreements and documents referred to herein contain the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings, whether written or oral, relating to such subject matter in any way.

(i) No Third-Party Beneficiaries. Except for each Seller and his, her or its permitted successors and assigns, who are express third party beneficiaries of Section 7 of this Agreement, this Agreement is for the sole benefit of the Parties and their permitted successors and assigns and nothing herein expressed or implied shall give or be construed to give any Person, other than the Parties and such permitted successors and assigns, any legal or equitable rights hereunder.

(j) Cooperation on Tax Matters. The Company and the Founders shall cooperate fully, as and to the extent reasonably requested by each such Party and at such requesting Party's expense, in connection with any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon any such Party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company and the Founders agree (i) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by any such Party, any extensions thereof) applicable to such taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give each such Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if any such Party so requests, the Company or the Founders, as the case may be, shall allow such Party to take possession of such books and records.

(k) Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the Schedules and Exhibits hereto shall be governed by, and construed in accordance with, the laws of the State of California without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California. Each Party agrees to accept service of any summons, complaint or other initial pleading made in the manner provided for the giving of notices in Section 8(l), provided that nothing in this Section 8(k) shall affect the right of any Party to serve such summons, complaint or other initial pleading in any other manner permitted by law.

(l) Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, one day after being sent to the recipient by reputable overnight courier service (charges prepaid), upon machine-generated acknowledgment of receipt after transmittal by facsimile or five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to the Purchasers and the Company at the addresses indicated below or to such other address

or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.

The Company:
Fastclick.com, Inc. 360 Olive Street Santa Barbara, CA 93101 Attn: Kurt Johnson, Chief Executive Officer
Phone:		(805) 568-5334
Facsimile:		(805) 456-4300
with a copy to: (which shall not constitute notice to the Company)
Sheppard, Mullin, Richter & Hampton LLP 800 Anacapa Street Santa Barbara, CA 93101-2212 Attn: C. Thomas Hopkins, Esq.
Phone:		(805) 879-1829
Facsimile:		(805) 568-1955
The Purchasers
To the addresses for the Purchasers set forth on the Schedule of Purchasers
with a copy to: (which shall not constitute notice to any Purchaser)
Testa, Hurwitz & Thibeault, LLP 125 High Street Boston, MA 02110 Attn: William J. Schnoor, Jr., Esq.
Phone:		(617) 248-7000
Facsimile:		(617) 248-7100

(m) No Strict Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

(n) No Waiver; Cumulative Remedies.. No failure or delay on the part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

(o) Understanding Among the Purchasers. The determination of each Purchaser to enter into this Agreement has been made by such Purchaser independent of any other Purchaser and independent of any statements or opinions, which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, as to the advisability thereof or as to the properties, prospects or conditions (financial or otherwise) of the Company.

(p) Termination.

(i) Prior to the Closing, this Agreement may be terminated and the transactions contemplated hereby may be abandoned:

(I) by the written agreement of the Company and Purchasers, Purchasers purchasing at least two-thirds (²/3) of the Preferred Securities to be sold hereunder, assuming issuance of the maximum number of Preferred Securities pursuant to the Investment Transaction; or

(II) by (A) the Company or (B) Purchasers purchasing at least two-thirds (²/3) of the Preferred Securities to be sold hereunder, assuming issuance of the maximum number of Preferred Securities pursuant to the Investment Transaction, if the Closing shall not have occurred by 5:00 PM (Pacific time) on October 15, 2004; provided that the right to terminate this Agreement under this Section 8(p)(i)(II) shall not be available to any party or parties whose failure to fulfill any obligation, or satisfy any condition, under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date.

(ii) In the event of termination of this Agreement and the abandonment of the transactions contemplated hereby prior to Closing, this Agreement shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, employees, agents, legal and financial advisors or other representatives); provided, however, except as otherwise provided herein, no such termination shall relieve any party hereto of any liability or damages resulting from any willful breach of this Agreement.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Recapitalization Agreement on the date first written above.

		FASTCLICK.COM, INC.
		By:		/s/ Kurt Johnson Kurt Johnson Chief Executive Officer

[Signature Page to Recapitalization Agreement]

		PURCHASERS:
		HIGHLAND CAPITAL PARTNERS VI LIMITED PARTNERSHIP
		By:		Highland Management Partners VI Limited Partnership, its General Partner
		By:		Highland Management Partners VI, Inc., its General Partner
		By:		/s/ ROBERT F. HIGGINS
				Authorized Officer
		HIGHLAND CAPITAL PARTNERS VI-B LIMITED PARTNERSHIP
		By:		Highland Management Partners VI Limited Partnership, its General Partner
		By:		Highland Management Partners VI, Inc., its General Partner
		By:		/s/ ROBERT F. HIGGINS
				Authorized Officer
		HIGHLAND ENTREPRENEURS' FUND VI LIMITED PARTNERSHIP
		By:		HEF VI Limited Partnership, its General Partner
		By:		Highland Management Partners VI, Inc., its General Partner
		By:		/s/ ROBERT F. HIGGINS
				Authorized Officer

		OAK INVESTMENT PARTNERS XI, LIMITED PARTNERSHIP
		By:		Oak Associates XI, LLC, its General Partner
		By:		/s/ Frederic Harman
				Managing Member
		STEAMBOAT VENTURES, LLC
		By:		/s/ John R. Ball
		Name:		John R. Ball
		Title:		Managing Director
		STEAMBOAT VENTURES MANAGER, LLC
		By:		/s/ John R. Ball
		Name:		John R. Ball
		Title:		Managing Director

		FOUNDERS:
		/s/ Jeff Pryor Jeff Pryor
		/s/ David Gross David Gross

		OAK INVESTMENT PARTNERS XI, LIMITED PARTNERSHIP
		By:		Oak Associates XI, LLC, its General Partner
		By:		/s/ Frederic Harman
		Managing Member
		STEAMBOAT VENTURES, LLC
		By:		/s/ John R. Ball
		Name:
		Title:

Schedule of Purchasers

Name and Address	Number of Preferred Securities	Purchase Price
HIGHLAND CAPITAL PARTNERS VI LIMITED PARTNERSHIP c /o Highland Capital Partners Limited Partnership 92 Hayden Avenue Lexington, MA 02421 Telephone: (781) 861-5500 Facsimile: (781) 861-5499	622,619	$	21,909,962.61
HIGHLAND CAPITAL PARTNERS VI-B LIMITED PARTNERSHIP c /o Highland Capital Partners Limited Partnership 92 Hayden Avenue Lexington, MA 02421 Telephone: (781) 861-5500 Facsimile: (781) 861-5499	341,148	$	12,004,998.12
HIGHLAND ENTREPRENEURS' FUND VI LIMITED PARTNERSHIP c/o Highland Capital Partners Limited Partnership 92 Hayden Avenue Lexington, MA 02421 Telephone: (781) 861-5500 Facsimile: (781) 861-5499	30,833	$	1,085,013.27
OAK INVESTMENT PARTNERS XI, LIMITED PARTNERSHIP 525 University Avenue, Suite 1300 Palo Alto, CA 94301 Telephone: (650) 614-3700 Facsimile: (650) 328-6345	994,600	$	34,999,974.00
STEAMBOAT VENTURES, LLC 3601 West Olive Avenue, Suite 501 Burbank, CA 91505 Telephone: (818) 566-7400 Facsimile: (818) 566-7490	141,907	$	4,993,707.33
STEAMBOAT VENTURES MANAGER, LLC 3601 West Olive Avenue, Suite 501 Burbank, CA 91505 Telephone: (818) 566-7400 Facsimile: (818) 566-7490	178	$	6,263.82

Total	2,131,285	$	74,999,919.15

Schedule 1(b)

Disbursement Schedule

Schedule 2

Disclosure Schedule

Schedule 5(a)

Jeff Pryor
David Gross
Stephen Szu-chien Chang
Kurt Johnson
Jeffrey Hirsch
Fred Krupica
James Aviani
Shayne Mihalka
Barry Anderson
Alexis Weaver

Exhibit A

Form of Restated Articles

Exhibit B

Form of Investor's Rights Agreement

Exhibit C-1

Form of Voting Agreement

Exhibit C-2

Form of Drag-Along Agreement

Exhibit D

Form of Repurchase Agreement

Exhibit E

Paying Agent Escrow Agreement

Exhibit F

Form of Indemnification Escrow Agreement

Exhibit G

Form of Opinion of Counsel for the Company

Exhibit H

Form of Opinion of Counsel for the Sellers

Exhibit I

Form of Management Rights Letter

Exhibit I-1

Form of Management Rights Letter

Exhibit I-2

Form of Management Rights Letter

Exhibit I-3

Form of Management Rights Letter

Exhibit I-4

Form of Management Rights Letter

QuickLinks

TABLE OF CONTENTS
EXHIBITS AND SCHEDULES
RECAPITALIZATION AGREEMENT
Schedule of Purchasers
Schedule 1(b) Disbursement Schedule
Schedule 2 Disclosure Schedule
Schedule 5(a)
Exhibit A Form of Restated Articles
Exhibit B Form of Investor's Rights Agreement
Exhibit C-1 Form of Voting Agreement
Exhibit C-2 Form of Drag-Along Agreement
Exhibit D Form of Repurchase Agreement
Exhibit E Paying Agent Escrow Agreement
Exhibit F Form of Indemnification Escrow Agreement
Exhibit G Form of Opinion of Counsel for the Company
Exhibit H Form of Opinion of Counsel for the Sellers
Exhibit I Form of Management Rights Letter
Exhibit I-1 Form of Management Rights Letter
Exhibit I-2 Form of Management Rights Letter
Exhibit I-3 Form of Management Rights Letter
Exhibit I-4 Form of Management Rights Letter
EX-10.2 6 a2151215zex-10_2.htm EXHIBIT 10.2
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Exhibit 10.2

FASTCLICK, INC.

AMENDED AND RESTATED EMPLOYMENT AGREEMENT
WITH KURT A. JOHNSON

THIS AGREEMENT (this "Agreement") is made and effective as of January 1, 2005 (the "Effective Date"), between FASTCLICK, INC., a California corporation (the "Company"), and Kurt A. Johnson ("Executive").

WHEREAS, the Company is engaged in the business of providing Internet-based advertising products and services; and

WHEREAS, Executive possesses unique business skills, knowledge and industry experience which are valuable to the business and prospects of the Company; and

WHEREAS, the Company desires to retain the services of Executive as President and Chief Executive Officer, and Executive desires to perform such services for the Company, on the terms and conditions as set forth herein.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements set forth below, it is mutually agreed as follows:

1. TERM.

The Company hereby employs Executive and Executive hereby accepts employment pursuant to the terms and provisions of this Agreement commencing on the date hereof and continuing for a period of five (5) years (the "Term") unless and until terminated at an earlier date pursuant to Paragraph 8 below. At the conclusion of the Term and continuing thereafter, unless and until terminated by the Company or by Executive pursuant to Paragraph 8 below, this Agreement shall automatically renew on its anniversary date for successive additional one (1) year periods unless either party provides written notice of an intention not to renew this Agreement to the other at least sixty (60) days in advance of the anniversary date.

2. SERVICES.

Executive shall have the title of President and Chief Executive Officer ("CEO") and shall be elected to membership on the Board of Directors of the Company (the "Board"). Executive's duties shall be assigned from time to time by the Board and Executive shall report directly to the Board.

During his employment with the Company, Executive agrees to devote his full productive time and best efforts to the performance of his duties hereunder. Executive further agrees that so long as he is employed by the Company as President and CEO pursuant to the terms of this Agreement, he will not directly or indirectly render services of any nature to, otherwise become employed by, serve on the board of directors of any for-profit corporation, or otherwise participate or engage in any other business without the Board's prior written consent. Nothing herein contained shall be deemed to preclude Executive from (a) investing personal assets in businesses which do not compete (directly or indirectly) with the Company and in which Executive's participation is solely that of an investor; (b) purchasing securities in any corporation whose securities are regularly traded, provided that such purchases shall not result in Executive's owning beneficially at any time an aggregate of five percent (5%) or more of the equity securities of a corporation engaged in a business competitive (directly or indirectly) to that of the Company; and (c) participating in conferences, preparing or publishing papers or books or teaching; provided, however, that none of these activities, individually or in the aggregate, interferes with Executive's performance of his duties hereunder.

3. SALARY.

The Company shall pay to Executive, and Executive shall accept in consideration for his services hereunder, an annual base salary of Two Hundred Seventy Five Thousand Dollars ($275,000) (the "Base Salary"), payable in installments in accordance with the Company's customary payroll practices, less such deductions and withholdings required by law or authorized by Executive. The Board shall review the amount of Base Salary from time to time, but no less frequently than annually, and may increase, but not decrease, Executive's Base Salary during the Term.

4. BONUS.

Executive shall be entitled to participate in such bonus plans as the Board shall determine from time to time with an initial annual target bonus of One Hundred Seventy Five Thousand Dollars ($175,000) (the "Target Bonus") for the Company's current fiscal year. Calculation of the Target Bonus shall be determined with reference to a matrix for achievement by the Company of revenue and EBITDA levels set annually by the Board. The Target Bonus, if any, shall be paid to Executive not later than sixty (60) days after the end of the Company's fiscal year. The Board shall review the amount of the Target Bonus achievable, as well as the factors to be considered in any such calculation, from time to time and at its sole discretion, but no less frequently than annually. The Board may choose, in its sole discretion, to approve a bonus payment in excess of the Target Bonus.

5. STOCK OPTIONS.

In recognition of his past services to the Company and as an inducement to entering into this Agreement, Executive has received grants of stock options under stock option plans of the Company as follows: (a) 120,000 stock options granted on October 15, 2003 (the "Original Options") at an exercise price of $7.00 per share and (b) 50,491 stock options granted on September 28, 2004 (the "Subsequent Options") at an exercise price of $12.75 per share. Executive shall also be eligible to receive grants of additional stock options and restricted stock, or both, as the Board may determine from time to time. All additional stock options shall be granted at one hundred percent (100%) of the fair market value of the Company's common stock on the date of grant, except as otherwise mandated by applicable law or regulations. Any future stock option awards shall vest in accordance with the Company's vesting policy for additional grants to executive officers of the Company in effect on the dates of the grants by the Board and shall contain such other terms and conditions as shall be set forth in the agreements documenting the grants. The Original Options have been vesting in equal installments on a quarterly basis over a three (3) year period from the date of grant, and are governed by the 2000 Equity Participation Plan. The Subsequent Options shall vest in an amount equal to 25% of the Subsequent Options on the first anniversary of grant, with the remaining amount vesting in equal installments of 6.25% on quarterly basis thereafter through the fourth anniversary of the date of grant, and are governed by the 2004 Stock Incentive Plan. If the Executive is terminated without cause due to a Change in Control, as defined in the Subsequent Options grant, during the 12-months following such Change in Control, 100% of the Subsequent Options will vest.

6. EXPENSE REIMBURSEMENT.

The Company shall reimburse Executive for all reasonable, customary and necessary expenses incurred in the performance of his duties hereunder. Executive shall first account for such expenses by submitting a signed statement itemizing such expenses prepared in accordance with the policy set by the Company for reimbursement of such expenses. The amount, nature and extent of reimbursement for such expenses shall always be subject to the control, supervision and direction of the Company's Chief Financial Officer and the Board.

7. BENEFITS.

During Executive's employment with the Company pursuant to this Agreement:

(a) The Company shall maintain an office for Executive at the Company's corporate office in Santa Barbara, California with adequate support staff and services to enable him to perform his duties as CEO;

(b) Executive shall be eligible to participate in the Company's standard health insurance, life insurance and liability insurance plans, as such plans may be adopted and/or modified from time to time;

(c) Executive shall be eligible to participate in the Company's qualified and non-qualified retirement and other deferred compensation programs pursuant to their terms, as such programs may be adopted and/or modified from time to time;

(d) Executive shall be eligible to participate in any other benefit plan or arrangement implemented for other executive officers of the Company for which he satisfies the same eligibility requirements applicable to those executive officers; and

(e) Executive shall be entitled to vacation and other leave in accordance with normal Company policy applicable to other key executive officers, which is currently four (4) weeks annual combined vacation and personal leave. Vacations shall be taken at such times as Executive and the Board shall mutually agree.

(f) Executive shall receive a monthly car allowance of $1000.

The benefits set forth in this Section 7 shall be governed by the terms and conditions of the applicable plan documents and/or Company policies, as the case may be.

8. EARLY TERMINATION OF EMPLOYMENT.

8.1 General. Notwithstanding the provisions of Paragraph 1 hereof, Executive's employment by the Company as President and CEO under this Agreement shall terminate (a) immediately upon delivery to Executive of written notice of termination by the Company, (b) upon the Company's receipt of written notice of termination by Executive at least ten (10) business days before the specified effective date of such termination, or (c) upon Executive's death or Permanent Disability (as defined in Paragraph 8.4 hereof).

8.2 Definition of Cause. Termination of Executive by the Company prior to the end of the Term may be for "Cause" or for any other reason. For purposes of this Agreement, "Cause" shall be limited to (a) Executive's gross negligence, embezzlement, breach of fiduciary duty, willful misconduct or fraud in the performance of his services hereunder; (b) Executive's commission of or being charged with any felony or crime of moral turpitude; (c) Executive's material breach of this Agreement after written notice delivered to Executive identifying such breach and his failure to cure such breach, if curable, within thirty (30) days following delivery of such notice; or (d) Executive's material breach of the Company's Code of Business Conduct as such code may be revised from time to time after written notice delivered to Executive identifying such breach and his failure to cure such breach, if curable, within thirty (30) days following delivery of such notice. Executive shall have the right to "cure" only twice during the Term of this Agreement.

8.3 Constructive Termination. Termination of this Agreement by Executive prior to the end of the Term may be as the result of a "Constructive Termination" or for any other reason. Executive may, upon written notice to the Company, voluntarily end his employment within ninety (90) days following the occurrence of an event constituting a Constructive Termination (but with at least ten (10) business

days' written notice to the Company). For purposes of this Agreement, "Constructive Termination" shall mean:

(a) a material adverse change, without Executive's written consent, in Executive's authority, duties or reporting relationship to the Board causing Executive's position to be of materially less stature or responsibility, after written notice delivered to the Company of such change and the Company's failure to cure such change, if curable, within thirty (30) days following delivery of such notice; provided, however, that such a material adverse change shall in all events be deemed to occur if Executive no longer serves as the Chief Executive Officer unless Executive consents in writing to such change;

(b) a material reduction, without Executive's written consent, in Executive's Base Salary (or such higher level as may be in effect in the future) or a material reduction in Executive's stated Target Bonus in effect at the time (or such greater Target Bonus amount as may be in effect in the future) and for which he is eligible under the Bonus Plan;

(c) a relocation of Executive's principal place of employment by more than one hundred (100) miles (the Company's current plan to relocate headquarters to the Los Angeles area shall not trigger this provision), unless Executive consents in writing to such relocation;

(d) any material breach by the Company of any provision of this Agreement, after written notice delivered to the Company of such breach and the Company's failure to cure such breach, if curable, within thirty (30) days following delivery of such notice; or

(e) any failure by the Company to obtain the assumption of this Agreement by any successor to the Company.

8.4 Permanent Disability. For purposes of this Agreement, "Permanent Disability" shall mean any medically determinable physical or mental impairment that can reasonably be expected to result in death or that has lasted or can reasonably be expected to last for a continuous period of not less than nine (9) months and renders Executive unable to perform effectively his services pursuant to this Agreement, as determined by a physician selected by the Board in consultation with the Executive.

8.5 Voluntary Termination; For Cause Termination. In the event Executive voluntarily terminates his employment with the Company other than in connection with a Constructive Termination or the Company terminates the Executive for Cause, then: Executive will be paid only any earned but unpaid Base Salary and any outstanding expense reimbursements submitted and approved pursuant to Paragraph 6 hereof and any other unpaid vested amounts or benefits under the benefit plans of the Company in which Executive participates as of the effective date of the termination. In no event may the Company terminate Executive's employment for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of at least a majority of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard at a meeting with the Board), finding that in the good faith opinion of the Board, Executive was culpable for the conduct constituting "Cause" and specifying the particulars thereof.

8.6 Termination on Account of Death or Permanent Disability. In the event Executive's employment is terminated on account of death or Permanent Disability, then the Company shall pay Executive, or his heirs, the sum of his Base Salary plus any earned Target Bonus for the current fiscal year in 12 equal monthly installments (minus the appropriate withholding for tax purposes). Executive or his heirs shall also be entitled to elect to continue coverage through the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") under the Company's health and welfare plans, such COBRA premiums for a period of twelve (12) months after the date of termination.

8.7 Termination Without Cause and Constructive Termination. In the event Executive's employment is terminated (a) without Cause or (b) as a result of a Constructive Termination or (c) in connection with a Change in Control as set forth in Section 8.8(a), then the Company shall pay Executive, in 12 equal monthly installments from the date of the Executive's execution of the release agreement set forth in Section 8.9, an amount equal to the sum of his Base Salary plus Target Bonus for the current fiscal year (minus the appropriate withholding for tax purposes). Executive shall also be entitled to continued coverage through COBRA under the Company's health and welfare plans for a period of twelve (12) months after the date of termination. All unvested stock options and any other stock awards outstanding shall immediately vest and become exercisable for a period of six (6) months after the date of termination.

8.8 Change in Control.

(a) Should there occur a Change in Control (as defined below) and if within three (3) months before the Change in Control or thirteen (13) months following the Change in Control either (i) Executive's employment under this Agreement is terminated without Cause or (ii) Executive terminates his employment pursuant to this Agreement as a result of an event constituting a Constructive Termination, then, Executive shall be entitled to all of the benefits set forth in Paragraph 8.7 above.

(b) For purposes of this Paragraph 8.8, a Change in Control shall be deemed to occur upon the consummation of any one of the following events:

(i) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 of that Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company's then outstanding voting securities; or

(ii) a change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors ("Incumbent Directors" means directors who either (A) are directors of the Company as of the Effective Date, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination, but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Board);

(iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation in which the holders of the Company's outstanding voting securities immediately prior to such merger or consolidation receive, in exchange for their voting securities of the Company in consummation of such merger or consolidation, securities possessing at least fifty percent (50%) of the total voting power represented by the outstanding voting securities of the surviving entity (or parent thereof) immediately after such merger or consolidation; or

(iv) the consummation of the sale or disposition by the Company of all or substantially all the Company's assets.

8.9 Release.

(a) The Executive must sign a release of claims which contains the provisions set forth in Exhibit A (but can be subsequently modified to comport with any changes to California law) to receive any payments pursuant to Sections 8.6, 8.7 and 8.8. If Executive breaches his post-employment obligations under the Nondisclosure Agreement or any other restrictive

covenants or agreements (including, but not limited to, any noncompetition, nonsolicitation, nondisclosure or assignment of intellectual property covenants or agreements) executed by Executive, the Company or the Board may immediately cease the Company's payment of all severance and/or benefits described in this Agreement. This cessation of severance and/or benefits shall be in addition to, and not as an alternative to, any other remedies in law or in equity available to the Company, including the right to seek specific performance or an injunction.

(b) The Executive and the Company agree that the payment schedule for any payments described in this Section 8 may be adjusted as necessary to avoid the application of the provisions of Section 409A of the Code of 1986, as amended, including those applicable to severance payments made to certain employees of publicly traded companies.

9. DISPUTE RESOLUTION.

(a) Each of the parties expressly agrees that, to the extent permitted by applicable law and to the extent that the enforceability of this Agreement is not thereby impaired, any and all disputes, controversies or claims between Executive and the Company arising under this Agreement, shall be determined exclusively by final and binding arbitration before a single arbitrator in accordance with the JAMS Arbitration Rules and Procedures, or successor rules then in effect, and that judgment upon the award of the arbitrator may be rendered in any court of competent jurisdiction. This includes, without limitation, any and all disputes, controversies, and/or claims arising out of or concerning Executive's employment by the Company as CEO or the termination of Executive's employment as CEO or this Agreement, and includes, without limitation, claims by Executive against directors, officers or employees of the Company, whether arising under theories of liability or damages based on contract, tort or statute, to the full extent permitted by law. As a material part of this agreement to arbitrate claims, the parties expressly waive all rights to a jury trial in court on all statutory or other claims. This Paragraph 9 does not purport to limit either party's ability to recover any remedies provided for by statute, including attorneys' fees.

(b) The arbitration shall be held in the Santa Barbara, California metropolitan area, and shall be administered by JAMS or, in the event JAMS does not then conduct arbitration proceedings, a similarly reputable arbitration administrator. Under such proceeding, the parties shall select a mutually acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except as provided herein, the Federal Arbitration Act shall govern the interpretation and enforcement of such arbitration proceeding. The arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the State of California, or federal law, if California law is preempted, and the arbitrator is without jurisdiction to apply any different substantive law. The parties agree that they will be allowed to engage in adequate discovery, the scope of which will be determined by the arbitrator, consistent with the nature of the claims in dispute. The arbitrator shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. The arbitrator shall render an award that shall include a written statement of opinion setting forth the arbitrator's findings of fact and conclusions of law. Judgment upon the award may be entered in any court having jurisdiction thereof. The parties intend this arbitration provision to be valid, enforceable, irrevocable and construed as broadly as possible.

(c) The Company shall be responsible for payment of the arbitrator's fees as well as all administrative fees associated with the arbitration. The parties shall be responsible for their own attorneys' fees and costs (including expert fees and costs).

(d) The parties agree, however, that damages would be an inadequate remedy for the Company in the event of a breach or threatened breach of this Agreement. In the event of any such breach or threatened breach, the Company may, either with or without pursuing any potential

damage remedies, obtain from a court of competent jurisdiction, and enforce, an injunction prohibiting Executive from violating this Agreement and requiring Executive to comply with its terms.

10. COOPERATION WITH THE COMPANY AFTER TERMINATION OF THE EMPLOYMENT PERIOD.

Following the termination of his employment for any reason (other than death), Executive shall cooperate with the Company in all matters relating to the winding up of his pending work on behalf of the Company and the orderly transfer of any such pending work to other employees of the Company as may be designated by the Company. Executive also agrees to participate as a witness in any litigation or regulatory proceeding to which the Company or any of its affiliates is a party at the request of the Company upon delivery to Executive of reasonable advance notice and the Company's written obligation to reimburse Executive for all reasonable and documented expenses incurred in connection therewith. Furthermore, Executive agrees to return to the Company all property of the Company, including all hard and soft copies of records, documents, materials and files relating to confidential, proprietary or sensitive company information in his possession or control, as well as all other company-owned property in his possession or control, at the time of the termination of his full-time employment, except to the extent that the Company determines that retention of any of such property is necessary, desirable or convenient in order to permit Executive to satisfy his obligations under this Paragraph 10, after which time Executive shall promptly return all such retained Company property.

11. INDEMNIFICATION. In the event Executive is made, or threatened to be made, a party to any legal action or proceeding, whether civil or criminal, by reason of the fact that Executive is or was a director or officer of the Company or serves or served any other corporation or other person which is at least fifty percent (50%) or more owned by the Company or controlled by the Company in any capacity at the Company's request, Executive shall be indemnified by the Company, and the Company shall pay Executive's related expenses when and as incurred, all to the fullest extent not prohibited by law.

12. GENERAL.

12.1 Waiver. Neither party shall, by mere lapse of time, without giving notice or taking other action hereunder, be deemed to have waived any breach by the other party of any of the provisions of this Agreement. Further, the waiver by either party of a particular breach of this Agreement by the other shall neither be construed as, nor constitute, a continuing waiver of such breach or of other breaches of the same or any other provision of this Agreement.

12.2 Severability. If for any reason a court of competent jurisdiction or arbitrator finds any provision of this Agreement to be unenforceable, the provision shall be deemed amended as necessary to conform to applicable laws or regulations, or if it cannot be so amended without materially altering the intention of the parties, the remainder of this Agreement shall continue in full force and effect as if the offending provision were not contained herein.

12.3 Notices. All notices and other communications required or permitted to be given under this Agreement must be in writing and shall be considered effective either (a) upon personal service or (b) upon delivery by facsimile and depositing such notice in the U.S. Mail, postage prepaid, return receipt requested and, if addressed to the Company, in care of the Chairman of the Board at the Company's principal corporate address, and, if addressed to Executive, at his most recent address shown on the Company's corporate records or at any other address that Executive may specify by notice to the Company, or (c) three (3) days after depositing such notice in the U.S. Mail as described in clause (b) of this paragraph.

12.4 Counterparts. This Agreement may be executed by facsimile and in any number of counterparts, each of which shall be deemed an original and all of which taken together constitutes one and the same instrument, and in making proof hereof it shall not be necessary to produce or account for more than one such counterpart.

12.5 Entire Agreement. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. The parties further agree that this Agreement constitutes the complete and exclusive statement of the agreement between the parties and supersedes all proposals (oral or written), understandings, representations, conditions, covenants, and all other communications between the parties relating to the subject matter hereof, including Executive's prior Employment Agreement with the Company dated October 6, 2003.

12.6 Governing Law. This Agreement shall a governed by the laws of the State of California, without regard to its conflict of laws principles.

12.7 Assignment and Successors. The Company shall have the right to assign its rights and obligations under this Agreement to an entity that, directly or indirectly, acquires all or substantially all of the assets of the Company. The rights and obligations of the Company under this Agreement shall inure to the benefit and shall be binding upon the successors and assigns of the Company. Executive shall not have any right to assign his obligations under this Agreement and shall only be entitled to assign his rights under this Agreement upon his death, solely to the extent permitted by this Agreement, or as otherwise agreed to by the Company.

12.8 Amendments. This Agreement, and the terms and conditions of the matters addressed in this Agreement, may only be amended in writing executed both by the Executive and the Chairman of the Board.

12.9 Former Employers. Executive represents and warrants to the Company that he is not subject to any employment, confidentiality or other agreement or restriction that would prevent him from fully satisfying his duties under this Agreement or that would be violated if he did so. Executive will not:

(a) disclose any proprietary information belonging to a former employer or other entity without its written permission; or

(b) contact any former employer's customers or employees to solicit their business or employment on behalf of the Company in violation of Executive's existing obligations to his former employed.

Executive shall indemnify and hold the Company harmless from any liabilities, including reasonable defense costs, it may incur because he is alleged to have broken any of these promises or improperly revealed or used such proprietary information or to have threatened to do so, or if a former employer challenges Executive's entering into this Agreement or rendering services pursuant to it.

12.10 Department of Homeland Security Verification Requirement. If Executive has not already done so, and is required to do so, he will timely file all documents, if any, required by the Department of Homeland Security to verify his identity and his lawful employment in the United States. Notwithstanding any other provision of this Agreement, if Executive fails to meet any such requirements promptly after receiving a written request from the Company to do so, his employment will terminate immediately upon notice from the Company and he will not be entitled to any compensation from the Company of any type.

12.11 Headings. The headings of the several paragraphs of this Agreement are inserted solely for the convenience of reference and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.

12.12 Reimbursement of Executive's Attorney's Fees. The Company shall reimburse, as promptly as practicable after its receipt of documentation therefor, all of Executive's reasonable and documented attorneys' fees and expenses in connection with the negotiation, execution and delivery of this Agreement, up to a maximum of $10,000.

12.13 Attorney's Fees. In the event of any dispute, controversy, claim, litigation or arbitration arising out of or concerning Executive's employment by the Company as President and CEO or the termination of Executive's employment as President and CEO or this Agreement, the prevailing party in any such dispute, controversy, claim, litigation or arbitration shall be entitled to reasonable attorneys' fees (excluding expert fees and costs).

12.14 Taxes and Other Withholdings. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable hereunder all federal, state, local and foreign taxes and other amounts that are required to be withheld by applicable laws or regulations (the "Taxes"), and the withholding of any amount shall be treated as payment thereof for purposes of determining whether Executive has been paid amounts to which he is entitled. In the event that the Company does not withhold the proper amount of Taxes from any such payments, Executive will make a prompt payment, on demand and in cash, to the Company for the amount under-withheld.

IN WITNESS WHEREOF, the parties have executed this Agreement on this 11th day of February, 2005.

FASTCLICK, INC.		EXECUTIVE
By:	/s/ FRED J. KRUPICA	/s/ KURT A. JOHNSON Kurt A. Johnson
Title:	Chief Financial Officer

Exhibit A

Release; Accord and Satisfaction.

(a) Notwithstanding the provisions of California Civil Code Section 1542, in exchange for the amounts described in Section , and other good and valuable consideration, the receipt of which is hereby acknowledged, you and your representatives, agents, estate, heirs, successors and assigns (the "Releasors"), absolutely and without limitation, hereby irrevocably and unconditionally release, remise, discharge, indemnify and hold harmless the Releasees (collectively defined to include the Company, its predecessors, successors, parents, subsidiaries, divisions, affiliates, assigns, and its and their respective current and former officers, agents, directors, supervisors, investors, shareholders, plan sponsors, fiduciaries, employees, representatives and attorneys, all both individually and in their official capacities, and all persons acting by, through, under, or in concert with any of them) from any and all charges, complaints, claims, causes of action, debts, sums of money, controversies, agreements, promises, damages and liabilities of any kind or nature whatsoever, both at law and equity, known or unknown, suspected or unsuspected, whether specifically enumerated herein or not, on or to the date of this Agreement (hereinafter referred to as "claim" or "claims"). The claims released include, without limitation, any claims incidental to or arising out (i) your employment, change in employment status, and/or termination of the Employment Agreement; (ii) any relationship between you and the Company; (iii) federal, state or local law, constitution or regulation regarding either securities, employment, employment benefits, or employment discrimination and/or retaliation including, without limitation, those laws or regulations concerning discrimination on the basis of age, race, color, religion, creed, sex, sex harassment, sexual orientation, national origin, ancestry, marital status, handicap or physical disability, mental disability, medical condition or status as a disabled or Vietnam era veteran, veteran status or any military service or application for military service; (iv) any and all contract claims, whether based on an oral, written, express or implied contract, also including claims for wrongful termination and breach of the implied covenant of good faith and fair dealing; (v) any and all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; (vi) any and all common law claims; and (vii) any and all claims relating to your ownership of the Company "s stock.

(b) You agree that the payments and benefits set forth in this Agreement, together with payments and benefits the Company previously provided to you, are complete payment, settlement, accord and satisfaction with respect to all obligations and liabilities of the Releasees to the Releasors, and with respect to all claims, causes of action and damages that could be asserted by the Releasors against the Releasees regarding your employment with and/or change in employment status with the Company, including, without limitation, all claims for wages, salary, commissions, draws, car allowances, incentive pay, bonuses, business expenses, paid time off, vacation pay, stock and stock options, severance pay, attorneys' fees, compensatory damages, exemplary damages, or other compensation, benefits, costs or sums.

Section 1542.

The parties' intention in executing this Agreement is that this Agreement shall be effective as a bar to each and every claim specified in Section .¹ In furtherance of this intention, the parties hereby expressly waive any and all rights and benefits conferred upon them by the provisions of Section 1542 of the California Civil Code and expressly consent that this Agreement shall be given full force and effect according to each and all of its express terms and provisions, including as well those related to unknown and/or unsuspected claims, if any, as well as those relating to any other claims specified in Section above. Section 1542 provides as follows:

¹: The sections to be specified are the general release and accord and satisfaction section, however numbered or identified in the Agreement.

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

The parties further represent that they understand and acknowledge the significance and consequence of such release of unknown claims or actions as well as the specific waiver of Section 1542.

The following language will be in bolded text above Mr. Johnson's signature line.

YOU REPRESENT THAT YOU HAVE READ THE FOREGOING AGREEMENT, THAT YOU FULLY UNDERSTAND THE TERMS AND CONDITIONS OF SUCH AGREEMENT AND THAT YOU ARE VOLUNTARILY EXECUTING THE SAME. YOU ACKNOWLEDGE THAT IN ENTERING INTO THIS AGREEMENT, YOU ARE NOT RELYING ON ANY REPRESENTATION, PROMISE OR INDUCEMENT MADE BY THE RELEASEES WITH THE EXCEPTION OF THE CONSIDERATION DESCRIBED IN THIS DOCUMENT. YOU FURTHER REPRESENT THAT YOU UNDERSTAND AND ACKNOWLEDGE THE SIGNIFICANCE AND CONSEQUENCE OF THIS RELEASE AS WELL AS YOUR SPECIFIC WAIVER OF KNOWN AND UNKNOWN CLAIMS UNDER SECTION 1542.

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Exhibit 10.2

EX-10.3 7 a2151215zex-10_3.htm EXHIBIT 10.3
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Exhibit 10.3

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (hereinafter referred to as the ("Agreement") is made and entered into as of the 2nd day of August 2004, the effective date of this agreement (hereinafter referred to as the "Effective Date"), by and between Fastclick.com, Inc., a California corporation (hereinafter referred to as the "Company"), and FRED KRUPICA (hereinafter referred to as "Executive").

WHEREAS, the Company is a provider of Internet-based advertising products and services;

WHEREAS, the Company believes that a critical contributor to its success has been its team-oriented, cooperative corporate culture (the "Company Culture"), which the Company believes fosters innovation, individual thinking and creativity, promotes interaction and the exchange of ideas among employees and is critical to the Company's continuing development of its products and services;

WHEREAS, Executive possesses unique business skills, knowledge and industry experience which are valuable to the business and financial prospects of the Company;

WHEREAS, the Company desires to employ Executive as its Chief Financial Officer ("CFO"), and Executive desires to accept such employment pursuant to the terms hereof.

NOW, THEREFORE, in consideration of the mutual promises contained herein, the Company and Executive agree as follows:

1. DUTIES. The Company hereby employs Executive to serve as CFO, reporting to the Company's Chief Executive Officer ("CEO") with such duties as are currently specified in the Company's Bylaws and as may be defined from time to time by the Chief Executive Officer or the Company's Board of Directors (the "Board") provided, however, that the Company agrees not to assign any duties to Executive materially inconsistent with, or in material diminution of Executive's position as CFO of the Company, including duties, title, offices or responsibilities. Executive shall be based in Santa Barbara, California, except for required travel on the Company's business.

2. TERM OF EMPLOYMENT. The Company hereby agrees to employ Executive and Executive agrees to accept employment upon the terms and conditions set forth herein, commencing on the first day of employment expected to be on September 7, 2004 and continuing for a period of three (3) years, unless and until terminated by the Company or by Executive pursuant to Paragraph 11 below. Thereafter, and unless and until terminated by the Company or by Executive pursuant to Paragraph 11 below, this Agreement shall automatically renew on its anniversary date for successive additional one (1) year periods unless either party provides written notice of their intention not to renew this Agreement to the other at least sixty (60) days in advance of the anniversary date.

3. SALARY. Executive shall be entitled to receive from the Company a starting annual base salary of $200,000. Salary is calculated from the date of Executive's commencement of employment, pursuant to Paragraph 2 above. The base salary shall be paid to Executive in equal installments according to the Company's regular payroll practices and shall be reviewed and may be increased by the Board annually or at such earlier time or times as it determines. The base salary shall not be reduced at any time during the term of this agreement without the written consent of Executive.

4. BONUS. Executive shall be entitled to participate in such bonus plans as the Board shall determine from time to time. Executive's annual bonus shall be an amount of up to $150,000 calculated based on Executive's achievement of reasonable business goals for revenue and profitability as defined by the CEO and/or Board. The bonus payout will be consistent with the 2004 Executive Bonus Plan. CEO will make best effort to have goals and formulas developed and communicated in a timely

manner. Bonus, if any, shall not be earned until calculated, and shall be paid within 60 days following the end of the fiscal year, provided Executive remains employed by Company on the date upon which such bonus may be payable.

5. STOCK OPTIONS. In addition to Executive's salary described in Paragraph 3, above, Executive shall receive a stock option grant (the "Stock Option") pursuant to the Company's 2004 Stock Incentive Plan (the "2004 Plan"). The Stock Option grant will give Executive the right to purchase common stock in the amount of 1.5% of the combined common and preferred shares outstanding, on a fully-diluted basis, per the Company's post-Series A capital structure. Executive shall have the right, as do all employees in similar positions, to exercise all vested options at any time during a period following the date of termination of employment for any reason. This period shall be defined by the 2004 Plan document and shall be no less than 90 days.

The Stock Option will have an exercise price of $12.75 per share, 6.25% of which will vest on the completion of one full quarter of service with the Company, and with the remaining amount vesting in equal installments (6.25%) on a quarterly basis through the fourth anniversary of this Agreement, and will be subject to the other terms and conditions of the 2004 Plan. 50% of remaining unvested options will vest upon an IPO. 100% of said options will vest if Executive's employment with the Company is terminated due to a "Change in Control" as defined in section 11.4, or 12 months subsequent to such "Change in Control".

6. EXTENT OF SERVICES. So long as he serves as CFO, Executive shall devote his full time, attention and energies to the business of the Company and shall not during such time be engaged (whether or not during normal business hours) in any other business or professional activity which may impair his ability to attend to the business of Company to the best of his abilities, whether or not such activity is pursued for gain, profit or other pecuniary advantage. This prohibition shall not be construed as preventing the Executive from: (a) investing personal assets in businesses which do not compete with the Company in such form or manner as will not require any substantial services on the part of the Executive and in which the Executive's participation is principally that of an investor; or (b) purchasing securities in any corporation whose securities are regularly traded, provided that such purchase shall not result in the Executive's collectively owning beneficially at any time five percent (5%) or more of the equity securities of a corporation engaged in a business competitive to that of the Company. In the event the Company believes that Executive's participation in outside activities is impairing Executive's ability to attend to the business of the Company, the Company shall give Executive written notice specifying the concerns of the Company in this regard. Executive shall have not less than thirty (30) days following receipt of such written notice to make adjustments in such outside activities as shall be necessary to avoid the impairment of his ability to attend to the business of the Company. Except for conduct which violates this Agreement or Employee Inventions and Confidentiality Agreement.

7. VACATIONS AND LEAVE. Executive shall be entitled to vacation and other leave in accordance with the normal Company policy applicable to management employees, which is two (2) weeks annual vacation and two (2) weeks personal time off (accrued on a semi-monthly basis). Vacations shall be taken at such times as Executive and the CEO shall mutually agree.

8. EXPENSE REIMBURSEMENT. Upon presentation of supporting documentation and consistent with the Company policy, the Company will reimburse Executive for any reasonable and necessary business expenses incurred by Executive in connection with the performance of the Executive's duties for Company

9. OTHER BENEFITS. In addition to the benefits specifically described herein, during the term of this Agreement, Executive and his dependents shall be entitled to receive, on an equivalent basis, all other benefits of employment generally made available to other members of the Company's management and their families, including, without limitation, benefits as a result of any present or future medical insurance, disability insurance, life insurance, retirement or pension plans.

10. TAXES. The Company shall withhold from any amounts payable under this Agreement such federal, state, or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

11. TERMINATION OF EMPLOYMENT. This Agreement and Executive's employment as CFO may be terminated by either party, for any reason or no reason, upon thirty (30) days written notice given to the other party. The Company reserves the right to pay salary in lieu of notice in its sole discretion. In the event Executive's employment is terminated for any reason, other than: (1) cause ("Cause" as used herein shall refer to: fraud, gross negligence, willful misconduct, insubordination, material failure to comply with the Company's general policies, violation of the Employee Inventions Assignment Agreement, a form of which is attached as Exhibit A to this Agreement, failure to carry out instructions of the CEO, conviction of any felony or a misdemeanor involving moral turpitude; (2) voluntary termination by Executive; or (3) circumstances described in Sections 11.2 and 11.3 below, then Executive shall be entitled to the following severance benefits: (a) twelve (12) months salary at the base salary specified in Section 3 above applicable as of the date of termination, which salary shall be paid in accordance with the Company's normal payroll practices over the twelve (12) months following termination of employment; and (b) continued coverage under the Company's health and welfare plans for a period of twelve (12) months after the date of termination.

11.2 In the event Executive's employment is terminated by the Company upon a Change in Control, (as defined in Section 11.4 below) or during the twelve (12) month period subsequent to the Change in Control event, Executive shall be entitled to the following severance benefits: (a) twelve (12) months salary at the base salary specified in Section 3 above applicable as of the data of termination, which salary shall be paid in accordance with the Company's normal payroll practices over the twelve (12) months following termination of employment; and (b) continued coverage under the Company's health and welfare plans for a period of twelve (12) months after the date of termination.

11.3 In the event Executive's employment is terminated for Cause, by reason of Executive's death or disability or is terminated voluntarily by Executive, Executive shall not be entitled to any severance benefits.

11.4 "Change In Control" means, except for the proposed Series A Preferred Stock financing, the occurrence of any of the following events:

11.4.1 An acquisition (other than directly from the Company) of any voting securities of the Company by any person or group of affiliated or related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the Securities exchange Act of 1934), immediately after which such person or group has beneficial ownership (within the meaning of the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company's then outstanding voting securities; provided that this Section shall not apply to an acquisition of voting securities by any employee benefit plan or trust maintained by or for the benefit of the Company or its employees;

11.4.2 A merger, consolidation or reorganization involving the Company, unless all of the following conditions are satisfied:

11.4.2.1 the shareholders of the Company, immediately before such transaction, own, directly or indirectly, immediately after such transaction, in substantially the same proportion as their ownership of the voting securities of the Company immediately before such transaction, more than fifty percent (50%) of the outstanding voting securities of (a) the corporation resulting from such transaction (the "Surviving Corporation") or (b) the immediate parent corporation of the Surviving Corporation; and

11.4.2.2 the individuals who were Directors of the Company at the time of the execution of the agreement providing for such transaction constitute, immediately after the transaction, at least a majority of the members of the board of directors of (a) the Surviving Corporation or (b) a corporation beneficially owning, directly or indirectly, a majority of the voting securities of the Surviving Corporation; or

11.4.3 A complete liquidation or dissolution of the Company; or

11.4.4 The sale or other disposition of all or substantially all of the Company's assets to any person other than a sale or transfer of all or any portion of the Company's assets to another corporation in which the Company owns, immediately after such sale or transfer, eighty percent (80%) or more of the outstanding voting securities of such corporation.

12. SUCCESSORS TO THE COMPANY. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the Company and any successors of the Company, or any corporation which acquires directly or indirectly all of the assets of the Company, whether by merger, consolidation, sale or otherwise, and shall not be otherwise assignable by the Company. This Agreement is not assignable by Executive.

13. NOTICE. All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given (i) upon receipt, if delivered personally or via courier, (ii) upon confirmation of receipt, if given by facsimile provided that another copy is sent by another means permitted by this subsection within two (2) business days thereafter, and (iii) on the third business day following mailing, if mailed first-class, postage prepaid, registered or certified mail as follows:

If to Company to:

Fastclick.com, Inc.
360 Olive Street
Santa Barbara, CA 93101
Facsimile: (805) 568-5332
Attn: Kurt Johnson, Chief Executive Officer

If to Employee to:

Fred Krupica
121 Calle Palo Colorado
Santa Barbara, CA 93105
fkrupica@cox.net
Facsimile: None

Any party may by notice given in accordance with this subsection to the other party to designate another address or person for receipt of notices hereunder.

14. WAIVER. Neither party's failure to enforce any provision of this Agreement shall be deemed or in any way construed as a waiver of any such provision, nor prevent that party from thereafter enforcing each and every provision of this Agreement.

15. SEVERABILITY. If one or more of the provisions or paragraphs of this Agreement shall be held to be illegal or otherwise void or invalid, that provision shall be deemed severed and the remainder of this Agreement shall not be affected and shall remain in full force and effect.

16. GOVERNING LAW. This Agreement shall be interpreted under the laws of the State of California, without regard to or application of choice of law rules or principles.

17. The Company agrees that Executive shall be covered and insured up to the maximum limits provided by all insurance which the Company maintains to indemnify its directors and officers (and to indemnify the Company for any obligations which it incurs as a result of its undertaking to indemnify such officers and directors). The obligations herein shall be in addition to any other rights of indemnity of Executive provided in the Articles of Incorporation, Bylaws, by contract or under applicable law.

18. ARBITRATION. In the event any claim or controversy arises under or concerning any provision of this Agreement or in connection with Executive's employment with the Company, the Company and Executive hereby agree that such claim or controversy shall be settled by binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, provided, however, that the arbitrator shall be chosen as follows: if the Company and Executive are unable to agree upon an arbitrator within five (5) days of a request for arbitration, the parties shall request a panel of five (5) labor and employment arbitrators from the American Arbitration Association and shall alternatively strike names until a single arbitrator remains. Arbitration shall occur, if practicable, in Santa Barbara County, CA. The arbitrator shall issue a written decision setting forth the essential findings of fact and conclusions upon which the decision is based. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Depositions may be taken and other discovery may be obtained during such arbitration proceedings to the same extent as authorized in civil judicial proceedings, subject to any limitations placed on discovery by the arbitrator. Notwithstanding the foregoing, nothing herein shall preclude or limit either party from seeking a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, from a court of competent jurisdiction without abridging the powers of the arbitrator. The parties acknowledge and agree that, by agreeing to this provision, they are agreeing to arbitrate any claim relating to Executive's employment, whether or not it arises under the terms of this Agreement, to the fullest extent permitted by law. Unless otherwise required by law, if the Company requests arbitration under this Agreement, the Company will pay all costs and expenses of the arbitration. If the Executive requests the Arbitration, costs will be split 50/50 between the Company and the Executive. The arbitrator shall award the party prevailing in such arbitration its reasonable attorneys' fees and costs.

THE PARTIES FURTHER UNDERSTAND THAT BY AGREEING TO ARBITRATE EMPLOYMENT CLAIMS THEY ARE WAIVING THE RIGHT TO BRING AN ACTION IN A COURT OF LAW, EITHER STATE OR FEDERAL, AND WAIVE THE RIGHT TO HAVE CLAIMS AND DAMAGES, IF ANY, DETERMINED BY A JURY.

18. ENTIRE AGREEMENT. This Agreement, any stock option agreements, and the Employee Inventions Assignment Agreement signed by the Executive contain the entire agreement of the parties and supersede and replace any other Agreement. Except as provided herein, this Agreement may be modified only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. Only the Company's Board has the authority to make such modifications of this Agreement on behalf of the Company.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

THE COMPANY: Fastclick.com, Inc.		EXECUTIVE:


By:	/s/ KURT JOHNSON Name: Kurt Johnson Title: CEO	/s/ FRED KRUPICA 8/1/04 FRED KRUPICA

EXHIBIT A
Employee Inventions Assignment Agreement

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Exhibit 10.3

EMPLOYMENT AGREEMENT
EXHIBIT A Employee Inventions Assignment Agreement
EX-10.4 8 a2151215zex-10_4.htm EXHIBIT 10.4
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Exhibit 10.4

KEY EMPLOYEE AGREEMENT

This KEY EMPLOYEE AGREEMENT (hereinafter referred to as the ("Agreement") is made and entered into as of the 11th day of February, 2004, by and between Fastclick.com, Inc., a California corporation (hereinafter referred to as the "Company") and JAMES AVIANI (hereinafter referred to as "Executive").

WHEREAS, Company is a provider of Internet-based advertising products and services;

WHEREAS, Executive possesses unique business skills, knowledge and technical experience which are valuable to the business prospects of Company;

WHEREAS, in light of the foregoing, Company desires to employ Executive as Chief Technology Officer (CTO), and Executive desires to accept such employment;

NOW, THEREFORE, in consideration of the mutual promises contained herein, Company and Executive agree as follows:

1. DUTIES. Company hereby employs Executive to serve as CTO, reporting to the CEO with such duties that may be defined from time to time by the Board and/or CEO. To the fullest extent permitted by California law, Company shall indemnify and defend Executive from all costs, expenses and losses whether direct or indirect, including consequential damages and attorney's fees, incurred or sustained by Executive in consequence with the fulfillment of his duties on Company's behalf.

2. TERM OF EMPLOYMENT. Company hereby agrees to employ Executive and Executive hereby agrees to accept employment with Company upon the terms and conditions set forth herein, commencing on March 15^th, 2004 and shall continue unless and until terminated by Company or by Executive pursuant to Section 11 below.

3. SALARY. Executive shall be entitled to receive from Company a starting annual base salary of $200,000. Salary is calculated from the date of Executive's commencement of employment, pursuant to Section 2 above. The base salary shall be paid Executive in 24 equal bi-monthly installments per year and shall be reviewed and may be increased by the Board annually or at such earlier time or times as it determines; provided that the Board shall have no obligation to increase the base salary at the end of any year, in any particular amount or at any time other than the end of a year; and provided further that Company may reduce Executive's base salary with Executive's prior consent.

4. BONUS. Executive shall be entitled to participate in such bonus plans as the Board shall determine. Bonus will be calculated based on achievement of reasonable business goals for revenue and profitability as defined by the CEO and/or Board. Annual bonus, if any, is to be paid within 90 days following year-end.

5. STOCK OPTIONS. In addition to Executive's salary described in Section 3, above, Executive shall receive a tandem right grant of 20,000 Ownership Equivalents (OEs) convertible to Incentive Stock Options (ISOs) as to 20,000 shares of Company Common Stock.

5.1 The ISO grant will have a fair value price established by the Board at a time no later than the Executive's commencement date of employment, will vest on a quarterly basis over a period of four (4) years with an initial vesting date of October 1, 2004, with the ISO becoming vested on such date with respect to one-eighth (1/8) of the shares subject to the ISO, and will be subject to the other terms and conditions of the Fastclick 2000 Equity Participation Plan, including 50% vesting in the event of an initial public offering or significant change in control (as defined in Section 11), restrictions on transfer, expiration on termination, repurchase of shares on termination, and cancellation on competition with forfeiture and return of economic value provisions.

5.2 The OE grant, in tandem with the ISO grant, will vest on a quarterly basis over a period of four (4) years with initial vesting date of October 1, 2004 with the OE becoming vested on such date with respect to one-eighth (1/8) of the OE. The OE grant is subject to the 2003 Ownership Equivalency Plan. This OE grant, due to the tandem nature of the ISO/OE grant, will not be subject to the "unpaid FMV credit" that is deducted from typical OE income distributions.

5.3 On any exercise of the ISO, voluntary or automatic, the OE will be reduced by the number of shares of stock with respect to the ISO exercise. As such, the combined shares of the ISO grant and the OE grant shall never exceed 20,000.

6. EXTENT OF SERVICES. So long as he serves as CTO, Executive shall devote his full time, attention and energies to the business of Company and, without the CEO's or Board's prior written consent, shall not during such time be engaged (whether or not during normal business hours) in any other business or professional activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage, but this shall not be construed as preventing Executive from (a) investing personal assets in businesses which do not compete with Company in such form or manner as will not require any substantial services on the part of Executive and in which Executive's participation is principally that of an investor; (b) purchasing securities in any corporation whose securities are regularly traded, provided that such purchase shall not result in Executive's owning beneficially at any time five percent (5%) or more of the equity securities of a corporation or other entity engaged in a business competitive to that of Company; and (c) participating in conferences, preparing or publishing papers or books or teaching, so long as the Board and/or the CEO approves of such activities prior to Executive engaging in them.

7. VACATIONS AND LEAVE. Executive shall be entitled to vacation and other leave in accordance with normal Company policy applicable to management employees, which is four (4) weeks annual combined vacation and personal leave. Vacations shall be taken at such times Executive and the Board and/or the CEO shall mutually agree.

8. EXPENSE REIMBURSEMENT. Upon presentation of supporting documentation and consistent with Company policy, Company will reimburse Executive for any reasonable and necessary business expenses incurred by Executive in connection with the business of Company.

9. OTHER BENEFITS. In addition to the benefits specifically described herein, during the term of this Agreement, Executive shall be entitled to receive, on an equivalent basis, all other benefits of employment generally made available to other members of Company's management, including, without limitation, benefits as a result of any present or future medical insurance, disability insurance, life insurance, retirement or pension plans (including participation in any such benefits by Executive's dependents).

10. TAXES. Company may withhold from any amounts payable under this Agreement such federal, state, or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

11. TERMINATION OF EMPLOYMENT. This Agreement and Executive's employment as CTO may be terminated by either party, for any reason or no reason and with or without cause, immediately upon fifteen (15) days written notice given to the other party.

11.1 In the event Executive's employment is terminated for any reason, other than: (1) cause (i.e. fraud, gross negligence, willful misconduct, insubordination, failure to comply with Company's general policies, violation of the Employee and Contractor Confidentiality Non-Disclosure Agreement); (2) voluntary termination by Executive; or (3) a Change in Control as defined below, Executive shall be entitled to the following severance benefits: (a) all compensation Executive earned through the date of termination; (b) severance compensation equal to the then applicable base salary specified in Section 3 above for a period of six (6) months after the date of termination, which salary shall be paid on a bi-monthly basis over such period; (c) vesting and exercise of the OE and the ISO during a period of six (6) months after the date of termination;

and (d) continued coverage under Company's health and welfare plans for a period of six (6) months after the date of termination.

11.2 In the event Executive's employment is terminated by Company due to a Change in Control, (as defined below) or during the twelve (12) month period subsequent to the Change in Control event, Executive shall be entitled to the following severance benefits: (a) all compensation earned through the date of termination; (b) severance compensation equal to the then applicable base salary specified in Section 3 above for a period of twelve (12) months after the date of termination, which salary shall be paid on a bi-monthly basis over such period; (c) vesting and exercise of the OE and the ISO during a period of twelve (12) months after the date of termination; and (d) continued coverage under Company's health and welfare plans for a period of twelve (12) months after the date of termination.

11.3 In the event Executive's employment is terminated for cause (i.e. fraud, gross negligence, willful misconduct, insubordination, failure to comply with Company's general policies, violation of the Employee and Contractor Confidentiality Non-Disclosure Agreement), Executive shall be entitled only to the following: (a) all compensation earned through the date of termination; (b) no severance compensation; (c) no extension of the vesting and exercise periods of the OE and the ISO; and (d) no continued coverage under Company's health and welfare plans for any period after the date of termination, other than for Executive's rights under COBRA.

11.4 In the event Executive terminates his employment for Good Reason (as defined below) during the twelve (12) month period subsequent to the Change in Control event, Executive shall be entitled to the following severance benefits: (a) all compensation earned through the date of termination; (b) severance compensation equal to the then applicable base salary specified in Section 3 above for a period of twelve (12) months after the date of termination, which salary shall be paid on a bi-monthly basis over such period; (c) vesting and exercise of the OE and the ISO during a period of twelve (12) months after the date of termination; and (d) continued coverage under Company's health and welfare plans for a period of twelve (12) months after the date of termination.

11.5 Executive agrees that if either Section 11.1 or 11.2 above are application in connection with the termination of Executive's employment, the ISO shall be converted to a non-qualified stock option so as to permit the extended exercise periods. In addition, if Executive is entitled to any severance benefits under either Section 11.1 or 11.2 above and Executive during the applicable period of such benefits, Executive shall be entitled to the continue to receive such benefits for the balance of the applicable period.

11.6 Accordingly, Executive and Company acknowledge and agree that this Agreement and any employment hereunder are to be considered AT-WILL EMPLOYMENT.

11.7 Termination pursuant to this Section shall not prejudice any other remedy to which the terminating party may be entitled at law, in equity, or under this Agreement. This is the only Agreement concerning termination between Company and Executive, and the parties acknowledge that this Agreement supersedes and replaces any other written or oral agreement, representation or understanding between the parties concerning termination of Executive's employment with Company and that this Agreement can only be modified in a writing signed by the Board's delegate and Executive.

11.8 "Change In Control" means the occurrence of any of the following events:

11.8.1 An acquisition (other than directly from Company) of any voting securities of Company by any person or group of affiliated or related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the Securities exchange Act of 1934), immediately after which such person or group has beneficial ownership (within the meaning of the Exchange Act) of more than fifty percent (50%) of the combined voting power of Company's then outstanding voting securities; provided that this Section shall not apply to an acquisition of voting

securities by any employee benefit plan or trust maintained by or for the benefit of Company or its employees;

11.8.2 A merger, consolidation or reorganization involving Company, unless all of the following conditions are satisfied:

11.8.2.1 the shareholders of Company, immediately before such transaction, own, directly or indirectly, immediately after such transaction, in substantially the same proportion as their ownership of the voting securities of Company immediately before such transaction, more than fifty percent (50%) of the outstanding voting securities of (a) the corporation resulting from such transaction (the "Surviving Corporation") or (b) the immediate parent corporation of the Surviving Corporation; and

11.8.2.2 the individuals who were Directors of Company at the time of the execution of the agreement providing for such transaction constitute, immediately after the transaction, at least a majority of the members of the board of directors of (a) the Surviving Corporation or (b) a corporation beneficially owning, directly or indirectly, a majority of the voting securities of the Surviving Corporation; or

11.8.3 A complete liquidation or dissolution of Company; or

11.8.4 The sale or other disposition of all or substantially all of Company's assets to any person other than a sale or transfer of all or any portion of Company's assets to another corporation in which Company owns, immediately after such sale or transfer, eighty percent (80%) or more of the outstanding voting securities of such corporation.

11.9 In the event of the death of Executive during the term of this Agreement, Company shall pay to Executive's estate or legal representative any amounts to which Executive otherwise would have been entitled hereunder prior to the date of his death or which become payable by reason of his death.

11.10 "Good Reason" shall mean and include only the occurrence of any of the following events within twelve (12) months after the occurrence of a Change in Control event:

11.10.1 Company reduces Executive's base salary from that in effect immediately prior to the occurrence of the Change of Control event;

11.10.2 Company discontinues providing to Executive any material fringe benefit or other benefit provided to Executive immediately prior to the occurrence of the Change of Control event and fails to provide Executive with substantially equivalent alternative benefits; provided that Executive shall not have "Good Reason" on the occurrence of any event described in this clause if the discontinuation of the benefit is as a result of the discontinuation of such benefit for all members of Company's management;

11.10.3 A material change occurs (other than for cause) in the functions, duties, responsibilities, reporting relationship, location of work, and/or title of Executive which is not agreed to by Executive, provided that none of the following shall by itself constitute an event described in this clause: (i) a change in Executive's title following the merger or consolidation of Company with or into any other corporation or entity or (ii) a temporary change in any of Executive's duties for a period of no more than sixty (60) consecutive days as a result of Executive's incapacity or disability.

12. SUCCESSORS TO COMPANY. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of Company and any successors of Company, or any corporation which acquires directly or indirectly all of the assets of Company, whether by merger, consolidation, sale or otherwise, and shall not be otherwise assignable by Company. This Agreement is not assignable by Executive.

13. CHANGE IN RESPONSIBILITY. Should Executive's position as CTO be changed by Company or successors to Company for any reason other than cause, and without written acceptance of

such change by Executive, pursuant to Section 11 above, Executive shall be entitled to twelve (12) months compensation, stock options and health and welfare benefits Executive would have been eligible for during a period equivalent to twelve (12) months of employment.

14. NOTICE. Any notice to be given under the terms of this Agreement shall be given as follows: Notice to Company shall be addressed to its CEO at Company's principal office; notices to Executive shall be addressed to Executive's home as last shown on the records of Company or given by personal delivery. Notice of a change of address under this Section shall have been duly given when personally delivered or three (3) days after being enclosed in a properly sealed envelope addressed as aforesaid, and deposited (postage paid) with the United States Postal Service.

15. WAIVER. Neither party's failure to enforce any provision of this Agreement shall be deemed or in any way construed as a waiver of any such provision, nor prevent that party from thereafter enforcing each and every provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available under the circumstances.

16. GOVERNING LAW. This Agreement shall be interpreted under the laws of the State of California, without regard to or application of choice of law rules or principles.

17. ARBITRATION. In the event any claim or controversy arises under or concerning any provision of this Agreement or in connection with Executive's employment with Company, Company and Executive hereby agree that such claim or controversy shall be settled by final, binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, provided, however, that the arbitrator shall be chosen as follows: if Company and Executive are unable to agree upon an arbitrator within five (5) days of a request for arbitration, the parties shall request a panel of five (5) labor and employment arbitrators from the American Arbitration Association and shall alternatively strike names until a single arbitrator remains. Arbitration shall occur, if practicable, in Santa Barbara County, CA. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Depositions may be taken and other discovery may be obtained during such arbitration proceedings to the same extent as authorized in civil judicial proceedings, subject to any limitations placed on discovery by the arbitrator. The parties shall share equally in the costs of conducting the arbitration and shall each pay their expenses, but the prevailing party shall be entitled to recover its reasonable attorneys' fees. Notwithstanding the foregoing, nothing herein shall preclude or limit Company from seeking injunctive relief from a court of competent jurisdiction. Executive acknowledges and agrees that, by agreeing to this provision, he is agreeing to arbitrate any claim relating to his employment, whether or not it arises under the terms of this Agreement, that may arise under federal and state laws including, but not limited to, claims arising under Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the Fair Employment and Housing Act. EXECUTIVE FURTHER UNDERSTANDS THAT BY AGREEING TO ARBITRATE EMPLOYMENT CLAIMS HE IS WAIVING HIS RIGHT TO BRING AN ACTION AGAINST COMPANY IN A COURT OF LAW, EITHER STATE OR FEDERAL, AND IS WAIVING HIS RIGHT TO HAVE HIS CLAIMS AND DAMAGES, IF ANY, DETERMINED BY A JURY.

18. ENTIRE AGREEMENT. This Agreement, any stock option and ownership equivalency agreements, the CTO job description, the 90-day goals, and the Employee and Contractor Confidentiality Non-Disclosure Agreement signed by Executive contain the entire agreement of the parties and supersede and replace any other Agreement. Except as provided herein, this Agreement may be modified only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. Only Company's Board has the authority to make such modifications of this Agreement on behalf of Company.

IN WITNESS WHEREOF, the parties have duly executed this Key Employee Agreement as of the day and year first above written.

COMPANY:		EXECUTIVE:
Fastclick.com, Inc.
/s/ DAVID GROSS Dave Gross, CEO		/s/ JAMES AVIANI James Aviani

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Exhibit 10.4

KEY EMPLOYEE AGREEMENT
EX-10.5 9 a2151215zex-10_5.htm EXHIBIT 10.5
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Exhibit 10.5

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (hereinafter referred to as the ("Agreement") is made and entered into as of December 1, 2004, the effective date of this agreement (hereinafter referred to as the "Effective Date"), by and between Fastclick.com, Inc., a California corporation (hereinafter referred to as the "Company"), and MICHAEL HUGHES (hereinafter referred to as "Executive").

WHEREAS, the Company is a provider of Internet-based advertising products and services;

WHEREAS, Executive possesses unique business skills, knowledge and industry experience which are valuable to the business and financial prospects of the Company;

WHEREAS, the Company desires to employ Executive as its Chief Marketing Officer ("CMO"), and Executive desires to accept such employment pursuant to the terms hereof.

NOW, THEREFORE, in consideration of the mutual promises contained herein, the Company and Executive agree as follows:

1. DUTIES. The Company hereby employs Executive to serve as CMO, reporting to the Company's Chief Executive Officer ("CEO") with such duties may be defined from time to time by the Chief Executive Officer or the Company's Board of Directors (the "Board").

2. TERM OF EMPLOYMENT. The Company hereby agrees to employ Executive and Executive agrees to accept employment upon the terms and conditions set forth herein, commencing on the date hereof and continuing for a period of three (3) years, unless and until terminated by the Company or by Executive pursuant to Paragraph 11 below. Thereafter, and unless and until terminated by the Company or by Executive pursuant to Paragraph 11 below, this Agreement shall automatically renew on its anniversary date for successive additional one (1) year periods unless either party provides written notice of their intention not to renew this Agreement to the other at least sixty (60) days in advance of the anniversary date.

4. BONUS. Executive shall be entitled to participate in such bonus plans as the Board shall determine from time to time. In the first year of Executive's employment with the Company hereunder, Executive shall be eligible to receive an annual bonus in an amount of up to $100,000, of which $50,000 (the "Performance Bonus") shall be based on Executive's achievement of reasonable business goals as defined by the CEO and/or Board and $50,000 (the "Quarterly Bonus") shall accrue and be paid without regard to Executive's achievement of specified business goals. The Quarterly Bonus shall be paid in four (4) equal quarterly increments of $12,500 beginning on the date that is three (3) months from the date hereof. Following the first year of Executive's employment with the Company, Executive shall be eligible to receive an annual bonus in an amount of up to $100,000 or more, all of which shall be based on Executive's achievement of reasonable business goals as defined by the CEO and/or Board and shall be deemed "Performance Bonus" pursuant to the terms hereof. Executive shall be eligible to receive Performance Bonus amounts in excess of the amounts set forth in this Section 4 in the discretion of the CEO and Board. Any Performance Bonus shall accrue and be calculated in accordance with the Company's then applicable bonus policies. Any Quarterly Bonus or Performance

Bonus accrued and payable by the Company shall be paid within five (5) days following the end of the applicable accrual and calculation period or otherwise in accordance with the Company's then applicable bonus policies, provided Executive remains employed by Company on the date upon which such bonus may be payable. The Company reserves the right to amend and revise the Company's bonus accrual and calculation policies in the Company's sole discretion with respect to Executive and other Company executives of similar position, responsibilities or duties.

The Stock Option will have an exercise price of $17.50 per share, 25% of which will vest on the first anniversary of the date of this Agreement, with the remaining amount vesting in equal installments on a quarterly basis through the fourth anniversary of this Agreement (subject to the accelerated vesting set forth in Section 11), and will be subject to the other terms and conditions of the 2004 Plan.

6. EXTENT OF SERVICES. So long as he serves as CMO, Executive shall devote his full time, attention and energies to the business of the Company and shall not during such time be engaged (whether or not during normal business hours) in any other business or professional activity which may impair his ability to attend to the business of Company to the best of his abilities, whether or not such activity is pursued for gain, profit or other pecuniary advantage. This prohibition shall not be construed as preventing the Executive from: (a) investing personal assets in businesses which do not compete with the Company in such form or manner as will not require any substantial services on the part of the Executive and in which the Executive's participation is principally that of an investor; or (b) purchasing securities in any corporation whose securities are regularly traded, provided that such purchase shall not result in the Executive's collectively owning beneficially at any time five percent (5%) or more of the equity securities of a corporation engaged in a business competitive to that of the Company.

11. TERMINATION OF EMPLOYMENT.

11.1 This Agreement and Executive's employment as CMO may be terminated by either party, for any reason or no reason, upon thirty (30) days written notice given to the other party. The

Company reserves the right to pay salary in lieu of notice in its sole discretion. In the event Executive's employment is terminated for any reason, other than: (1) Cause ("Cause" as used herein shall refer to: fraud, gross negligence, willful misconduct, insubordination, material failure to comply with the Company's general policies, violation of the Employee Inventions Assignment Agreement, a form of which is attached as Exhibit A to this Agreement or conviction of any felony or a misdemeanor involving moral turpitude; (2) voluntary termination by Executive; or (3) circumstances described in Sections 11.2 or 11.3 below, then Executive shall be entitled to the following severance benefits: (a) nine (9) months salary at the base salary specified in Section 3 above applicable as of the date of termination, which salary shall be paid in accordance with the Company's normal payroll practices over the nine (9) months following termination of employment; (b) continued coverage under the Company's health and welfare plans for a period of nine (9) months after the date of termination and (c) to the extent then-unvested, 18.75% of the options granted pursuant to the Stock Option will immediately vest in accordance with the terms of the Stock Option.

11.2 In the event Executive's employment is terminated for Cause, by reason of Executive's death or disability or is terminated voluntarily by Executive, Executive shall not be entitled to any severance benefits.

11.3 In the event Executive's employment with the Company is terminated (other than for the circumstances described in Section 11.2) upon a Change in Control (as defined in Section 11.4 below) or during the twelve (12) month period subsequent to a Change in Control event, Executive shall be entitled to the following severance benefits: (a) twelve (12) months salary at the base salary specified in Section 3 above applicable as of the date of termination, which salary shall be paid in accordance with the Company's normal payroll practices over the twelve (12) months following termination of employment; (b) continued coverage under the Company's health and welfare plans for a period of twelve (12) months after the date of termination and (c) 100% of any remaining unvested options will immediately vest upon such termination in accordance with the terms of the Stock Option.

11.4 "Change In Control" means any of the following events occurring after the date hereof:

11.4.2 A merger, consolidation or reorganization involving the Company, unless all of the conditions set forth in Sections 11.4.2 (a) and (b) below are satisfied:

(a) the shareholders of the Company, immediately before such transaction, own, directly or indirectly, immediately after such transaction, in substantially the same proportion as their ownership of the voting securities of the Company immediately before such transaction, more than fifty percent (50%) of the outstanding voting securities of (a) the corporation resulting from such transaction (the "Surviving Corporation") or (b) the immediate parent corporation of the Surviving Corporation; and

(b) individuals who were Directors of the Company at the time of the execution of the agreement providing for such transaction constitute, immediately after the transaction, at least a majority of the members of the board of directors of (a) the Surviving

Corporation or (b) a corporation beneficially owning, directly or indirectly, a majority of the voting securities of the Surviving Corporation; or

11.4.3 A complete liquidation or dissolution of the Company; or

If to Company to:

Fastclick.com, Inc.
360 Olive Street
Santa Barbara, CA 93101
Facsimile: (805) 568-5332
Attn: Kurt Johnson, Chief Executive Officer

If to Employee to:

Michael Hughes
28057 Acana Road
Rancho Palos Verdes, CA 90275
Phone: (310) 377-9766
Email: michaelshughes@hotmail.com

Any party may by notice given in accordance with this subsection to the other party to designate another address or person for receipt of notices hereunder.

16. GOVERNING LAW. This Agreement shall be interpreted under the laws of the State of California, without regard to or application of choice of law rules or principles.

17. ARBITRATION. In the event any claim or controversy arises under or concerning any provision of this Agreement or in connection with Executive's employment with the Company, the Company and Executive hereby agree that such claim or controversy shall be settled by binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration

Association, provided, however, that the arbitrator shall be chosen as follows: if the Company and Executive are unable to agree upon an arbitrator within five (5) days of a request for arbitration, the parties shall request a panel of five (5) labor and employment arbitrators from the American Arbitration Association and shall alternatively strike names until a single arbitrator remains. Arbitration shall occur, if practicable, in Santa Barbara County, CA. The arbitrator shall issue a written decision setting forth the essential findings of fact and conclusions upon which the decision is based. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Depositions may be taken and other discovery may be obtained during such arbitration proceedings to the same extent as authorized in civil judicial proceedings, subject to any limitations placed on discovery by the arbitrator. Notwithstanding the foregoing, nothing herein shall preclude or limit either party from seeking a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, from a court of competent jurisdiction without abridging the powers of the arbitrator. The parties acknowledge and agree that, by agreeing to this provision, they are agreeing to arbitrate any claim relating to Executive's employment, whether or not it arises under the terms of this Agreement, to the fullest extent permitted by law.

18. ENTIRE AGREEMENT. This Agreement, any stock option agreements, and the Employee Inventions Assignment Agreement signed by the Executive contain the entire agreement of the parties and supersede and replace any other Agreement. Except as provided herein, this Agreement may be modified only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. Only the Company's CEO and Board have the authority to make such modifications of this Agreement on behalf of the Company.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

THE COMPANY: Fastclick.com, Inc.		EXECUTIVE:
By:	/s/ KURT JOHNSON Name: Kurt Johnson Title: CEO	/s/ MICHAEL HUGHES MICHAEL HUGHES

EXHIBIT A

Employee Inventions Assignment Agreement

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Exhibit 10.5

EX-10.12 10 a2151215zex-10_12.htm EXHIBIT 10.12
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Exhibit 10.12

BONUS PLAN

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Exhibit 10.12

BONUS PLAN
EX-23.1 11 a2151215zex-23_1.htm EXHIBIT 23.1
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Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 28, 2005, in the Registration Statement (Form S-1 No. 333-121528) and related Prospectus of Fastclick, Inc. for the registration of shares of its common stock.

		/s/ ERNST & YOUNG LLP
Los Angeles, CA February 16, 2005

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CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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[LETTERHEAD OF SHEPPARD MULLIN]

February 17, 2005

Our File No: 04SD-114157

EDGAR Transmission, Facsimile and Overnight Mail

Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W., Mail Stop 0407
Washington, D.C. 20549

Attention: Michele M. Anderson,
Legal Branch Chief

Re:
Fastclick, Inc.
Amendment #2 to Form S-1
File No. 333-121528

Dear Ms. Anderson:

        We are responding to the comments in your letter to Kurt A. Johnson, President and Chief Executive Officer, Fastclick, Inc., dated February 10, 2005. The comments should be read in connection with the enclosed marked to show changes copy of Amendment No. 2 filed on the date hereof (the "Amendment"). We refer to Fastclick, Inc. as "Fastclick" or the "Company."

Prospectus Summary, page 1

1.
Further revise your summary section to clearly describe the technologies and services that you provide. In this regard, please address the following:

•
indicate on what basis the ads referenced in the third paragraph on page 1 are the "most effective;"

•
clarify what you mean by "unique" users in the fourth paragraph on page 1;

•
briefly explain what is "performance-based Internet advertising" in the last paragraph on page 1 and how it is relevant to your business; and

•
replace "actively manage and optimize" in the second bullet on page 2 with language that clearly describes what advertisers can do with your new search engine technology.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see pages 1 and 2 of the Amendment.

2.
Your assertion that you "have one of the largest Internet advertising networks" may suggest that your network is one of the largest in terms of the number of third-party websites included in your network. While the support you have provided indicates that your network has reached the third largest number of "unique" visitors in December of 2004, it does not appear that the comScore Media Metrix ranking supports any suggestion that the number of website publishers that have joined your network is one of the largest. Please revise accordingly.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see pages 1, 31, 48, 50 and 54 of the Amendment.

Risk Factors, page 6

3.
We note the continued use of the phrases that your "business and growth could suffer" or that your business or results of operations "would be harmed" in the captions and text of many of your risk factors. This disclosure is still generic and does not provide any meaningful information about the potential impact of these risks on you and your investors. Please refer to prior comment #13 and revise the following risk factors and their captions to provide more specific disclosure about the risks:

•
"If we are unable to retain our senior management..." on page 7;

•
"We need to hire additional qualified personnel..." on page 7;

•
"Any constraints on the capacity of our technology infrastructure..." on page 11;

•
"If we fail to keep pace with rapidly changing technologies..." on page 13;

•
"If any of our advertisers are unable to pay for our technologies and services..." on page 18; and

•
"We rely on bandwidth and data center providers..." on page 19.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see pages 7, 11, 13, 14, 18, 19 and 20 of the Amendment.

4.
Several of your risk factor headings are still so vague or generic that they could apply to any other issuer in any industry. See for example "We may pursue the acquisition of other businesses..." on page 10 and "If we do not adequately protect our intellectual property rights..." on page 12. Revise the headings so that they specifically relate to you, your business or your industry. See prior comment #12.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see pages 10, 12, 19 and 20 of the Amendment.

If we do not adequately protect our intellectual property..., page 12

Third parties may sue us for intellectual property infringement...., page l2

5.
Please disclose whether you are currently aware of any third parties that may be infringing on your intellectual property and whether any third parties have alleged that you are infringing on their intellectual property.

Issuer's Response

        We advise you supplementally that we are not aware of any third parties that may currently be infringing on our intellectual property or any third parties that have alleged that we are currently infringing on their intellectual property. Accordingly, we have not revised the disclosure in response to your comment.

We rely on bandwidth and data center providers...., page 19

6.
Clarify what you mean by the industry term "co-location services."

Issuer's Response

        We have revised the disclosure in response to your comment. Please see page 19 of the Amendment.

Use of Proceeds, page 26

7.
We reissue comment #20. Revise to specifically identify the purposes for which you expect to use the net proceeds of this offering and quantify the amount intended to be allocated to each purpose. Despite your response to our prior comment, your disclosure on pages 34 and 42 of the MD&A section indicates more specific purposes for which you intend to use the proceeds, including "to fund a portion of the increase in sales and marketing, technology and general and administrative operating expenses, including the estimated $2 million expenses relating to public company costs" and provide "additional liquidity for use in the expansion of operations, increased working capital needs, investment in new product development and strategic initiatives."

Issuer's Response

        We have revised the disclosure in response to your comment. Please see pages 3 and 26 of the Amendment.

Management's Discussion and Analysis..., page 31

Components of our Operating Costs and Other Items, page 33

8.
Disclose that you are currently unable to estimate the increases in your operational expenses, as indicated in your response to comment #21.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see page 33 of the Amendment.

Trends that Affect our Business, page 34

9.
We note your response to comment #22. Please discuss the potential impact that increased volume of lower-priced ads in your revenue mix will have on your revenues and gross margins going forward.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see page 34 of the Amendment.

10.
We note your response to comment #23 that to mitigate the risk from paying publishers on a cost-per-thousand impressions basis, you typically build in a higher profit margin for your pricing campaigns. Please further discuss how you adjust your profit margins for these campaigns. Furthermore, please discuss the potential impact of continually pricing in higher margins for campaigns on your revenues and expenses going forward as you increase your cost-per-action and cost-per-click based pricing campaigns.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see pages 34 and 35 of the Amendment.

Liquidity and Capital Resources, page 41

11.
Please provide a more detailed analysis of the factors contributing to the changes in your cash flows. In addition, to the extent known, please quantify your expected capital expenditures to fund and expand your business for the next twelve months.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see page 41 of the Amendment.

Business

Our Advertisers, page 53

12.
Please disclose that the one advertiser that accounted for 11.2% of your revenues for the year ended December 31, 2003 is no longer a customer.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see page 54 of the Amendment.

Technology, page 55

13.
We note your response to comment 31 and corresponding revisions to the section entitled "Our Strategy." Please also provide in the "Technology" section an enhanced discussion of your new advertising search engine technology that clearly describes your new service. In this regard, the brief description appearing on pages 52 and 53 that advertisers can "actively manage their search word bids across multiple third-party search engines" is insufficient. Additionally, please discuss how this service differs from the search engine advertising services provided by potential competitors such as Google and Yahoo!.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see page 56 of the Amendment.

Competition, page 56

14.
Please disclose that you are unable to provide quantified disclosure regarding your market share in the markets in which you operate, as indicated in your response to prior comment #33, and explain the reason for that inability.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see page 57 of the Amendment.

Underwriting, page 87

15.
We note your response to comment #40. Please disclose whether the underwriters have any current intention to release any of the shares subject to the lock-up agreement. Also disclose that the underwriters will make any determination to release those shares on a case-by-case basis, as suggested by your response to our prior comment. Furthermore, are there any factors that the underwriters might consider in making such a determination, such as market conditions, the possible impact on the market price of your common stock, who is making the request, etc.? If so, please revise to describe those factors.

Issuer's Response

        We have revised the disclosure in response to your comment. Please see page 83 of the Amendment.

16.
We note, in your response to our prior comment #42, the communication the representatives propose to send to the syndicate. Please delete your suggestion that the representatives are informing the syndicate of the information because the Commission has asked the representatives to do so. Also revise the end of the second clause of the communication to add "and those procedures have not changed."

Issuer's Response

        We acknowledge your comment and advise you supplementally that Credit Suisse First Boston LLC and Citigroup Global Markets, Inc. have advised the Company that they will include in their invitation telex to the potential syndicate members the following: "By accepting an allocation from us, you will be deemed to be representing to us that either (1) you are not making an online distribution or (2) if you are making an online distribution, you are following procedures for online distributions previously reviewed with the Securities and Exchange Commission and the Securities and Exchange Commission raised no objection to the procedures reviewed."

17.
We note that your underwriters intend to use the i-Deal electronic prospectus delivery system. Please provide us, on a supplemental basis, an expanded description of these procedures as well as any screen shots, emails, and any others communications that will be used. We may have further comment once we have reviewed your materials.

Issuer's Response

        We advise you supplementally that Citigroup has informed us that it intends to use the i-Deal Prospectus Delivery System ("i-Deal") as a complementary distribution method to deliver preliminary prospectus materials to U.S. institutional clients for this offering. Citigroup intends to use this system to complement its process for hard copy delivery of preliminary prospectus information only. Citigroup does not intend to distribute the final prospectus or confirmations through i-Deal or by any other electronic means. The final prospectus and related confirmations will be delivered in hard copy through existing processes.

        Citigroup currently intends on using i-Deal solely for the distribution to U.S. institutional clients of (i) the preliminary prospectus, (ii) any preliminary prospectus distributed in connection with any required recirculation, and (iii) any supplement or sticker to a preliminary prospectus. Citigroup does not intend to use i-Deal for distribution of (i) any prospectus included in any pre-effective amendment that it not otherwise (1) subject to a recirculation or (2) distributed as a supplement/sticker to any preliminary prospectus, and (ii) any final prospectus or any supplement/sticker thereto.

        We have provided supplementally copies of the invitation e-mail and screenshot that will be used by i-Deal in this regard as Tab 1 in the notebook separately provided. The invitation e-mail will only be sent to those U.S. institutional clients of Citigroup who have previously indicated to Citigroup that they wish to receive preliminary prospectuses via i-Deal of all issuers within the Company's industry. We note that these investors may request to be removed from this e-mail list at any time.

        The i-Deal invitation e-mail and screenshot and Citigroup's use of the i-Deal system in the manner described above were approved by Ms. Kristina Wyatt, Special Counsel in the Office of Chief Counsel of the Staff, in connection with the initial public offering by Great Wolf Resorts, Inc. (Registration Number 333-118148) on December 14, 2004.

18.
Provide us with a copy of the directed share program materials that will be given to potential purchasers of the reserved shares. Again, we may have further comment after reviewing the materials.

Issuer's Response

        We have provided supplementally copies of the directed share program materials that will be given to potential purchasers of the reserved shares as Tab 2 in the notebook separately provided.

Financial Statements

19.
We note your response to comment #44; however, we reiterate our request that you disclose historic earnings per share data for all periods as required by GAAP.

Issuer's Response

        We acknowledge your comment and advise you supplementally that our earnings per share data will be impacted by our anticipated stock split prior to the effective date of the Registration Statement. We will include the earnings per share data for the necessary historical periods and pro forma presentations in the next pre-effective amendment to the Registration Statement upon finalizing the stock split information, pricing information and number of shares to be registered.

20.
We reiterate our previous comment #45.

Issuer's Response

        We acknowledge your comment and advise you supplementally that we will include pro forma earnings per share data in the next pre-effective amendment to the Registration Statement upon finalizing the stock split information, pricing information and number of shares to be registered. Also, please see our response to Comment 19.

        We have provided, under separate cover, courtesy copies of the Amendment to the attention of Reginald A. Norris, Staff Attorney.

Very truly yours,

/s/  C. THOMAS HOPKINS
C. Thomas Hopkins
for SHEPPARD, MULLIN, RICHTER & HAMPTON LLP

cc:
Kurt A. Johnson
Fred J. Krupica
Reginald A. Norris
Linda G. Michaelson
William H. Hinman Jr.

~~-----END PRIVACY-ENHANCED MESSAGE-----~~


Attention:	Michele M. Anderson, Legal Branch Chief
	Re:	Fastclick, Inc. Amendment #2 to Form S-1 File No. 333-121528

	Very truly yours,
	/s/ C. THOMAS HOPKINS C. Thomas Hopkins for SHEPPARD, MULLIN, RICHTER & HAMPTON LLP