<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1996
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GO2NET, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 91-1710182
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1301 FIFTH AVENUE
SUITE 3320
SEATTLE, WASHINGTON 98101
(206) 447-1595
(Name, address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
RUSSELL C. HOROWITZ
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GO2NET, INC.
1301 FIFTH AVENUE
SUITE 3320
SEATTLE, WASHINGTON 98101
(206) 447-1595
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
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<S> <C>
MICHAEL J. RICCIO, JR., ESQUIRE KEVIN A. COYLE, ESQUIRE
HUTCHINS, WHEELER & DITTMAR GRAHAM & JAMES LLP
A PROFESSIONAL CORPORATION 400 CAPITOL MALL
101 FEDERAL STREET SUITE 2400
BOSTON, MASSACHUSETTS 02110 SACRAMENTO, CALIFORNIA 95814
(617) 951-6600 (916) 558-7600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE PER OFFERING REGISTRATION
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
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Common Stock, par value $.01 per share........ 1,725,000 $9.00 $15,525,000 $4,705
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</TABLE>
(1) Includes an aggregate of 225,000 shares which the Underwriters have the
option to purchase from the Company solely to cover overallotments, if any.
See "Underwriting."
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
GO2NET, INC.
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501 OF REGULATION S-K SHOWING THE LOCATION IN
THE PROSPECTUS OF THE RESPONSES TO THE ITEMS IN PART I OF FORM S-1)
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING OF FORM S-1 LOCATION IN PROSPECTUS
- ---- -------------------------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front Cover Page and
Outside Back Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Prospectus Summary; Risk Factors;
Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Risk
Factors; Underwriting
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered Capitalization; Description of
Capital Stock
10. Interests of Named Experts and Counsel Legal Matters; Experts
11. Information with Respect to the Registrant Outside Front Cover Page;
Prospectus Summary; Risk Factors;
The Company; Use of Proceeds;
Dividend Policy; Capitalization;
Dilution; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Certain
Transactions; Principal
Stockholders; Description of
Capital Stock; Shares Eligible
for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 31, 1996
PROSPECTUS
1,500,000 SHARES
go2net, Inc.
[LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock, par value $.01 per share, offered hereby
are being sold by go2net, Inc., a Delaware corporation (the "Company"). Prior to
this offering of Common Stock of the Company (the "Offering"), there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price of the Common Stock will be between $7.00
and $9.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied to have the Common Stock approved for quotation on the Nasdaq SmallCap
Market under the symbol "GNET."
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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Per Share......................... $ $ $
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Total(3).......................... $ $ $
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</TABLE>
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- ---------------
(1) Does not include a non-accountable expense allowance payable by the Company
to Maxwell Capital, Inc. equal to 2% of the gross proceeds of the Offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $200,000, excluding the non-accountable expense allowance payable to
Maxwell Capital, Inc.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 225,000
additional shares of Common Stock at the price to public less underwriting
discounts and commissions solely for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if accepted by them, approval of certain legal matters
by counsel to the Underwriters and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the shares of the Common
Stock will be made in New York, New York on or about , 1997.
------------------------
MAXWELL CAPITAL, INC.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 4
[ARTWORK DEPICTING THE COMPANY'S INTERNET SITE "HOME PAGE".]
Information contained on the Company's Internet site shall not be deemed part of
this Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus.
THE COMPANY
go2net, Inc. (the "Company") is an interactive technology and media company
that provides through its Internet site proprietary content and commodity
information relating to business and finance, sports and the Internet. In
addition, the Company offers a search/index guide that combines various existing
search/index guides into one guide (a "metasearch engine") and a Java-based
desktop content delivery system. The Company focuses its editorial, design and
programming resources on developing proprietary content that seeks to be
original, entertaining, informative and compelling. The Company's Internet site
seeks to attract what the Company believes is the typical Internet user of today
(18 to 39 years old, middle- to upper-middle class and college-educated) and the
advertisers wishing to reach this target market. The Company launched its
Internet site on November 7, 1996. The Company's Internet site is located at
,URL:http://www.go2net.com/..
The Company's objective is to be a leading provider of content on the World
Wide Web, specifically in the areas of business and finance, sports and the
Internet, complemented by technologies such as search/index guides and
Java-based desktop content delivery systems. The Company focuses on utilizing
innovative technologies to deliver its content and to enhance the attractiveness
and utility of its product offerings with specially designed graphics and
animation. The Company's goal is to provide interactive content in all of its
content areas, and to seek advertisers and sponsors who wish to access the
demographic groups using the Company's Internet site.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........................... 1,500,000 shares
Common Stock to be outstanding
after the Offering........................... 4,157,100 shares(1)
Use of proceeds................................ For working capital, capital expenditures,
and other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq SmallCap Market symbol......... GNET
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(FEBRUARY 12, 1996)
TO SEPTEMBER 30, 1996
---------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................................................... $ --
Total operating expenses................................................. 431,141
Loss from operations..................................................... (431,141)
Interest income, net..................................................... 13,383
Net loss................................................................. (417,757)
Net loss per share (2)................................................... (0.16)
Shares used in net loss per share computation (2)........................ 2,548,680
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 865,742 1,095,742 11,695,742
Working capital................................... 828,860 1,058,860 11,658,860
Total assets...................................... 1,066,241 1,296,241 11,896,241
Stockholders' equity.............................. 1,021,143 1,251,143 11,851,143
</TABLE>
3
<PAGE> 6
- ---------------
(1) Gives effect to the conversion of all of the Company's Preferred Stock into
Common Stock, which occurred between November 8, 1996 and November 20, 1996,
and includes 110,500 shares of Common Stock issued subsequent to September
30, 1996. Excludes 84,500 shares of Common Stock issuable upon the exercise
of outstanding options as of September 30, 1996 at an exercise price equal
to the initial public offering price of the shares of Common Stock offered
hereby. Subsequent to September 30, 1996, the Company granted options to
purchase an additional 450,000 shares of Common Stock at an exercise price
per share equal to the initial public offering price of the shares of Common
Stock offered hereby. See "Management -- 1996 Stock Option Plan."
(2) Net loss per share is calculated using the weighted average number of shares
of Common Stock and Preferred Stock outstanding during such period,
including shares of Common Stock issued after such period. See Note 1 to
Notes to Financial Statements.
(3) Gives effect to the conversion of all of the Company's Preferred Stock into
Common Stock, which occurred between November 8, 1996 and November 20, 1996,
the issuance of 110,500 shares of Common Stock subsequent to September 30,
1996 for an aggregate purchase price of $150,000 and an $80,000 payment on
an outstanding subscription receivable.
(4) Reflects the receipt of the estimated net proceeds of the sale by the
Company of 1,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $8.00 per share and the application of the
net proceeds therefrom, and no exercise of the Underwriters' overallotment.
See "Use of Proceeds" and "Capitalization".
-----------------------------
Except as set forth in the Financial Statements and Notes thereto,
information in this Prospectus (i) reflects the conversion of all of the
Company's outstanding Preferred Stock into Common Stock, which occurred between
November 8, 1996 and November 20, 1996, the issuance of 110,500 shares of Common
Stock subsequent to September 30, 1996 and an $80,000 payment on an outstanding
subscription receivable and (ii) assumes no exercise of the Underwriters'
over-allotment option. See "Description of Capital Stock" and Notes 4 and 7 to
Notes to Financial Statements.
4
<PAGE> 7
RISK FACTORS
In evaluating the Company's business and an investment in the Company,
prospective investors should consider carefully the risk factors set forth
below, in addition to the other information presented in this Prospectus.
Prospective investors should note that this Prospectus contains certain
"forward-looking statements," as such term is defined in the Private Securities
Litigation Reform Act of 1995, including, without limitation, statements
containing the words "believes," "anticipates," "expects," "intends," "should,"
"seeks to," and similar words. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual results may differ materially from those in the
forward-looking statements as a result of various factors, including but not
limited to, the risk factors set forth in this Prospectus. The accompanying
information contained in this Prospectus identifies certain important factors
that could cause such differences.
Extremely Limited Operating History; Accumulated Deficit; Anticipated
Losses. The Company was incorporated in February 1996 and to date has not
generated any cash revenues. The Company launched its Internet site on November
7, 1996. Accordingly, the Company has an extremely limited operating history
upon which an evaluation of the Company and its prospects can be based. The
Company anticipates that advertising revenues from the Company's Internet site
will constitute substantially all of the Company's revenues, if any, during the
foreseeable future. Since the Company anticipates that its operations will incur
significant operating losses for the foreseeable future, the Company believes
that its success will depend upon its ability to obtain revenues from
advertising on its Internet site, which cannot be assured. The Company's ability
to generate revenues is subject to substantial uncertainty. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by start-up companies in general, and specifically with
respect to the new and rapidly evolving market for Internet products, content
and services. To address these risks, the Company must, among other things,
effectively establish, develop and maintain relationships with advertising
customers, advertising agencies and other third parties, provide original,
informative, entertaining and compelling content to Internet users, develop and
upgrade its technology, effectively respond to competitive developments, attract
new qualified personnel and retain existing qualified personnel. There can be no
assurance that the Company will succeed in addressing such risks and the failure
to do so would have a material adverse effect on the Company's business,
financial condition and operating results. Additionally, the extremely limited
operating history of the Company makes prediction of future operating results
difficult. Accordingly, there can be no assurance that the Company will be able
to generate revenues or that the Company will achieve, or maintain,
profitability or generate revenues from operations in the future. Since
inception the Company has incurred significant losses and, as of September 30,
1996, had an accumulated deficit of $417,757. Upon completion of the Offering,
the Company currently intends to increase substantially its operating expenses
in order to, among other things, expand and improve its Internet operations,
fund increased advertising and marketing efforts, expand and improve its
Internet user support capabilities and develop new Internet content and
applications. The Company expects to continue to incur significant losses on a
quarterly and annual basis for the foreseeable future. To the extent such
increases in operating expenses are not offset by revenues, the Company will
incur greater losses than anticipated. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Unpredictability of Future Revenues; Potential Fluctuations in Quarterly
Operating Results. As a result of the Company's extremely limited operating
history and the emerging nature of the Internet, including Internet-based
advertising, subscription services and electronic commerce, the Company is
unable to forecast its expenses and revenues accurately. The Company believes
that due primarily to the relatively brief time the Internet has been available
to the general public, there has not yet been developed, implemented and
demonstrated a commercially viable business model from which to successfully
operate any form of Internet content provider business. The Company's current
and future estimated expense levels are based largely on its estimates of future
revenues and may increase because many of its significant operating expenses are
either fixed, such as rent for office space, or subject to likely increases.
Few, if any, of the Company's operating
5
<PAGE> 8
expenses can be quickly or easily reduced, such as the laying off of personnel,
in a manner which would not cause a material adverse effect to the Company's
business, financial condition and operating results. In addition, the Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected expenditures; and a shortfall in actual revenues as compared to
estimated revenues would have an immediate material adverse effect on the
Company's business, financial condition and operating results. See "-- Extremely
Limited Operating History; Accumulated Deficit; Anticipated Losses,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business -- Facilities."
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, many of which are outside of the Company's
control. For example, the Company believes that advertising sales in traditional
media are generally lower in the first and third calendar quarters of each year
than in the second and fourth quarters and that advertising expenditures
fluctuate significantly with economic cycles. Depending on the extent to which
the Internet is accepted as an advertising medium, seasonality and cyclicality
in the level of advertising expenditures generally could become more pronounced
for Internet-based advertising. Seasonality and cyclicality in advertising
expenditures generally, or with respect to Internet-based advertising
specifically, could have a material adverse effect on the Company's business,
financial condition and operating results. Other factors that may adversely
affect the Company's quarterly operating results include the level of use of the
Internet, demand for advertising, seasonal trends in both Internet use and
advertising placements, the addition or loss of advertisers, advertising
budgeting cycles of individual advertisers, the level of use of the Company's
Internet site, the amount and timing of capital expenditures and other costs
relating to the development, operation and expansion of the Company's Internet
operations, the introduction of new Internet sites and services by the Company
or its competitors, price competition or pricing changes in the industry,
technical difficulties or system failures, general economic conditions and
economic conditions specific to the Internet and Internet media. In seeking to
effectively implement its operating strategy, the Company may elect from time to
time to make certain advertising and marketing or acquisition decisions that
could have a material adverse effect on the Company's business, financial
condition and operating results. The Company believes that period to period
comparisons of its operating results are not meaningful and should not be relied
upon for an indication of future performance. Due to all of the foregoing
factors, it is likely that in some future quarters, the Company's operating
results may be below the expectations of public market analysts and
stockholders. In such event, the price of the Company's Common Stock would
likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Dependence on Advertising Revenues. The Company expects to derive
substantially all of its revenues in the foreseeable future from the sale of
advertising on its Internet site. To date the Company has not generated any cash
advertising revenues. However, at such time, if ever, that the Company
establishes relationships with advertisers, the Company expects that many, if
not all of such relationships, will be terminable within a short period of time.
Consequently, the Company's advertising customers may move their advertising to
competing Internet sites, or from the Internet to traditional media, quickly and
at relatively low costs, thereby increasing the Company's exposure to competing
pressures and fluctuations in revenues and operating results. In selling
Internet-based advertising, the Company will likely depend on advertising
agencies, which exercise substantial control over the placement of advertising
for their clients. To date the Company has only two advertisers on its Internet
site. The Company has a barter arrangement with Yahoo!, Inc., regarding the
trading of advertisement impressions on each other's Internet site. The other
advertiser is not currently paying for such advertising. The Company's success
will depend on its ability to convince advertisers and advertising agencies of
the benefits of advertising on the Company's Internet site, and on its ability
to retain, broaden and diversify its future base of advertising customers. In
order to generate significant advertising revenues, the Company will depend on
the development of a larger base of users of the Company's Internet site
possessing demographic characteristics attractive to advertisers. If the Company
is unable to attract and retain paying advertising customers or is forced to
offer lower than anticipated advertising rates in order to attract and/or retain
advertising customers, the Company's business, financial condition and operating
results will be materially adversely affected and the Company may cease to be a
commercially viable enterprise. See "Business -- Revenue Sources" and
"-- Advertising Sales," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
6
<PAGE> 9
Uncertain Acceptance of the Internet as an Advertising Medium; Lack of
Measurement Standards. Use of the Internet by consumers is at a very early
stage of development and market acceptance of the Internet as a medium for
information, entertainment, commerce and advertising is subject to a high level
of uncertainty. The Company believes that its success depends upon its ability
to obtain significant revenues from its Internet operations, which will require
the development and acceptance of the Internet as an advertising medium. The
Company believes that most advertisers and advertising agencies have limited
experience with the Internet as an advertising medium and neither advertisers
nor advertising agencies have devoted a significant portion of their advertising
budgets to Internet-related advertising to date. In order for the Company to
generate advertising revenues, advertisers and advertising agencies must direct
a portion of their budgets to the Internet as a whole, and specifically to the
Company's Internet site. There can be no assurance that advertisers or
advertising agencies will be persuaded, or able, to allocate or continue to
allocate portions of their budgets to Internet-based advertising, or if so
persuaded or able, that they will find Internet-based advertising to be more
effective than advertising in traditional media such as television, print or
radio, or in any event decide to advertise on the Company's Internet site.
Moreover, there can be no assurance that the Internet advertising market will
develop as an attractive and sustainable medium, that the Company will achieve
market acceptance of its products or that the Company will be able to execute
its business strategy successfully.
Acceptance of the Internet among advertisers and advertising agencies will
also depend on the level of use of the Internet by consumers, which is highly
uncertain, and on the acceptance of the alternative new model of conducting
business and exchanging information presented by the Internet. Advertisers and
advertising agencies that have invested resources in traditional methods of
advertising may be reluctant to modify their media buying behavior or their
systems and infrastructure to use Internet-based advertising. Furthermore, no
standards to measure the effectiveness of Internet-based advertising have yet
gained widespread acceptance, and there can be no assurance that such standards
will be adopted or adopted broadly enough to support widespread acceptance of
Internet-based advertising. If Internet-based advertising is not widely accepted
by advertisers and advertising agencies, the Company's business, financial
condition and operating results will be materially adversely affected and the
Company may cease to be a commercially viable enterprise. See
"Business -- Revenue Sources" and "-- Advertising Sales."
Uncertain Acceptance of the Company's Internet Content. The Company's
commercial viability depends in large part upon its ability to develop and
provide on the Internet original, entertaining, informative and compelling
content that will successfully attract and retain users with demographic
characteristics valuable to the various advertisers and advertising agencies the
Company is targeting and, in the future, to charge users a subscription charge
for access to certain portions of such original Internet content. There can be
no assurance that the Company's content will be attractive enough to a
sufficient number of Internet users to generate advertising revenues or to allow
the charging of a subscription fee for certain portions thereof. There also can
be no assurance that the Company will be able to anticipate, monitor and
successfully respond to rapidly changing consumer tastes and preferences so as
to attract a sufficient number of users to its Internet site within the
demographics desirable to advertisers and advertising agencies or those users
who are otherwise willing to pay to access certain portions of the Company's
original content. Internet users can freely navigate and instantly switch among
a large number of Internet sites, many of which offer original content, making
it difficult for the Company to distinguish its content and attract users. In
addition, many other Internet sites offer very specific, highly targeted content
that may have greater appeal than the Company's multiple content Internet site
to members of the Company's targeted audience. In addition, users of the
Internet who do not use the most recent browser or operating platform software
will have greater difficulty in accessing and navigating the Company's Internet
site than would users who use the most recent versions of such software. Such
difficulty could cause Internet users to cease using the Company's Internet
site. If the Company is unable to develop original, entertaining, informative
and compelling Internet content in a manner that allows it to attract, retain
and expand a loyal user base desirable to advertisers and advertising agencies
or Internet users who are willing to pay to access certain portions of such
Internet content, then the Company will be unable to generate sufficient
advertising or subscription revenues, and its business, financial condition and
operating results will be materially adversely affected and the Company may
cease to be a commercially viable enterprise. See "Business -- Products."
7
<PAGE> 10
Competition; Low Barriers to Entry. The Company competes with other
Internet content providers for Internet users and for advertising and
subscription revenues. Competition among Internet content providers is intense
and is expected to increase significantly in the future. The Company's Internet
site competes against a variety of companies that provide similar content
through one or more media, such as print, radio, television and the Internet. To
compete successfully, the Company must develop and deliver popular, original,
entertaining, informative and compelling Internet content to attract Internet
users and to support advertising and, in the future, subscription fees. In the
Company's niche of business and finance, sports and the Internet, in addition to
competing with numerous newspapers, magazines, television programs and radio
broadcasts which cover the same material, the Company competes with various
Internet content providers such as Starwave Corporation, Microsoft Corporation,
c/net, Inc., America OnLine, Inc., MGM Interactive, CompuServe, Inc., Prodigy
Services Co., Excite, Inc., Infoseek Corporation, Lycos, Inc., Netscape
Communications Corporation, Time Warner, Inc., PointCast Incorporated, SOFTBANK
Corporation, Yahoo! Inc., SportsLine USA, Inc. and Wired Ventures, Inc. Many, if
not all, of these competitors offer a wider range of services than does the
Company, which may be sufficiently attractive to Internet users to attract users
to their services and consequently dissuade them from accessing the Company's
Internet site. If the Company is unable to attract a significant number of
Internet users to its Internet site, the Company's business, financial condition
and operating results will be materially adversely affected and the Company may
cease to be a commercially viable enterprise.
The market for Internet content and services is relatively new, intensely
competitive and rapidly evolving. There are minimal barriers to entry, and
current and new competitors can launch new Internet sites at relatively low cost
within relatively short time periods. In addition, the Company competes for the
time and attention of Internet users with thousands of non-profit Internet sites
operated by, among other persons, individuals, government and educational
institutions. Existing and potential competitors also include magazine and
newspaper publishers, cable television companies and start-up ventures attracted
to the Internet market. Accordingly, the Company expects competition to persist
and intensify and the number of competitors to increase significantly in the
future. Should the Company seek in the future to attempt to expand the scope of
its Internet site, it will compete with a greater number of Internet sites and
other media companies. Because the operations and strategic plans of existing
and future competitors are undergoing rapid change, it is extremely difficult
for the Company to anticipate which companies are likely to offer competitive
content and services in the future. There can be no assurance that the Company's
Internet site will compete successfully.
The Company believes that the competitive factors attracting Internet users
include the quality of presentation and the relevance, timeliness, depth and
breadth of information and service offered by the Company. With respect to
attracting advertisers and advertising agencies, the Company believes that the
competitive factors include, among others, the number of users accessing the
Company's Internet site, the demographics of such user base, the Company's
ability to deliver focused and compelling advertising and interactivity through
its Internet site and the overall cost-effectiveness and value of advertising
offered by the Company. In addition, the success of the Company's business
strategy depends on the sale of future Internet advertising at premium prices,
based in part on the demographic characteristics of the Company's Internet
users. With respect to attracting subscription-based users in the future, the
Company believes that the competitive factors include, among others, the
quality, uniqueness and usefulness of the content being provided, the price
charged for such content and the cost and accessibility of similar content
through the Internet or competing media. Given the intense competition among
Internet content providers and other media, there can be no assurance that the
Company will be able to compete successfully with respect to any of these
factors.
Many, if not all, of the Company's current and potential competitors have
significantly greater financial, editorial, technical and marketing resources,
longer operating histories, greater name recognition, greater experience and
established relationships with advertisers and advertising agencies. Many, if
not all, of such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive advertising and subscription price policies and
devote substantially more resources to developing Internet content than the
Company. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not materially adversely affect the Company's
business, financial condition and operating results. In addition, in response to
competitive
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pressures, the Company may make certain pricing, content and/or marketing
decisions or enter into acquisitions or new ventures that could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business -- Competition."
Uncertain Acceptance and Maintenance of the go2net Brand. The Company
believes that establishing and maintaining the go2net brand is a critical aspect
of its efforts to attract an Internet audience and that the importance of brand
recognition will increase due to the anticipated increase in the number of
Internet sites and the relatively low barriers to entry to providing Internet
content. Promoting the go2net brand name will depend on the Company's ability to
develop and deliver original, entertaining, informative and compelling Internet
content, which it cannot assure. If Internet users do not perceive the Company's
Internet content to be of sufficient interest and usefulness, the Company will
be unsuccessful in promoting and maintaining its brand. To the extent the
Company chooses in the future to seek to expand the focus of its operations
beyond providing Internet content, the Company risks diluting its brand,
confusing users and advertisers and decreasing the attractiveness of its
audience to advertisers. In order to attract and retain Internet users and to
promote and maintain the go2net brand in response to competitive pressures, the
Company may find it necessary to increase its budget for Internet content or
otherwise to increase substantially its financial commitment to creating and
maintaining a distinct brand loyalty among users. If the Company is unable to
provide Internet content as described herein or otherwise fails to promote and
maintain the go2net brand, or the Company incurs significant expenses in an
attempt to improve its content or promote and maintain its brand, the Company's
business, financial condition and operating results will be materially adversely
affected and the Company may cease to be a commercially viable enterprise. See
"Business -- Strategy."
Managing Potential Growth. Since its inception, the Company has grown
rapidly, having hired 17 full-time employees and approximately 18 independent
contractors. This growth has placed, and is expected to continue to place, a
significant strain on the Company's management, physical and capital resources.
It is expected that the Company will need to hire additional key personnel in
order to fully implement its business strategy. No assurance can be given as to
whether, when, if ever, and under what terms the Company will be able to attract
such new personnel. In order to manage such growth successfully, the Company
will be required to, among other things, implement and manage its operational
and financial systems on a timely basis and to train, manage and expand its
growing employee base. Further, the Company's management will be required to
successfully maintain relationships with various advertising customers,
advertising agencies, other Internet sites and services, Internet service
providers and other third parties and to maintain control over the strategic
direction of the Company in a rapidly changing marketplace. There can be no
assurance that the Company's current personnel, systems, procedures and quality
and accounting controls will be adequate to support the Company's future
operations, that management will be able to identify, hire, train, motivate or
manage needed and qualified personnel, or that management will be able to
identify and exploit existing and potential opportunities. Moreover, while the
Company believes its current office space is adequate for its needs for the
present and the immediate future, the sublease for this facility expires on July
31, 1997. While the Company has been engaged in negotiations from time to time
with its landlord to extend the term of the sublease, the Company is also in the
process of searching for alternative facilities in the event it is unable to
extend the term of its current sublease on terms acceptable to the Company. In
the event the Company is required to move its operations to another facility,
the Company will be forced to incur significant additional costs and management
will be forced to direct a portion of its time to managing such relocation. In
addition, should the Company extend its current sublease at a higher rent, the
Company's liquidity may be adversely affected. If the Company is unable to
effectively manage growth, the Company's business, financial condition and
operating results will be materially adversely affected. See "Dependence on Key
Personnel," "Business -- Employees", "Business -- Facilities," and "Management."
Need for Additional Capital to Finance Growth and Capital
Requirements. The Company expects to seek to enhance and expand its Internet
site in order to improve its competitive position and meet the increasing
demands for quality Internet content and competitive advertising and
subscription pricing. The Company's ability to grow will depend in part on the
Company's ability to expand and improve its Internet operations, expand its
advertising and marketing efforts, expand and improve its Internet user support
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capabilities and develop new Internet content and applications. In connection
therewith, the Company may need to raise additional capital in the foreseeable
future from public or private equity or debt sources in order to finance such
possible growth. In addition, the Company may need to raise additional funds in
order to avail itself to unanticipated opportunities (such as more rapid
expansion, acquisitions of complementary businesses or the development of new
products or services), to react to unforeseen difficulties (such as the loss of
key personnel or the rejection by Internet users or potential advertisers of the
Company's Internet content) or to otherwise respond to unanticipated competitive
pressures. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the Company's then existing stockholders
would be reduced, stockholders may experience additional and significant
dilution and such equity securities may have rights, preferences or privileges
senior to those of the holders of Common Stock. There can be no assurance that
additional financing will be available on terms acceptable to the Company or at
all. If adequate funds are not available or are not available on terms
acceptable to the Company, the Company may be unable to implement its business,
sales or marketing plan, respond to competitive forces or take advantage of
perceived business opportunities, which could have a material adverse effect in
the Company's business, financial condition and operating results. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Dependence on Key Personnel. The Company's performance is substantially
dependent on the continued services of Russell C. Horowitz, John Keister, Paul
S. Phillips and the other members of its management team, as well as on the
Company's ability to retain and motivate its officers and key employees. The
Company does not currently have "key man" life insurance policies on any of its
officers or other employees, although it is in the process of applying for such
insurance on the lives of Messrs. Horowitz, Keister and Phillips. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical and managerial personnel. The development of content
for the Company's Internet site requires the services of highly skilled writers
and editors knowledgeable in business and finance, sports and the Internet. The
number of such personnel available is extremely limited and competition for such
personnel among Internet and other media companies is intense. There can be no
assurance that the Company will be able to retain its existing employees and
independent contractors or that it will be able to attract, assimilate or retain
sufficiently qualified personnel in the future. In particular, the Company has
encountered difficulties in attracting qualified writers and editors with
expertise in business and finance, sports and the Internet, and there can be no
assurance that the Company will be able to attract and retain such writers and
editors. The inability to attract and retain the necessary technical,
managerial, design, editorial, sales and marketing personnel could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business -- Employees" and "Management."
Limited Experience in Sales and Marketing of Advertising. None of the
Company's senior management team has any significant experience in selling
advertising on the Internet or any other medium, and few members of the
Company's senior management team have any significant experience in the Internet
industry. Although the Company will seek to establish relationships with key
advertisers and advertising agencies, the Company currently has relationships
with only two advertisers and the Company has not established any relationships
with advertising agencies. Achieving acceptance by potential advertisers and
advertising agencies of the Company's Internet site as a viable marketing forum
will require the Company to develop and maintain relationships with key
advertisers and advertising agencies, and there can be no assurance that any
such relationships will be developed, on a timely basis or at all.
Dependence on Third Parties for Internet Operations and Content
Development. The Company believes that the ability to advertise its Internet
site on other Internet sites and the willingness of the owners and operators of
such sites to direct users to the Company's Internet site through hypertext
links are critical to the success of the Company's Internet operations. Other
Internet sites, particularly search/index guides and other companies with
strategic ability to direct user traffic, significantly affect traffic to the
Company's Internet site. The Company does not currently have any significant
arrangements with these types of companies from which it expects to generate
user visits to its Internet site. There can be no assurance that the Company
will establish or maintain such arrangements in the future. In addition, the
Company relies on the cooperation of owners and operators of Internet sites and
search/index guides in connection with the operation of its go2search area of
its
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Internet site. There can be no assurance that such cooperation will be available
on terms acceptable to the Company or at all. The Company's ability to develop
original, entertaining, informative and compelling Internet content is also
dependent on maintaining relationships with and using products provided by third
party vendors. Developing and maintaining satisfactory relationships with third
parties could become more difficult and more expensive as competition increases
among Internet content providers. If the Company is unable to develop and
maintain satisfactory relationships with such third parties on terms acceptable
to the Company, or if the Company's competitors are better able to leverage such
relationships, the Company's business, financial condition and operating results
will be materially adversely affected. In these efforts, the Company has relied,
and will continue to rely substantially, on content development efforts of third
parties. For example, the Company relies on S&P Comstock, DRI/McGraw-Hill, Dow
Jones & Company, Inc., New York Stock Exchange, Inc., The Nasdaq Stock Market,
Inc., SportsTicker, Comtex, Edgar Online and Market Guide, Inc. to provide a
significant portion of the commodity information included in the Company's
Internet site. There can be no assurance the Company will maintain these
relationships in the future. Any failure of these third parties to provide this
commodity information to the Company could have been a material adverse effect
on the Company's business, financial condition and operating results. See
"Business -- Products" and "Business -- Strategic Relationships."
Dependence on Continued Growth in the Use of the Internet. Rapid growth in
the use of and interest in the Internet is a recent phenomenon, and there can be
no assurance that acceptance and use of the Internet will continue to develop or
that a sufficient base of users will emerge to support the Company's business.
Revenues from the Company's Internet operations will depend largely on the
widespread acceptance and use of the Internet as a source of information and
entertainment and as a vehicle for commerce in goods and services. The Internet
may not be accepted as a viable commercial medium for a number of reasons,
including potentially inadequate development of the necessary infrastructure,
lack of timely development of enabling technologies or lack of commercial
support for Internet-based advertising. To the extent that the Internet
continues to experience an increase in users, an increase in frequency of use or
an increase in the bandwidth requirements of users, there can be no assurance
that the Internet infrastructure will be able to support the demands placed upon
it. In addition, the Internet could lose its viability as a commercial medium
due to delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or due to increased
government regulation. Changes in or insufficient availability of
telecommunications services to support the Internet also could result in slower
response times and could adversely affect use of the Internet generally and of
the Company's Internet site in particular. If use of the Internet does not
continue to grow or grows more slowly than expected, or if the Internet
infrastructure does not effectively support growth that may occur, the Company's
business, financial condition and operating results would be materially
adversely affected. See "Business -- Industry Background."
Risks of New Business Areas. The long-term success of the Company's
business strategy will depend to a significant extent on the Company's ability
to expand operations beyond solely relying on Internet-based advertising
revenues into areas such as subscription-based content and electronic commerce,
in addition to successfully developing new Internet sites and enhancing existing
ones. There can be no assurance that the Company will be able to expand into
such areas, develop and launch any new Internet sites or enhance existing ones.
In addition, expansion into new business areas and new Internet sites may bring
the Company into direct competition with new competitors. Any expansion of
content or operations, or new Internet sites developed and launched by the
Company that are not favorably received by Internet users could damage the
Company's reputation or the go2net brand. Expansion into new business areas or
development and launching of new Internet sites will also require significant
additional expenses and programming and editorial resources and will strain the
Company's management, financial and operational resources. Furthermore, any
expansion of business areas and new Internet sites, including the existing
Internet site, will necessarily rely on untested business models. See "-- Risks
of Technological Change." To date, the Company has generated no revenues from
Internet-based advertising or subscription fees, and there can be no assurance
that the Company will be able to generate revenues from these new sources in the
future. The Company's failure to expand its business operations or develop and
launch new Internet sites in a cost effective and timely manner could have a
material adverse effect on the Company's Business, financial condition and
operating results. See "Extremely
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Limited Operating History; Accumulated Deficit; Anticipated Losses,"
"Competition; Low Barriers to Entry," and "Managing Potential Growth."
From time to time, the Company may entertain new business opportunities and
ventures in a broad range of areas. Although the Company has made no specific
arrangements with respect to any such opportunities, it may in the future elect
to pursue one or more such opportunities. Typically, such opportunities require
extended negotiations, the outcome of which cannot be predicted. If the Company
were to enter into such a venture, the Company could be required to invest a
substantial amount of capital, which could have a material adverse effect on the
Company's financial condition and its ability to implement its existing business
strategy. Such an investment could also result in large and prolonged operating
losses for the Company. Further, such negotiations or ventures could place
additional, substantial burdens on the Company's management personnel and its
financial and operational systems. There can be no assurance that such a venture
would ever achieve profitability, and a failure by the Company to recover the
substantial investment required to launch and operate such a venture would have
a material adverse effect on the Company's business, financial condition and
operating results.
Risks of Technological Change. The market for Internet products and
services is characterized by rapid technological developments, frequent new
product introductions and evolving industry standards. The emerging character of
these products and services and their rapid evolution will require that the
Company continually improve the performance, features and reliability of its
Internet content, particularly in response to competitive offerings. There can
be no assurance that the Company will be successful in responding quickly, cost
effectively and sufficiently to these developments. In addition, the widespread
adoption of new Internet technologies or standards could require substantial
expenditures by the Company to modify or adapt its Internet sites and services
and could fundamentally affect the character, viability and frequency of
Internet-based advertising, either of which could have a material adverse effect
on the Company's business, financial condition and operating results. In
addition, new Internet services or enhancements offered by the Company may
contain design flaws or other defects that could require costly modifications or
result in a loss of consumer confidence, either of which could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business -- Industry Background."
Capacity Constraints and System Disruptions. The satisfactory performance,
reliability and availability of the Company's Internet site and its computer
network infrastructure are critical to attracting Internet users and maintaining
relationships with advertising customers. The Company's Internet advertising
revenues will be directly related to the number of advertisement impressions
delivered by the Company. System interruptions that result in the unavailability
of the Company's Internet site or slower response times for users would reduce
the number of advertisements delivered and reduce the attractiveness of the
Company's Internet site to users and advertisers. The Company may experience
periodic systems interruptions from time to time in the future. Additionally,
any substantial increase in traffic on the Company's Internet site may require
the Company to expand and adapt its computer network infrastructure. The
Company's inability to add additional computer software and hardware to
accommodate increased use of its Internet site may cause unanticipated system
disruptions and result in slower response times. There can be no assurance that
the Company will be able to expand its computer network infrastructure on a
timely basis to meet increased use. Any system interruptions or slower response
times resulting from the foregoing factors could have a material adverse effect
on the Company's business, financial condition and operating results. The
Company is dependent on a third party for uninterrupted Internet access. In
addition, the Company is dependent on various third parties for substantially
all of its commodity news and information. Loss of such services from any one or
more of such third parties may have a material adverse effect on the Company's
business, financial condition and operating results. No assurance can be given
as to whether, or on what terms, the Company would be able to obtain such
services from other third parties in the event of the loss of any of such
services. See "Business -- Strategic Relationships."
The Company's Internet operations are vulnerable to interruption by fire,
earthquake, power loss, telecommunications failure and other events beyond the
Company's control. There can be no assurance that interruptions in service will
not materially adversely affect the Company's operations in the future. While
the
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<PAGE> 15
Company carries business interruption insurance to compensate the Company for
losses that may occur, there can be no assurance that such insurance will be
sufficient to provide for all losses or damages incurred by the Company. See
"Business -- Facilities."
Liability for Internet Content; Government Regulations. As a publisher and
a distributor of content over the Internet, the Company faces potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that it publishes or distributes. In addition, the Company could be exposed to
liability with respect to the content or unauthorized duplication of material
indexed in its search services. Although the Company carries liability
insurance, the Company's insurance may not cover potential claims of this type
or may not be adequate to indemnify the Company for all liability that may be
imposed. Any imposition of liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on the
Company's business, financial condition and operating results.
Although there are currently few laws and regulations directly applicable
to the Internet, it is possible that new laws and regulations will be adopted
covering issues such as, among other things, privacy, copyrights, access,
obscene or indecent communications and the pricing, characteristics and quality
of Internet products and services. As a provider of Internet content, the
Company is subject to the provisions of existing and future federal and local
legislation that could be applied to the Company's operation. This may include,
but is not limited to, the provisions of the Communications Decency Act (the
"CDA"), which, among other things, imposes criminal penalties on anyone that
distributes "indecent" material over the Internet. In June 1996, the United
States District Court for the Eastern District of Pennsylvania held that the CDA
was unconstitutional and enjoined its enforcement. The decision of the District
Court is currently on appeal to the United States Supreme Court. There is also
precedent for local legislation being used to enforce community standards on
Internet sites that physically exist elsewhere. While the Company has no
intention of publishing the type of material which the CDA or other legislation
may deem illegal, the manner in which the CDA or other legislation will
ultimately be interpreted and enforced and its effect on the Company's
operations cannot yet be fully determined, and, therefore the CDA could subject
the Company to substantial liability. The CDA or other legislation could also
dampen the growth of the Internet generally and decrease the acceptance of the
Internet as an advertising medium, and could, thereby, have a material adverse
effect on the Company's business, financial condition and operating results. See
"Business -- Government Regulations."
Liability for Information Retrieved From the Internet. Materials may be
printed from or downloaded into users' computers from the Internet services
provided by the Company, or from the Internet access or commodity information
providers with which the Company has a relationship. Given that materials may be
subsequently distributed to third parties, without the Company's knowledge or
consent, there is a potential that claims will be made against the Company for
defamation, negligence, copyright or trademark infringement or other theories
based on the nature and content of such materials. Such claims have been
brought, and successfully pressed, against Internet services in the past.
Although the Company carries liability insurance, the Company's insurance may
not cover potential claims of this type, or may not be adequate to indemnify the
Company for all liability that may be imposed. Any imposition of liability that
is not covered by insurance or is in excess of insurance coverage would have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business -- Government Regulations."
Conflicts of Interest. Certain conflicts of interest are inherent in
certain areas of the marketing communications industry, particularly in
advertising. For example, the Company will most likely be unable to pursue
potential advertising and other opportunities because such advertising or other
opportunities may require the Company to provide advertising services to direct
competitors of the Company's then existing clients. The Company risks alienating
or straining relationships with then existing clients each time the Company
agrees to provide services to indirect competitors of such clients. In addition,
Russell C. Horowitz, the Company's President, Chief Executive Officer and
director, and Manuel Rubio, a director of the Company, serve as the Chief
Executive Officer and Executive Vice President, respectively, and directors of
Xanthus Management, L.L.C., the general partner of Xanthus Capital, L.P., and of
DMR Investments, L.L.C., the investment advisor to Xanthus Capital, L.P. In
addition Messrs. Horowitz and Rubio are also limited partners of Xanthus
Capital, L.P. Xanthus Capital, L.P. beneficially owns 500,000 shares of the
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Company's Common Stock. In addition, Mr. Horowitz is the brother of the
President and Chief Executive Officer of Maxwell Capital, Inc. Any of such
conflicts of interest may have a material adverse effect on the Company's
business, financial condition and operating results. See "Certain Transactions,"
"Principal Stockholders" and "Underwriting."
Security Risks. The Company has instituted certain security measures
designed to protect its Internet site and other operations from unauthorized use
and access. Such measures cannot guarantee complete security, however, and a
party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the Company's
Internet operations. The Company may be required to expend significant capital
and resources to protect against the threat of such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Internet generally, particularly as a means of conducting commercial
transactions. To the extent that activities of the Company or any third party
contractors involve the storage and transmission of proprietary information,
such as computer software or credit card numbers, security breaches could expose
the Company to a risk of loss or litigation and possible liability. There can be
no assurance that contractual provisions attempting to limit the Company's
liability in such areas will be successful or enforceable, or that parties will
accept such contractual provisions as part of the Company's agreements.
Dependence on Licensed Technology; Protection of Intellectual
Property. The Company is dependent upon obtaining existing technology related
to its operations. To the extent new technological developments are unavailable
to the Company on terms acceptable to it or if at all, the Company may be unable
to continue to implement its business plan and its business, financial condition
and operating results would be materially adversely affected.
The success of the Company is dependent upon its ability to protect and
leverage the value, if any, of its original Internet content and its trademarks,
trade names, service marks, domain names and other proprietary rights it either
currently has or may have in the future. The Company has filed servicemarks for
its logo and name, as well as for the names of each of its content areas. In
addition, given the uncertain application of existing copyright and trademark
laws to the Internet, there can be no assurance that existing laws will provide
adequate protection for the Company's original Internet content or domain names.
Policing unauthorized use of the Company's original Internet content and other
intellectual property rights entails significant expenses and could otherwise be
difficult or impossible to do given, among other things, the global nature of
the Internet. See "Business -- Intellectual Property."
From time to time, the Company may be subject to legal proceedings and
claims in the ordinary course of business, including claims of alleged
infringement of the trademarks and other intellectual property of third parties
by the Company or its licensees. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources. The
Company is not currently aware of any legal proceedings or claims that the
Company believes will have, individually or in the aggregate, a material adverse
effect on the Company's business, financial condition and operating results. See
"Business -- Legal Proceedings."
Susceptibility to General Economic Conditions. The Company's business,
financial condition and operating results will be subject to fluctuations based
upon general economic conditions. If there were to be a general economic
downturn or a recession, however slight, then the Company expects that business
entities, including the Company's advertisers and potential advertisers, could
substantially and immediately reduce their advertising and marketing budgets. In
addition, the Company's ability to charge subscription fees for access to
certain portions of its Internet site or to engage in commerce via the Internet
would be adversely affected, thereby resulting in a material adverse effect on
the Company's business, financial condition and operating results.
Concentration of Stock Ownership. Upon completion of the Offering
(assuming no exercise of any portion of the Underwriters' over-allotment), the
Company's directors, officers and significant stockholders will beneficially own
approximately 48.8% of the outstanding Common Stock. In addition, Russell C.
Horowitz, the Company's President, Chief Executive Officer, Chief Financial
Officer and director, will directly own approximately 26.5% of the Common Stock.
In addition, Mr. Horowitz, along with Manuel
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Rubio, a director of the Company who directly owns 100,000 shares of the
Company's outstanding Common Stock, will have dispositive and voting control
with respect to an additional 12% of the Common Stock by virtue of their
positions as directors of Xanthus Management, L.L.C., the general partner of
Xanthus Capital, L.P., a merchant banking operation which beneficially owns
500,000 shares of Common Stock. As a result, such stockholders, and in
particular, Mr. Horowitz, will continue to be able to control the election of
all of the Company's directors and the approval of all significant corporate
acts and transactions. Such concentration of ownership may have the effect of
delaying or preventing a change in the control of the Company. See "Management,"
"Principal Stockholders" and "Certain Transactions."
Antitakeover Effects of Certificate of Incorporation, Bylaws and Delaware
Law. Upon completion of the Offering, the Company's Board of Directors will
have the authority to issue up to 1,000,000 shares of Preferred Stock without
any further vote of the Company's stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of Preferred Stock that may be issued in the future. Under the
Company's Certificate of Incorporation, the terms of the Preferred Stock may
provide for liquidation and dividend rights senior to those of the Common Stock.
The issuance of any shares of Preferred Stock could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no current intention or plan to issue any
of such shares of Preferred Stock in the immediate future. Further, certain
provisions of Delaware law, such as Section 203 of the Delaware General
Corporations Law, could delay, prevent or make more difficult a merger, tender
offer or proxy contest involving the Company. See "Description of Capital
Stock."
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for any of the Company's capital
stock, and there can be no assurance that an active trading market will develop
or be sustained for the Company's Common Stock. The initial public offering
price for the Common Stock will be determined between the Company and the
Underwriters, provided, however, that the initial public offering price will be
no higher than the price recommended by Credit Research & Trading LLC. Among the
factors to be considered in determining the initial public offering price will
be prevailing market and economic conditions, revenues, if any, the market
valuations of other companies engaged in activities similar to those of the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant. These factors may not be indicative of the market
price of the Common Stock after the Offering. In addition, the stock markets in
general, and the market prices for Internet-related companies in particular,
have historically experienced extreme volatility that at times have been
unrelated to the operating performance of such companies. The trading price of
the Common Stock could also be subject to significant fluctuations in response
to variations in quarterly results of operations, announcements of new products
or acquisitions by the Company or its competitors, governmental regulatory
actions, other developments or disputes with respect to proprietary rights,
general trends in the industry and overall market conditions and other factors.
These broad market and industry fluctuations may adversely affect the market
price of the Common Stock regardless of the Company's operating performance. See
"Underwriting."
Dilution. Purchasers in the Offering will suffer an immediate and
substantial dilution in the pro forma net tangible book value of the Common
Stock from the initial public offering price. See "Dilution."
Shares Eligible for Future Sale. Upon completion of the Offering, the
Company will have outstanding an aggregate of 4,157,100 shares of Common Stock,
assuming no exercise of any portion of the Underwriters' over-allotment option.
Of these shares, the 1,500,000 shares to be sold in the Offering will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described in the section captioned "Shares Eligible for
Future Sale." The remaining 2,657,100 outstanding shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules
are summarized below. As a result of the contractual restriction
15
<PAGE> 18
described in the section captioned "Shares Eligible for Future Sale" and the
provisions of Rules 144, 144(k) and 701, the Restricted Shares will be available
for sale in the public market as follows (based on the number of shares of
Common Stock outstanding as of December 30, 1996): (i) no Restricted Shares will
be eligible for immediate sale upon completion of the Offering; (ii) no
Restricted Shares will be eligible for sale upon expiration of the lock-up
agreements 270 days after the date of this Prospectus (provided, however, if
certain proposed amendments to Rule 144 are adopted in the currently proposed
form as described below prior to such date, 2,657,100 Restricted Shares will be
eligible for resale upon the expiration of such lock-up agreements), and (iii)
the remaining Restricted Shares will be eligible for sale upon expiration of
their respective holding periods. All officers, directors, existing stockholders
and option holders of the Company will have agreed not to, directly or
indirectly, without the prior written consent of the Underwriters, offer, sell
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or any securities exercisable for or convertible
into shares of Common Stock owned by them for a period of 270 days following
completion of the Offering.
The Securities and Exchange Commission has proposed an amendment to Rule
144 which would reduce the holding period before shares subject to Rules 144 and
144(k) become eligible for sale in the public market by one year. This proposal,
if adopted, would substantially increase the number of shares of the Company's
Common Stock eligible for immediate sale following the expiration of the lock-up
period as described above. As of December 30, 1996, options to purchase an
aggregate of 534,500 shares of Common Stock had been granted, of which options
to acquire an aggregate of 222,166 shares of Common Sock will become exercisable
on the 90th day following the date of this Prospectus and the remaining options
to purchase an aggregate of 312,334 shares of Common Stock will become
exercisable according to certain vesting schedules assuming the option holder is
employed by the Company on the vesting date. An additional 215,500 shares of
Common Stock are available for future grants under the Company's 1996 Stock
Option Plan. The Company intends to file one or more registration statements on
Form S-8 under the Securities Act to register all shares of Common Stock subject
to outstanding stock options and Common Stock issuable under the Company's 1996
Stock Option Plan that do not qualify for an exemption under Rule 701 from the
registration requirements of the Securities Act. The Company expects to file
these registration statements 270 days after the date of this Prospectus, and
such registration statements are expected to become effective upon filing.
Shares covered by these registrations statements will thereupon be eligible for
sale in the public markets, subject to the lock-up agreements, to the extent
applicable. See "Management -- 1996 Stock Option Plan," "Shares Eligible for
Future Sale," "Principal Stockholders" and "Underwriting."
No Specific Use of Proceeds. The Company has not designated any specific
use for the net proceeds from the sale of the shares of Common Stock being
offered hereby. Rather, the Company intends to use such net proceeds primarily
for working capital, capital expenditures and other general corporate purposes
as described herein. Accordingly, management of the Company has significant
flexibility in applying the net proceeds of the Offering. See "Use of Proceeds."
Limited Underwriting History. Maxwell Capital, Inc. has been operating as
a broker-dealer for less than one year and has never participated in a public
offering as an underwriter. In evaluating an investment in the Company,
prospective investors in the Common Stock offered hereby should consider Maxwell
Capital, Inc.'s lack of experience. See "Underwriting."
16
<PAGE> 19
THE COMPANY
The Company is an interactive technology and media company that provides
through its Internet site proprietary content and commodity information relating
to business and finance, sports and the Internet. In addition, the Company
offers a search/index guide that combines various existing search/index guides
into one guide (a "metasearch engine") and a Java-based desktop content delivery
system. The Company focuses its editorial, design and programming resources on
developing proprietary content that seeks to be original, entertaining,
informative and compelling. The Company's Internet site seeks to attract what
the Company believes is the typical Internet user of today (18 to 39 years old,
middle- to upper-middle class and college-educated) and the advertisers wishing
to reach this target market. The Company launched its Internet site on November
7, 1996. The Company's Internet site is located at <URL:http://www.go2net.com/>.
See "Business."
The Company's objective is to be a leading provider of content on the World
Wide Web, specifically in the areas of business and finance, sports and the
Internet, complemented by technologies such as search/index guides and
Java-based desktop content delivery systems. The Company focuses on utilizing
innovative technologies to deliver its content and to enhance the attractiveness
and utility of its product offerings with specially designed graphics and
animation. The Company's goal is to provide interactive content in all of its
content areas, and to seek advertisers and sponsors who wish to access the
demographic groups using the Company's Internet site. See
"Business -- Strategy."
The Company was incorporated in February 1996 under the laws of the State
of Delaware. Its executive offices are located at 1301 Fifth Avenue, Suite 3320,
Seattle, Washington 98101 and its telephone number at that location is (206)
447-1595.
The go2net, go2sports, go2business, go2internet, go2search and go2vision
names and logos are servicemarks of the Company for which applications for
registration have been filed with the United States Patent and Trademark Office.
All other trademarks, tradenames and servicemarks used in this Prospectus are
the property of their respective owners.
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered hereby are estimated to be approximately $10,600,000
($12,220,000 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $8.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
The principal purposes of the Offering are to (i) increase the Company's
working capital, capitalization and financial flexibility and (ii) provide a
public market for the Common Stock, which will facilitate future access by the
Company to public equity and debt markets, and enhance the ability of the
Company to use its Common Stock as a means for attracting and retaining key
employees. The Company expects to use the net proceeds from the Offering
primarily for working capital, capital expenditures and other general corporate
purposes, including to (i) expand and improve the Company's operations, (ii)
increase the Company's advertising and marketing efforts, (iii) expand and
improve the Company's user support capabilities and (iv) develop new Internet
content and applications. The amounts actually expended by the Company for each
purpose will vary significantly depending on a number of factors, such as the
amount of cash used or generated by the Company's operations and management's
assessment of the Company's specific needs. The Company may also use a portion
of the net proceeds of the Offering to acquire new technologies, businesses or
products. While the Company from time to time may evaluate such potential
acquisitions, the Company has no present agreements or commitments with respect
to any such possible acquisition, nor are any negotiations regarding any such
possible acquisitions currently ongoing. Pending such uses, the Company intends
to invest the net proceeds of the Offering in short-term investment grade,
interest bearing obligations. See "Risk Factors -- Extremely Limited Operating
History; Accumulated Deficit; Anticipated Losses, "Risk Factors -- Need for
Additional Capital to Finance Growth and Capital Requirements" and "Business."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock
and does not expect to declare or pay dividends for the foreseeable future. The
Company currently intends to retain future earnings, if any, to finance the
development and operation of its business. Any future declarations and payments
of dividends shall be at the sole discretion of the Company's Board of
Directors. Payment of dividends on the Common Stock would be subject to the
prior payment of all accrued and unpaid dividends on any shares of Preferred
Stock the Company may issue in the future at its sole discretion. See "Risk
Factors -- Dividend Policy" and "Description of Capital Stock."
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, (i) on an actual basis, (ii) on a pro forma basis giving
effect to the conversion of all of the Company's outstanding Preferred Stock
into 927,500 shares of Common Stock, which occurred between November 8, 1996 and
November 20, 1996, the issuance of 110,500 shares of Common Stock for an
aggregate subscription price of $150,000 and an $80,000 payment on an
outstanding subscription receivable, and (iii) on a pro forma basis as adjusted
to reflect the sale of the 1,500,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $8.00 per share and no exercise by
the Underwriters of any portion of their overallotment option, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses) and the anticipated application of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction with
the Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Stockholders' equity (deficit)(1):
9% Cumulative Redeemable Convertible Preferred
Stock, par value $1.00 per share; 1,000,000
shares authorized; 927,500 shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma; and pro forma as
adjusted......................................... $1,505,000 $ -- $ --
Common Stock, par value $.01 per share; 9,000,000
shares authorized; 1,619,100 shares issued and
outstanding, actual; 2,657,100 shares issued and
outstanding, pro forma; 4,157,100 shares issued
and outstanding, pro forma as adjusted........... 13,900 1,668,900 12,268,900
Preferred Stock subscription receivable............... (80,000) -- --
Accumulated deficit................................... (417,757) (417,757) (417,757)
---------- ---------- -----------
Total Stockholders' Equity and
Capitalization............................ $1,021,143 $1,251,143 $11,851,143
========= ========= ==========
</TABLE>
- ---------------
(1) Excludes 84,500 shares of Common Stock issuable upon the exercise of
outstanding options as of September 30, 1996, at an exercise price per share
equal to the initial public offering price of the Common Stock offered
hereby. Subsequent to September 30, 1996, the Company granted options to
purchase an additional 450,000 shares of Common Stock at an exercise price
per share equal to the initial public offering price of the Common Stock
offered hereby. See "Management -- 1996 Stock Option Plan" and Notes 4, 6
and 7 to Notes to Financial Statements.
19
<PAGE> 22
DILUTION
At September 30, 1996, the Company's pro forma net tangible book value was
$1,239,946, or $0.47 per share (assuming the conversion of all of the shares of
Preferred Stock into Common Stock based on a one for one conversion ratio, an
$80,000 payment on an outstanding subscription receivable and the issuance of
110,500 shares of Common Stock subsequent to September 30, 1996). Pro forma net
tangible book value per share is determined by dividing the Company's tangible
net worth (the Company's total assets, excluding intangible assets, less total
liabilities, plus Preferred Stock subscription receivable of $80,000 and
$150,000 of proceeds from the sale of shares of Common Stock subsequent to
September 30, 1996) by the number of shares of Common Stock outstanding on a pro
forma basis after giving effect to the conversion of the 927,500 shares of the
Company's outstanding Preferred Stock into shares of Common Stock, which
occurred between November 8, 1996 and November 20, 1996 and the issuance of
110,500 shares of Common Stock subsequent to September 30, 1996. After giving
effect to the receipt of $10,600,000 from the sale of 1,500,000 shares of Common
Stock in the Offering at an assumed initial public offering of $8.00 per share
(assuming no exercise by the Underwriters of their overallotment option and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses) and the application of the net proceeds as described under
"Use of Proceeds", the pro forma net tangible book value, as adjusted, of the
Company at September 30, 1996 would have been $11,839,946, or $2.85 per share,
based on 4,157,100 shares of Common Stock to be outstanding after the Offering.
This represents an immediate increase in pro forma net tangible book value of
$2.38 per share to the existing stockholders of the Company, and an immediate
dilution in pro forma net tangible book value of $5.15 per share to new
investors. The following table illustrates the per share dilution as of
September 30, 1996:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $8.00
Pro forma net tangible book value per share.......................... $0.47
Increase per share attributable to new investors..................... $2.38
-----
Adjusted pro forma net tangible book value per share after the
Offering........................................................... $2.85
-----
Dilution per share to new investors.................................. $5.15
=====
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1996, the differences between the existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share (assuming an initial
public offering price of $8.00 per share before deducting estimated underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED PAID
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------ ----------- ------ -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 2,657,100 63.92% $ 1,668,900 12.21% $0.63
New Investors...................... 1,500,000 36.08% $12,000,000 87.79% $8.00
--------- ------ ----------- ------
Total.................... 4,157,100 100.00% $13,668,900 100.00%
========= ====== =========== ======
</TABLE>
The foregoing tables assume the exercise of neither the Underwriters'
over-allotment option nor any outstanding stock options. At December 30, 1996,
there were outstanding options to purchase an aggregate of 534,500 shares of
Common Stock each with an exercise price per share equal to the assumed initial
public offering price. Accordingly, the exercise of any of such options will not
result in any further dilution to the new investors. See "Management -- 1996
Stock Option Plan" and Notes 4, 6 and 7 to Notes to Financial Statements.
20
<PAGE> 23
SELECTED FINANCIAL DATA
The following table sets forth financial data and other operating
information of the Company. The selected financial data presented in the table
is derived from the financial statements of the Company, which have been audited
by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(FEBRUARY 12, 1996)
TO SEPTEMBER 30, 1996
---------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................. $ --
Cost of revenues.......................................................... --
Operating Expenses:
Advertising and marketing............................................... 10,150
Product development..................................................... 137,159
General and administrative.............................................. 283,832
---------------------
Total operating expenses........................................ 431,141
---------------------
Loss from operations...................................................... (431,141)
Interest income........................................................... 13,383
---------------------
Net loss.................................................................. $ (417,757)
================
Net loss per share........................................................ $ (0.16)
Shares used in computing net loss per share(1)............................ 2,548,680
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
---------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 865,742
Working capital........................................................... 828,860
Total assets.............................................................. 1,066,241
Total liabilities......................................................... 45,098
Stockholders' equity...................................................... 1,021,143
</TABLE>
- ---------------
(1) Net loss per share is calculated using the weighted average number of shares
of Common Stock and Preferred Stock outstanding during such period including
shares of Common Stock issued after such period. See Note 1 to Notes to
Financial Statements.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is an interactive technology and media company that provides
through its Internet site proprietary content and commodity information relating
to business and finance, sports and the Internet. In addition, the Company
offers a search/index guide that combines various existing search/index guides
into one guide (a "metasearch engine") and a Java-based desktop content delivery
system. The Company provides such content and search technology through its
Internet site located at <URL:http://www.go2net.com/>.
The Company was incorporated on February 12, 1996 and its sole operating
activities through November 7, 1996 were the conception and development of its
Internet site and corresponding business plan, the hiring of employees,
including programmers, designers, editors, writers (referred to as content
contributors) and administrative staff, the creation and development of its
Internet site, the preparation and editing of proprietary and commodity content
to be provided thereon and the negotiation of contracts with service,
information, equipment and computer software and hardware providers. To date,
the Company has not generated any cash revenues.
The Company has an extremely limited operating history upon which an
evaluation of the Company and its prospects can be based. The Company
anticipates that advertising revenues from the Company's Internet site will
constitute substantially all of the Company's revenues, if any, during the
foreseeable future. Since the Company anticipates that its operations will incur
significant operating losses for the foreseeable future, the Company believes
that its success will depend upon its ability to obtain revenues from
advertising on its Internet site, which cannot be assured. The Company's ability
to generate revenues is subject to substantial uncertainty. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by start-up companies in general, and specifically with
respect to the new and rapidly evolving market for Internet products, content
and services. To address these risks, the Company must, among other things,
effectively establish, develop and maintain relationships with advertising
customers, advertising agencies and other third parties, provide original,
informative, entertaining and compelling content to Internet users, develop and
upgrade its technology, respond to competitive developments, attract new
qualified personnel and retain existing qualified personnel. There can be no
assurance that the Company will succeed in addressing such risks and the failure
to do so would have a material adverse effect on the Company's business,
financial condition and operating results. Additionally, the extremely limited
operating history of the Company makes prediction of future operating results
difficult. Accordingly, there can be no assurance that the Company will be able
to generate revenues or that the Company will achieve, or maintain,
profitability or generate revenues from operations in the future. Since
inception, the Company has incurred significant losses and, as of September 30,
1996, had an accumulated deficit of $417,757. Upon completion of the Offering,
the Company currently intends to increase substantially its operating expenses
in order to, among other things, expand and improve its Internet operations,
fund increased advertising and marketing efforts, expand and improve its
Internet user support capabilities and develop new Internet content and
applications. The Company expects to continue to incur significant losses on a
quarterly and annual basis for the foreseeable future. To the extent such
increases in operating expenses are not offset by revenues, the Company will
incur greater losses than anticipated. See "Risk Factors -- Extremely Limited
Operating History; Accumulated Deficit; Anticipated Losses."
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, many of which are outside of the Company's
control. Factors that may adversely affect the Company's quarterly operating
results include the level of use of the Internet, demand for advertising,
seasonal trends in both Internet use and advertising placements, the addition or
loss of advertisers, advertising budgeting cycles of individual advertisers, the
level of use of the Company's Internet site, the amount and timing of capital
expenditures and other costs relating to the development, operation and
expansion of the Company's Internet operations, the introduction of new sites
and services by the Company or its competitors, price competition or pricing
changes in the industry, technical difficulties or system failures, general
economic conditions and
22
<PAGE> 25
economic conditions specific to the Internet and Internet media. In seeking to
effectively implement its operating strategy, the Company may elect from time to
time to make certain advertising and marketing or acquisition decisions that
could have a material adverse effect on the Company's business, financial
condition and operating results. The Company believes that period to period
comparisons of its operating results are not meaningful and should not be relied
upon for an indication of future performance. Due to all of the foregoing
factors, it is likely that in some future quarters, the Company's operating
results may be below the expectations of public market analysts and
stockholders. In such event, the price of the Company's Common Stock would
likely be materially adversely affected. See "Risk Factors -- Unpredictability
of Future Revenues; Potential Fluctuations in Quarterly Operating Results."
RESULTS OF OPERATIONS
REVENUES
The Company did not launch its Internet site until November 7, 1996 at
which time it was still in the process of evaluating the technical features of
the site. From the date of inception to date, the Company has not generated any
cash revenues. The Company is not a party to any advertising or other agreement
or arrangement from which it can record deferred revenues or reasonably expect
to generate cash revenue in the immediate future. The sole source of funds for
the Company through September 30, 1996, other than the sale of equity, has been
interest income in the amount of $13,383. See "Risk Factors -- Extremely Limited
Operating History; Accumulated Deficit; Anticipated Losses."
COSTS OF REVENUES
Since inception, the Company has not incurred any cost of revenues as the
Company has not begun generating revenues. Costs incurred during the period from
inception to September 30, 1996 were recognized as product development expenses.
There can be no assurance that the Company will be able to generate sufficient
revenues, advertising or otherwise, to cover its costs of revenues. The failure
to generate sufficient revenues in order to cover its costs of revenues will
result in continued losses and will continue to have a material adverse effect
on the Company's business, financial condition and operating results.
OPERATING EXPENSES
Advertising and Marketing. Advertising and marketing expenses consist
primarily of public relations, travel and costs of marketing literature.
Advertising and marketing expenses incurred by the Company from inception
through the Company's fiscal year ended on September 30, 1996 were $10,150. The
Company intends to significantly increase its advertising and marketing expenses
in future periods.
Product Development. Product development expenses consist of expenses
incurred by the Company's initial development and creation of its Internet site.
Product development expenses include compensation and related expenses, costs of
computer hardware and software, and the cost of acquiring, designing, developing
and editing Internet content. All of the costs incurred to date in connection
with the development of the Company's Internet site have been expensed. Product
development expenses incurred by the Company from inception through the
Company's fiscal year ended on September 30, 1996 were $137,159. The Company
believes that significant investments in enhancing its Internet site will be
necessary to become competitive. As a result, the Company may continue to incur,
or increase the level of, product development expenses.
General and Administrative. General and administrative expenses consist
primarily of compensation not otherwise attributable to development expenses,
rent expense, fees for professional services and other general corporate
purposes. General and administrative expenses incurred by the Company from
inception through the Company's fiscal year ended on September 30, 1996 were
$283,832. The Company expects general and administrative expenses to
significantly increase in future periods as a result of, among other things, the
additional costs of being a public company.
Income Taxes. The Company has not recorded an income tax benefit because
it has incurred net operating losses since its inception. As of September 30,
1996, the Company had Federal net operating loss
23
<PAGE> 26
carryforward of approximately $394,000. The Federal net operating loss
carryforwards will expire beginning in 2011 if not utilized. Utilization of the
net operating losses and credits may be subject to a substantial annual
limitation due to the ownership change limitations provided in the Internal
Revenue Code of 1986, as amended, and similar state provisions. See Note 3 of
Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's principal source of liquidity was
$865,742 in cash and cash equivalents derived from private sales of the
Company's equity securities. The Company also has a $500,000 revolving line of
credit with a commercial bank which expires on November 15, 1997. All borrowings
under such line of credit accrue interest at such bank's prime annual lending
rate plus 1%. To date, the Company has not made any borrowings under this line
of credit. The Company has primarily financed its operations through the private
sale of equity securities. See "Certain Transactions."
The Company currently believes that available funds, cash flows expected to
be generated from operations, if any, the existing line of credit and the net
proceeds of the Offering will be sufficient to fund its working capital and
capital expenditures requirements for the twelve months following completion of
the Offering. Thereafter, the Company may need to raise additional funds. The
Company's ability to grow will depend in part on the Company's ability to expand
and improve its Internet operations, expand its advertising and marketing
efforts, expand and improve its Internet user support capabilities and develop
new Internet content material. In connection therewith, the Company may need to
raise additional capital in the foreseeable future from public or private equity
or debt sources in order to finance such possible growth. In addition, the
Company may need to raise additional funds in order to avail itself to
unanticipated opportunities (such as more rapid expansion, acquisitions of
complementary businesses or the development of new products or services), to
react to unforeseen difficulties (such as the loss of key personnel or the
rejection by Internet users or potential advertisers of the Company's Internet
content) or to otherwise respond to unanticipated competitive pressures. If
additional funds are raised through the issuance of equity securities, then the
percentage ownership of the Company's then existing stockholders will be
reduced, stockholders may experience additional and significant dilution and
such equity securities may have rights, preferences or privileges senior to
those of the Company's Common Stock. There can be no assurance that additional
financing will be available on terms acceptable to the Company or at all. If
adequate funds are not available or are not available on terms acceptable to the
Company, the Company may be unable to implement its business, sales or marketing
plan, respond to competitive forces or take advantage of perceived business
opportunities, which could have a material adverse effect in the Company's
business, financial condition and operating results. See "Risk Factors -- Need
for Additional Capital to Finance Growth and Capital Requirements."
24
<PAGE> 27
BUSINESS
GENERAL
The Company is an interactive technology and media company that provides
through its Internet site proprietary content and commodity information relating
to business and finance, sports and the Internet. In addition, the Company
offers a search/index guide that combines various existing search/index guides
into one guide (a "metasearch engine") and a Java-based desktop content delivery
system. The Company focuses its editorial, design and programming resources on
developing proprietary content that seeks to be original, entertaining,
informative and compelling. The Company's Internet site seeks to attract what
the Company believes is the typical Internet user of today (18 to 39 years old,
middle- to upper-middle class and college-educated) and the advertisers wishing
to reach this target market. In order to reach this target market and
advertisers, the Company's Internet site seeks to provide:
- an online environment in which content contributors are active
participants in the Company's Internet site, interacting with both users
and one another;
- content that informs, educates, entertains, provides varying perspectives
and encourages users to participate or take action on the information
provided;
- an online environment that facilitates ease of use of the Company's
Internet site through its design, communication and navigation features
and tools; and
- advertising and sponsorship opportunities through an approach combining
brand integration, animated advertising, product promotion and content
area sponsorship.
The Company launched its Internet site on November 7, 1996. The Company's
Internet site is located at <URL:http//www.go2net.com/>.
The Company's objective is to be a leading provider of content on the World
Wide Web, specifically in the areas of business and finance, sports and the
Internet, complemented by technologies such as search/index guides and
Java-based desktop content delivery systems. The Company focuses on utilizing
innovative technologies to deliver its content and to enhance the attractiveness
and utility of its product offerings with specially designed graphics and
animation. The Company's goal is to provide interactive content in all of its
content areas, and to seek advertisers and sponsors who wish to access the
demographic groups using the Company's Internet site.
INDUSTRY BACKGROUND
Growth of the Internet and the World Wide Web
The Internet is a global collection of thousands of computer networks
interconnected to enable commercial organizations, educational institutions,
government agencies and individuals to communicate electronically, access and
share information, and conduct business. Much of the growth to date in the use
of the Internet by businesses and individuals is due to the emergence of the
World Wide Web. The World Wide Web is a network medium that includes a wide
range of content and activities. Within the World Wide Web there can be found
content such as magazines, news and sports information, radio broadcasts, and
corporate, product, educational, research and political information, as well as
activities such as customer service, electronic commerce, hotel and airline
reservations, banking, games and discussion groups. Electronic documents or "Web
pages," which may contain textual, audio and video information, are published on
the World Wide Web on what is referred to as a "Web site" in a common format.
Users can view and move among these Web pages by using software called "Web
browsers" such as Netscape Navigator or Microsoft Internet Explorer. Users
specify which electronic documents they wish to view with their Web browser by
entering a document's unique electronic Web address, or Universal Resource
Locator ("URL").
Jupiter Communications estimated that in 1995 there were approximately 15
million Internet users. International Data Corporation estimates that the number
of Internet users is projected to reach 199 million users in 1999, of which 125
million users are estimated to be accessing the World Wide Web. Net.Genesis
25
<PAGE> 28
estimates that there were approximately 90,000 Web sites in January 1996
compared to approximately 2,700 Web sites in June 1994. The Company believes
that the growth in the number of Internet users and Web sites has been fueled
principally by significant investments by leading technology and computer
software companies, public interest and the potential pervasive effect of the
Internet on virtually every industry. In particular, the existing and increasing
number of personal computers in the workplace and at home, improvements in the
performance and speed of personal computers and modems, the development of
easy-to-use graphical user interfaces, improvements in the network
infrastructure, the enhanced ease of access to the Internet by Internet service
providers, consumer-oriented Internet services and long-distance telephone
companies, the emergence of standards for Internet navigation and information
access and the declining costs of Internet service have all been contributing
factors to the current growth in the use of the Internet and the World Wide Web
by businesses and individuals.
Content on the Internet and in Traditional Media
The World Wide Web provides the opportunity for Internet content providers
to create a product that is timely, interactive, and offers information in a
manner not typically produced by traditional forms of media. While the print
media can be comprehensive with respect to its subject matter and the television
broadcast media is well-suited to conveying content with a high degree of audio
and visual information, each generally lacks interactivity and the information
provided thereby cannot be personalized or customized. In addition, the print
media lacks the ability to provide real-time information and the television
broadcast media typically offers only a broad coverage of the subject matter.
Web sites can offer the user archives, related stories and other tools to
enhance the attractiveness and utility of the information received. The World
Wide Web also makes it possible to deliver personalized, real-time information
to the user through software applications that allow the user to customize and
manipulate the information accessed. The delivery of Internet content may be
used not only to address a user's preferences, but also to optimize, among other
things, the utility thereof based on the user's computer hardware, software and
bandwidth. The Company believes that many of the more prominent Web sites have
been successful in creating "virtual communities" by offering the user
opportunities to, among other things, congregate, trade information, make
purchases and interact with the content and/or programs. The Company believes
that Web sites that have been successful in building a "virtual community" among
its users have been able to significantly increase the number of users accessing
their particular Web site.
The Company believes that new technologies developed specifically for use
on the Internet, such as the "Java" programming language developed by Sun
MicroSystems, Inc., will help to fuel continued growth in the use of the
Internet. The Java programming language represents an evolution of languages
such as "C" and "C++." It combines the simplicity of "C" with object oriented
principles found in "C++" and adds, among other things, platform independence
and what the Company believes is an effective security model. In theory, a
computer program written in Java may be run on any operating system, eliminating
the expense and work involved in porting computer code between platforms. Java
also offers security features that enable the safe execution of downloaded
computer code, which has accelerated a shift in distribution models from shrink-
wrapped software to direct electronic delivery via the Internet. Two of the most
widely used Web browsers, Netscape Navigator and Microsoft Internet Explorer,
both employ the use of Java.
Business Opportunities on the Internet
The Company believes that the leading Internet content providers will
benefit from the increasing number of Internet users since advertisers will more
likely advertise on Web sites that demonstrate a high volume of user traffic and
provide advertising programs designed for specific demographic groups. As a
result, the Company believes that a significant opportunity exists for companies
providing original, entertaining, informative and compelling content on the
Internet. The Company believes that a significant opportunity exists to exploit
certain niches of the Internet user community by providing business and finance,
sports and Internet-related content, with complementary technologies such as
search/index guides and Java-based desktop content delivery systems. The Company
believes that the Internet market for advertising will continue to grow in the
foreseeable future. According to Jupiter Communications, the market for
Internet-based
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advertising and sponsorships amounted to approximately $55 million in 1995, and
is expected to grow to approximately $4 billion by the year 2000.
The Company believes that an important factor in the recognition of the
World Wide Web as a legitimate advertising medium is the ability to direct
advertising to specific user groups, directly distribute targeted information to
users on an individualized basis and receive timely feedback from users. Current
technology allows Web sites to monitor the demographics of their users and
deliver specific information to the advertisers and advertising agencies. The
Company believes that continued improvements in the tools and technologies used
to measure user response to advertisements on the Internet and to track
purchasing decisions should increase the effectiveness and attractiveness of
Internet-based advertising. The emerging model for advertising rates is that
advertisers pay a premium for a targeted audience. The Internet can also provide
the user with direct access to the advertiser with "click-through"
advertisements, where an electronic transaction is capable of occurring
immediately if the advertiser has a Web site capable of conducting sales and
purchases via the Internet. Another perceived advantage of Internet-based
advertising is that such advertising can be evaluated and monitored daily, and
in the future should be capable of being monitored in real-time. If an
Internet-based advertisement is not delivering the anticipated results, an
advertiser can remove the advertisement within a short period of time and
replace it with an advertisement that may be more likely to deliver the
anticipated results.
In light of increased growth in the number of Internet users, certain
content providers charge a subscription fee for users to access certain of their
content as an additional revenue source. These subscription fees are charged to
either supplement advertising revenues or as an entirely separate revenue model.
For example, ESPNET.Sportszone charges its users for fantasy sports league
participation, and selected sports columns, and Individual, Inc. charges for use
of its NewsPage Web site, which provides a customized Internet newspaper.
Additionally, the Company believes that the growth of the Internet and its
adaptation to commercial use presents a significant new opportunity for
merchants to reach a wider customer base. However, before Internet commerce can
experience significant growth, consumers, merchants and financial institutions
must be satisfied that the electronic manifestations of existing payment methods
are as safe, convenient and secure as their current counterparts. No assurance
can be given that such safe, convenient and secure Internet payments can be
developed or, if developed, can be effectively used by, or be cost efficient
for, most Internet users.
THE GO2NET OPPORTUNITY
In December 1996, Web21 Inc.'s listing of the 25 most visited Web sites
included five sites offering sports information, three offering news related to
the Internet, three offering business or finance information and eight offering
search/index guides. In terms of business or finance content, there is a wealth
of financial resources and information available on the Internet. However, few
Web sites provide custom commodity information combined with quality proprietary
content from business and financial writers and analysts. As for sports content,
the demand for sports information in general is reflected by the fact that some
of the most accessed Web sites are dedicated solely to sports, such as ESPNET
Sportszone, Sportsline USA and iGolf. In addition, as use of the Internet
expands, the Company believes that there will be an increasing demand for
Internet-related information ranging from elementary aspects of the Internet to
the latest Internet software and technology enhancements, as well as the other
corresponding products and services. The Company believes that a significant
opportunity exists to exploit certain niches of the Internet user community by
providing business and finance, sports and Internet-related content,
complemented by technologies such as search/index guides, and Java-based desktop
content delivery systems.
STRATEGY
The Company's objective is to be a leading provider of content on the World
Wide Web, specifically in the areas of business and finance, sports and the
Internet. The Company has also developed a complementary search/index guide and
a Java-based desktop content delivery system. The Company focuses on utilizing
innovative technologies to deliver its content and to enhance the attractiveness
and utility of its product offerings with specially designed graphics and
animation. The Company's goal is to provide interactive content
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in all of its content areas, and to seek advertisers and sponsors who wish to
access the demographic groups using the Company's Internet site. The inability
of the Company to achieve any portion of its strategic goals may have a material
adverse effect on its business, financial condition and operating results. There
can be no assurances that the Company will be able to achieve any of such goals
and, if not so achieved, that it will be able to develop and implement
alternative strategic goals. Key elements of the Company's strategy include:
Provide Compelling and Targeted Content. The Company seeks to create
content that is original, entertaining, informative and compelling. The
Company's Web site content focuses on what the Company believes are currently
the most popular areas of interest on the Internet: business and finance, sports
and the Internet itself. The Company seeks to offer information in these areas
which is written by content contributors with demonstrated expertise, experience
and notoriety in their fields. The Company supplements the content provided by
these contributors with supporting commodity and other information and content
provided by its in-house editorial staff. In addition, the Company recognizes
that as its content areas grow, it may be useful to spin off certain content
areas as their own URL's in order to maximize department revenues, and maximize
the navigational intuitiveness and usability of the department.
In addition, the Company believes that the creation of a virtual community
for the content found on its Web site is an important component in determining
who chooses to access its Web site. In particular, the Company's content
contributors and editors interact with users through electronic mail, and online
question and answer sessions. The Company also encourages its users to submit
articles and questions directly to its Web site. The Company hopes to provide
content that is formed through an interaction between the Company's editorial
staff and the users.
Establish Market Awareness and Brand Recognition. The Company believes
that establishing and maintaining the go2net brand is a critical element of its
operating strategy. The Company plans to create a brand identity that is built
around authoritative commentary and innovative delivery of information. In this
regard, the Company has placed significant emphasis on establishing brand
identity for its product offerings. The Company's brand and corporate identity
seeks to reflect an Internet site that provides a well-balanced array of
programming with varying perspectives. The Company will seek to build and
reinforce its brand through advertising on the Internet; in trade magazines and
in other traditional forms of media; editorial coverage; and a public relations
strategy that includes frequent press releases. The Company also believes that
the go2net brand will be reinforced as a result of the consistent design and
imagery associated with each department of its Web site. The Company believes
that by successfully building its brand, there will be opportunities to expand
into new content offerings.
Leverage Strategic Relationships. The Company seeks to leverage its
current resources and infrastructure by entering into strategic relationships
with third party developers of content and Internet-related technologies. The
Company believes that these relationships will enhance the Company's product
offerings while leveraging the Company's development, sales and marketing
resources. The Company has established relationships with a number of leading
information providers with respect to a significant portion of the commodity
information included in the Company's Internet site. These relationships enable
the Company to complement its proprietary content offerings with information
developed or compiled by third parties.
Focus on Advertising Sales. The Company seeks to differentiate itself from
other Internet companies by offering advertising and sponsorship opportunities
that combine brand integration, animated advertising, product promotion and
content area sponsorship. The Company seeks to assist sponsors and advertisers
in promoting their products by providing alternatives to banner advertisements,
which are the current advertising standard on the World Wide Web.
PRODUCTS
The Company's product strategy is to design and deliver content in an
intuitive manner and utilize the most current technologies available to it in
order to enhance the user's experience on its Web site. The Company believes
that the technology utilized in its Web site offers a practical means of
performing certain tasks. While most Web sites have typically chosen to focus on
one type of content, such as sports, business, health or movies, the Company
believes that the content offerings contained in the Company's Web site will
enable the Company to position itself as a Web site that is capable of providing
a wide variety of programming.
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The Company's existing product offerings include the following content
areas and technology applications:
go2sports: This content area offers exclusive insights from Hall of
Fame athletes, such as former Boston Celtic Bill Russell and former
Cincinnati Red Joe Morgan, and journalists such as Steve Rudman and the
Company's own in-house journalists. The Hoop City, The Show and The
Gridiron areas of go2sports offer entertaining insights, commentary and a
real-time news ticker and scoreboard. Users are encouraged to contribute
writings, participate in polls, and interact with the Company's Web site
personalities. This content area also features a self-updating sports
ticker offering sports scores and sports news updates, and daily and weekly
sports articles.
go2business: This content area provides users with insights regarding
the financial markets, publicly traded companies, and general financial and
economic trends. Inside Scoop features the insights of prominent industry
analysts and writers, such as business author Jennifer James, Ph.D. Daily
Market Rap offers insights on the day's financial market activities by
William Fleckenstein, a professional money manager. Stock Picks: Upstream
with Cousin Bob is the platform for the Company's investment professionals
to select the stocks that they believe can outperform the major market
averages over various investment horizons. go2business offers investment
tools such as stock quotes, graphs, historical data, personal portfolio
monitoring, business and financial news, company profiles and company
filings. The Company has sought to further enhance the attractiveness of
this feature by including a ubiquitous, configurable stock ticker.
go2internet: This content area contains insights on the Internet's
recent developments, trends and issues, provided by recognized individuals
in the Internet industry. This content area includes articles contributed
by Martin L. Schoffstall, co-founder of PSINet, Inc. and a director of the
Company, and Paul Phillips, Internet security expert and the Company's Vice
President -- Technology, along with other technology professionals and
journalists. Steve Berlin, who contributes to MSNBC and is published in
Websight magazine, manages the Useless WWW Pages area of go2internet.
go2internet features interactive elements, such as the One Book List area
(a book review forum), as well as a scrolling news ticker that updates the
latest Internet and technology industry news.
go2search: go2search is a metasearch engine that queries multiple
sources, verifies the accuracy of results, and provides a standard
search/index interface. go2search is based upon relationships formed by the
Company with several major search/index guides that allow the Company to
use these guides' databases in exchange for the passing through of
advertisements posted on such search/index guides' Web sites to the
Company's Web site.
go2vision: This product allows for users to obtain commodity
information and search the World Wide Web while simultaneously accessing
other Web sites or running other applications. go2vision was developed by
the Company's team of Java programmers. Since the software code was written
entirely in Java, it can be downloaded and used in response to a single
click of a mouse by the user. go2vision is designed to coexist on the
user's screen with other applications. It updates automatically with stock
quotes and sports scores, and includes a metasearch engine that allows the
user to probe the Internet while simultaneously browsing or using other
applications. go2vision has the ability to deliver both static and
animated, interactive advertisements for the Company's sponsors. Users can
have go2vision on their desktop all day long as go2vision continually
updates to deliver timely information. In addition, Internet users may
customize any of the features of go2vision.
STRATEGIC RELATIONSHIPS
The Company intends to leverage its current development resources and
infrastructure by entering into strategic and licensing relationships with third
party developers of content and technologies. The Company has established
relationships with a number of leading information providers. The Company has
agreements with information providers including S&P Comstock, DRI/McGraw-Hill,
Dow Jones & Company, Inc., New York Stock Exchange, Inc., The Nasdaq Stock
Market, Inc., SportsTicker, Comtex, Edgar Online and Market Guide Inc. The
Company has also established a relationship with InterNAP Network Services,
L.L.C., a
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Seattle-based private NAP (network access point). The InterNAP headquarters,
where the Company's servers are located, maintains multiple DS-3 circuits with
some of the largest Internet service providers. This relationship will help to
maximize the speed and accessibility of the Company's Web site for users.
The Company also has an ongoing advertising barter relationship with
Yahoo!, Inc., which the Company believes will enhance its brand recognition and
potentially expand its user base.
REVENUE SOURCES
Sponsors/Advertisers: To date, the Company's Internet site has only two
advertisers. The Company has a barter arrangement with Yahoo!, Inc., with
respect to the trading of advertisement impressions on each other's Internet
site. The other advertiser is not currently paying for advertising. The typical
advertiser being sought by the Company for its Web site is a large corporation
or organization which currently advertises nationally in print, radio,
television or electronic media. The Company seeks to establish advertising
relationships with these potential advertisers through its own marketing and
advertising sales department and to supplement these efforts from time to time
through national advertising agencies. The pricing strategy will generally be
based on the number of impressions delivered, with the goal of incentivizing
advertisers to sign longer term agreements. No assurance, however, can be given
that such pricing strategy can be implemented, or if implemented, will result in
significant advertising revenues to the Company.
Subscriptions, Memberships and Other Transactions: The Company believes
that there may be possibilities to segment certain proprietary content areas on
the Company's Web site as subscription areas, specifically with stock
recommendations in the business area, and with fantasy sports league
participation in the sports area, which have demonstrated popularity on the
World Wide Web. The Company has plans to offer these and other subscription
services in 1997, although there can be no assurance that the Company will be
able to initiate or successfully operate any subscription areas. As traffic to
the Company's Web site increases, the Company will review other opportunities
for deriving revenue, such as offering products and services from advertisers
and sponsors and itself, if safe, secure electronic payments can be developed
and widely implemented. There can be no assurance that the Company will be able
to initiate or successfully operate electronic commerce, for itself or its
sponsors/advertisers, through its Web site.
ADVERTISING SALES
The Company expects to derive substantially all of its revenues from the
sale of advertising on its Web site. The Company's advertising sales staff
consists of two full-time employees located at the Company's executive offices
in Seattle, Washington. The Company expects that its Internet-based advertising
revenues will be derived from the sale of advertising and sponsorships by the
Company's direct sales department supplemented from time to time with the use of
national advertising agencies. To date, the Company has generated no cash
advertising or sponsorship revenues. Currently, the Company's advertising sales
have been limited to barter transactions in which the Company trades impressions
with another Web site. While the Company has developed, and is seeking to
implement, the advertising sales strategy described in this Prospectus, there
can be no assurance that such strategy will be successful in achieving its
objectives. See "Risk Factors -- Dependence on Advertising Revenues" and "Risk
Factors -- Limited Experience in Sales and Marketing of Advertising."
The Company seeks to help grow the businesses of its potential sponsors and
advertisers by providing an alternative to banner advertising, which is the
current standard on the World Wide Web. To this end, the Company seeks to
provide two advertising elements: custom brand integration and company
promotion. The Company's advertising strategy is based on the concept of brand
and product integration. Brand logos are integrated into areas of the Company's
Web site without diminishing the presentation of the content. The brands are
woven into the design of the Web site in an attempt to hold a user's attention
with customized environments designed for each page. This approach is consistent
with the Company's endorsement of the sponsorship model for advertising.
The Company believes that the sponsorship of Internet content will play an
increasingly important role in generating advertising revenues. The World Wide
Web is relatively new to sponsorships, but this concept has
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been around for almost 50 years in traditional forms of media, originating back
in the days of Kraft Television Theater (1947) and the Texaco Star Theater
(1948) and continuing today through corporate sponsorship of various forms of
entertainment, such as sporting events and concerts. The key element of this
approach for the sponsor is that the product or service becomes associated with
the content or program. The Company believes that tasteful, authentic
sponsorships will lead the user to believe that the sponsor is not being forced
upon them, but rather is presenting a value-added product and a content program.
The Company seeks to offer each of its potential sponsors/advertisers the
opportunity to access the number of times their advertisements are viewed on a
daily basis through the establishment of a private, dedicated URL located on the
Company's Web servers. The Company believes that this process will make it
easier for the sponsor/advertiser to monitor the success of a particular
advertisement on a daily basis, and will give the sponsor/advertiser more
confidence in the accuracy of the number of advertisement impressions delivered
on the Company's Web site. In order to further serve the sponsor/advertiser, the
Company plans to establish during 1997 a page on its Web site where the user
will be asked from time to time to respond to a short survey in return for the
opportunity to win prizes provided by either the Company or a
sponsor/advertiser. The Company believes that such surveys may result in
generating more interest in specific content areas and attract sponsorship
interest. No assurance, however, can be given that, if the Company is able to
establish such a page on its Web site, users will actually participate in such
surveys or that advertisers or sponsors will find such surveys of use or value
to them.
Use of the Internet by consumers is at a very early stage of development,
and market acceptance of the Internet as a medium for information,
entertainment, commerce and advertising is subject to a high level of
uncertainty. The Company believes that its success depends upon its ability to
obtain significant revenues from its Internet operations, which will require the
development and acceptance of the Internet as an advertising medium. The Company
believes that most advertisers and advertising agencies have limited experience
with the Internet as an advertising medium and neither advertisers nor
advertising agencies have devoted a significant portion of their advertising
budgets to Internet-related advertising to date. In order for the Company to
generate advertising revenues, advertisers and advertising agencies must direct
a portion of their budgets to the Internet as a whole, and specifically to the
Company's Internet site. There can be no assurance that advertisers or
advertising agencies will be persuaded, or able, to allocate or continue to
allocate portions of their budgets to Internet-based advertising, or if so
persuaded or able, that they will find Internet-based advertising to be more
effective than advertising in traditional media such as television, print or
radio, or in any event decide to advertise on the Company's Internet site.
Moreover, there can be no assurance that the Internet advertising market will
develop as an attractive and sustainable medium, that the Company will achieve
market acceptance of its products or that the Company will be able to execute
its business strategy successfully. Acceptance of the Internet among advertisers
and advertising agencies will also depend on the level of use of the Internet by
consumers, which is highly uncertain, and on the acceptance of the alternative
new model of conducting business and exchanging information presented by the
Internet. Advertisers and advertising agencies that have invested resources in
traditional methods of advertising may be reluctant to modify their media buying
behavior or their systems and infrastructure to use Internet-based advertising.
Furthermore, no standards to measure the effectiveness of Internet-based
advertising have yet gained widespread acceptance, and there can be no assurance
that such standards will be adopted or adopted broadly enough to support
widespread acceptance of Internet-based advertising. If Internet-based
advertising is not widely accepted by advertisers and advertising agencies, the
Company's business, financial condition and operating results will be materially
adversely affected and the Company may cease to be a commercially viable
enterprise. See "Risk Factors -- Dependence on Acceptance of the Internet as an
Advertising Medium; Lack of Measurement Standards."
MARKETING
The Company's marketing strategy is to enhance, promote and support a
perception that the Company's Internet offerings have a balance of proprietary
content and general subject matter in its content areas. The Company believes
that it is necessary to provide the Internet user with content that allows them
an opportunity to act on the information provided. To that end, the Company has
positioned its technical team to
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supplement the content contributors and editors with interactive elements. This
enhances the ability of the Company to provide Internet content that it believes
to be creative, entertaining and unique to the Internet medium.
During 1997, the Company will focus on a marketing strategy that will
include informing all search/index guides and information Web sites about the
Company's Web site; periodic press releases promoting new content, technologies,
important hires and other strategic relationships; and advertising on Web sites
and in trade magazines.
The Company believes that the combination of a strong brand identity and
meaningful content is an approach that has been successful to date for certain
of the prominent Web sites. In order to implement its marketing plan, the
Company intends to routinely gather information regarding the types of content
that Internet users seek. The Company intends to monitor users' needs and
preferences primarily by periodically conducting focus groups and encouraging
users to provide input in the form of electronic mail or soliciting such
opinions through surveys completed in conjunction with contests conducted by the
Company.
Each of these elements of the Company's marketing plan will depend upon the
Company's ability to provide original, entertaining, informative and compelling
content, which cannot be assured. If Internet users do not perceive the
Company's Internet content to be such, or if the Company introduces new content
or Web sites, or enters into new business relationships or strategies that are
not favorably received, the Company would likely be unsuccessful in promoting
and implementing its marketing plan. Furthermore, in order to attract and retain
users and to promote and implement its marketing plan, particularly in response
to competitive pressures, the Company may find it necessary to commit greater
financial and personnel resources to providing Internet content or creating or
maintaining its brand recognition. If the Company is unable to provide the
contemplated content or otherwise fail to establish and maintain brand
recognition, or if the Company incurs excessive expenses in an attempt to
improve its content or implement its marketing plan, the Company's business,
financial condition and operating results would be materially adversely
affected. See "Risk Factors."
RESEARCH AND DEVELOPMENT
A focus of the Company's research and development efforts is the
enhancement of its content delivery and presentation through the use of
Java-based software applications. The Company's programming staff devotes a
portion of its time and efforts to the development of Java and other software
applications, which will primarily be used in connection with existing
applications. Examples of potential Java-based software applications include the
facilitation of multi-player games, a Java interface to a metasearch engine and
enhanced financial monitoring and analysis tools. No assurance can be given that
the Company will be able to develop enhancements to its content delivery or
presentation or to develop any new Java-based software applications, or if so
developed, that such enhancements or applications will be commercially viable.
The Company also focuses its research and development efforts on the
development of new content areas and services that address the needs or
preferences of certain demographic groups that, in the belief of management, may
be attractive to advertisers and sponsors. No assurance can be given that the
Company will be able to develop new content areas or services, or if so
developed, that such content areas or services will be commercially viable.
Product development expenses from inception through the Company's fiscal year
ended on September 30, 1996 were $137,159.
COMPETITION
The Company competes with other Internet content providers for the time and
attention of consumers and for advertising and subscription revenues.
Competition among Internet content providers is intense and is expected to
increase significantly in the future. The Company's Internet site competes
against a variety of companies that provide similar content through one or more
media, such as print, radio, television and the Internet. To compete
successfully, the Company must develop and deliver popular, original,
entertaining, informative and compelling Internet content to attract Internet
users and to support advertising and, in the future, subscription fees. In the
Company's niche of business and finance, sports and the Internet, in addition to
competing with numerous newspapers, magazines, television programs and radio
broadcasts that cover the
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same material, the Company competes with various Internet content providers such
as Starwave Corporation, Microsoft Corporation, c/net, Inc., America OnLine,
Inc., MGM Interactive, Inc., CompuServe, Inc., Prodigy Services Co., Excite,
Inc., Infoseek Corporation, Lycos, Inc., Netscape Communications Corporation,
Time Warner, Inc., PointCast Incorporated, SOFTBANK Corporation, Yahoo! Inc.,
SportsLine USA, Inc. and Wired Ventures, Inc. Many, if not all, of these
competitors also offer a wider range of services than does the Company, which
services may be sufficiently attractive to Internet users to attract users to
their services and, consequently, dissuade them from accessing the Company's
Internet site. If the Company is unable to attract a significant number of
Internet users to its Internet site, the Company's business, financial condition
and operating results will be materially adversely affected and the Company may
cease to be a commercially viable enterprise.
The market for Internet content and services is relatively new, intensely
competitive and rapidly evolving. There are minimal barriers to entry, and
current and new competitors can launch new Internet sites at relatively low cost
within relatively short time periods. In addition, the Company competes for the
time and attention of Internet users with thousands of non-profit Internet sites
operated by, among other persons, individuals, government and educational
institutions. Existing and potential competitors also include magazine and
newspaper publishers, cable television companies and start-up ventures attracted
to the Internet market. Accordingly, the Company expects competition to persist
and intensify and the number of competitors to increase significantly in the
future. Should the Company seek in the future to attempt to expand the scope of
its Internet site, it will compete with a greater number of Internet sites and
other media companies. Because the operations and strategic plans of existing
and future competitors are undergoing rapid change, it is extremely difficult
for the Company to anticipate which companies are likely to offer competitive
content and services in the future. There can be no assurance that the Company's
Internet site will compete successfully.
The Company believes that the competitive factors attracting Internet users
include the quality of presentation and the relevance, timeliness, depth and
breadth of information and services offered by the Company. With respect to
attracting advertisers and advertising agencies, the Company believes that the
competitive factors include, among others, the number of users accessing the
Company's Internet site, the demographics of such user base, the Company's
ability to deliver focused and compelling advertising and interactivity through
its Internet site and the overall cost-effectiveness and value of advertising
offered by the Company. In addition, the success of the Company's business
strategy depends on the sale of future Internet advertising at premium prices,
based in part on the demographic characteristics of the Company's Internet
users. With respect to attracting subscription-based users in the future, the
Company believes that the competitive factors include, among others, the
quality, uniqueness and usefulness of the content being provided, the price
charged for such content and the cost and accessibility of similar content
through the Internet or competing media. Given the intense competition among
Internet content providers and other media, there can be no assurance that the
Company will be able to compete successfully with respect to any of these
factors.
Many, if not all, of the Company's current and potential competitors have
significantly greater financial, editorial, technical and marketing resources,
longer operating histories, greater name recognition, and greater experience
than the Company; and also have established relationships with advertisers and
advertising agencies. Many, if not all, of such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive advertising
and subscription price policies and devote substantially more resources to
developing Internet content than the Company. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect the Company's business, financial condition and
operating results. In addition, in response to competitive pressures, the
Company may make certain pricing, content and/or marketing decisions or enter
into acquisitions or new ventures that could have a material adverse effect on
the Company's business, financial condition and operating results. See "Risk
Factors -- Competition; Low Barriers to Entry."
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EMPLOYEES
As of December 30, 1996, the Company had a total of 17 employees all of
whom are based at the Company's executive offices in Seattle, Washington. Of the
total of 17 employees, 2 are in sales and marketing, 5 are in providing and
editing content for the Internet site, 3 are in programming, 2 in quality
assurance, 2 in design, technical support, documentation and product
development, and 3 are in administrative and finance functions. In addition, as
of December 30, 1996, the Company has agreements with approximately 18
independent contractors to provide various services, articles and other content
material for inclusion in the Company's Internet site. None of the Company's
employees are represented by a labor union and the Company considers its
employee relations to be good. See "Risk Factors -- Dependence on Key Personnel"
and "Risk Factors -- Managing Potential Growth."
FACILITIES
The Company's executive offices are located in downtown Seattle, Washington
in an office building in which the Company leases 7,166 square feet under a
sublease that expires on July 31, 1997. Although the Company believes its
current office space is adequate for its needs for the present and the immediate
future, the Company does not have a contractual right to extend such sublease
beyond such expiration date. While the Company has been engaged in negotiations
from time to time with its landlord to extend the term of the sublease, the
Company is also in the process of searching for alternative facilities in the
event it is unable to extend the term of its current sublease on terms
acceptable to the Company. In the event the Company is obligated to move its
operations to another facility, the Company will be forced to incur significant
additional costs and management will be forced to direct a portion of its time
to managing such relocation. In addition, should the Company extend its current
sublease at a higher rent, the Company's liquidity may be adversely affected.
Each of these events could have a material adverse effect on the Company's
business, financial condition and operating results.
The Company's operations are dependent in part upon its ability to protect
against physical damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events. The Company does not
have a disaster recovery plan or sufficient business interruption insurance to
compensate it for losses that may occur as a result of any of these events. The
occurrence of any of these events could result in interruptions, delays or
cessation in service to users of the Company's Internet site which could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Risk Factors -- Capacity Constraints and Systems
Disruptions."
INTELLECTUAL PROPERTY
The Company is dependent upon obtaining existing technology related to its
operations. To the extent new technological developments are unavailable to the
Company on terms acceptable to it or if at all, the Company may be unable to
continue to implement its business plan and its business, financial condition
and operating results would be materially adversely affected.
The success of the Company is dependent upon its ability to protect and
leverage the value, if any, of its original Internet content and its trademarks,
trade names, service marks, domain names and other proprietary rights it either
currently has or may have in the future. The Company has filed servicemarks for
its logo and name, as well as for the names of each of its content areas. In
addition, given the uncertain application of existing copyright and trademark
laws to the Internet, there can be no assurance that existing laws will provide
adequate protection for the Company's original Internet content or domain names.
Policing unauthorized use of the Company's original Internet content and other
intellectual property rights entails significant expenses and could otherwise be
difficult or impossible to do given, among other things, the global nature of
the Internet. See "Risk Factors -- Dependence on Licensed Technology; Protection
of Intellectual Property."
GOVERNMENT REGULATIONS
As a publisher and a distributor of content over the Internet, the Company
faces potential liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the nature and
34
<PAGE> 37
content of the materials that it publishes or distributes. Such claims have been
brought, and sometimes successfully pressed, against Internet services. In
addition, the Company could be exposed to liability with respect to the content
or unauthorized duplication of material indexed in its search services. Although
the Company carries general liability insurance, the Company's insurance may not
cover potential claims of this type or may not be adequate to indemnify the
Company for all liability that may be imposed. Any imposition of liability that
is not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition and
operating results.
As a provider of Internet content, the Company is subject to the provisions
of existing and future United States federal legislation that can be applied to
the Company's undertakings. This may include, but is not limited to, the
Communications Decency Act (the "CDA") which, among other things, imposes
criminal penalties on anyone that distributes "indecent" material over the
Internet. In June 1996, the United States District Court for the Eastern
District of Pennsylvania held that the CDA is unconstitutional and enjoined its
enforcement. The decision of the District Court is currently on appeal to the
United States Supreme Court. In addition to the CDA, there is also precedent for
local legislation being used to enforce community standards on Internet sites
that physically exist elsewhere.
While the Company has no intention of distributing the types of materials
that the CDA or similar legislation might deem illegal, the manner in which such
legislation may be interpreted and enforced and its effect on the Company's
operations cannot yet be fully determined, and therefore the CDA or similar
legislation could subject the Company to substantial liability. Such laws could
also dampen the growth of the Internet generally and decrease the acceptance of
the Internet as an advertising medium, and could, thereby, have a material
adverse effect on the Company's business, financial condition and operating
results.
Although there are currently few laws and regulations directly applicable
to the Internet, it is possible that new laws and regulations will be adopted
covering issues such as, among other things, privacy, copyrights, obscene or
indecent communications and the pricing, characteristics and quality of Internet
products and services. The adoption of restrictive laws and regulations could
decrease the growth of the use of the Internet or expose the Company to
significant liabilities associated with content available on or through the
Company's Internet sites or otherwise cause a material adverse effect on the
Company's business, financial condition and operating results. Application to
the Internet of existing laws and regulations governing issues such as, among
other things, property ownership, libel and personal privacy is also subject to
substantial uncertainty.
The adoption of such laws and regulations and the potential adoption of new
and more restrictive laws and regulations may decrease the growth of the
Internet, which in turn could decrease the attractiveness of the Company's
Internet site and reduce the demand for advertising thereon. In addition, the
need to monitor and comply with existing and future laws and regulations will
increase the Company's cost of doing business. Moreover, the applicability to
the Internet of existing laws governing issues such as property ownership, libel
and personal privacy is uncertain. See "Risk Factors -- Liability for Internet
Content; Government Regulations."
LEGAL PROCEEDINGS
From time to time, the Company may be subject to legal proceedings and
claims in the ordinary course of business, including claims of alleged
infringement of the trademarks and other intellectual property of third parties
by the Company or its licensees. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources. The
Company is not aware of any legal proceedings or claims to which the Company is
currently a party. See "Risk Factors -- Dependence on Licensed Technology;
Protection of Intellectual Property."
In addition, the Company may be from time to time a party to legal or
administrative proceedings or arbitrations that arise in the ordinary course of
business. There is no pending or threatened legal or administrative proceeding
or arbitration to which the Company is currently a party.
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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company. Their respective backgrounds
are described following the table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ----------------------------------------
<S> <C> <C>
Russell C. Horowitz....................... 30 President, Chief Executive Officer,
Chief Financial Officer, and Chairman of
the Board
John Keister.............................. 30 Chief Operating Officer
Paul S. Phillips.......................... 24 Vice President -- Technology
Martin L. Schoffstall(1).................. 36 Director
Dennis Cline(2)........................... 35 Director
Manuel Rubio(1)(2)(3)..................... 34 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Plan Committee.
RUSSELL C. HOROWITZ is a founder of the Company and has served as its
President, Chief Executive Officer, Chief Financial Officer and a director since
its inception in February 1996. In July 1992, Mr. Horowitz was a founder of
Active Apparel Group, Inc., a New York, New York based activewear and sportswear
supplier, whose shares are quoted for trading on the NASDAQ National Market
System under the symbol "AAGP." From July 1992 until April 1994, Mr. Horowitz
served as the Chief Financial Officer of Active Apparel Group, Inc. Since May
1994 Mr. Horowitz has served as the Director of Corporate Development and
Investor Relations for Active Apparel Group, Inc. In March 1996, Mr. Horowitz
founded Xanthus Capital, L.P., a Seattle, Washington based merchant bank that
focuses primarily on developing companies in emerging growth industries or
special situations. Mr. Horowitz serves as the Chief Executive Officer and a
director of Xanthus Management, L.L.C., the general partner of Xanthus Capital,
L.P., and of DMR Investments, L.L.C., the investment advisor to Xanthus Capital,
L.P. Prior to July 1992, Mr. Horowitz served as a financial advisor to start-up
and developing companies. Mr. Horowitz received a B.A. in Economics from
Columbia College of Columbia University in 1988.
JOHN KEISTER is a founder of the Company and has served as the Company's
Chief Operating Officer since its inception in February 1996. From 1994 to
February 1996, Mr. Keister served as the President, Chief Operating Officer and
a director of ViewCom Technology International, Inc., a Seattle, Washington
based computer software developer. From 1992 to 1994, Mr. Keister managed
European marketing operations for Dorian International, Inc., a White Plains,
New York based export management company. Mr. Keister received a B.A. in
International Affairs and Philosophy from Occidental College in 1989.
PAUL S. PHILLIPS has served as the Company's Vice President -- Technology
since July 1996. Mr. Phillips is a contributing author of the Internet Security
Professional Reference. In addition, Mr. Phillips has written for Internet
Advisor magazine and is a frequent contributor in numerous technical forums.
From September 1990 to May 1996, Mr. Phillips was a student at the University of
California at San Diego. While at the University of California at San Diego, Mr.
Phillips served as lead Web developer and Internet security consultant at Primus
Consulting from July 1994 to August 1995 and as systems administrator of CERFNet
and systems administrator and Webmaster of InterNIC from October 1993 to October
1994. Mr. Phillips received a B.S. in Computer Science from the University of
California at San Diego in 1996.
MARTIN L. SCHOFFSTALL has served as a director of the Company since August
1996. Mr. Schoffstall was a co-founder of PSINet, Inc., an Internet access and
service provider whose common stock is quoted for trading on the Nasdaq National
Market System under the symbol "PSIX". Mr. Schoffstall had been a Senior Vice
President, Chief Financial Officer and director of PSINet, Inc. since its
inception in 1990 until 1996. In 1996
36
<PAGE> 39
Mr. Schoffstall founded Epicenter, Inc., an Internet content provider of
software, technology and on-line gaming for the World Wide Web. Mr. Schoffstall
serves as the President, Chief Executive Officer and Chairman of the Board of
Epicenter, Inc. Since June 1996, Mr. Schoffstall has served as a director of
Ascend Communications, Inc., a world-wide provider of remote computer networking
solutions whose common stock is quoted for trading on the Nasdaq National Market
System under the symbol "ASND." Prior to forming PSINet, Inc. and Epicenter,
Inc., Mr. Schoffstall was co-founder of, and from January 1987 to December 1989,
served as Vice President for Technology and Marketing for, NYSERNet. From May
1985 until December 1988, Mr. Schoffstall was an instructor at Renssalaer
Polytechnic Institute. Mr. Schoffstall also served, from May 1984 until May
1985, as Senior Systems Engineer for Cadmus Computer Systems and, from June 1982
until May 1984, as systems engineer for Internet protocols at Bolt, Beranek &
Newman Inc. Mr. Schoffstall co-authored the national standard network management
software, Simple Network Management Protocol. Mr. Schoffstall received a
E.C.S.C. from Renssalaer Polytechnic Institute in 1982.
DENNIS CLINE has served as a director of the Company since December 1996.
Since October 1996, Mr. Cline has served as the Vice President of International
Sales for McAfee Associates, Inc., a leading provider of network security and
management tools for corporate accounts whose common stock is traded on the
Nasdaq National Market System under the symbol "MCAF." From October 1995 to
October 1996, Mr. Cline served as Vice President of Worldwide Channel Sales for
McAfee Associates, Inc. From September 1994 to October 1995, Mr. Cline served as
Vice President of North American Sales of McAfee Associates, Inc. From November
1993 to September 1994, Mr. Cline performed sales consulting services for
various companies. From January 1993 to November 1993, Mr. Cline was Vice
President of Worldwide Sales for Fifth Generation Systems, a software utilities
company. From April 1992 to January 1993, Mr. Cline was a Director of Sales for
GCC Technologies, Inc., a manufacturer of computer printers. From June 1991 to
March 1992, Mr. Cline served as Director for Worldwide Sales for Alias Research,
a graphic software company. From January 1988 to August 1991, Mr. Cline was a
Sales Manager for Claris Corporation, an application software company; and from
February 1985 to January 1988 Mr. Cline was employed by Microsoft Corporation
where he served in a variety of sales and sales management positions.
MANUEL RUBIO has served as a director and Secretary of the Company since
its inception in February 1996. Mr. Rubio has served as a director of Xanthus
Management, L.L.C., the general partner of Xanthus Capital, L.P., and DMR
Investments, L.L.C. since March 1996. Prior thereto, Mr. Rubio was an associate
at the New York law firm of Berlack, Israels & Liberman from July 1993 until
March 1994. From October 1992 until June 1993, Mr. Rubio was an associate at the
Buenos Aires, Argentina law firm of Marval, O'Farrell & Mairal. From November
1987 until October 1992, Mr. Rubio was an associate at the New York law firm of
Willkie Farr & Gallagher. Mr. Rubio received a B.A. in Economics from Columbia
College of Columbia University in 1984 and a J.D. from Columbia University
School of Law in 1987.
The Company currently has authorized four directors. Each director holds
office until the next annual meeting of stockholders and until their respective
successors have been duly elected and qualified.
Executive officers of the Company are elected by the Board of Directors
annually and serve until their respective successors have been duly elected and
qualified. There are no family relationships among any of the executive officers
or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors currently has three committees: the Audit
Committee, the Compensation Committee and the Stock Option Committee.
The Audit Committee was formed on March 10, 1996 and, among other things,
recommends the firm to be appointed as independent auditors to audit the
Company's financial statements, discusses the scope and results of the audit
with the independent auditors, reviews with management and the independent
auditors the Company's interim and year-end operating results, considers the
adequacy of the internal accounting controls and audit procedures of the Company
and reviews the non-audit services to be performed by the independent auditors.
The current members of the Audit Committee are Martin L. Schoffstall and Manuel
Rubio.
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<PAGE> 40
The Compensation Committee was formed on October 8, 1996 and, among other
things, reviews compensation arrangements for the Company's executive management
and non-employee directors. The current members of the Compensation Committee
are Dennis Cline and Manuel Rubio.
The Stock Option Committee was formed on March 10, 1996 and administers the
Company's 1996 Stock Option Plan. The current member of the Stock Option
Committee is Manuel Rubio.
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1996, Manuel Rubio was the sole
member of the Company's Compensation Committee. Mr. Rubio is the Secretary of
the Company and an executive officer of Xanthus Management, L.L.C., the general
partner of Xanthus Capital, L.P. See "Certain Transactions."
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from the Company
for their services as members of the Board of Directors or any committee
thereof. Directors, however, are reimbursed for reasonable out-of-pocket
expenses incurred in attending meetings of the Board or a committee thereof.
Dennis Cline and Martin L. Schoffstall were each granted options to purchase
10,000 shares of the Company's Common Stock. Such options have a 60-month term
and are exercisable at a price per share equal to the initial public offering
price of the Company's Common Stock. In August 1996, the Company sold an
aggregate of 37,500 shares of Preferred Stock to MLSI, LLC, a limited liability
company of which Martin L. Schoffstall is an executive officer, for an aggregate
purchase price of $75,000 ($2.00 per share). In December 1996, the Company sold
75,000 shares of Common Stock to Dennis Cline for an aggregate purchase price of
$150,000 ($2.00 per share). See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company to its Chief Executive Officer and Chief Operating Officer for
services rendered in all capacities during the period from the Company inception
(February 12, 1996) to September 30, 1996 (the end of the Company's fiscal
year). No officer earned salary and bonus in excess of $100,000 during such
period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
--------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
----------------------------------------------------- ------- ----- ---------------
<S> <C> <C> <C>
Russell C. Horowitz.................................. $21,000 $ 0 $ 5,292
Chief Executive Officer
John Keister......................................... $26,250 $ 0 $ 4,549
Chief Operating Officer
</TABLE>
- ---------------
(1) Includes payments to each executive of medical insurance premiums and
expenses relating to the use, maintenance and insurance of an automobile.
The Company has entered into employment agreements with each of Russell C.
Horowitz and John Keister pursuant to which they serve as President and Chief
Executive Officer, and Chief Operating Officer, respectively, of the Company.
Mr. Horowitz's employment agreement with the Company provides for a four
year term commencing March 1, 1996. Under this agreement Mr. Horowitz receives
an annual salary of $36,000. Mr. Keister's employment agreement with the Company
provides for a four year term commencing March 1, 1996. Under this agreement Mr.
Keister receives an annual salary of $45,000.
Each of the employment agreements described above provides for certain
employee benefits, including, without limitation, participation in the Company's
stock option plan or any other incentive or bonus plan which the Company may
institute in the future, as well as health insurance. Each of the employment
38
<PAGE> 41
agreements provides for a one year non-competition period following termination
of the employment agreement. Each of such employment agreements provides for
termination of the employee by the Company for cause. None of such employment
agreements provides for termination upon a change of control of the Company.
OPTION GRANTS
During the period from inception (February 12, 1996) to September 30, 1996,
the Company did not grant any options to the individuals named in the Summary
Compensation Table. Subsequent to September 30, 1996, Russell C. Horowitz and
John Keister each were granted options to purchase 150,000 shares of Common
Stock at an exercise price per share equal to the initial public offering price
of the Company's Common Stock. The options granted each have a 60-month term and
provide that one-half of the options shall vest on the 90th day following
completion of the Offering, and a quarter of the options shall vest on the one
year and 18th month anniversary of the option grant.
1996 STOCK OPTION PLAN
The 1996 Stock Option Plan was adopted by the Company's Board of Directors
and stockholders on March 10, 1996. A maximum of 750,000 shares of Common Stock
may be issued pursuant to this plan upon the exercise of options. Under the 1996
Stock Option Plan, incentive stock options may be granted to employees and
officers of the Company and non-qualified stock options may be granted to
consultants, employees, non-employee directors and officers of the Company.
The 1996 Stock Option Plan is administered by the Stock Option Committee of
the Board of Directors, subject to the supervision and control of the entire
Board of Directors. Subject to the provisions of the 1996 Stock Option Plan, the
Stock Option Committee has the authority to select the optionee and determine
the terms of the options granted, including, among other things, (i) the number
of shares subject to each option, (ii) when the option becomes exercisable,
(iii) the exercise price of the option (which in the case of an incentive stock
option cannot be less than the fair market value of the Common Stock on the date
of grant, or less than 110% of fair market value in the case of employees or
officers holding 10% or more of the voting stock of the Company), (iv) the
duration of the option, and (v) the time, manner and form of payment upon
exercise of an option.
An option is not transferable by the optionee except by will or by the laws
of descent and distribution. Options may be exercisable only while the optionee
remains in the employ of the Company or for a designated period of time
thereafter. If an optionee becomes disabled or dies while in the employ of the
Company, the option is exercisable prior to the last day of the sixth or twelfth
month, respectively, following the date of termination of employment. If the
optionee leaves the employ of the Company for any other reason, the option is
exercisable for only 90 days following the date of termination of employment;
provided that the Stock Option Committee may extend this period up to six months
following the date of termination. Options which are exercisable following
termination of employment are exercisable only to the extent that the optionee
was entitled to exercise such options on the date of such termination.
As of December 30, 1996, options to acquire 534,500 shares of Common Stock
have been granted under the 1996 Stock Option Plan. All such options carry an
exercise price per share equal to the offering price of the Common Stock offered
hereby. None of such options are exercisable until the 90th day following the
effective date of this Prospectus.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides, consistent with the
statutory provisions of the Delaware General Corporation Law, that no director
of the Company will be personally liable to the Company or any of its
stockholders for monetary damages arising from the director's breach of
fiduciary duty as a director. The preceding does not apply, however, with
respect to any action for unlawful payments of dividends, stock purchases or
redemptions, nor does it apply if the director (i) has breached his duty of
loyalty to the Company and its stockholders, (ii) does not act in good faith or,
in failing to act, does not act in good
39
<PAGE> 42
faith, (iii) has acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, has acted in a manner involving
intentional misconduct or a knowing violation of law or (iv) has derived an
improper personal benefit. The provisions of the Company's Certificate of
Incorporation limiting the liability of directors for monetary damages do not
affect the standard of conduct to which directors must adhere, nor do such
provisions affect the availability of equitable relief. In addition, such
limitations on personal liability do not affect the availability of monetary
damages under causes of action based upon federal law.
The Company's Certificate of Incorporation and Bylaws provide for
indemnification of its executive officer and directors to the fullest extent
permitted by the Delaware General Corporation Law. See "Description of Capital
Stock -- Directors Liability."
40
<PAGE> 43
CERTAIN TRANSACTIONS
In March 1996, the Company sold an aggregate of 350,000 shares of its
Preferred Stock in a private placement for an aggregate purchase price of
$350,000 ($1.00 per share). John Keister, Chief Operating Officer of the
Company, purchased 5,000 shares of Preferred Stock in the private placement
which was subsequently gifted to members of his immediate family. In addition,
certain members of Russell Horowitz's immediate family purchased an aggregate of
93,000 shares of Common Stock in the private placement and a member of Manuel
Rubio's immediate family purchased 9,000 shares in the private placement.
In June 1996, the Company sold an aggregate of 500,000 shares of its
Preferred Stock in a private placement for an aggregate purchase price of
$1,000,000 ($2.00 per share). The sole purchaser of such shares was Xanthus
Capital, L.P., a Seattle, Washington based merchant bank. Russell C. Horowitz
and Manuel Rubio serve as the Chief Executive Officer and Executive Vice
President, respectively, and directors of Xanthus Management, L.L.C., the
general partner of Xanthus Capital, L.P., and of DMR Investments, L.L.C., the
investment advisor to Xanthus Capital, L.P. In addition Messrs. Horowitz and
Rubio are also limited partners of Xanthus Capital, L.P.
In August 1996, the Company sold an aggregate of 37,500 shares of Preferred
Stock to MLS-I, LLC, a limited liability company of which Martin L. Schoffstall
is an executive officer, for an aggregate purchase price of $75,000 ($2.00 per
share). The Company has also entered into an agreement with Mr. Schoffstall
pursuant to which Mr. Schoffstall contributes articles to be included on the
Company's Web site. The agreement commenced on September 1, 1996 and will expire
on September 1, 1998, subject to extensions by the parties thereto. In
consideration of providing such articles Mr. Schoffstall received a one-time
grant of 12,500 shares of Common Stock (subject to repurchase by the Company
depending on the length of time Mr. Schoffstall continues to provide such
articles to the Company).
In September 1996, the Company sold 25,000 shares of Preferred Stock to an
immediate family member of John Keister for an aggregate purchase price of
$50,000 ($2.00 per share).
In December, the Company sold an aggregate of 75,000 shares of Common Stock
to Dennis Cline for an aggregate purchase price of $150,000 ($2.00 per share).
Russell C. Horowitz has guaranteed the obligations of the Company under its
$500,000 revolving line of credit described in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Mr. Horowitz received no
compensation for providing such guaranty.
David M. Horowitz, the brother of Russell C. Horowitz, is the President and
Chief Executive Officer of Maxwell Capital, Inc., the representative of the
Underwriters in connection with the Offering. Maxwell Capital, Inc. will receive
the fees and expense reimbursement set forth on the cover page of this
Prospectus in connection with the Offering. See "Underwriting."
The Company believes that all of the transactions described above were on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy pursuant to which
all transactions between the Company and its officers, directors and affiliates
will be on terms no less favorable to the Company than could be obtained from
unrelated third parties and will be approved by a majority of the disinterested
members of the Company's Board of Directors.
41
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 30, 1996 and as adjusted
to reflect the sale of 1,500,000 shares of Common Stock offered hereby, (i) by
each person who is known to the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) by each director and executive officer
of the Company and (iii) by all directors and executive officers of the Company
as a group. Unless otherwise indicated below, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING(1) THE OFFERING(1)(2)
------------------- -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Russell C. Horowitz(3)(4).............................. 1,105,000 41.6% 1,105,000 26.5%
c/o go2net, Inc.
1301 Fifth Avenue, Suite 3320
Seattle, Washington 98101
Xanthus Capital, L.P.(4)............................... 500,000 18.9% 500,000 12.0%
1301 Fifth Avenue, Suite 3320
Seattle, Washington 98101
John Keister........................................... 125,000 4.7% 125,000 3.0%
c/o go2net, Inc.
1301 Fifth Avenue, Suite 3320
Seattle, Washington 98101
Manuel Rubio(4)........................................ 100,000 3.7% 100,000 2.4%
c/o go2net, Inc.
1301 Fifth Avenue, Suite 3320
Seattle, Washington 98101
Paul S. Phillips....................................... 75,000 2.8% 75,000 1.8%
c/o go2net, Inc.
1301 Fifth Avenue, Suite 3320
Seattle, Washington 98101
Dennis Cline........................................... 75,000 2.8% 75,000 1.8%
5 Broadacre Drive
Mount Laurel, New Jersey 08054
Martin L. Schoffstall(5)............................... 50,000 1.9% 50,000 1.2%
5790 Devonshire Road
Harrisburg, Pennsylvania 17112
All executive officers and directors as a group (6 1,530,000 57.6% 1,530,000 36.8%
persons).............................................
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable, or become exercisable within 60 days from the date
hereof, are deemed outstanding. However, such shares are not deemed
outstanding for purposes of computing the percentage ownership of any other
person. Percentage ownership is based on 2,657,100 shares of Common Stock
outstanding prior to the Offering and 4,157,100 shares of Common Stock
outstanding after the Offering.
(2) Assumes no exercise of any portion of the Underwriters' over-allotment
option to purchase up to an aggregate of 225,000 shares of Common Stock.
(3) Includes 450,000 shares of Common Stock held by The Porpoise Corporation, a
Washington corporation wholly owned by Mr. Horowitz.
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<PAGE> 45
(4) Does not include 500,000 shares of Common Stock held by Xanthus Capital,
L.P. Messrs. Horowitz and Rubio may each be deemed to be beneficial owners
of the shares of Common Stock held by Xanthus Capital, L.P. by virtue of
their role as directors and executive officers and interest holders of
Xanthus Management, L.L.C., the general partner of Xanthus Capital, L.P.
Messrs. Horowitz and Rubio each disclaim beneficial ownership of such shares
except to the extent of their respective pecuniary interest in Xanthus
Capital, L.P.
(5) Includes 37,500 shares of Common Stock held by MLS-I, LLC, a limited
liability company of which Mr. Schoffstall is an executive officer.
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<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 9,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock. As of December 30, 1996
there were outstanding 2,657,100 shares of Common Stock (owned of record by 50
holders) and no shares of Preferred Stock. The following summary of certain
provisions of the Common Stock and Preferred Stock does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
the Company's Restated Certificate of Incorporation as amended and restated upon
the closing of the Offering (the "Certificate of Incorporation"), which is
included as an exhibit to the Registration Statement of which this Prospectus
forms a part, and by the provisions of the Delaware General Corporation Law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share owned of record
on all matters upon which such holders are entitled to vote. Subject to the
preferential rights of holders of Preferred Stock that may adversely affect the
rights, preferences and privileges of holders of Common Stock, the holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Company's Board of Directors, in its sole discretion, out of funds
legally available therefor, and are further entitled to share ratably in any
distribution of the Company's assets, after payment of all debts and other
liabilities of the Company, upon liquidation, dissolution or winding up of the
affairs of the Company. See "Dividend Policy." The holders of Common Stock have
no preemptive rights, rights to cumulative voting, rights to redeem such shares
or rights to convert shares of Common Stock into any other securities of the
Company. All outstanding shares of the Common Stock are, and the shares of
Common Stock to be sold by the Company in this Offering will be, upon issuance
and delivery, validly issued, fully paid and nonassessable.
PREFERRED STOCK
After completion of the Offering, the Company's Board of Directors will
have the authority, without further stockholder approval, to issue up to
1,000,000 shares of Preferred Stock (the "Preferred Stock") in one or more
series and to fix the relative rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price and the voting and other rights of the holders of the
Common Stock. The Company has no present plans to issue any shares of Preferred
Stock.
DIRECTORS LIABILITY
The Company's Certificate of Incorporation provides that no director shall
be personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct; (iii) acts
or omissions in respect of certain unlawful dividend payments or stock
redemptions or repurchases; or (iv) any transaction from which such director
derives improper personal benefit. The effect of this provision is to eliminate
the rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the situations
described in clauses (i) through (iv) above. The limitations summarized above,
however, do not affect the ability of the Company or its stockholders to seek
non-monetary based remedies, such as an injunction or recission, against a
director for breach of his fiduciary duty nor would such limitations limit
liability under the Federal securities laws. The Company's Bylaws provide that
the Company shall, to the full extent permitted by the Delaware General
Corporation Law as currently in effect, indemnify and advance expenses to each
of its currently acting and former directors, officers, employees and agents
arising in connection with their acting in such capacities.
44
<PAGE> 47
DELAWARE ANTI-TAKEOVER STATUTE
Following the consummation of the Offering, the Company will be subject to
the "business combination" statute of Section 203 of the Delaware General
Corporation Law. In general, such statute prohibits a publicly-held Delaware
corporation from engaging in various "business combination" transactions with
any "interested stockholder," unless (i) the transaction is approved by the
Company's Board of Directors prior to the date the "interested stockholder"
obtains such status, (ii) upon the consummation of the transaction that resulted
in the stockholder becoming an "interested stockholder," the "interested
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, those shares owned by (a) persons
who are directors and also officers and (b) 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 (iii) on or subsequent to such date 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
66 2/3% of the outstanding voting stock that is not owned by the "interested
stockholder." A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the "interested stockholder."
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. By virtue of the Company's decision not to elect out of the
statute's provision, the statute applies to the Company. The statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company.
CERTAIN CERTIFICATE OF INCORPORATION PROVISIONS RELATING TO CHANGES IN CONTROL
Under the Company's Certificate of Incorporation, there will be, as of the
closing of the Offering, 4,092,900 unissued and unreserved shares of Common
Stock and 1,000,000 unissued and unreserved shares of Preferred Stock, after
giving effect to sale of the 1,500,000 shares of Common Stock offered hereby,
and the reservation of 750,000 shares of Common Stock for issuance under the
Company's 1996 Stock Option Plan. The unissued and unreserved shares of capital
stock may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital and for facilitating corporate
acquisitions, if any. Except pursuant to the Company's 1996 Stock Option Plan
described under "Management -- 1996 Stock Option Plan" or in order to attract
additional employees, the Company does not currently have any plans to issue
additional shares of Common Stock or Preferred Stock. One of the effects of
unissued and unreserved shares of capital stock may be to enable the Company's
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby to protect the continuity of the Company's management.
If, in the due exercise of its fiduciary obligations, for example, the Company's
Board of Directors determines that a takeover proposal is not in the Company's
best interests, such shares could be issued by the Board of Directors without
stockholder approval in one or more private transactions or other transactions
that might prevent or render more difficult or costly the completion of the
takeover transactions by diluting the voting or other rights of the proposed
acquiror or insurgent stockholder group, by creating a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent Board of Directors, or by effecting an acquisition that might
complicate or preclude the takeover.
These provisions, along the other items described above, may have the
effect of delaying stockholder actions with respect to certain business
combinations and the election of new members to the Company's Board of
Directors. As such, the provisions could have the effect of discouraging open
market purchases of the Company's Common Stock because they may be considered
disadvantages by a stockholder who desires to participate in a business
combination or elect a new director. The existence of these provisions, along
with the other items described above, may have a depressive effect on the market
price of the Common Stock.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar is Continental Stock Transfer &
Trust Company, 2 Broadway, 19th Floor, New York, New York 10004.
45
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Prior to the Offering, there has been no market for the Common Stock.
Future sales of substantial amounts of Common Stock in the public market could
adversely affect market prices prevailing from time to time. Furthermore, since
no shares of Common Stock outstanding prior to the Offering will be available
for sale for at least 270 days following the contemplated closing of the
Offering, unless otherwise consented to by the Representative, because of
certain contractual and legal restrictions, as currently in effect, on resale
(as described below), sales of substantial amounts of Common Stock in the public
market after such restrictions lapse could adversely affect the prevailing
market price at such time and the ability of the Company to raise equity capital
in the future.
Upon completion of this Offering, the Company will have outstanding an
aggregate of 4,157,100 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option. Of these shares, the 1,500,000 shares to be
sold in this Offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except that any shares purchased by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act ("Affiliates"), may
generally only be sold in compliance with the limitations of Rule 144 described
below. The remaining 2,657,100 outstanding shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules
are summarized below. As a result of the contractual restriction described below
and the provisions of Rules 144, 144(k) and 701, the Restricted Shares will be
available for sale in the public market as follows (based on the number of
shares of Common Stock outstanding as of December 30, 1996): (i) no Restricted
Shares will be eligible for immediate sale upon completion of the Offering; (ii)
no Restricted Shares will be eligible for sale upon expiration of the lock-up
agreements 270 days after the date of this Prospectus (provided, however, if
certain proposed amendments to Rule 144 are adopted in the currently proposed
form (as described below) prior to such date, 2,657,100 Restricted Shares will
be eligible for resale upon the expiration of such lock-up agreements), and
(iii) the remaining Restricted Shares will be eligible for sale upon expiration
of their respective holding periods.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices of Common Stock and could impair the Company's
future ability to obtain capital through an offering of equity securities.
LOCK-UP AGREEMENTS
All officers and directors and existing stockholders and option holders of
the Company have agreed not to directly or indirectly, without the prior written
consent of the Representative, offer, sell or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or any
securities exercisable for or convertible into shares of Common Stock owned by
them for a period of 270 days following the date of this Prospectus.
In addition, the Company has agreed with Maxwell Capital, Inc. not to file
a registration statement with respect to any shares of Common Stock currently
outstanding without the prior written consent of Maxwell Capital, Inc.
REGISTRATION RIGHTS
None of the Company's existing stockholders are entitled to any form of
rights with respect to the registration of any shares of Common Stock under the
Securities Act.
46
<PAGE> 49
SALES OF RESTRICTED SHARES
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of this Offering, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years
(including the holding period of any prior owner except an Affiliate) would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of: (i) one percent of the number of shares of Common Stock
then outstanding (which will equal approximately 41,571 shares immediately after
this Offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a 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 the Company.
Further, under Rule 144(k), a person who is not deemed to have been an
Affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years (including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provision of Rule 144.
In addition, the Securities and Exchange Commission has proposed an
amendment to Rule 144 which would reduce the holding period before shares
subject to Rules 144 and 144(k) become eligible for sale in the public market by
one year. This proposal, if adopted, would substantially increase the number of
shares of the Company's Common Stock eligible for immediate sale following the
expiration of the lock-up period as described above.
OPTIONS
As of December 30, 1996, options to purchase an aggregate of 534,500 shares
of Common Stock had been granted; of which options to acquire an aggregate of
222,166 shares of Common Stock will become exercisable ninety days following the
date of this Prospectus and the remaining options to purchase an aggregate of
312,334 shares of Common Stock will be exercisable according to certain vesting
schedules assuming the option holder is employed by the Company at the vesting
date. An additional 215,500 shares of Common Stock are available for future
grants under the Company's 1996 Stock Option Plan. See "Management -- 1996 Stock
Option Plan."
In general, under Rule 701 as currently in effect, beginning 90 days after
the effective date of the Offering, certain shares issued upon exercise of
options granted by the Company prior to the date of this Prospectus will also be
available for sale in the public market. Any employee, officer or director of,
or consultant to, the Company who purchased his or her shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits Affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-Affiliates may sell such shares in
reliance on Rule 144 without having to comply with the public information,
volume limitation or notice provisions of Rule 144. In both cases, a holder of
Rule 701 shares is required to wait until 90 days after the date of this
Prospectus before selling such shares.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable under the Company's 1996
Stock Option Plan that do not qualify for an exemption under Rule 701 from the
registration requirements of the Securities Act. The Company expects to file
these registration statements 270 days after the date of this Prospectus, and
such registration statements are expected to become effective upon filing.
Shares covered by these registration statements will thereupon be eligible for
sale in the public markets.
47
<PAGE> 50
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representative, Maxwell Capital, Inc.
have agreed severally to purchase, and the Company has agreed to sell, the
respective number of shares of Common Stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
--------------------------------------------------- ----------------
<S> <C>
Maxwell Capital, Inc...............................
----------------
Total.................................... 1,500,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel,
to the receipt of certain certificates, opinions and letters from the Company
and its independent auditors, and to certain other conditions, including the
conditions that no stop order suspending the effectiveness of the Registration
Statement be in effect and no proceedings for such purpose are pending before or
threatened by the Securities and Exchange Commission, and that there has been no
material adverse change or development involving a prospective material adverse
change in the business, financial condition or results of operation of the
Company from that set forth in the Registration Statement. The Underwriters are
obligated to take and pay for all of the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares of Common Stock, the
offering price and other selling terms may be changed by the representative of
the Underwriters.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 225,000 additional shares of
Common Stock at the initial public offering price set forth on the cover page of
this Prospectus, less the underwriting discounts and commissions set forth on
the cover page of this Prospectus. To the extent the Underwriters exercise this
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the above table bears to the total number
of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell shares of Common Stock to the Underwriters to
the extent such option is exercised. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the Common
Stock offered hereby.
The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and withdrawal,
cancellation or modification of the offering without notice. The Underwriters
reserve the right to reject an order for the purchase of such shares in whole or
in part.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, and to contribute to payments which the indemnified party may
be required to make in respect thereof.
The Underwriters do not intend to confirm sales of Common Stock offered
hereby to any accounts over which they exercise discretionary control.
48
<PAGE> 51
All officers, directors, existing stockholders and option holders of the
Company will have agreed not to, directly or indirectly, without the prior
written consent of the Underwriters, offer, sell or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock,
or any securities exercisable for or convertible into shares of Common Stock
owned by them for a period of 270 days following completion of the Offering. See
"Shares Eligible for Resale." The Company has agreed that it will not, without
the prior written consent of the Underwriters, offer, sell or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or any securities exchangeable for or convertible into shares of Common
Stock during the 180-day period following completion of the Offering, except
that the Company may issue, and grant options to purchase, shares of Common
Stock under its 1996 Stock Option Plan and under currently outstanding options
and the Company may issue shares of Common Stock in connection with
acquisitions.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation between the Company and the Underwriters. Among the factors to be
considered in determining the initial public offering price are prevailing
market conditions, expected and actual revenues and earnings of the Company,
market valuations of other companies engaged in activities similar to those of
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's management
and other factors deemed relevant. The estimated initial public offering price
range set forth on the cover of this Prospectus is subject to change as a result
of market conditions and other factors. See "Risk Factors -- No Prior Public
Market; Possible Volatility of Stock Prices."
Under Schedule E to the NASD Bylaws, when a member, such as Maxwell
Capital, Inc., participates in a public offering of securities of a company in
which either it or its affiliates own 10% or more of the outstanding voting
securities or a "conflict of interest" is present, and there is no "bona fide
independent market" for such securities, then, among other things, the public
offering price can be no higher than that recommended by a qualified independent
underwriter. Maxwell Capital, Inc. does not own any of the Company's outstanding
voting stock or options to acquire such voting securities. However, certain of
Maxwell Capital, Inc.'s employees "beneficially own" (as such term is defined in
Rule 2720 of the Conduct Rules of the NASD) in the aggregate 171,000 shares of
the Company's Common Stock, or 6.4% of the outstanding voting securities of the
Company prior to the completion of the Offering. Russell C. Horowitz, the
President and Chief Executive Officer of the Company, is the brother of the
President and Chief Executive Officer of Maxwell Capital, Inc. In addition, an
investor in Maxwell Capital, Inc. is also a limited partner in Xanthus Capital,
L.P. and directly owns 50,000 shares of the Company's Common Stock. Even though
the provisions of Schedule E to the NASD Bylaws may not specifically apply to
the Offering, Maxwell Capital, Inc. has determined to follow certain of the
provisions of Schedule E to the NASD Bylaws. Accordingly, the Company and
Maxwell Capital, Inc. have designated Credit Research & Trading LLC to perform
certain functions typically assigned to a qualified independent underwriter for
this Offering. Credit Research & Trading LLC is assuming the responsibilities of
acting as such in connection with the pricing of, and conducting due diligence
in connection with, this Offering. The NASD and the Securities and Exchange
Commission have indicated that, in their view, a qualified independent
underwriter, such as Credit Research & Trading LLC, may be deemed to be an
underwriter, as that term is defined in the Securities Act. However, it is
uncertain what position the NASD and Securities and Exchange Commission would
take in a situation such as is found in this Offering where Maxwell Capital,
Inc. is following certain of the provisions of Schedule E to the NASD Bylaws
notwithstanding that in its and the Company's opinion the provisions thereof do
not apply to the Offering.
Credit Research & Trading LLC has informed the Company and Maxwell Capital,
Inc. that it will perform due diligence with respect to the information
contained in the Registration Statement of which this Prospectus forms a part
and will recommend a maximum initial public offering price of $ per share of
Common Stock. In connection therewith, Credit Research & Trading will so
participate and render its opinion, a copy of which is filed with the exhibits
to the Registration Statement of which this Prospectus forms a part, to the
effect that the terms under which the shares of Common Stock being offered
hereby are fair to the public, and that the initial public offering price for
the shares of Common Stock offered hereby does not
49
<PAGE> 52
exceed the maximum fair price. Maxwell Capital, Inc. will pay a fee to Credit
Research & Trading LLC of $ and will reimburse such firm for actual
out-of-pocket disbursements of up to $ for services in connection with
performing due diligence and recommending a maximum initial public offering
price per share in the Offering. The Company has agreed to indemnify Credit
Research &Trading LLC against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hutchins, Wheeler & Dittmar, A Professional Corporation,
Boston, Massachusetts. A shareholder of Hutchins, Wheeler & Dittmar , A
Professional Corporation, owns 15,000 shares of the Company's Common Stock.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Graham & James LLP, Sacramento, California.
EXPERTS
The financial statements of the Company at September 30, 1996 and for the
period from February 12, 1996 (inception) to September 30, 1996, appearing
herein and in the Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, as permitted by the rules and
regulations of the Securities and Exchange Commission. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to such Registration Statement and to
the exhibits and schedules filed as a part thereof. A copy of the Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the Securities and Exchange Commission's principal office
located at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C.
20549, and at the Commission's Regional Offices located at 7 World Trade Center,
13th Floor, New York, New York 10048, and the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
part of such material, including any exhibit or schedule thereto, may be
obtained from the Securities and Exchange Commission upon the payment of certain
fees prescribed by the Securities and Exchange Commission.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
50
<PAGE> 53
go2net, Inc.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Balance Sheet.......................................................................... F-3
Statement of Operations................................................................ F-4
Statement of Stockholders' Equity...................................................... F-5
Statement of Cash Flows................................................................ F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
go2net, Inc.
We have audited the accompanying balance sheet of go2net, Inc. as of
September 30, 1996, and the related statements of operations, stockholders'
equity and cash flows for the period from Inception (February 12, 1996) through
September 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 go2net, Inc. at September
30, 1996, and the results of its operations and its cash flows for the period
from Inception (February 12, 1996) through September 30, 1996, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
October 23, 1996, except for
Note 7, as to which the date is
December 27, 1996
F-2
<PAGE> 55
go2net, Inc.
BALANCE SHEET
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
EQUITY
SEPTEMBER 30, SEPTEMBER 30,
1996 1996 (NOTE 1)
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 865,742
Prepaid expenses................................................ 8,216
Total current assets.................................... 873,958
Property and equipment, net....................................... 179,328
Other assets...................................................... 12,955
----------
Total assets............................................ $ 1,066,241
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -- accrued expenses........................... $ 45,098
Stockholders' equity:
9% Cumulative Redeemable Convertible Preferred Stock, $1.00 par
value, authorized 1,000,000 shares; outstanding 927,500
shares (no shares pro forma)................................. 1,505,000 $ --
Common stock, $0.01 par value, authorized 9,000,000 shares;
outstanding 1,619,100 shares (2,546,600 shares pro forma).... 13,900 1,518,900
Less -- 9% Cumulative Redeemable Convertible Preferred Stock
subscriptions receivable..................................... (80,000) --
Accumulated deficit............................................. (417,757) (417,757)
---------- ----------
Total stockholders' equity.............................. 1,021,143 $ 1,101,143
==========
----------
Total liabilities and stockholders' equity.............. $ 1,066,241
==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 56
go2net, Inc.
STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION (FEBRUARY 12, 1996) THROUGH SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Operating expenses:
Advertising and marketing.................................... $ 10,150
Product development.......................................... 137,159
General and administrative................................... 283,832
----------
Total operating expenses............................. 431,141
----------
Loss from operations........................................... (431,141)
Interest income, net........................................... 13,383
----------
Net loss....................................................... $ (417,757)
=========
Net loss per share............................................. $ (0.16)
Common shares and common equivalent shares used to calculate
net loss per share........................................... 2,548,680
</TABLE>
See accompanying notes.
F-4
<PAGE> 57
go2net, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM INCEPTION (FEBRUARY 12, 1996) THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
CUMULATIVE
REDEEMABLE
CONVERTIBLE
PREFERRED COMMON STOCK SUBSCRIPTION TOTAL
-------------------- ------------------- NOTES ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT EQUITY
------- ---------- --------- ------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash received for common stock
sold to founders............. 1,390,000 $13,900 $ 13,900
Issuance of common stock at no
cost......................... 229,100
Issuance of preferred stock.... 927,500 $1,505,000 $ (80,000) 1,425,000
Net loss for period from
Inception (February 12, 1996)
through September 30, 1996... $(417,757) (417,757)
------- ---------- --------- ------- ------------ ----------- -----------------
Balance at September 30,
1996......................... 927,500 $1,505,000 1,619,100 $13,900 $ (80,000) $(417,757) $ 1,021,143
======= ========= ======== ======= ========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 58
go2net, Inc.
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (FEBRUARY 12, 1996) THROUGH SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Operating activities:
Net loss....................................................................... $ (417,757)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.................................................. 19,278
Changes in assets and liabilities:
Prepaid expenses............................................................... (8,216)
Other assets................................................................... (1,758)
Accrued expenses............................................................... 45,098
----------
Net cash used in operating activities............................................ (363,355)
Investing activities:
Acquisition of property and equipment, net..................................... (197,202)
Intangible assets.............................................................. (12,601)
----------
Net cash used in investing activities............................................ (209,803)
Financing activities:
Proceeds from issuance of 9% Cumulative Redeemable Convertible Preferred
Stock....................................................................... 1,425,000
Proceeds from issuance of common stock......................................... 13,900
----------
Net cash provided by financing activities........................................ 1,438,900
----------
Net increase in cash and cash equivalents........................................ 865,742
Net cash and cash equivalents at beginning of period............................. --
----------
Cash and cash equivalents at end of period....................................... $ 865,742
=========
</TABLE>
See accompanying notes.
F-6
<PAGE> 59
go2net, Inc.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
go2net, Inc. (the "Company") was incorporated in the State of Delaware on
February 12, 1996 (operations began in March 1996). The Company is an
interactive technology and media company that provides through its Internet site
proprietary content and commodity information relating to business and finance,
sports and the Internet. In addition, the Company offers a search/index guide
that combines various existing search/index guides into one guide (a "metasearch
engine") and a Java-based desktop content delivery system.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Trademarks and Other Intangible Assets
Trademarks and other intangibles are included with "Other Assets" and are
being amortized over a useful life of three years. As of September 30, 1996,
trademarks and other intangibles of $12,601 have been capitalized and
amortization expense of $1,404 has been recognized in the period then ended.
Concentration of Credit Risk
Financial instruments potentially subjecting the Company to concentration
of credit risk consist primarily of cash equivalents with one financial
institution. Management believes the financial risks associated with such
deposits are minimal.
Use of Estimates
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, and expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of changes in tax rates is recognized in
income in the period that includes the enactment date.
Net Loss Per Share
Net loss per share is computed using the weighted average number of shares
of common stock and preferred stock outstanding during such period, including
shares of common stock issued after such period. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, 9% Cumulative Convertible
Redeemable Preferred Stock and common stock issued by the Company at prices
below the assumed public
F-7
<PAGE> 60
go2net, Inc.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
offering price during the twelve-month period prior to the proposed offering
(including all shares issued subsequent to September 30, 1996 -- see Note
7 -- Subsequent Events) have been included in the calculation as if they were
outstanding throughout the period presented regardless of whether they are
antidilutive (using the treasury stock method at an assumed public offering
price of $8.00).
Pro Forma Stockholders Equity (unaudited)
Unaudited pro forma stockholders' equity at September 30, 1996, as adjusted
for the conversion of Preferred Stock (see Note 7 -- Subsequent Events) and the
payment of the Preferred Stock subscription receivable is disclosed on the
balance sheet.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 will be effective for
fiscal years beginning after December 15, 1995, and will require that the
Company either recognize in its financial statements costs related to its stock
option plan, or make pro forma disclosures of such costs in a footnote to the
financial statements.
The Company will continue to use the intrinsic value-based method of
Accounting Principles Opinion No. 25, as allowed under SFAS No. 123, to account
for all of its stock option plan. Therefore, in its financial statements for
fiscal 1997, the Company will make the required pro forma disclosures in a
footnote to the financial statements. SFAS No. 123 is not expected to have a
material effect on the Company's results of operations or financial position.
2. BALANCE SHEET COMPONENTS
Cash and Cash Equivalents
The carrying value of cash and cash equivalents consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Cash............................................................ $ 25,354
Money market balances........................................... 840,388
--------
Cash and cash equivalents....................................... $ 865,742
========
</TABLE>
The carrying value of the Company's cash equivalents as of September 30,
1996 approximate their fair values based on quoted market prices.
Property and Equipment
A summary of property and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
------------
<S> <C>
Computer equipment.............................................. $160,756
Office equipment................................................ 27,425
Leasehold improvements.......................................... 7,221
Other........................................................... 1,800
--------
197,202
Less accumulated depreciation and amortization.................. (17,874)
--------
$179,328
========
</TABLE>
F-8
<PAGE> 61
go2net, Inc.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
As of September 30, 1996, the Company had approximately $394,000 of net
operating losses for federal income tax purposes, which expire in 2011.
Utilization of the Company's net operating loss carry forwards may be subject to
annual limitations if there is deemed to be a change in control (Section 382).
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Depreciation and amortization................................... $ (6,304)
Net operating losses............................................ 133,953
Accruals, reserves and other.................................... 12,540
---------
140,189
Less valuation allowance........................................ (140,189)
---------
$ --
=========
</TABLE>
4. STOCKHOLDERS' EQUITY
9% Cumulative Convertible Redeemable Preferred Stock
Each share of 9% Cumulative Convertible Redeemable Preferred Stock
("Preferred Stock") can, at the option of the holder, be converted to one share
of common stock. Holders of the Preferred Stock are entitled to cumulative
dividends when and if declared by the Board of Directors at a rate per share
equal to 9% of the original purchase price paid per share of the Preferred
Stock. Such accumulated and unpaid dividends shall, whether or not declared,
upon conversion of the Preferred Stock, be forgiven.
Holders of Preferred Stock have a liquidation preference equal to the price
paid at issuance plus all declared but unpaid dividends, which was $1,505,000 at
September 30, 1996. Any remaining assets shall be distributed ratably among
holders of the common stock and the Preferred Stock as a single class. The
Company may, at its discretion, redeem the outstanding Preferred Stock by paying
the original purchase price plus accumulated and unpaid dividends.
Each share of Preferred Stock is entitled to one vote per share, voting
together with the common stock as a single class.
Common Stock
From Inception (February 12, 1996) through September 30, 1996, the Company
sold 1,390,000 shares to its founders at par value. The Company also issued
229,100 shares to employees and independent contractors. The Company has the
right, at any time after termination of such employees' and independent
contractors' employment or service, to repurchase certain common shares at the
price per share paid by the employee or independent contractor. The Company's
right to repurchase lapses with respect to the shares held by the employees and
independent contractors over varying periods of time but generally within three
years of the purchase or issuance date. There were 174,850 shares of common
stock subject to repurchase by the Company at September 30, 1996.
5. LEASES
The Company has two short-term noncancelable leases for its facilities.
Rental expense from those leases amounted to approximately $34,600 for the
period from inception (February 12, 1996) through September 30, 1996.
F-9
<PAGE> 62
go2net, Inc.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCK OPTION PLAN
In 1996, the Board of Directors adopted a Stock Option Plan providing for
the issuance of common stock options to employees and directors of the Company
and independent contractors. The stock options are either incentive or
non-qualified stock options.
The option price for stock options granted under the Stock Option Plan is
determined by the Stock Option Committee of the Board of Directors. Incentive
stock options may be granted at not less than 100% of the fair market value per
share at the date of grant as determined by the Board of Directors or committee
thereof, except for incentive options granted to a person owning greater than
10% of the total combined voting power of all classes of the Company's stock,
for which the exercise price of the options must be not less than 110% of the
fair market value.
As of September 30, 1996, the Company had granted options that allowed
employees to acquire 54,500 shares of the Company's common stock. The exercise
price for all such option grants is not established until (and only if) the
Company's common stock is sold in an initial public offering. The exercise price
for all such options will be established at a price equal to the price at which
the Company's common stock would be sold in an initial public offering. Stock
option plan shares generally vest over periods ranging from one to three years
but no options vest until the 90th day following completion of an initial public
offering of the Company's common stock.
From inception on February 12, 1996 through September 30, 1996, the Company
also issued stock options to independent contractors. As of September 30, 1996,
the Company had issued options that allowed those independent contractors to
acquire 30,000 shares of the Company's common stock. Those options generally
vest over periods ranging from one to three years but no options vest until the
90th day following completion of an initial public offering of the Company's
common stock. The exercise price for all such option grants is not established
until (and only if) the Company's common stock is sold in an initial public
offering. The exercise price for all such options will be established at a price
equal to the price at which the Company's common stock would be sold in an
initial public offering.
As of September 30, 1996, the Company had reserved 750,000 shares of common
stock for issuance under the Plan. The Company had a total of 84,500 options
outstanding to purchase shares of common stock, none of which were exercisable.
There were 665,500 options available for future grant under the Plan as of
September 30, 1996.
7. SUBSEQUENT EVENTS
On November 20, 1996, the Company entered into a revolving credit agreement
with a bank that provides for the Company to borrow up to $500,000 at the bank's
prime lending rate plus 1% and all amounts outstanding under the agreement are
due by November 15, 1997. The revolving credit agreement is guaranteed by the
Chief Executive Officer and largest single stockholder of the Company.
Subsequent to September 30, 1996, the holders of 927,500 shares of the
Preferred Stock exercised their rights to convert those shares to 927,500 shares
of common stock.
Subsequent to September 30, 1996, the Company granted options to acquire an
additional 450,000 shares of the Company's common stock. Those options generally
vest over periods ranging from one to four years but no options vest until the
90th day following completion of an initial public offering of the Company's
common stock. The exercise price for all such option grants will not be
determined until or if the Company's common stock is sold in an initial public
offering. The exercise price for all such options will be established at a price
equal to the price at which the Company's common stock would be sold in an
initial public offering.
During October 1996, the Company issued 35,500 shares of its common stock
to employees and independent contractors.
F-10
<PAGE> 63
go2net, Inc.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS -- (CONTINUED)
On December 3, 1996, the Company sold 75,000 shares of its common stock for
$2.00 per share to a member of the Board of Directors.
On December 27, 1996, the Board of Directors approved the filing of a
registration statement by the Company with the Securities and Exchange
Commission covering the proposed sale of shares of its common stock to the
public.
F-11
<PAGE> 64
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
The Company........................... 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 25
Management............................ 36
Certain Transactions.................. 41
Principal Stockholders................ 42
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 50
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,500,000 SHARES
go2net, Inc.
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MAXWELL CAPITAL, INC.
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses in connection with the sale
and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts shown are estimates except
for Securities and Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee under the Securities Act....................... $ 4,705
NASD filing fee................................................. 3,000
Nasdaq listing fee.............................................. 6,500
Legal fees and expenses......................................... 70,000
Accounting fees and expenses.................................... 60,000
Blue Sky fees and expenses...................................... 30,000
Printing, engraving and mailing expenses........................ 17,000
Transfer agent fees and expenses................................ 5,000
Miscellaneous................................................... 3,795
--------
Total................................................. $200,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporate Law and the Company's Restated Certificate
of Incorporation and Bylaws provide for indemnification of the Company's
directors and officers for liabilities and expenses that they may incur in such
capacities. In general, directors and officers are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and with respect to any criminal
action or proceeding, actions that the indemnitee has no reasonable chance to
believe were unlawful. Reference is made to the Company's Restated Certificate
of Incorporation and Bylaws filed as Exhibits 3.2 and 3.3 hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception in February 12, 1996, the Company has issued the following
securities, none of which have been registered under the Securities Act of 1933,
as amended (the "Act"):
(a) In March 1996, the Company sold an aggregate of 350,000 shares of
its Preferred Stock in a private placement for an aggregate purchase price
of $350,000 ($1.00 per share).
(b) In June 1996, the Company sold an aggregate of 500,000 shares of
its Preferred Stock in a private placement for an aggregate purchase price
of $1,000,000 ($2.00 per share). The sole purchaser of such private
placement was Xanthus Capital, L.P.
(c) In August 1996, the Company sold an aggregate of 37,500 shares of
Preferred Stock to MLS-I, LLC for an aggregate purchase price of $75,000
($2.00 per share).
(d) In September 1996, the Company sold 40,000 shares of Preferred
Stock to two individuals in a private placement for an aggregate purchase
price of $80,000 ($2.00 per share).
(e) Between June 1, 1996 and December 30, 1996, the Company issued
options to purchase an aggregate of 534,500 shares of Common Stock (none of
which options have been exercised) to
II-1
<PAGE> 66
employees, consultants and independent contractors of the Company pursuant
to the Company's 1996 Stock Option Plan.
(f) In December 1996, the Company sold an aggregate of 75,000 shares
of Common Stock to Dennis Cline for an aggregate purchase price of $150,000
($2.00 per share).
No underwriters were involved in any of the foregoing transactions. Such
sales of stock and issuance of options were made in reliance upon an exemption
from the registration provisions of the Act set forth in Section 4(2) thereof
relative to the sale by an issuer not involving a public offering or the rules
and regulations thereunder, or in the case of certain options to purchase shares
of Common Stock, Rule 701 of the Act. All of the foregoing securities are deemed
restricted securities for purposes of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
- ------- ------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.
3.2 Form of Restated Certificate of Incorporation of the Company.
3.3 Amended and Restated Bylaws of the Company.
4.1* Specimen stock certificate representing the shares of Common Stock.
5.1* Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as to the
legality of the securities being sold.
10.1 Form of Preferred Stock Subscription Agreement.
10.2 Employment Agreement, dated March 1, 1996, between the Company and Russell C.
Horowitz.
10.3 Employment Agreement, dated March 1, 1996, between the Company and John Keister.
10.4 Promissory Note, dated November 20, 1996, in the aggregate principal amount of
$500,000 made by the Company and payable to US Bank of Washington.
10.5 Commercial Guaranty of Russell C. Horowitz, dated November 20, 1996, guaranteeing
all amounts due under the $500,000 Line of Credit between the Company and US Bank of
Washington.
10.6 Sublease Agreement, dated April 17, 1996, between the Company and Olympic Capital
Management, Inc.
10.7 Guaranty of Sublease between Olympic Capital Management and Russell C. Horowitz
dated April 17, 1996.
10.8 go2net, Inc. 1996 Stock Option Plan.
10.9* Opinion of Credit Research & Trading LLC as to the maximum initial public offering
price of the shares of Common Stock.
11.1 Computation of Net Loss Per Share.
23.1 Consent of Ernst & Young, LLP.
23.2* Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
Exhibit 5.1 hereto).
24.1 Power of Attorney (included in signature page hereto).
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules. No financial statement schedules are
filed with this Registration Statement because they are not applicable.
II-2
<PAGE> 67
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
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 Certificate of
Incorporation and Bylaws of the Registrant and the laws of the State of
Delaware, 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 such
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 that:
1. For purposes of determining a liability under the Act, 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 Rules 424(b)(1) or (4) or 497(h) of the
Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
2. For the purposes 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 the time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington on the 30th day of December, 1996.
go2net, Inc.
By: /s/ RUSSELL C. HOROWITZ
-----------------------
Russell C. Horowitz
President, Chief Executive
Officer,
Chief Financial Officer and
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Russell C. Horowitz and Manuel Rubio, and each of
them, with the power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or in his name, place and stead, in any and all capacities to sign any
and all amendments or post-effective amendments to this Registration Statement,
and to sign any and all additional registration statements relating to the same
offering of securities as this Registration Statement that are filed pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc. and every state securities commission, granting unto said
attorney-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or either of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<C> <S> <C>
/s/ RUSSELL C. HOROWITZ President, Chief Executive December 30, 1996
- --------------------------------------------- Officer, Chief Financial
Russell C. Horowitz Officer and Director
(principal executive and
accounting officer)
/s/ MANUEL RUBIO Secretary and Director December 30, 1996
- ---------------------------------------------
Manuel Rubio
/s/ MARTIN L. SCHOFFSTALL Director December 30, 1996
- ---------------------------------------------
Martin L. Schoffstall
/s/ DENNIS CLINE Director December 30, 1996
- ---------------------------------------------
Dennis Cline
</TABLE>
II-4
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. TITLE PAGE
- ------- -------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement............................................
3.1 Certificate of Incorporation of the Company...............................
3.2 Form of Restated Certificate of Incorporation of the Company..............
3.3 Amended and Restated Bylaws of the Company................................
4.1* Specimen stock certificate representing the shares of Common Stock........
5.1* Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as to
the legality of the securities being sold.................................
10.1 Form of Preferred Stock Subscription Agreement............................
10.2 Employment Agreement, dated March 1, 1996, between the Company and Russell
C. Horowitz...............................................................
10.3 Employment Agreement, dated March 1, 1996, between the Company and John
Keister...................................................................
10.4 Promissory Note, dated November 20, 1996, in the aggregate principal
amount of $500,000 made by the Company and payable to US Bank of
Washington................................................................
10.5 Commercial Guaranty of Russell C. Horowitz, dated November 20, 1996,
guaranteeing all amounts due under the $500,000 Line of Credit between the
Company and US Bank of Washington.........................................
10.6 Sublease Agreement, dated April 17, 1996, between the Company and Olympic
Capital Management, Inc...................................................
10.7 Guaranty of Sublease between Olympic Capital Management and Russell C.
Horowitz dated April 17, 1996.............................................
10.8 go2net, Inc. 1996 Stock Option Plan.......................................
10.9* Opinion of Credit Research & Trading LLC as to the maximum initial public
offering price of the shares of Common Stock..............................
11.1 Computation of Net Loss Per Share.........................................
23.1 Consent of Ernst & Young, LLP.............................................
23.2* Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation
(included in Exhibit 5.1 hereto)..........................................
24.1 Power of Attorney (included in signature page hereto).....................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
1,500,000 Shares
go2net, Inc.
(Common Stock $.01 Par Value)
UNDERWRITING AGREEMENT
_________, 1997
MAXWELL CAPITAL, INC.
[CO-MANAGER]
As Representatives of the several Underwriters
named in Schedule A hereto
c/o Maxwell Capital, Inc.
2651 North Green Valley Parkway
Suite 104D
Henderson, Nevada 89014
Dear Ladies and Gentlemen:
1. INTRODUCTORY. go2net, Inc., a Delaware corporation (the "Company"),
proposes to sell, pursuant to the terms of this Agreement, to the several
underwriters named in Schedule A hereto (the "Underwriters," or, each, an
"Underwriter"), an aggregate of 1,500,000 shares of Common Stock, $.01 par value
per share (the "Common Stock"), of the Company. The aggregate of 1,500,000
shares so proposed to be sold is hereinafter referred to as the "Firm Stock".
The Company also grants to the Underwriters an option, upon the terms and
conditions set forth in Section 3 hereof, to purchase up to an additional
225,000 shares of Common Stock (the "Option Stock"). The Firm Stock and the
Option Stock are hereinafter collectively referred to as the "Stock." Maxwell
Capital, Inc. ("Maxwell") and [CO-MANAGER] ("_______") are acting as
representatives of the several Underwriters and in such capacity are hereinafter
referred to as the "Representatives".
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-________) in
the form in which it became or becomes effective and also in such form as
it may be when any post-effective amendment thereto shall become effective
with respect to the Stock, including any pre-effective prospectus included
as part of the registration statement as originally filed or as part of any
amendment or supplement thereto, or filed pursuant to Rule 424 under the
Securities Act of 1933, as amended (the "Securities Act"), and the rules
and regulations (the "Rules and Regulations") of the Securities and
<PAGE> 2
Exchange Commission (the "Commission") thereunder, copies of which have
heretofore been delivered to you, has been carefully prepared by the
Company in conformity with the requirements of the Securities Act and has
been filed with the Commission under the Securities Act; one or more
amendments to such registration statement, including in each case an
amended pre-effective prospectus, copies of which amendments have
heretofore been delivered to you, have been so prepared and filed. Such
registration statement is referred to hereinafter as the "Registration
Statement." If it is contemplated, at the time this Agreement is executed,
that a post-effective amendment to the Registration Statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement means
the Registration Statement as amended by said post-effective amendment. The
term "Registration Statement" as used in this Agreement shall also include
any registration statement relating to the Stock that is filed and declared
effective pursuant to Rule 462(b) under the Securities Act. The term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, (A) if the prospectus included
in the Registration Statement omits information in reliance on Rule 430A
under the Securities Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities Act,
the term "Prospectus" as used in this Agreement means the prospectus in the
form included in the Registration Statement as supplemented by the addition
of the Rule 430A information contained in the prospectus filed with the
Commission pursuant to Rule 424(b) and (B) if any prospectus that meet the
requirements of Section 10(a) of the Securities Act are delivered pursuant
to Rule 434 under the Securities Act, then (i) the term "Prospectus" as
used in this Agreement means the "prospectus subject to completion" (as
such term is defined in Rule 434(g) under the Securities Act) as
supplemented by (a) the addition of Rule 430A information or other
information contained in the form of prospectus delivered pursuant to Rule
434(b)(2) under the Securities Act or (b) the information contained in the
term sheets described in Rule 434(b)(3) under the Securities Act, and (ii)
the date of any such prospectus shall be deemed to be the date of the term
sheets. The term "Pre-Effective Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
(b) The Commission has not issued or threatened to issue any order
preventing or suspending the use of any Pre-Effective Prospectus, and, at
its date of issue, each Pre-Effective Prospectus conformed in all material
respects with the requirements of the Securities Act and did not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
and, when the Registration Statement becomes effective and at all times
subsequent thereto up to and including the Closing Date, the Registration
Statement and the Prospectus and any amendments or supplements thereto
contained
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<PAGE> 3
and will contain all material statements and information required to be
included therein by the Securities Act and conformed and will conform in
all material respects to the requirements of the Securities Act and neither
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, included or will include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from any
Pre-Effective Prospectus or the Registration Statement or the Prospectus or
any such amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter specifically for use in the preparation thereof;
there is no franchise, lease, contract, agreement or document required to
be described in the Registration Statement or Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed
therein as required; and all descriptions of any such franchises, leases,
contracts, agreements or documents contained in the Registration Statement
are accurate and complete descriptions of such documents in all material
respects.
(c) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as set forth
or contemplated in the Prospectus, the Company has not incurred any
material liabilities or obligations, direct or contingent, except for
liabilities and obligations incurred in the ordinary course of business,
nor entered into any transactions not in the ordinary course of business,
and there has not been any material adverse change in the condition
(financial or otherwise), properties, business, management, net worth or
results of operations of the Company and its subsidiaries considered as a
whole, or any change in the capital stock, short-term or long-term debt of
the Company.
(d) The financial statements, together with the related notes and
schedules, set forth in the Prospectus and elsewhere in the Registration
Statement fairly present, in all material respects on the basis stated in
the Registration Statement, the financial position and the results of
operations and changes in financial position of the Company at the
respective dates or for the respective periods therein specified. Such
statements and related notes and schedules have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
except as may be set forth in the Prospectus. The selected financial and
statistical data set forth in the Prospectus under the caption "SUMMARY
FINANCIAL DATA," "CAPITALIZATION" and "SELECTED FINANCIAL DATA" fairly
present, on the basis stated in the Registration Statement, the information
set forth therein.
(e) Ernst & Young LLP, who have expressed their opinions on the
audited financial statements and related schedules included in the
Registration Statement and the Prospectus, are independent public
accountants as required by the Securities Act and the Rules and
Regulations.
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<PAGE> 4
(f) The Company has been duly organized and is validly existing and in
good standing as a corporation under the laws of the State of Delaware,
with power and authority (corporate and other) to own or lease, as
applicable, its properties and to conduct its businesses as described in
the Prospectus; the Company is in possession of and operating in compliance
with all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders required for the conduct of its business,
all of which are valid and in full force and effect; and the Company is
duly qualified to do business and in good standing as a foreign corporation
in all other jurisdictions where its ownership or leasing of properties or
the conduct of its businesses requires such qualification. The Company has
all requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and permits
of and from all public regulatory or governmental agencies and bodies to
own, lease and operate its properties and conduct its business as now being
conducted and as described in the Registration Statement and the
Prospectus, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially
burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus. The Company does not own or control, directly
or indirectly, any other corporation, partnership, limited liability
company, association or other entity.
(g) The Company's authorized and outstanding capital stock is on the
date hereof, and will be on the Closing Date, as set forth under the
heading "Capitalization" in the Prospectus; the outstanding shares of
Common Stock conform to the description thereof in the Prospectus and have
been duly authorized and validly issued and are fully paid and
nonassessable and have been issued in compliance with all federal and state
securities laws and were not issued in violation of or subject to any
preemptive rights or similar rights to subscribe for or purchase securities
and conform to the description thereof contained in the Prospectus. Except
as disclosed in or contemplated by the Prospectus and the financial
statements of the Company and related notes thereto included in the
Prospectus, the Company does not have outstanding any options or warrants
to purchase, or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The
description of the Company's stock option and other stock plans or
arrangements, and the options or other rights granted or exercised
thereunder, as set forth in the Prospectus, accurately and fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights.
(h) The shares of Stock to be issued and sold by the Company to the
Underwriters hereunder (including the Option Stock) have been duly and
validly authorized and, when issued and delivered against payment therefor
as provided herein, will be duly and validly issued, fully paid and
nonassessable and free of any preemptive or similar rights and will conform
to the description thereof in the Prospectus.
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<PAGE> 5
(i) Except as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a party or of
which any property of the Company is subject, which, if determined
adversely to the Company might individually or in the aggregate (i) prevent
or adversely affect the transactions contemplated by this Agreement, (ii)
suspend the effectiveness of the Registration Statement, (iii) prevent or
suspend the use of the Pre-Effective Prospectus in any jurisdiction or (iv)
result in a material adverse change in the condition (financial or
otherwise), properties, business, management, net worth or results of
operations of the Company considered as a whole; and to the best of the
Company's knowledge no such proceedings are threatened against the Company
by governmental authorities or others. The Company is not a party or
subject to the provisions of any material injunction, judgment, decree or
order of any court, regulatory body or other governmental agency or body.
The description of the Company's litigation under the heading
"Business--Legal Proceedings" in the Prospectus is true and correct and
complies with the Rules and Regulations.
(j) The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
breach or violation of any of the terms or provisions of or constitute a
default under any indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which the Company is a party or by which
it or any of its properties is or may be bound, the Certificate of
Incorporation, By-laws or other organizational documents of the Company or
any of its subsidiaries, or any law, order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any
of its properties or will result in the creation of a lien.
(k) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company
of the transactions contemplated by this Agreement, except such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Securities Act or the securities or "Blue Sky" laws of
any jurisdiction in connection with the purchase and distribution of the
Stock by the Underwriters.
(l) The Company has the full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder (including to
issue, sell and deliver the Stock), and this Agreement has been duly and
validly authorized, executed and delivered by the Company and is a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that rights to indemnity
and contribution hereunder may be limited by federal or state securities
laws or the public policy underlying such laws.
(m) The Company is in all material respects in compliance with, and
conducts its business in conformity with, all applicable federal, state,
local and foreign laws, rules and regulations or any court or governmental
agency or body; to the knowledge of the Company, otherwise than as set
forth in the Registration Statement and the Prospectus, no prospective
change in any of such federal or state laws, rules or
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<PAGE> 6
regulations has been adopted which, when made effective, would have a
material adverse effect on the operations of the Company.
(n) The Company has filed all necessary federal, state, local and
foreign income, payroll, franchise and other tax returns and has paid all
taxes shown as due thereon or with respect to any of the properties of the
Company, and there is no tax deficiency that has been, or to the knowledge
of the Company is likely to be, asserted against the Company or any of its
properties or assets that would adversely affect the financial position,
business or operations of the Company.
(o) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement or otherwise.
(p) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action
designed or intended to stabilize or manipulate the price of any security
of the Company, or which caused or resulted in, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
(q) The Company has provided you with its audited financial statements
as of September 30, 1996.
(r) The Company owns or possesses all patents, trademarks, trademark
registrations, service marks, service mark registrations, tradenames,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by it or necessary for the conduct of its
business, and the Company is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company with respect to
the foregoing. The Company's business as now conducted does not infringe or
conflict with in any material respect patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses or other intellectual
property or franchise right of any person. No claim has been made against
the Company alleging the infringement by the Company of any patent,
trademark, service mark, tradename, copyright, trade secret, license in or
other intellectual property right or franchise right of any person.
(s) The Company has performed all material obligations required to be
performed by it under any indenture, mortgage, deed of trust, note
agreement or other agreement or instrument to which it is a party or by
which it or any of its properties is or may be bound, and the Company is
not in default under or in breach of any such obligations. The Company has
not received any notice of such default or breach.
(t) The Company is not involved in any labor dispute nor is any such
dispute threatened. The Company is not aware that (A) any executive, key
employee or significant group of employees of the Company or any subsidiary
plans to
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<PAGE> 7
terminate employment with the Company or (B) any such executive or key
employee is subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreement that would be violated by the
present or proposed business activities of the Company. The Company does
not have nor expects to have any liability for any prohibited transaction
or funding deficiency or any complete or partial withdrawal liability with
respect to any pension, profit sharing or other plan which is subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
to which the Company makes or ever has made a contribution and in which any
employee of the Company is or has ever been a participant. With respect to
such plans, the Company is in compliance in all material respects with all
applicable provisions of ERISA.
(u) The Company has obtained the written agreement described in
Section 8(j) of this Agreement from each of its officers, directors and
holders of Common Stock.
(v) The Company has, and as of the Closing Date will have, good and
marketable title in fee simple to all real property referred to in the
Prospectus as being owned by the Company and good and marketable title to
all personal property owned by it which is material to the business of the
Company, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company; and any real
property and buildings described in the Prospectus as being held under
lease by the Company are, and will be as of the Closing Date, held by it
under valid, subsisting and enforceable leases or subleases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company except as
described in the Prospectus.
(w) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts which the
Company believes to be adequate as described in the Prospectus; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations
of the Company, except as described in or contemplated by the Prospectus.
(x) Other than as contemplated by this Agreement and the fee to Credit
Research & Trading LLC in connection with serving as a "qualified
independent underwriter" (as such term is defined in Sechedule E to the
NASD By-Laws), there is no broker, finder or other party that is entitled
to receive from the Company any brokerage or finder's fee or other fee or
commission as a result of any of the transactions contemplated by this
Agreement.
(y) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in
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<PAGE> 8
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(z) To the Company's knowledge, neither the Company nor any employee
or agent of the Company made any payment of funds of the Company or any of
its subsidiaries or received or retained any funds in violation of any law,
rule or regulation.
(aa) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(bb) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the matters
covered thereby.
(cc) There are no contracts or documents which are required to be
described in the Registration Statement, the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
(dd) The Company has complied with, and is and will be in compliance
with, the provisions of that certain Florida act relating to disclosure of
doing business with Cuba, codified as Section 517.075 of the Florida
statutes, and the rules and regulations thereunder or is exempt therefrom.
(ee) Except as described in the Registration Statement, the Prospectus
and except such violations as would not, singly or in the aggregate, result
in a material adverse effect to the Company's operations or financial
condition, (A) the Company is not in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy or rule
of common law and any judicial or administrative interpretation thereof
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
has all permits, authorizations and approvals required under any applicable
Environmental Laws and is in compliance with its requirements, (C) there
are no pending or, to the Company's knowledge,
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<PAGE> 9
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violations,
investigations or proceedings relating to any Environmental Law against the
Company and (D) there are no events or circumstances that might reasonably
be expected to form the basis of an order for clean-up or remediation, or
an action, suit or proceeding by any private party or governmental body or
agency, against or affecting the Company relating to any Hazardous
Materials or Environmental Laws.
(ff) The Company has not at any time since inception (A) made any
unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (B) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States of America
or any jurisdiction thereof.
3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS--CLOSING DATES. The
Company agrees to sell to the Underwriters the Firm Stock, and on the basis of
the representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase the Firm Stock from the Company, the
number of shares of Firm Stock to be purchased by each Underwriter being set
opposite its name in Schedule A, subject to adjustment in accordance with
Section 12 hereof.
The purchase price per share to be paid by the Underwriters to the Company
will be $_________ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 noon, New York City time, on the third full business day preceding the
First Closing Date (as defined below) or, if no such direction is received, in
the names of the respective Underwriters or in such other names as Maxwell may
designate (solely for the purpose of administrative convenience) and in such
denominations as Maxwell may determine), against payment of the aggregate
Purchase Price therefor in immediately available funds, payable to the order of
the Company, all at the offices of Hutchins, Wheeler & Dittmar, 101 Federal
Street, Boston, Massachusetts 02110. The time and date of the delivery and
closing shall be at 10:00 A.M., New York City time, on ________, 1997, in
accordance with Rule 15c6-1 of the Securities Exchange Act of 1934 (the
"Exchange Act"). The time and date of such payment and delivery are herein
referred to as the "First Closing Date". The First Closing Date and the location
of delivery of, and the form of payment for, the Firm Stock may be varied by
agreement between the Company and Maxwell. The First Closing Date may be
postponed pursuant to the provisions of Section 12.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., New York City time, on the business day preceding the First Closing
Date at the offices of Continental Stock Transfer & Trust Company, 2 Broadway,
New York, New York 10004.
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<PAGE> 10
It is understood that Maxwell or [CO-MANAGER], individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company on behalf of any Underwriter or Underwriters, for
the Stock to be purchased by such Underwriter or Underwriters. Any such payment
by Maxwell or [CO-MANAGER] shall not relieve such Underwriter or Underwriters
from any of its or their other obligations hereunder.
The several Underwriters agree to make an initial public offering of the
Firm Stock at the initial public offering price as soon after the effectiveness
of the Registration Statement as in their judgment is advisable. The
Representatives shall promptly advise the Company of the making of the initial
public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase, severally and
not jointly, the Option Stock. The price per share to be paid for the Option
Stock shall be the Purchase Price. The option granted hereby may be exercised as
to all or any part of the Option Stock at any time, and from time to time, not
more than thirty (30) days subsequent to the effective date of this Agreement.
No Option Stock shall be sold and delivered unless the Firm Stock previously has
been, or simultaneously is, sold and delivered. The right to purchase the Option
Stock or any portion thereof may be surrendered and terminated at any time upon
notice by the Underwriters to the Company.
The option granted hereby may be exercised by the Underwriters by giving
written notice from Maxwell to the Company setting forth the number of shares of
the Option Stock to be purchased by them and the date and time for delivery of
and payment for the Option Stock. Each date and time for delivery of and payment
for the Option Stock (which may be the First Closing Date, but not earlier) is
herein called the "Option Closing Date" and shall in no event be earlier than
two (2) business days nor later than ten (10) business days after written notice
is given. (The Option Closing Date and the First Closing Date are herein called
the "Closing Dates".) All purchases of Option Stock from the Company shall be
made on a pro rata basis. Option Stock shall be purchased for the account of
each Underwriter in the same proportion as the number of shares of Firm Stock
set forth opposite such Underwriter's name in Schedule A hereto bears to the
total number of shares of Firm Stock (subject to adjustment by the Underwriters
to eliminate odd lots). Upon exercise of the option by the Underwriters, the
Company agrees to sell to the Underwriters the number of shares of Option Stock
set forth in the written notice of exercise and the Underwriters agree,
severally and not jointly and subject to the terms and conditions herein set
forth, to purchase the number of such shares determined as aforesaid.
The Company will deliver the Option Stock to the Underwriters (in the form
of definitive certificates, issued in such names and in such denominations as
the Representatives may direct by notice in writing to the Company given at or
prior to 12:00 noon, New York City time, on the second full business day
preceding the Option Closing Date or, if no such direction is received, in the
names of the respective Underwriters or in such other names as Maxwell may
designate (solely for the purpose of administrative convenience) and in such
denominations as Maxwell may determine), against payment of the aggregate
Purchase Price therefor in immediately available funds, payable to the order of
the Company all at the offices of Hutchins, Wheeler & Dittmar, 101 Federal
Street, Boston, Massachusetts 02110. The Company shall make the certificates for
the Option Stock available to the
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<PAGE> 11
Underwriters for examination not later than 10:00 A.M., New York City time, on
the business day preceding the Option Closing Date at the offices of Continental
Stock Transfer & Stock Company, 2 Broadway, New York, New York 10004. The Option
Closing Date and the location of delivery of, and the form of payment for, the
Option Stock may be varied by agreement between the Company and Maxwell. The
Option Closing Date may be postponed pursuant to the provisions of Section 12.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A, use its best efforts to
cause the Registration Statement to become effective, (ii) if the Company
and the Representatives have determined to proceed pursuant to Rule 430A,
use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A and Rule 424 of
the Rules and Regulations and (iii) if the Company and the Representatives
have determined to deliver Prospectuses pursuant to Rule 434 of the Rules
and Regulations, to use its best efforts to comply with all the applicable
provisions thereof. The Company will advise the Representatives promptly as
to the time at which the Registration Statement becomes effective, will
advise the Representatives promptly of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of the institution of any proceedings for that purpose, and will use its
best efforts to prevent the issuance of any such stop order and to obtain
as soon as possible the lifting thereof, if issued. The Company will advise
the Representatives promptly of the receipt of any comments of the
Commission or any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for
additional information and will not at any time file any amendment to the
Registration Statement or supplement to the Prospectus which shall not
previously have been submitted to the Representatives a reasonable time
prior to the proposed filing thereof or to which the Representatives shall
reasonably object in writing or which is not in compliance with the
Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon the request of the Representatives, any amendments or supplements to
the Registration Statement or the Prospectus which in the opinion of the
Representatives is necessary to enable the several Underwriters to continue
the distribution of the Stock and will use its best efforts to cause the
same to become effective as promptly as possible.
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Securities Act any event relating to or affecting the
Company or any of its subsidiaries occurs as a result of which the
Prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary at any
time to amend the
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<PAGE> 12
Prospectus to comply with the Securities Act, the Company will promptly
notify the Representatives thereof and will prepare an amended or
supplemented prospectus which will correct such statement or omission; and
in case any Underwriter is required to deliver a prospectus relating to the
Stock nine (9) months or more after the effective date of the Registration
Statement, the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the Representatives, at or before the
Closing Dates, signed copies of the Registration Statement, as originally
filed with the Commission, and all amendments thereto including all
financial statements and exhibits thereto and will deliver to the
Representatives such number of copies of the Registration Statement,
including such financial statements but without exhibits, and all
amendments thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the Representatives,
from time to time until the effective date of the Registration Statement,
as many copies of the Pre-Effective Prospectus as the Representatives may
reasonably request. The Company will deliver or mail to or upon the order
of the Representatives on the date of the initial public offering, and
thereafter from time to time during the period when delivery of a
prospectus relating to the Stock is required under the Securities Act, as
many copies of the Prospectus, in final form or as thereafter amended or
supplemented, as the Representatives may reasonably request; provided,
however, that the expense of the preparation and delivery of any prospectus
required for use nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters required to
deliver such prospectus.
(e) The Company will make generally available to its stockholders as
soon as practicable, but not later than fifteen (15) months after the
effective date of the Registration Statement, an earnings statement which
will be in reasonable detail (but which need not be audited) and which will
comply with Section 11(a) of the Securities Act, covering a period of at
least twelve (12) months beginning after the "effective date" (as defined
in Rule 158 under the Securities Act) of the Registration Statement.
(f) The Company will cooperate with the Representatives to enable the
Stock to be registered or qualified for offering and sale by the
Underwriters and by dealers under the securities laws of such jurisdictions
as the Representatives may designate and at the request of the
Representatives will make such applications and furnish such consents to
service of process or other documents as may be required of it as the
issuer of the Stock for that purpose; provided, however, that the Company
shall not be required to qualify to do business or to file a general
consent (other than that arising out of the offering or sale of the Stock)
to service of process in any such jurisdiction where it is not now so
subject. The Company will, from time to time, prepare and file such
statements and reports as are or may be required of it as the issuer of the
Stock to continue such qualifications in effect for so long a period as the
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Representatives may reasonably request for the distribution of the Stock.
The Company will advise the Representatives promptly after the Company
becomes aware of the suspension of the qualifications or registration of
(or any such exception relating to) the Common Stock of the Company for
offering, sale or trading in any jurisdiction or of any initiation or
threat of any proceeding for any such purpose, and, in the event of the
issuance of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the Representatives,
use its best efforts to obtain the withdrawal thereof.
(g) The Company will furnish to its stockholders annual reports
containing financial statements certified by independent public
accountants. During the period of five (5) years from the date hereof, the
Company will deliver to the Representatives and, upon request, to each of
the other Underwriters, as soon as they are available, copies of each
annual report of the Company containing the balance sheet of the Company as
of the close of such fiscal year and statements of income, stockholders'
equity and cash flows for the year then ended and the opinion thereon of
the Company's independent public accountants, and each other report or
communication furnished by the Company to its stockholders and will deliver
to the Representatives, (i) as soon as they are available, copies of any
other reports or communication (financial or otherwise) which the Company
shall publish or otherwise make available to any of its stockholders as
such, (ii) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission, or the NASD
or any national securities exchange and (iii) from time to time such other
information concerning the Company as you may request. So long as the
Company has active subsidiaries, such financial statements will be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally. Separate financial statements shall be furnished for all
subsidiaries whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(h) The Company will use its best efforts to list and maintain the
listing of the Stock on the Nasdaq Small Cap Market for so long as the
Stock is qualified for such listing, and, in the event that the Stock may
be eligible for listing on the Nasdaq National Market, the Company will use
its best efforts to cause the Stock to be so listed, and to maintain such
listing, on the Nasdaq National Market.
(i) The Company shall retain a transfer agent for the Stock,
reasonably acceptable to the Underwriter, for a period of five years
following the Effective Date. In addition, for a period of five years
following the Effective Date, the Company, at its expense, shall cause such
transfer agent to provide the Underwriter, if so requested in writing, with
copies of the Company's daily transfer sheets, and, when requested by the
Underwriter, a current list of the Company's stockholders, including a list
of the beneficial owners of securities held by a depository trust company
or other nominees.
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<PAGE> 14
(j) The Company will not offer, sell, assign, transfer, encumber,
contract to sell, grant an option to purchase or otherwise dispose of any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock during the 180 days following the Effective
Date, other than the Company's sale of Common Stock hereunder, the issuance
of Common Stock upon the exercise of stock options which are presently
outstanding and described in the Prospectus, the grant of options to
purchase shares of Common Stock under the stock option plan described in
the Prospectus and the issuance and the issuance of Common Stock in
connection with the acquisition of any businesses, assets or technologies.
In addition, the Company will never file any registration statement to
register shares of its currently outstanding Common Stock on behalf of any
stockholder (except for the registration on Form S-8 of shares issuable on
exercise of options granted under the Company's 1996 Stock Option Plan)
without the written consent of Maxwell.
(k) The Company will apply the net proceeds from the sale of the Stock
as set forth in the description under "Use of Proceeds" in the Prospectus,
which description complies in all respects with the requirements of Item
504 of Regulation S-K. The Company will file with the Commission all
required reports on Form S-R in accordance with the provisions of Rule 463
promulgated under the Act and will provide a copy of each such report to
you.
(l) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by, the Commission in connection
with the registration of the Stock under the Securities Act.
(m) Prior to the Closing Dates and for twenty-five (25) days
thereafter, the Company will issue no press release or other communications
directly or indirectly and hold no press conference with respect to the
Company, or its financial condition, results of operation, business,
prospects, assets or liabilities, or the offering of the Stock, without
your prior written consent.
(n) The Company shall, as of the date hereof, have applied for listing
in Standard & Poor's Corporation Records Service (including annual report
information) or Moody's Industrial Manual (Moody's OTC Industrial Manual
not being sufficient for these purposes) and shall use its best efforts to
have the Company listed in such manual and shall maintain such listing for
a period of five years following the Effective Date.
5. PAYMENT OF EXPENSES. The Company will pay (directly or by reimbursement)
all costs, fees and expenses incurred in connection with the performance of its
obligations under this Agreement and in connection with the transactions
contemplated hereby, including but not limited to (i) all expenses and taxes
incident to the issuance and delivery of the Stock to the Representatives; (ii)
all expenses incident to the registration of the Stock under the Securities Act;
(iii) the costs of preparing stock certificates (including printing and
engraving costs); (iv) all fees and expenses of the registrar and transfer agent
of the Common Stock; (v) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Stock to the Underwriters; (vi)
fees and expenses
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of the Company's counsel and the Company's independent public accountants; (vii)
all costs and expenses incurred in connection with the preparation, printing
filing, shipping and distribution of the Registration Statement, each
Pre-Effective Prospectus and the Prospectus (including all exhibits and
financial statements) and all amendments and supplements provided for herein,
the "Agreement Among Underwriters" between the Representatives and the other
Underwriters, the Underwriters' Questionnaire, the Blue Sky memoranda and this
Agreement; (viii) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with exemptions from the qualifying or
registering (or obtaining qualification or registration of) all or any part of
the Stock for offer and sale and determination of its eligibility for investment
under the Blue Sky or other securities laws of such jurisdictions as the
Representatives may designate; (ix) all fees and expenses paid or incurred in
connection with filings made with the NASD; and (x) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 5. In addition, at the First Closing
Date or the Option Closing Date, as the case may be, the Underwriter will deduct
from the payment for the Firm Stock or any Option Stock purchased, two percent
(2%) of the gross proceeds of the Offering as payment for the Underwriter's
non-accountable expense allowance relating to the transactions contemplated
hereby, which amount will include the fees and expenses for Credit Research &
Trading LLC's services in connection with the transactions contemplated hereby.
6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls such
Underwriter within the meaning of the Securities Act and the respective
officers, directors, partners, employees, representatives and agents of each of
such Underwriter (collectively, the "Underwriter Indemnified Parties" and, each,
an "Underwriter Indemnified Party"), against any losses, claims, damages,
liabilities or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in connection
therewith), joint or several, which may be based upon the Securities Act, or any
other statute or at common law, on the ground or alleged ground that any
Pre-Effective Prospectus, the Registration Statement or the Prospectus (or any
Pre-Effective Prospectus, the Registration Statement or the Prospectus as from
time to time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter specifically for use in
the preparation thereof; provided, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any Pre-Effective
Prospectus, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Underwriter Indemnified Party from whom the person
asserting any such losses, claims, damages or liabilities purchased the shares
of Stock concerned to the extent that any such loss, claim, damage or liability
of such Underwriter Indemnified Party results from the fact that a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of the sale of such shares of Stock to such person as required by
the Securities Act and if the untrue statement or omission concerned has been
corrected in the Prospectus. The Company will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Company elects to assume
the defense, such defense shall be conducted by counsel chosen by it. In the
event the
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<PAGE> 16
Company elects to assume the defense of any such suit and retain such counsel,
any Underwriter Indemnified Parties, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such counsel
unless (i) the Company shall have specifically authorized the retaining of such
counsel or (ii) the parties to such suit include any such Underwriter
Indemnified Parties, and the Company and such Underwriter Indemnified Parties at
law or in equity have been advised in writing by counsel to the Underwriters
that one or more legal defenses may be available to it or them which may not be
available to the Company, in which case the Company shall bear the fees and
expenses of one counsel to the Underwriter Indemnified Parties. This indemnity
agreement is not exclusive and will be in addition to any liability which the
Company might otherwise have and shall not limit any rights or remedies which
may otherwise be available at law or in equity to each Underwriter Indemnified
Party.
(b) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless the Company, its directors, its officers who have signed the
Registration Statement and each person, if any, who controls the Company or any
subsidiary within the meaning of the Securities Act (collectively, the "Company
Indemnified Parties"), against any losses, claims, damages, liabilities or
expenses (including, unless the Underwriter or Underwriters elect to assume the
defense, the reasonable cost of investigating and defending against any claims
therefor and counsel fees incurred in connection therewith), joint or several,
which arise out of or are based in whole or in part upon the Securities Act, the
Exchange Act or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground that any
Pre-Effective Prospectus, the Registration Statement or the Prospectus (or any
Pre-Effective Prospectus, the Registration Statement or the Prospectus, as from
time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, but only insofar as any such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by such Underwriter, directly or through
the Representatives, specifically for use in the preparation thereof; provided,
however, that in no case is such Underwriter to be liable with respect to any
claims made against any Company Indemnified Party against whom the action is
brought unless such Company Indemnified Party shall have notified such
Underwriter in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Company Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any liability which it may
have to any Company Indemnified Party other than on account of its indemnity
agreement contained in this paragraph. Such Underwriter shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but, if such
Underwriter elects to assume the defense, such defense shall be conducted by
counsel chosen by it. In the event that any Underwriter elects to assume the
defense of any such suit and retain such counsel, the Company Indemnified
Parties and any other Underwriter or Underwriters or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, respectively. The Underwriter
against whom indemnity may be sought shall not be liable to indemnify any person
for any settlement of any such claim effected without such Underwriter's
consent. This indemnity agreement is not exclusive and will be in addition to
any liability which such Underwriter might otherwise have and shall not limit
any rights or remedies which may otherwise be available at law or in equity to
any Company Indemnified Party.
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<PAGE> 17
(c) If the indemnification provided for in this Section 6 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other from the offering of the Stock. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bears to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, defending, settling or compromising any
such claim. Notwithstanding the provisions of this subsection (c), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the shares of the Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. The
Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any of its officers or directors or
any controlling person, and shall survive delivery of and payment for the Stock.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of
the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated
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herein) as of the date hereof and at and as of the Closing Dates, of the
representations and warranties made herein by the Company as to compliance at
and as of the Closing Dates by the Company with its covenants and agreements
herein contained and other provisions hereof to be satisfied at or prior to the
Closing Dates, and to the following additional conditions:
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or the Representatives, shall be threatened by the
Commission, and any request for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus
or otherwise) shall have been complied with to the reasonable satisfaction
of the Representatives. Any filings of the Prospectus, or any supplement
thereto, required pursuant to Rule 424(b) or Rule 434 of the Rules and
Regulations, shall have been made in the manner and within the time period
required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the
case may be.
(b) The Representatives shall have been satisfied that there shall not
have occurred any change, on a consolidated basis, prior to the Closing
Dates in the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the Company,
or any change in the capital stock, short-term or long-term debt of the
Company, such that (i) the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains an untrue statement of fact
which, in the opinion of the Representatives, is material, or omits to
state a fact which, in the opinion of the Representatives, is required to
be stated therein or is necessary to make the statements therein not
misleading, or (ii) it is impracticable in the reasonable judgment of the
Representatives to proceed with the public offering or purchase the Stock
as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's ability to perform its obligations under this Agreement shall
have been instituted or threatened and there shall have occurred no
material adverse development in any existing such action, suit or
proceeding.
(d) At the time of execution of this Agreement, the Representatives
shall have received from Ernst & Young LLP, independent certified public
accountants, a letter, dated the date hereof, in form and substance
satisfactory to the Representatives.
(e) The Representatives shall have received from Ernst & Young LLP,
independent certified public accountants, a letter, dated the Closing
Dates, to the effect that such accountants reaffirm, as of the Closing
Dates, and as though made on the Closing Dates, the statements made in the
letter furnished by such accountants pursuant to paragraph (d) of this
Section 8.
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(f) The Representatives shall have received from Hutchins, Wheeler &
Dittmar, counsel for the Company, an opinion, dated the Closing Dates, to
the effect set forth in Exhibit I hereto. In rendering such opinion,
Hutchins, Wheeler & Dittmar may rely as to all matters governed other than
by the laws of the Commonwealth of Massachusetts and the State of Delaware
or federal laws on the opinion of local counsel of good standing in such
jurisdictions, provided that such local counsel is satisfactory to the
counsel to the Underwriters and that in each case Hutchins, Wheeler &
Dittmar shall state that they believe that they and the Underwriters are
justified in relying on such other counsel.
(g) The Representatives shall have received from Graham & James LLP,
counsel for the Underwriters, their opinion or opinions dated the Closing
Dates with respect to the incorporation of the Company, the validity of the
Stock, the Registration Statement and the Prospectus and such other related
matters as it may reasonably request, and the Company shall have furnished
to such counsel such documents as they may request for the purpose of
enabling them to pass upon such matters. In rendering such opinion, Graham
& James LLP may rely as to all matters governed other than by the laws of
the State of California and Delaware or federal laws on the opinions of
counsel referred to in paragraph (f) of this Section 8.
(h) The Representatives shall have received a certificate, dated the
Closing Dates, of the chief executive officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of the
knowledge of the signers, no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities Act;
(ii) Neither any Pre-Effective Prospectus, as of its date, nor
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, as of the time when the Registration Statement
became effective and at all times subsequent thereto up to the
delivery of such certificate, included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as set forth or contemplated in the Prospectus, the Company has not
incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transactions not in the
ordinary course of business and there has not been any material
adverse change in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of
the Company or any change in the capital stock, short-term or
long-term debt of the Company;
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(iv) The representations and warranties of the Company in this
Agreement are true and correct at and as of the Closing Dates, and the
Company has complied with all the agreements and performed or
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Dates; and
(v) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, (i) there has not been
any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of
the Company; (ii) the business and operations conducted by the Company
has not sustained a loss by strike, fire, flood, accident or other
calamity (whether or not insured) of such a character as to interfere
materially with the conduct of the business and operations of the
Company; (iii) no legal or governmental action, suit or proceeding is
pending or threatened against the Company which is material to the
Company, whether or not arising from transactions in the ordinary
course of business, or which may materially and adversely affect the
transactions contemplated by this Agreement; (iv) since such dates and
except as so disclosed, the Company has not incurred any material
liability or obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change in its
short-term or funded debt or repurchased or otherwise acquired any of
the Company's capital stock; and (v) the Company has not declared or
paid any dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of record on a date
prior to the Closing Date.
(i) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of the Closing Dates, of the
representations and warranties made herein by it and as to compliance at
and as of the Closing Dates by it with its covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to the
Closing Dates, and as to satisfaction of the other conditions to the
obligations of the Underwriters hereunder.
(j) Maxwell shall have received the written agreements of all officers
and directors of the Company and all holders of securities of the Company
that each will not offer, sell, assign, transfer, encumber, contract to
sell, grant an option to purchase or otherwise dispose of, other than by
operation of law, gifts, pledges or dispositions by estate representatives,
any shares of Common Stock (including, without limitation, Common Stock
which may be deemed to be beneficially owned by such officer, director or
holder in accordance with the Rules and Regulations) or securities
convertible into or exercisable or exchangeable for Common Stock during the
270 days following the Effective Date.
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(k) The Nasdaq Small Cap Market or Nasdaq National Market shall have
approved the Stock for inclusion, subject only to official notice of
issuance.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to the Closing Dates.
9. EFFECTIVE DATE. This Agreement shall become effective immediately as to
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16, 17, 18 and 19, as to all other
provisions, at 11:00 a.m. New York City time, on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
10. TERMINATION. This Agreement (except for the provisions of Section 5)
may be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representatives and may be terminated
by the Representatives at any time before it becomes effective in accordance
with Section 9 by notice to the Company. In the event of any termination of this
Agreement under this or any other provision of this Agreement, there shall be no
liability of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to
the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First Closing
Date trading in securities on any of the New York Stock Exchange, American Stock
Exchange, Nasdaq National Market or Nasdaq Small Cap Market shall have been
suspended or minimum or maximum prices shall have been established on any such
exchange or market, or a banking moratorium shall have been declared by New York
or United States authorities; (ii) trading of any securities of the Company
shall have been suspended on any exchange or in any over-the-counter market;
(iii) if at or prior to the First Closing Date there shall have been (A) an
outbreak or escalation of hostilities between the United States and any foreign
power or of any other insurrection or armed conflict involving the United States
or (B) any change in financial markets or any calamity or crisis which, in the
judgment of the Representatives, makes it impracticable or inadvisable to offer
or sell the Firm Stock on the terms contemplated by the Prospectus; (iv) if
there shall have been any material development or prospective material
development involving particularly the business or properties or securities of
the Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the judgment of the Representatives, makes it impracticable
or inadvisable to offer or deliver the Firm Stock on the terms contemplated by
the Prospectus; or (v) if there shall be any litigation or proceeding, pending
or threatened not disclosed in the Prospectus,
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<PAGE> 22
which, in the judgment of the Representatives, makes it impracticable or
inadvisable to offer or deliver the Firm Stock on the terms contemplated by the
Prospectus.
11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any election
of the Company pursuant to the first paragraph of Section 10 or shall be
terminated by the Representatives under Section 8, the Company will bear and pay
the expenses specified in Section 5 hereof and, in addition to its obligations
pursuant to Section 6 hereof, the Company will reimburse the reasonable
out-of-pocket expenses of the several Underwriters (including reasonable fees
and disbursements of counsel for the Underwriters) incurred in connection with
this Agreement and the proposed purchase of the Stock, and promptly upon demand
the Company will pay such amounts to you as Representatives.
12. SUBSTITUTION OF UNDERWRITERS. If on the First Closing Date or the
Option Closing Date, as the case may be, any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder
(otherwise than by reason of default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 48 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the shares of Stock which the defaulting Underwriter
or Underwriters failed to purchase. If during such 48 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the shares of Stock agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares which
such defaulting Underwriter or Underwriters agreed but failed to purchase does
not exceed ten percent (10%) of the total number of shares underwritten, the
other Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the shares of Stock which such
defaulting Underwriter or Underwriters agreed but failed to purchase, or (b) if
the aggregate number of shares of Stock with respect to which such default or
defaults occur is more than ten percent (10%) of the total number of shares
underwritten, the Company or you, as the Representatives of the Underwriters,
will have the right, by written notice given within the next 48-hour period to
the parties to this Agreement, to terminate this Agreement without liability on
the part of the non-defaulting Underwriters or the Company.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company
shall have the right to postpone the Closing Dates for a period of not more than
five (5) full business days in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of Section 6.
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<PAGE> 23
13. NOTICES. All communications hereunder shall be in writing and, if sent
to the Underwriters, shall be mailed, delivered or telegraphed and confirmed to
you, as their Representatives c/o Maxwell Capital, Inc. at 2651 North Green
Valley Parkway, Suite 104D, Henderson, Nevada 89014, Attention: Investment
Banking Department, with a copy to Kevin A. Coyle, Esq., Graham & James LLP, 400
Capitol Mall, Suite 2400, Sacramento, California 95814, except that notices
given to an Underwriter pursuant to Section 6 hereof shall be sent to such
Underwriter at the address furnished by the Representatives or, if sent to the
Company, shall be mailed, delivered or telegraphed and confirmed c/o go2net,
Inc. Incorporated, at 1301 Fifth Avenue, Suite 3320, Seattle, Washington 98101,
Attention: Chief Executive Officer, with a copy to Michael J. Riccio, Esq.,
Hutchins, Wheeler & Dittmar, 101 Federal Street, Boston, Massachusetts 02110.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and their respective successors and
legal representatives. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person other than the persons
mentioned in the preceding sentence any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person; except that the representations, warranties, covenants,
agreements and indemnities of the Company contained in this Agreement shall also
be for the benefit of the person or persons, if any, who control any Underwriter
or Underwriters within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, and the indemnities of the several Underwriters
shall also be for the benefit of each director of the Company, each of its
officers who has signed the Registration Statement and the person or persons, if
any, who control the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act.
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
choice of law principles thereof.
16. AUTHORITY OF THE REPRESENTATIVES. In connection with this Agreement,
you will act for and on behalf of the several Underwriters, and any action taken
under this Agreement by Maxwell, as Representative, will be binding on all the
Underwriters.
17. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
18. GENERAL. This Agreement constitutes the entire agreement of the parties
to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement
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<PAGE> 24
may be amended or modified, and the observance of any term of this Agreement may
be waived, only by a writing signed by the Company and the Representatives.
19. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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<PAGE> 25
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
go2net, Inc.
By:
--------------------------------
Name:
Title:
Accepted and delivered in
Henderson, Nevada as of the
date first above written.
MAXWELL CAPITAL, INC.
[CO-MANAGER]
Acting on their own behalf
and as Representatives of the several
Underwriters referred to in the
foregoing Agreement.
By: Maxwell Capital, Inc.
By:
-------------------------------------
Name:
Title:
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<PAGE> 26
SCHEDULE A
Number of shares of Firm Stock to be Purchased
---------------
Name
- ----
Maxwell Capital, Inc.
Total......................... _________
1,500,000
<PAGE> 27
EXHIBIT I
Matters to be covered in opinion
--------------------------------
of ISSUER'S COUNSEL(1)
-----------------------
1. The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the ownership or lease of property or the conduct of
its business requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on the business or financial
condition of the Company), and has all corporate power and authority necessary
to own or hold its properties and conduct the business in which it is engaged as
described in the Prospectus.
2. The Company has an authorized capital stock as set forth in the Prospectus
under the heading "Capitalization", and all of the issued shares of capital
stock of the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and all of the shares of Stock to be issued and sold by
the Company to the Underwriters pursuant to the Underwriting Agreement have been
duly and validly authorized and, when issued and delivered against payment
therefor as provided for in the Underwriting Agreement, will be duly and validly
issued, fully paid and non-assessable and free of any preemptive or similar
rights arising pursuant to the Company's Certificate of Incorporation or
Restated By-Laws.
3. Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company and related notes thereto included in the Prospectus,
to the knowledge of such counsel, the Company does not have outstanding any
options or warrants to purchase, or any preemptive rights or other rights to
subscribe for or to purchase any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations, except for
options granted subsequent to the date of information provided in the Prospectus
pursuant to the Company's employee and stock option plans as disclosed in the
Prospectus. There are no restrictions upon the voting or transfer of any of the
Stock pursuant to the Company's Certificate of Incorporation or Restated By-Laws
or any agreement or other instrument to which the Company is a party.
4. To such counsel's knowledge, except as set forth in the Prospectus, there
are no material legal or governmental proceedings pending to which the Company
is a party or of which any property or assets of the Company is the subject
which, if determined adversely to the Company, could have a material adverse
effect on the Company or prevent or adversely affect the transactions
contemplated by the Underwriting Agreement; and, to such counsel's
- ------------------
(1) Capitalized terms used herein but not defined shall have the meanings given
such terms in the Underwriting Agreement.
<PAGE> 28
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or other third parties. To such counsel's knowledge, the Company is
not a party or subject to the provisions of any material injunction, judgment,
decree or order of any court, regulatory body or other governmental agency or
body.
5. The Company has the full corporate power and authority to enter into the
Underwriting Agreement and to perform its obligations thereunder (including to
issue, sell and deliver the Stock), and the Underwriting Agreement has been duly
and validly authorized, executed and delivered by the Company.
6. The execution, delivery and performance of the Underwriting Agreement and
the consummation of the transactions therein contemplated will not result in a
breach or violation of any of the terms or provisions of or constitute a default
under the Certificate of Incorporation, Restate By-Laws or other organizational
documents of the Company, or any indenture, mortgage, deed of trust, note
agreement or other agreement or instrument known to such counsel to which the
Company is a party or by which it or any of its properties is or may be bound,
or any law, order, rule or regulation (other tan state securities or "blue sky"
laws)of any court or governmental agency or body having jurisdiction over the
Company or any of its properties or result in the creation of a lien.
7. No consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Company of the
transactions contemplated by the Underwriting Agreement (except such as may be
required by the National Association of Securities Dealers, Inc. or as required
by the securities or "blue sky" laws of any jurisdiction as to which such
counsel need express no opinion) in connection with the purchase and
distribution of the Stock by the Underwriters except such as have been obtained
or made.
8. The Registration Statement has been declared effective under the Securities
Act as of , 1997, the Prospectus was filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations on , 1996 and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that purpose is
pending or threatened by the Commission.
9. The Registration Statement and the Prospectus and any amendments or
supplements thereto (except for the financial statements and notes thereto and
related schedules and other financial and statistical date contained therein as
to which such counsel need express no opinion) comply as to form in all material
respects with the requirements of the Securities Act and the Rules and
Regulations.
10. To such counsel's knowledge, there are no contracts, leases, agreements or
other documents which are required by the Securities Act or by the Rules and
Regulations to be described in the Prospectus or filed as exhibits to the
Registration Statement which have not been described in the Prospectus or filed
as exhibits to the Registration Statement.
11. To such counsel's knowledge, no person or entity has the right to require
registration of shares of Common Stock or other securities of the Company
because of the filing or
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<PAGE> 29
effectiveness of the Registration Statement or otherwise, except for persons and
entities who have expressly waived such right or who have been given proper
notice and have failed to exercise such right within the time or times required
under the terms and conditions of such right.
12. The information required to be set forth in the Registration Statement in
answer to Item 9, Item 10 (insofar as it relates to our firm) and Item 11(c) of
Form S-1 is to such counsel's knowledge accurately set forth therein in all
material respects or no response is required with respect to such Items.
13. The Company is not an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended.
You are advised that we have participated in conferences with officers and
representatives of the Company and with its independent public accountants at
which the affairs of the Company and the contents of the Registration Statement
and Prospectus and exhibits thereto were discussed. There can be no assurance
that all possible material facts as to the Company we discussed at such
meetings. Further, the limitations inherent in the independent verification of
factual matters and the character of determinations involved in the registration
process are such that we cannot vouch for and do not assume any responsibility
for the accuracy or completeness of the statements contained in the Registration
Statement and the Prospectus, as amended or supplemented, but we hereby confirm
to you that, in the course of such meetings and our other work in connection
with the Registration Statement and the Prospectus, nothing has come to our
attention to lead us to believe that the Registration Statement and Prospectus
(except as to the financial statements and schedules and other financial (and
statistical) data contained therein as to which we make no statement) at the
time the Registration Statement became effective, the Prospectus, or any
amendment or supplement thereto, as of the date it was filed pursuant to Rule
424(b) of the rules and regulations under the Securities Act, and the
Registration Statement and the Prospectus, or any amendment or supplement
thereto, as of this date contain any untrue statement of material fact or omit
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
-3-
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
GO2NET, INC.
*****************
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware, particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the General Corporation Law of the State of Delaware (the
"General Corporation Law"), hereby certifies that:
FIRST: The name of the Corporation is GO2NET, INC. (the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware and County of New Castle, is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801; and the name of the registered
agent of the Corporation in the State of Delaware at such address is The
Corporation Trust Company.
THIRD: The nature of the business to be conducted, or purposes to be
promoted, by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law.
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is 10,000,000 shares of capital stock, consisting of
9,000,000 shares of Common Stock, par value $.01 per share (the "Common Stock"),
and 1,000,000 shares of
<PAGE> 2
9% Cumulative Redeemable Convertible Preferred Stock, par value $1.00 per share
(the "Preferred Stock").
The following is a statement of the voting powers and the designations,
preferences and other special rights, and the qualifications, limitations or
restrictions in respect of the Common Stock and the Preferred Stock:
A. COMMON STOCK
1. VOTING RIGHTS. Each holder of the Common Stock shall be entitled to one
(1) vote for each share held by such holder at all meetings of stockholders (and
written actions in lieu of meetings). There shall be no cumulative voting.
2. DIVIDENDS. Each holder of the Common Stock, with respect to each such
share held, shall be entitled to receive, when and if declared by the Board of
Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in property or in shares of capital
stock, subject to any preferential dividend rights of any of the then
outstanding shares of Preferred Stock.
3. LIQUIDATION OR DISSOLUTION OR WINDING UP. In the event of any
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of the Common Stock, with respect to each such share held, shall be
entitled, unless otherwise provided by law, to receive all of the assets of the
Corporation available for distribution to its stockholders, subject to any
preferential rights of any of the then outstanding shares of Preferred Stock.
-2-
<PAGE> 3
B. PREFERRED STOCK
1. DESIGNATION. The series of Preferred Stock designated and known as "9%
Cumulative Convertible Redeemable Preferred Stock, par value $1.00 per share"
shall consist of 1,000,000 shares.
2. Voting.
------
(a) Except as otherwise expressly provided herein or as required by
law, each holder of the Preferred Stock shall be entitled to the number of votes
equal to the number of whole shares of Common Stock into which the shares of
Preferred Stock held by such holder are convertible (as adjusted from time to
time pursuant to Section 5 hereof), at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as otherwise expressly provided herein
or as required by law, holders of Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Preferred Stock so as to affect adversely
the Preferred Stock, without the written consent or affirmative vote of the
holders of a majority of the then outstanding Preferred Stock, given in writing
or by vote at a meeting, consenting or voting (as the case may be) separately as
a class. For purposes of this Section 2, the authorization or issuance of any
series of Preferred Stock with the preferences or priority over the then
outstanding Preferred Stock
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<PAGE> 4
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation, shall be deemed to
affect adversely the Preferred Stock.
3. Dividends.
---------
(a) DIVIDENDS. The holders of the then outstanding Preferred Stock
shall be entitled to receive, out of funds legally available therefor,
cumulative annual dividends when and as maybe declared from time to time by the
Board of Directors of the Corporation at a rate per share equal to 9% of the
original purchase price paid per share of the Preferred Stock, such amount shall
be compounded annually such that if the dividend is not paid for such year the
unpaid amount shall be added to the original purchase price paid per share of
the Preferred Stock (the "Purchase Price") for the purposes of calculating
dividends for succeeding years. If such cumulative dividends in respect of any
prior or current annual dividend period shall not have been declared and paid or
if there shall not have been a sum sufficient for the payment thereof set apart,
the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart with respect to any class
of the Corporation's capital stock, now or hereafter outstanding as to which
dividends may be declared and paid in accordance with its terms without
restriction. Upon any conversion of the Preferred Stock under Section 5 hereof,
all accumulated and unpaid dividends on the Preferred Stock, whether or not
declared, since the date of issue
-4-
<PAGE> 5
up to and including the date of conversion thereof shall be forgiven.
(b) PARTICIPATING DIVIDENDS. No dividends shall be declared and set
aside for or paid with respect to any class of the Corporation's capital stock
now or hereafter outstanding as to which dividends may be declared and paid in
accordance with its terms without restriction unless the Board of Directors of
the Corporation shall contemporaneously declare and pay a dividend upon the then
outstanding shares of Preferred Stock in the same amount per share of Preferred
Stock as would be declared payable on the number of shares of Common Stock into
which each share of Preferred Stock could then be converted pursuant to the
provisions of Section 5 hereof, such number to be determined as of the record
date for the determination of holders of Common Stock entitled to receive such
dividends, PROVIDED, HOWEVER, that the amounts of such dividends shall not
exceed fifty percent (50%) of the Corporation's consolidated net earnings
(determined in accordance with generally acceptable accounting principals
consistently applied) for the fiscal year immediately prior to the date that
such dividends are declared or paid; and PROVIDED, FURTHER, that no dividends
shall be paid with respect to any class of the Corporation's capital stock
unless it is determined by the Board of Directors that the Corporation has
sufficient net assets available for distribution to holders of the Preferred
Stock, under applicable law, after giving effect to such dividend on the other
class of capital stock, to pay the holders of each share of Preferred Stock the
Liquidation Amount, as defined below (provided that the return on each share of
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<PAGE> 6
Preferred Stock shall be calculated through the date of such dividend).
(c) DIVIDENDS IN KIND. In the event the Corporation shall make or
issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution with respect thereto
payable in (i) securities of the Corporation other than shares of the Common
Stock, or (ii) assets, then and in each such event the holders of Preferred
Stock shall receive, at the same time such distribution is made with respect to
Common Stock, the number of securities or such other assets of the Corporation
which they would have received had their Preferred Stock been converted into
Common Stock immediately prior to the record date for determining holders of
Common Stock entitled to receive such distribution.
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the shares of
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, before any
payment shall be made to the holders of the Common Stock by reason of their
ownership thereof, an amount equal to the Purchase Price plus all accumulated
and unpaid dividends therein, whether or not declared, since the date of issue
up to and including the date full payment shall be tendered to the holders of
the Preferred Stock with respect to such liquidation (subject to equitable
adjustment in the event of any stock dividend, stock split, combination,
-6-
<PAGE> 7
reorganization, recapitalization, reclassification or other similar event
affecting such shares) (the "Liquidation Amount"). If upon any such liquidation,
dissolution or winding up of the Corporation, the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of the Preferred Stock the full amount to which they shall be
entitled, the holders of the Preferred Stock shall share ratably in any
distribution of the remaining assets of the Corporation.
(b) After the payments of all preferential amounts required to be paid
to the holders of the Preferred Stock upon the dissolution, liquidation or
winding up of the Corporation, the holders of the outstanding shares of the
Common Stock shall be entitled to receive, on an equal basis, the remaining
assets of the Corporation available for distribution to its stockholders.
(c) The merger or consolidation of the Corporation into or with
another corporation, or the sale of all or substantially all the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 4 if the holders of at least a
majority of the then outstanding shares of the Preferred Stock so elect by
giving written notice thereof to the Corporation at least three days before the
effective date of such event. If no such notice is given, the provisions of
Section 5(g) shall apply. The amount deemed distributed to the holders of the
Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property,
-7-
<PAGE> 8
rights or other securities shall be determined in good faith by the Board of
Directors of the Corporation.
5. CONVERSION RIGHTS FOR THE PREFERRED STOCK. The holders of the Preferred
Stock shall have the following rights with respect to the conversion of the
Preferred Stock into shares of Common Stock:
(a) GENERAL. Subject to and in compliance with the provisions of this
Section 5, on and after six months from and including that date of the initial
issuance of the Preferred Stock any share of the Preferred Stock may, at the
option of the holder, be converted at any time into fully paid and
non-assessable shares of Common Stock. The number of shares of Common Stock to
which a holder of Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Applicable Conversion Rate (determined as
provided in Section 5(b)) by the number of shares of Preferred Stock being
converted.
(b) APPLICABLE CONVERSION RATE. The conversion rate in effect at any
time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing the Purchase Price by the Applicable Conversion Value calculated as
provided in Section 5(c).
(c) APPLICABLE CONVERSION VALUE. The Applicable Conversion Value shall
be the Purchase Price, except that such amount shall be adjusted from time to
time in accordance with this Section 5.
(d) Adjustments To Applicable Conversion Value.
------------------------------------------
(i) (A) UPON SALE OF COMMON STOCK. If the
-8-
<PAGE> 9
Corporation shall, while there are any shares of Preferred Stock outstanding,
issue or sell shares of its Common Stock without consideration or at a price per
share less than the Applicable Conversion Value in effect immediately prior to
such issuance or sale, then in each such case such Applicable Conversion Value
for the Preferred Stock, upon each such issuance or sale, except as hereinafter
provided, shall be lowered so as to be equal to an amount determined by
multiplying the Applicable Conversion Value by a fraction:
(1) the numerator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (b) the number of shares of Common Stock
which the net aggregate consideration, if any, received by the Corporation for
the total number of such additional shares of Common Stock so issued would
purchase at the Applicable Conversion Value in effect immediately prior to such
issuance, and
(2) the denominator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (b) the number of such additional shares
of Common Stock so issued.
(B) Upon Issuance Of Warrants, Options And Rights To Common Stock.
-------------------------------------------------------------
(1) For the purposes of this Section 5(d)(i), the issuance
of any warrants, options, subscriptions, or purchase rights with respect to
shares of Common Stock and the
-9-
<PAGE> 10
issuance of any securities convertible into or exchangeable for shares of Common
Stock (or the issuance of any warrants, options or any rights with respect to
such convertible or exchangeable securities) shall be deemed an issuance of such
Common Stock at such time if the Net Consideration Per Share (as hereinafter
determined) which may be received by the Corporation for such Common Stock shall
be less than the Applicable Conversion Value at the time of such issuance. Any
obligation, agreement, or undertaking to issue warrants, options, subscriptions,
or purchase rights at anytime in the future shall be deemed to be an issuance at
the time such obligation, agreement or undertaking is made or arises. No
adjustment of the Applicable Conversion Value shall be made under this Section
5(d)(i) upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise of any warrants, options, subscriptions, or purchase
rights or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if any adjustment shall previously have been made or
deemed not required hereunder, upon the issuance of any such warrants, options,
or subscriptions or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
Should the Net Consideration Per Share of any such warrants, options,
subscriptions, or purchase rights or convertible securities be decreased from
time to time, then, upon the effectiveness of each such change, the Applicable
Conversion Value shall be adjusted to such Applicable Conversion Value as would
have obtained (1) had the adjustments made upon the issuance of such
-10-
<PAGE> 11
warrants, options, rights, or convertible securities been made upon the basis of
the decreased Net Consideration Per Share of such securities, and (2) had
adjustments made to the Applicable Conversion Value since the date of issuance
of such securities been made to the Applicable Conversion Value as adjusted
pursuant to (1) above. Any adjustment of the Applicable Conversion Value with
respect to this paragraph which relates to warrants, options, subscriptions,
purchases rights or convertible securities with respect to shares of Common
Stock shall be disregarded if, as, when and to the extent such warrants,
options, subscriptions, purchase rights or convertible securities expire or are
cancelled without being exercised or converted, so that the Applicable
Conversion Value effective immediately upon such cancellation or expiration
shall be equal to the Applicable Conversion Value in effect at the time of the
issuance of the expired or cancelled warrants, options, subscriptions, purchase
rights, or convertible securities with such additional adjustments as would have
been made to that Applicable Conversion Value had the expired or cancelled
warrants, options, subscriptions, purchase rights or convertible securities not
been issued.
(2) For purposes of this paragraph, the "Net Consideration
Per Share" which may be received by the Corporation shall be determined as
follows:
(a) The "Net Consideration Per Share" shall mean the amount equal to
the total amount of consideration, if any, received by the Corporation for the
issuance of such warrants, options, subscriptions, or other purchase rights or
convertible or
-11-
<PAGE> 12
exchangeable securities, plus the minimum amount of consideration, if any,
payable to the Corporation upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all such
warrants, options, subscriptions, or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(b) The "Net Consideration Per Share" which may be received by the
Corporation shall be determined in each instance as of the date of issuance or
warrants, options, subscriptions, or other purchase rights or convertible or
exchangeable securities without giving effect to any possible future upward
price adjustments or rate adjustments which may be applicable with respect to
such warrants, options, subscriptions, or other purchase rights or convertible
or exchangeable securities; provided that if such an upward price adjustment
occurs with respect to any warrants, options, subscriptions, purchase rights or
convertible or exchangeable securities whose issuance has previously resulted in
an adjustment of the Applicable Conversion Value, then the Applicable Conversion
Value shall be readjusted based upon such upward price adjustment.
(C) STOCK DIVIDEND. In the event the Corporation shall make or
issue a dividend or other distribution payable in Common Stock or securities of
the Corporation convertible into or otherwise exchangeable for the Common Stock
of the Corporation, then such Common Stock or other securities issued in payment
of such dividend shall be deemed to have been issued without consideration
(except for dividends payable in shares of
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Common Stock payable pro rata to holders of Preferred Stock and to holders of
any other class of stock).
(D) CONSIDERATION OTHER THAN CASH. For purposes of this Section
5(d), if a part or all of the consideration received by the Corporation in
connection with the issuance of shares of the Common Stock or the issuance of
any of the securities described in this Section 5(d) consists of property other
than cash, such consideration shall be deemed to have a fair market value as is
reasonably determined in good faith by the Board of Directors of the
Corporation.
(E) EXCEPTIONS. This Section 5(d)(i) shall not apply under
any of the circumstances which would constitute an Extraordinary Common Stock
Event (as hereinafter defined in Section 5(d)(ii)). Further, the provisions of
this Section 5(d) shall not apply to (i) shares issued upon the conversion of
the Preferred Stock, (ii) the issue or sale of any shares of Common Stock or any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock or issuance or sale of any securities convertible into or
exchangeable for shares of Common Stock (or the issuance of any warrants,
options or any rights with respect to such convertible or exchangeable
securities) either in connection with any employee stock option, stock bonus or
stock purchase plan or program (or similar plan or program) or if such issuance
or sale has been approved by the affirmative vote of the holders of a majority
of the then outstanding shares of Preferred Stock or (iii) the issuance or sale
of any shares of Common Stock in connection with any warrant or
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option existing on or prior to that date of the initial issuance of the
Preferred Stock.
(ii) UPON EXTRAORDINARY COMMON STOCK EVENT. Upon the happening of
any Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value for the Preferred Stock shall, simultaneously with the
happening of such Extraordinary Common Stock Event, be adjusted by multiplying
the then effective Applicable Conversion Value with respect to the Preferred
Stock by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of Common Stock
immediately after such Extraordinary Common Stock Event, and the product so
obtained shall thereafter be the Applicable Conversion Value. The Applicable
Conversion Value for the Preferred Stock shall be readjusted in the same manner
upon the happening of any successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock or on any class or
series of preferred stock, unless made pro rata to holders of
Preferred Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or
(iii) a combination of outstanding shares of the Common Stock
into a smaller number of shares of Common Stock.
(e) DIVIDENDS. In the event the Corporation shall make or issue, or
shall fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution with respect to the Common
Stock payable in (i)
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securities of the Corporation other than shares of Common Stock, or (ii) assets,
then and in each such event the holders of Preferred Stock shall receive, at the
same time such distribution is made with respect to the Common Stock, the number
of securities or such other assets of the Corporation which they would have
received had their Preferred Stock been converted into Common Stock immediately
prior to the date of such distribution.
(f) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common Stock
issuable upon the conversion of the Preferred Stock shall be changed into the
same or different number of shares of any class or classes of stock, whether by
capital reorganization, reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend provided for elsewhere in this
Section 5 or by a Reorganization (as defined below)), then and in each such
event, the holder of each share of Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such capital reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Preferred Stock might have been converted
immediately prior to such capital reorganization, reclassification or other
change.
(g) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. If at any time
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 5) or a merger or
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consolidation of the Corporation with or into another corporation, or the sale
of all or substantially all of the Corporation's properties and assets to
another person, any of which events is herein referred to as a "Reorganization",
then as a part of such Reorganization, provision shall be made so that the
holders of the Preferred Stock shall thereafter be entitled to receive upon the
conversion of the Preferred Stock, the number of shares of stock or other
securities or property of the Corporation, or of the successor corporation
resulting from such Reorganization, to which such holder would have been
entitled if such holder had converted its shares of Preferred Stock immediately
prior to such Reorganization. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 5 with respect to the
rights of the holders of the Preferred Stockholders after the Reorganization, to
the end that the provisions of this Section 5 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares issuable
upon the conversion of the Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
(h) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In each case
of an adjustment or readjustment of the Applicable Conversion Rate, the
Corporation at its expense will furnish each holder of Preferred Stock with a
certificate, executed by the president and the chief financial officer (or in
the absence of a person designated as the chief financial officer, by the
treasurer) showing such adjustment or readjustment, and stating in
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detail the facts upon which such adjustment or readjustment is based.
(i) EXERCISE OF CONVERSION PRIVILEGE. To exercise its conversion
privilege, a holder of Preferred Stock shall surrender the certificate or
certificates representing the shares of Preferred Stock being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder effects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Common
Stock issuable upon such conversion shall be issued. The certificate or
certificates for shares of Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such notice is received by the Corporation, together with the
certificate or certificates representing the shares of Preferred Stock being
converted, shall be the "Conversion Date." As promptly as practicable after the
Conversion Date, the Corporation shall issue and deliver to the holder of the
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Preferred Stock in accordance
with the provisions of Section 5, and cash, as provided in Section 5(j), in
respect to any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected
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immediately prior to the close of business on the Conversion Date, and at such
time the rights of the holder as holder of the converted shares of Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby. The Corporation shall pay any
taxes payable with respect to the issuance of Common Stock upon conversion of
the Preferred Stock, other than any taxes payable with respect to income by the
holders thereof.
(j) CASH IN LIEU OF FRACTIONAL SHARES. The Corporation may, if it so
elects, issue fractional shares of Common Stock or scrip representing fractional
shares upon the conversion of shares of Preferred Stock. If the Corporation does
not elect to issue fractional shares, the Corporation shall pay to the holder of
the shares of Preferred Stock which were converted a cash adjustment in respect
of such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Preferred Stock being
converted at any one, time by any holder thereof, not upon each share of
Preferred Stock being converted.
(k) PARTIAL CONVERSION. In the event some but not all of the shares of
Preferred Stock represented by a certificate or certificates surrendered by a
holder are converted, the
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Corporation shall execute and deliver to or on the order of the holder, at the
expense of the Corporation, a new certificate representing the number of shares
of Preferred Stock which were not converted.
(l) RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of
Preferred Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Preferred Stock, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Preferred Stock, the Corporation shall take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(m) MINIMUM ADJUSTMENT. Any provision of this Section 5 to the
contrary notwithstanding, no adjustment in the Applicable Conversion Value shall
be made if the amount of such adjustment would be less than 1% of the Applicable
Conversion Value then in effect, but any such amount shall be carried forward
and an adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with all amounts so carried
forward, aggregates 1% or more of the Applicable Conversion Value in effect.
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6. OPTIONAL REDEMPTION. (a) The Corporation shall have the right and option
to redeem, at any time twelve months after the initial issuance of the Preferred
Stock, at a redemption price equal to the Purchase Price, plus all accumulated
and unpaid dividends therein, whether or not declared, since the date of issue
up to and including the date payments thereof is made available (subject to
equitable adjustments in the event of any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event affecting such shares)(the "Redemption Price"), any and all shares of
Preferred Stock outstanding on the date of such redemption. In the event of such
a redemption of only a part of the then outstanding Preferred Stock, the
Corporation will effect such redemption ratably according to the number of
shares held by each holder of the Preferred Stock.
(b) NOTICE OF REDEMPTION. The Corporation shall provide notice of any
redemption of Preferred Stock pursuant to this Section 6 specifying the time and
place of redemption and the Redemption Price, by first class or registered mail,
postage prepaid, to each holder of record of Preferred Stock at the address of
such holder last shown on the records of the transfer agent therefor (or the
records of the Corporation, if it serves as its own transfer agent), not more
than 60 nor less than 45 days prior to the date on which such redemption is to
be made. If less than all Preferred Stock owned by such holder is then to be
redeemed, the notice will also specify the number and series of shares which are
to be redeemed. Upon mailing any such notice of redemption,
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the Corporation will become obligated to the extent permitted by law, to redeem
at the time of redemption specified therein all Preferred Stock specified
therein (other than such shares of Preferred Stock as are duly converted
pursuant to Section 5 prior to the close of business on the business day
preceding the Redemption Date). In the event less than all Preferred Stock
represented by any certificate is redeemed in any redemption pursuant to this
Section 6, a new certificate will be issued representing the unredeemed
Preferred Stock without cost to the holder thereof. Nothing contained in this
Section 6 shall in any way restrict or prohibit the holders of the Preferred
Stock from exercising their conversion rights pursuant to Section 5 hereof prior
to the close of business on the business day preceding the Redemption Date.
(c) DIVIDENDS AFTER REDEMPTION DATE. No share of Preferred Stock is
entitled to any rights or liquidation or conversion or to any dividends accruing
after the date of payment of the Redemption Price for such share, and on such
date all rights of the holder of such share as a stockholder of the Corporation
by reason of the ownership of such share will cease, and such share will not be
deemed to be outstanding thereafter.
(d) REDEEMED SHARES. Any Preferred Stock redeemed pursuant to this
Section 6 will be cancelled and will not under any circumstances be reissued,
sold or transferred and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Preferred Stock
accordingly.
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FIFTH: Whenever stockholders are required or permitted to take any action
by vote, such action may be taken without a meeting on written consent, setting
forth the action so taken, signed by the holders of that percentage of the
shares of the outstanding capital stock entitled to vote thereon that would be
necessary to take such action at a meeting of stockholders.
SIXTH: The name and the mailing address of the incorporator of the
Corporation is Manuel Rubio, 3241 Corlear Avenue, Bronx, New York 10463.
SEVENTH: The Corporation is to have perpetual existence.
EIGHTH: (a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he/she 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 him/her in connection with such action, suit or proceeding if he/she
acted in good faith and in a manner he/she 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 his/her
conduct was unlawful. The termination of any action, suit or proceeding by
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judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself create a presumption that the person did
not act in good faith and in a manner which he/she reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his/her
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he/she 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) actually and reasonably incurred by him/her
in connection with the defense or settlement of such action or suit if he/she
acted in good faith and in a manner he/she reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine 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
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indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) or (b), or in defense
of any claim, issue or matter therein, he/she shall be indemnified against
expenses (including attorneys, fees) actually and reasonably incurred by him/her
in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he/she has met
the applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he/she is not entitled to be
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indemnified by the Corporation as authorized in this Article EIGHTH.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to this Article EIGHTH shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
maybe entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to actions in his/her official
capacity and as to actions in another capacity while holding such office.
(g) The Corporation shall have power to 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
him/her and incurred by him/her in any such capacity, or arising out of his/her
status as such, whether or not the Corporation would have the power to indemnify
him/her against such liability under the provisions of this Article EIGHTH.
(h) The indemnification and advancement of expenses provided by,
or granted pursuant to this Article EIGHTH shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(i) The Corporation shall at all times have the maximum power to
indemnify any individual, corporation,
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partnership, joint venture, trust, or other persons, as shall be lawful, under
the laws of the State of Delaware, the provisions of this Article EIGHTH
notwithstanding and not intended to limit such powers of indemnification.
(j) For the purposes of this Article EIGHTH, references to "the
Corporation" include all constituent corporations absorbed in a consolidation or
merger as well as the resulting or surviving corporation so that any person who
is or was a director, officer, employee or agent of, such a constituent
corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise shall stand in the same position under
the provisions of this Article EIGHTH with respect to the resulting or surviving
corporation as he/she would if he/she had served the resulting or surviving
corporation in the same capacity.
NINTH: No Director shall be personally liable to the Corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director (a) shall be liable
under Section 174 of the General Corporation Law or any amendment thereto or
successor provisions thereto or (b) shall be liable by reason that, in addition
to any and all other requirements for such liability, he/she (i) shall have
breached his/her duty of loyalty to the Corporation or its stockholders, (ii)
shall not have acted in good faith or, in failing to act, shall not have acted
in good faith, (iii) shall have acted in a manner involving intentional
misconduct
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or a knowing violation of law or, in failing to act, shall have acted in a
manner involving intentional misconduct or a knowing violation of law or (iv)
shall have derived an improper personal benefit. Neither the amendment nor
repeal of this Article NINTH nor the adoption of any provision of this
Certificate of Incorporation inconsistent with this Article NINTH shall
eliminate or reduce the effect of this Article NINTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
NINTH would accrue or arise, prior, to such amendment, repeal or adoption of an
inconsistent provision.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article TENTH.
ELEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have the power to make, amend or repeal
the By-Laws.
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IN WITNESS WHEREOF, I, THE UNDERSIGNED, being the incorporator hereinbefore
named, for the purposes of forming a corporation pursuant to the General
Corporation Law, do make this certificate, hereby declaring and certifying that
this is my act and deed and the facts herein stated are true, and accordingly,
have hereunto set my hand this 8th day of February 1996.
/s/ Manuel Rubio
------------------------------
Manuel Rubio, Incorporator
3241 Corlear Avenue
Bronx, New York 10463
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Exhibit 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
GO2NET, INC.
go2net, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows:
The Corporation was originally incorporated under the name of
"GO2NET, INC." and the date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was
February 12, 1996.
The Board of Directors of the Corporation, at a special
meeting held on December __, 1996, duly adopted resolutions setting
forth the Restated Certificate of Incorporation herein contained,
declaring its advisability and directing that such Restated Certificate
of Incorporation be submitted to the holders of the issued and
outstanding Common Stock, $.01 par value, for approval in accordance
with the applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and the Corporation's
Certificate of Incorporation. The Restated Certificate of Incorporation
was duly adopted, after having been declared advisable by the Board of
Directors of the Corporation, by a majority of the outstanding shares
of Common Stock, $.01 par value, of the Corporation, all in accordance
with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware and the Corporation's
Certificate of Incorporation, as previously amended.
The text of the Certificate of Incorporation of the
Corporation, as restated and amended (herein called the "Restated
Certificate of Incorporation") shall read in its entirety as follows:
FIRST: The name of the Corporation shall be:
go2net, Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at 1209 Orange Street, in the City of Wilmington, State of
Delaware, and its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose or purposes of the Corporation shall be to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
<PAGE> 2
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is:
10,000,000 shares, consisting of 9,000,000 shares of common
stock with $.01 par value per share (herein called the "Common
Stock"); and 1,000,000 shares of Preferred Stock with $.01 par
value per share (herein called the "Preferred Stock").
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or special, preferential or no voting
powers), relative, participating, optional or other special rights and
privileges and the qualifications, limitations and restrictions of the Preferred
Stock and Common Stock are as follows:
A. COMMON STOCK
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of holders of the
Preferred Stock.
2. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
3. Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to holders of Common Stock,
subject to any preferential rights of any then outstanding Preferred Stock.
4. Voting Rights. Except as otherwise required by law or this Restated
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by him of record on the books of the
Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation. There shall be no cumulative voting.
B. PREFERRED STOCK
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of Directors of
the Corporation may determine. Each series shall be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
Except as otherwise provided in this Restated Certificate of Incorporation,
different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purpose of voting by classes.
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The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the undesignated Preferred Stock in one or more
series, each with such designations, preferences, voting powers (or special,
preferential or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by the Board of Directors to create such series, and a certificate of said
resolution or resolutions shall be filed in accordance with the General
Corporation Law of the State of Delaware. The authority of the Board of
Directors with respect to each such series shall include, without limitation of
the foregoing, the right to provide that the shares of each such series may be:
(i) subject to redemption at such time or times and at such price or prices;
(ii) entitled to receive dividends (which may be cumulative or non-cumulative)
at such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
or any other series; (iii) entitled to such rights upon the dissolution of, or
upon any distribution of the assets of, the Corporation; (iv) convertible into,
or exchangeable for, shares of any other class or classes of stock, or of any
other series of the same or any other class or classes of the Corporation at
such price or prices or at such rates of exchange and with such adjustments, if
any; (v) entitled to the benefit of such limitations, if any, on the issuance of
additional shares of such series or shares of any other series of Preferred
Stock; or (vi) entitled to such other preferences, powers, qualifications,
rights and privileges, all as the Board of Directors may deem advisable and as
are not inconsistent with law and the provisions of this Restated Certificate of
Incorporation.
FIFTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
SIXTH: The Corporation hereby affirmatively elects in this Restated
Certificate of Incorporation to be governed by Section 203 of the General
Corporation Law of Delaware.
SEVENTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding
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any provision of law imposing such liability; provided that, to the extent
provided by applicable law, this provision shall not eliminate the liability of
a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly authorized to
adopt, amend, or repeal the By-laws of the Corporation.
B. Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
* * * * *
IN WITNESS WHEREOF, go2net, Inc. has caused its corporate seal to be
hereunto affixed and this Restated Certificate of Incorporation to be signed by
its President, Russell C. Horowitz, who hereby acknowledges under penalties of
perjury that the facts herein stated are true and that this Restated Certificate
of Incorporation is his act and deed, and attested by its Secretary, Manuel
Rubio, as of the day of January, 1997.
go2net, Inc.
By:
----------------------------
Russell C. Horowitz
President
ATTEST:
By:
---------------------------
Manuel Rubio
Secretary
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EXHIBIT 3.3
GO2NET, INC.
Incorporated Under the Laws of the
State of Delaware
AMENDED AND RESTATED BY-LAWS
----------------------------
ARTICLE I.
OFFICES
The principal office of GO2NET, INC. (the "Corporation") shall be located
in the City of Seattle, State of Washington or such other place as the Board of
Directors shall from time to time designate. The Corporation may also have such
other offices at such other places, either within or without the State of
Washington or Delaware, as the Board of Directors may from time to time
designate or the business of the Corporation may require.
ARTICLE II.
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of shareholders for the
election of Directors and the transaction of any other business shall be held on
the first day of May of each year, or as soon after such date as may be
practicable, in such City and State and at such time and place as may be
designated by the Board of Directors, and set forth in the notice of such
meeting. If said day be a legal holiday, said meeting shall be held on the next
succeeding business day. At the annual meeting any business may be transacted
and any corporate action may be taken, whether stated in the notice of meeting
or not, except as otherwise expressly provided by statute or the Certificate of
Incorporation.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose may be called at any time by the Board of Directors, or by the
President, and shall be called by the President at the request of the holders of
a majority of the outstanding shares of capital stock entitled to vote. Special
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meetings shall be held at such place or places within or without the State of
Washington or Delaware as shall from time to time be designated by the Board of
Directors and stated in the notice of such meeting. At a special meeting no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the meeting.
Section 3. NOTICE OF MEETINGS. Written notice of the time and place of any
shareholder's meeting, whether annual or special, shall be given to each
shareholder entitled to vote thereat, by mailing the same to him at this address
as the same appears upon the records of the Corporation at least ten days nor
more than fifty days before the day of the meeting. Notice of any adjourned
meeting need not be given other than by announcement at the meeting so
adjourned, unless otherwise ordered in connection with such adjournment. Such
further notice, if any, shall be given as may be required by law.
Section 4. WAIVER OF NOTICE. Notice of Meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy, without protesting before the conclusion of the
meeting the lack of notice of such meeting, shall constitute a waiver of notice
by him.
Section 5. QUORUM. Any number of shareholders, together holding at least a
majority of the capital stock of the Corporation issued and outstanding and
entitled to vote, who shall be present in person or represented by proxy at any
meeting duly called, shall constitute a quorum for the transaction of all
business.
Section 6. ADJOURNMENT OF MEETINGS. If less than a quorum shall attend at
the time for which a meeting shall have been called, the meeting may adjourn
from time to time by a majority vote of the shareholders present or represented
by proxy and entitled to vote, without notice other than by announcement at the
meeting until a quorum shall attend. Any meeting at which a quorum is present
may also be adjourned in like manner and for such time or upon such call as may
be determined by a majority vote of the shareholders present or represented by
proxy and entitled to vote. At any adjourned meeting at which a quorum
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shall be present, any business may be transacted and any corporate action may be
taken which might have been transacted at the meeting as originally called.
Section 7. VOTING LIST. The Secretary shall prepare and make, at least ten
days before every election of directors, a complete list of the shareholders
entitled to vote, arranged in alphabetical order. Such list shall be open at the
place where the election is to be held for said ten days, to the examination of
any shareholder, and shall be produced and kept at the time and place of the
election during the whole time thereof, and subject to the inspection of any
shareholder who may be present.
Section 8. VOTING. Each shareholder entitled to vote at any meeting may
vote either in person or by proxy, but no proxy shall be voted on or after
eleven months from its date, unless said proxy provides for a longer period.
Each shareholder entitled to vote shall at every meeting of the shareholders be
entitled to one vote (except as otherwise provided for in the Corporation's
Certificate of Incorporation, as the same may be amended from time to time) for
each share of stock registered in his name on the books of the Corporation,
provided, however, that, except where the transfer books of the Corporation
shall have been closed or a date shall have been fixed as a record date for the
determination of its shareholders entitled to vote, as hereinafter provided, no
share of stock shall be voted on at any election for Directors which shall have
been transferred on the books of the Corporation within twenty days next
preceding such election of Directors. At all meetings of shareholders all
matters, except as otherwise provided by the Corporation's Certificate of
Incorporation (as the same may be amended from time to time) or statute, shall
be determined by a majority vote of the shareholders present or represented by
proxy and entitled to vote.
Section 9. RECORD DATE OF SHAREHOLDERS. The Board of Directors is
authorized to fix in advance a date not exceeding fifty days nor less than ten
days preceding the date of any meeting of shareholders, or the date for the
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into effect,
or a date in connection with obtaining the consent of shareholders for any
purposes as a record date for the determination of the shareholders entitled to
notice of, and to
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vote at, any such meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to exercise
the rights in respect of any such change, conversion or exchange of capital
stock, or to give such consent, and, in such case, such shareholders and only
such shareholders as shall be shareholders of records on the date so fixed shall
be entitled to such notice of, and to vote at, such meeting, and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment or
rights, or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation, after
such record date fixed as aforesaid.
Section 10. CONDUCT OF MEETINGS. The Chairman of the Board of Directors or,
in his absence the President or any Vice President designated by the Chairman of
the Board, shall preside at all regular or special meetings of shareholders. To
the maximum extent permitted by law, such presiding person shall have the power
to set procedural rules, including but not limited to rules respecting the time
allotted to shareholders to speak, governing all aspects of the conduct of such
meetings.
ARTICLE III
DIRECTORS
Section 1. NUMBER AND QUALIFICATIONS. The Board of Directors shall consist
of no less than one director, and may consist of such greater number as may be
fixed from time to time by resolution of the Board. The Directors need not be
residents of the State of Washington or Delaware, or shareholders of the
Corporation.
Section 2. ELECTION OF DIRECTORS. The Directors shall be elected by the
shareholders at the annual meeting of shareholders.
Section 3. DUTIES OF DIRECTORS. In performing the duties of a Director, a
Director shall be entitled to rely on information, opinions, reports, or
statements, including financial statements and other financial data, in each
case prepared or presented by:
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(a) One or more officers or employees of the Corporation whom the
Director believes to be reliable and competent in the matter presented;
(b) Counsel, public accountants or other persons as to matter which
the Director believes to be within such person's professional or expert
competence; or
(c) A committee of the Board of Directors upon which the Director does
not serve, duly designated in accordance with a provision in the Corporation's
Certificate of Incorporation (as the same may be amended from time to time) or
these By-Laws, as to matters within its designated authority, which committee
the Director believes to merit confidence; so long as, in any such case, the
Director acts in good faith, after reasonable inquiry when the need therefor is
indicated by the circumstances and without knowledge that would cause such
reliance to be unwarranted.
Section 4. DURATION OF OFFICE. The Directors chosen at any annual meeting
shall, except as hereinafter provided, hold office until the next annual
election and until the election and qualification of their successors.
Section 5. REMOVAL AND RESIGNATION OF DIRECTORS. Any Director may be
removed from the Board of Directors, with or without cause, by the holders of a
majority of the shares of capital stock entitled to vote, at any special meeting
of the shareholders called for that purpose, and the office of such Director
shall forthwith become vacant. Any Director may be removed from the Board of
Directors, with cause, by a majority of the Board of Directors at any special
meeting of the Board of Directors called for that purpose.
Any Director may resign at any time. Such resignation shall take effect at
the time specified therein, and if no time be specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation shall not
be necessary to make it effective, unless so specified therein.
Section 6. FILLING OF VACANCIES. Any vacancy among the Directors, occurring
from any cause whatsoever, may be filled
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by a majority of the remaining Directors, though less than a quorum, provided,
however, that the shareholders removing any Director may at the same meeting
fill the vacancy caused by such removal, and provided further, that if the
Directors fail to fill any such vacancy, the shareholders may at any special
meeting called for that purpose fill such vacancy. In case of any increase in
the number of Directors, the additional Directors may be elected by the
Directors in office prior to such increase.
Any person elected to fill a vacancy shall hold office, subject to the
right of removal as hereinbefore provided, until the next annual election and
until the election and qualification of his successor.
Section 7. REGULAR MEETINGS. The Board of Directors shall hold an annual
meeting for the purpose of organization and the transaction of any business
immediately after the annual meeting of the shareholders, provided a quorum is
present. Other regular meetings may be held at such times as may be determined
from time to time by resolution of the Board of Directors.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board of Directors, if any, or by the
President.
Section 9. NOTICE AND PLACE OF MEETINGS. Regular meetings of the Board of
Directors may be held without notice at the principal office of the Corporation,
or at such place as shall be designated by the Board of Directors. Notice shall
be required for any special meeting, and, except as the Board of Directors may
otherwise determine by resolution, shall be mailed to each Director addressed to
him at his residence or usual place of business at least five days before the
day on which the meeting is to be held. No notice of the annual meeting shall be
required if held immediately after the annual meeting of the shareholders and if
a quorum is present.
Notice of a meeting need not be given to any Director who submits a signed
waiver before or after the meeting, nor to any Director who attends the meeting
without protesting prior thereto or at its commencement the lack of notice.
Section 10. BUSINESS TRANSACTED AT MEETINGS. Any
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business may be transacted and any corporate action may be taken at any regular
or special meeting of the Board of Directors at which a quorum shall be present,
whether such business or proposed action be stated in the notice of such meeting
or not, unless special notice of such business or proposed action shall be
required by statute.
Section 11. QUORUM. A majority of the Board of Directors at any time in
office, shall constitute a quorum. At any meeting at which a quorum is present,
the vote of a majority of the members present shall be the act of the Board of
Directors unless the act of a greater number is required by law, the Certificate
of Incorporation or these By-laws. If a quorum is not present at the meeting of
the Board of Directors, a majority of the Directors may adjourn the meeting to
such time and place as they may determine without notice other than announcement
at the meeting until enough Directors to constitute a quorum shall attend. When
a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any one or more Directors.
Section 12. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board of Directors or such committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board of Directors or
such committee shall be filed with the minutes of the proceedings of the Board
of Directors or such committee.
Section 13. PARTICIPATION BY TELEPHONE OR BY OTHER ELECTRONIC MEDIA. Any
one or more members of the Board of Directors or any committee thereof may
participate in a meeting of the Board of Directors or such committee by means of
a conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
Section 14. COMPENSATION. The Board of Directors may establish by
resolution reasonable compensation of all Directors for services to the
Corporation as Directors, including a fixed fee, if any, incurred in attending
each meeting. Nothing herein
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contained shall preclude any Director from serving the Corporation in any other
capacity, as an officer, agent or otherwise, and receiving compensation
therefor.
ARTICLE IV
COMMITTEES
Section 1. EXECUTIVE COMMITTEE. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate two or more of
their number to constitute an Executive Committee to hold office during the
pleasure of the Board of Directors, which Executive Committee shall, during the
intervals between meetings of the Board of Directors, have and exercise all of
the powers of the Board of Directors in the management of the business and
affairs of the Corporation, subject only to such restrictions or limitations as
the Board of Directors may from time to time specify, or as limited by the
General Corporation Law, and shall have power to authorize the seal of the
Corporation to be affixed to all papers which may require it.
Any member of the Executive Committee may be removed at any time, with or
without cause, by a resolution of a majority of the whole Board of Directors.
Any person ceasing to be a Director shall IPSO FACTO cease to be a member
of the Executive Committee.
Any vacancy in the Executive Committee occurring from any cause whatsoever
may be filled from among the Directors by a resolution of a majority of the
whole Board of Directors.
Section 2. OTHER COMMITTEES. Other committees, whose members need not be
Directors, may be appointed by the Board of Directors, which committees shall
hold office for such time and have such powers and perform such duties as may
from time to time be assigned to them by the Board of Directors or the committee
appointing them.
Any member of such a committee may be removed at any time, with or without
cause, by the Board of Directors or the
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committee appointing such committee. Any vacancy in a committee occurring from
any cause whatsoever may be filled by the Board of Directors or the committee
appointing such committee.
Section 3. RESIGNATION. Any member of a committee may resign at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective unless so specified therein.
Section 4. QUORUM. A majority of the members of a committee shall
constitute a quorum. The act of a majority of the members of a committee present
at any meeting at which a quorum is present shall be the act of such committee.
The members of a committee shall act only as a committee, and the individual
members thereof shall have no powers as such.
Section 5. RECORD OF PROCEEDINGS. Each committee shall keep a record of its
acts and proceedings, and shall report the same to the Board of Directors when
and as required by the Board of Directors.
Section 6. ORGANIZATION, MEETINGS, NOTICES. A committee may hold its
meetings at the principal office of the Corporation, or at any other place which
majority of the committee may at any time agree upon. Each committee may make
such rules as it may deem expedient for the regulation and carrying on of its
meetings and proceedings. Unless otherwise ordered by the Executive Committee,
any notice of a meeting of such Executive Committee may be given by the
Secretary or by the chairman of the Executive Committee and shall be
sufficiently given if mailed to each member at his residence or usual place of
business at least two days before the day on which the meeting is to be held, or
if sent to him at such place by telegraph or facsimile transmission, or
delivered personally or by telephone no later than 24 hours before the time at
which the meeting is to be held.
Section 7. COMPENSATION. The members of any committee shall be entitled to
such compensation as may be allowed them by resolution of the Board of
Directors.
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ARTICLE V
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a President, a
Chief Financial Officer, a Chief Executive Officer, one or more Vice Presidents,
a Secretary and a Treasurer, and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article V. The Board of
Directors in its discretion may also elect a Chairman of the Board of Directors.
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers,
except as provided in Section 3 of this Article V, shall be chosen annually by
the Board of Directors. Each such officer shall, except as herein otherwise
provided, hold office until his successor shall have been chosen and shall
qualify. Any two or more offices may be held by the same person except the
offices of the President and Secretary.
Section 3. OTHER OFFICERS. Other officers, including one or more vice
presidents, assistant secretaries or assistant treasurers, may from time to time
be appointed by the Board of Directors, which other officers shall have such
powers and perform such duties as may be assigned to them by the Board of
Directors or the officer or committee appointing them.
Section 4. REMOVAL OF OFFICERS. Any officer of the Corporation may be
removed from office, with or without cause, by a vote of a majority of the Board
of Directors.
Section 5. RESIGNATION. Any officer of the Corporation may resign at any
time. Such resignation shall be in writing and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary in order to make it effective, unless so specified therein.
Section 6. FILLING OF VACANCIES. A vacancy in any office shall be filled by
the Board of Directors.
Section 7. COMPENSATION. The compensation of the
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officers shall be fixed by the Board of Directors, or by any committee upon whom
power in that regard may be conferred by the Board of Directors.
Section 8. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of
Directors, if any, shall be a Director and shall preside at all meetings of the
Board of Directors and of the shareholders at which he shall be present. He
shall have such power and perform such duties as may from time to time be
assigned to him by the Board of Directors.
Section 9. PRESIDENT. The President shall have the general direction of the
business affairs and property of the Corporation, and of its several officers,
and shall have and exercise all such powers and discharge such duties as usually
pertain to the office of President. He shall have responsibility for the
day-to-day affairs of the Corporation subject to the control of the Board of
Directors. He shall perform such duties as may be assigned to him from time to
time by the Board of Directors and shall, in the absence of the Chairman of the
Board of Directors, if any, perform and carry out the functions of the Chairman
of the Board of Directors.
Section 10. VICE PRESIDENTS. The Vice Presidents, if any, shall, subject to
the direction of the Board of Directors, at the request of the President or in
his absence, or in case of his inability to perform his duties from any cause,
perform the duties of the President, and, when so acting, shall have all the
powers of, and be subject to all restrictions upon, the President. The Vice
Presidents shall also perform such other duties as may be assigned to them by
the Board of Directors, and the Board of Directors may determine the order of
priority among them.
Section 11. SECRETARY. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the shareholders and record all votes and
minutes of all proceedings in a book to be kept for that purpose. He shall give
or cause to be given notice of all meetings of shareholders and special meetings
of the Board of Directors and shall perform such other duties as may be
prescribed by the Board of Directors. He shall keep in safe custody the seal of
the Corporation and affix it to any instrument when authorized by the Board of
Directors.
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Section 12. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the president and Directors at the regular meetings of the Board of
Directors, or whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.
ARTICLE VI
CAPITAL STOCK
Section 1. ISSUE OF CERTIFICATE OF STOCK. Certificates of capital stock
shall be in such form as shall be approved by the Board of Directors. They shall
be numbered in the order of their issue, shall set forth thereon such
statements, if any, prescribed by the General Corporation Law and by any other
applicable provision of law and shall be signed by the President or any Vice
President, and the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer, and the seal of the Corporation or a facsimile thereof
shall be impressed or affixed or reproduced thereon.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates have not ceased to be such officer or officers of the Corporation.
Section 2. REGISTRATION AND TRANSFER OF SHARES. The name of each person
owning a share of the capital stock of the Corporation shall be entered on the
books of the Corporation together with the number of shares held by him, the
numbers of the
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certificates covering such shares and the dates of issue of such certificates.
The shares of stock of the Corporation shall be transferable on the books of the
Corporation by the holders thereof in person, or by their duly authorized
attorneys or legal representatives, on surrender and cancellation of
certificates for a like number of shares, accompanied by an assignment of power
of transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require. A record shall be made of each transfer.
The Board of Directors may make other and further rules and regulations
concerning the transfer and registration of certificates for stock.
Section 3. LOST, DESTROYED AND MUTILATED CERTIFICATES. The holder of any
stock of the Corporation shall immediately notify the Corporation of any loss,
theft, destruction or mutilation of the certificate therefor. The Corporation
may issue a new certificate of stock in the place of any certificate theretofore
issued by it alleged to have been lost, stolen or destroyed, and the Board of
Directors may, in its discretion and as a precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate, or his legal
representatives, to give the Corporation a bond, in such sum not exceeding
double the value of the stock and with such surety or sureties as they may
require, to indemnify it against any claim that may be made against it by reason
of the issue of such new certificate and against all other liability in the
premises, or may remit such owner to such remedy or remedies as he may have
under the laws of the State of Delaware.
ARTICLE VII
DIVIDENDS AND SURPLUS
Section 1. GENERAL DISCRETION OF DIRECTORS. The Board of Directors shall
have power to fix and vary the amount to be set aside or reserved as working
capital of the Corporation, or as reserves, or for other proper purposes of the
Corporation, and, subject to the requirements of the Certificate of
Incorporation, to determine whether, if any, part of the surplus or net profits
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of the Corporation shall be declared in dividends and paid to the shareholders
and to fix the date or dates for the payment of dividends.
ARTICLE VIII
INDEMNIFICATION
Section 1. THIRD PARTY ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he 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 (each an "Indemnitee"),
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
Section 2. DERIVATIVE ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he 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 attorney's fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit.
Section 3. EXPENSES. To the extent that a Director, officer, employee or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 1 and 2, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
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Section 4. Authorization and Request for Indemnification.
(a) Any indemnification requested by the Indemnitee under Section 1
hereof shall be made no later than ten (10) days after receipt of
the written request of the Indemnitee, unless it shall have been
adjudicated by a court of final determination that the Indemnitee
did not act in good faith and in a manner he 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 his conduct was
unlawful.
(b) Any indemnification requested by the Indemnitee under Section 2
hereof shall be made no later than ten (10) days after receipt of
the written request of the Indemnitee, unless it shall have been
adjudicated by a court of final determination that the Indemnitee
did not act in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the
Corporation, the Indemnitee shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to
willful misconduct of a culpable nature in the performance of the
Indemnitee's duty to the Corporation unless and only to the extent
that any court in which such proceeding was brought shall
determine 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 indemnify for such
expenses as such court shall deem proper.
Section 5. ADVANCE PAYMENT OF EXPENSES. Subject to Section 4 above, the
Corporation shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Corporation. The Indemnitee
hereby undertakes to repay such amounts advanced only if, and to the extent
that, it shall ultimately be determined that the Indemnitee is not entitled to
be indemnified by the Corporation. The advances to be made hereunder shall be
paid by the Corporation to or on behalf of the Indemnitee within 30 days
following delivery of a written request therfor by the Indemnitee
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to the Corporation.
Section 6. NON-EXCLUSIVENESS. The indemnification provided by this Article
VIII shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 7. INSURANCE. The Corporation shall have power to 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 him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VIII.
Section 8. CONSTITUENT CORPORATIONS. The Corporation shall have power to
indemnify any person who is or was a director, officer, employee or agent of a
constituent corporation absorbed in a consolidation or merger with the
Corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in the same manner as hereinabove
provided for 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.
Section 9. ADDITIONAL INDEMNIFICATION. In addition to the foregoing
provisions of this Article VIII, the Corporation shall have the power, to the
full extent provided by law, to indemnify any person for any act or omission of
such person against all loss, cost, damage and expense (including attorney's
fees) if such person is determined (in the manner prescribed in Section 4
hereof) to have acted in good faith and in a manner he reasonably
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<PAGE> 17
believed to be in, or not opposed to, the best interests of the Corporation.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 1. FISCAL YEAR. The fiscal year of the Corporation shall commence
on the first day of January and end on the last day of December or such dates as
the Board of Directors may determine by resolution.
Section 2. CORPORATE SEAL. The corporate seal shall be in such form as
approved by the Board of Directors and may be altered at their pleasure. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
Section 3. NOTICES. Except as otherwise expressly provided any notice
required by these By-Laws to be given shall be sufficient if given by depositing
the same in a post office letter box in a sealed post-paid wrapper addressed to
the person entitled thereto at his address, as the same appear upon the books of
the Corporation, or by telegraphing or faxing the same to such person at such
addresses, and such notice shall be deemed to be given at the time it is mailed,
telegraphed or faxed.
Section 4. WAIVER OF NOTICE. Any shareholder or Director may at any time,
by writing or by telegraph or by facsimile transmission, waive any notice
required to be given under these By-Laws, and if any shareholder or Director
shall be present at any meeting his presence shall constitute a waiver of such
notice.
Section 5. CONTRACTS, CHECKS, DRAFTS. The Board of Directors, except as may
otherwise be required by law, may authorize any officer or officers, agent or
agents, in the name of and on behalf of the Corporation to enter into any
contract or execute or deliver any instrument. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation, shall be signed by such officer or officers,
agent or agents of the Corporation, and in such manner, as shall from time to
time be designated by resolution of the Board of Directors.
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<PAGE> 18
Section 6. DEPOSITS. All funds of the Corporation shall be deposited from
time to time to the credit of the Corporation in such bank or banks, trust
companies or other depositories as the Board of Directs may select, and, for the
purpose of such deposit, checks, drafts, warrants and other orders for the
payment of money which are payable to the order of the Corporation, may be
endorsed for deposit, assigned and delivered by any officer of the Corporation,
or by such agents of the Corporation as the Board of Directors or the President
may authorize for that purpose.
Section 7. VOTING STOCK OF OTHER CORPORATIONS. Except as otherwise ordered
by the Board of Directors, the Chairman of the Board, if any, or the Executive
Committee, if any, the President shall have full power and authority on behalf
of the Corporation to attend and to act and to vote at any meeting of the
shareholders of any corporation of which the Corporation is a shareholder and to
execute a proxy to any other person to represent the Corporation at any such
meeting, and at any such meeting the President or the holder of any such proxy,
as the case may be, shall possess and may exercise any and all rights and powers
incident to ownership of such stock and which, as owner thereof, the Corporation
might have possessed and exercised if present. The Board of Directors or the
Executive Committee may from time to time confer like powers upon any other
person or persons.
ARTICLE X
AMENDMENTS
The Board of Directors shall have the power to make, rescind, alter, amend
and repeal these By-Laws, provided, however, that the shareholders shall have
power to rescind, alter, amend or repeal any by-laws made by the Board of
Directors, and to enact by-laws which if so expressed shall not be rescinded,
altered, amended or repealed by the Board of Directors.
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<PAGE> 1
EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of ______ __, 1996, between GO2NET, INC.,
a Delaware corporation (the "Company"), and _________________________ (the
"Subscriber").
A. Subscription. Subject to the terms and conditions of this subscription
agreement (the "Subscription Agreement"), the Subscriber hereby agrees to
purchase, and the Company agrees to sell, ________ shares (the "Shares") of the
Company's 9% Cumulative Redeemable Convertible Preferred Stock, par value $1.00
per share (the "Preferred Stock"), at a subscription price of $___ per share
(the "Purchase Price"). Payment for the Shares shall be made by delivery to the
Company of a check in the amount of the aggregate Purchase Price for the Shares
made payable to the Company.
B. Acceptance of Subscription. The Subscriber acknowledges that the Company
has the right to accept or reject this subscription, in whole or in part, for
any reason, and that this subscription shall be deemed to be accepted by the
Company only when it is signed on its behalf. The Subscription Agreement either
will be accepted or rejected, in whole or in part, as promptly as practical
after receipt. Upon rejection of this Subscription Agreement for any reason, all
items received with this Subscription Agreement shall be returned to the
Subscriber without deduction for any fee, commission or expense, and without
accrued interest with respect to any money received, and this Subscription
Agreement shall be deemed to be null and void and of no further force or effect.
C. Representations, Warranties and Covenants of the Subscriber. The
Subscriber hereby represents and warrants to, and covenants with, the Company as
follows:
1. The Subscriber is either (i) an "accredited investor", as such term
is defined in Rule 501 of Regulation D promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), or (ii) a "qualified investor",
defined as an investor who has a net worth, exclusive of homes, furnishings
and automobiles, of more than five (5) times the amount of the aggregate
Purchase Price described in paragraph A above. The Subscriber agrees to
provide the Company with any information which the Company may request in
order to confirm the Subscriber's status as either an "accredited investor"
or "qualified investor";
2. The Subscriber has relied solely upon investigations made by or on
behalf of the Subscriber or his representative in evaluating the
suitability of an investment in the Company and recognizes that an
investment in the Company involves a high degree of risk;
3. The Subscriber has been advised that (i) it is unlikely that there
will be a market for the Shares; and (ii) it may not be possible to readily
liquidate this investment;
4. The Subscriber's overall commitment to investments which are not
readily marketable is not disproportionate to his net worth; his investment
in the Company will not cause such overall commitment to become excessive;
and he can afford to bear the loss of his entire investment in the Company;
<PAGE> 2
5. The Subscriber has adequate means of providing for his current
needs and personal contingencies and has no need for liquidity in his
investment in the Company;
6. The Subscriber satisfies any special suitability or other
applicable requirements of his state of residence and/or the state in which
the transaction by which the Shares are purchased occurs;
7. The Subscriber has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of
an investment in the Company, or the Subscriber has employed the services
of an independent investment advisor, attorney or accountant to assist in
the evaluation of the merits of an investment in the Company. The
Subscriber acknowledges that the Company has neither developed nor prepared
a business plan and that the Company has not determined what products or
services to develop and offer for sale;
8. The Subscriber has received, read, understood and is familiar with
the "Risk Factors" (set forth on Exhibit A hereto) which set forth certain
risks to be considered in evaluating an investment in the Company and the
Company's Certificate of Incorporation (set forth on Exhibit B hereto)
which sets forth, among other things, the preferences, designations and
limitations of the Shares. The Subscriber recognizes that the Company is a
newly formed corporation and does not have, nor has it ever had,
operational income or assets;
9. The Subscriber confirms that the Company has made available to
Subscriber the opportunity to ask questions of, and receive answers from,
the Company concerning the Company and the activities of the Company, and
otherwise to obtain any additional information, to the extent that the
Company possesses such information;
10. The Subscriber hereby acknowledges that the Subscriber has been
advised that this offering of the Shares has not been registered with, or
reviewed by, the Securities and Exchange Commission (the "SEC") or any
state securities agency because this offering of the Shares is intended to
be a non-public offering pursuant to Section 4(2) of the Securities Act and
the relevant state securities laws. The Subscriber represents that the
Shares are being purchased for the Subscriber's own account, for investment
purposes only and not with a view towards distribution or resale to others.
The Subscriber agrees that the Subscriber will not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Shares unless they are registered under the Securities Act and the relevant
state securities laws, or unless in the opinion of counsel satisfactory to
the Company an exemption from such registration is available. The
Subscriber understands that the Shares have not been registered under the
Securities Act or any state securities laws by reason of a claimed
exemption under the provisions of the Securities Act and the relevant state
securities laws which depend, in part, upon the Subscriber's investment
intention. In this respect, the Subscriber understands that it is the
position of the SEC and various state securities agencies that the
statutory basis for such exemption would not be present if the Subscriber's
representations merely meant that the Subscriber's present intention was to
hold such Shares for a short period, such as the capital gains period of
tax statutes, for a deferred
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<PAGE> 3
sale or for any other fixed period. The Subscriber realizes that the SEC or
certain state securities agencies might regard a purchase with an intent
inconsistent with the Subscriber's representations to the Company, and a
sale or disposition thereof, as a deferred sale to which the exemption is
not available;
11. The Subscriber understands that no securities administrator of any
state has made any finding or determination relating to the fairness of
this investment and that no securities administrator of any state has
recommended or endorsed, or will recommend or endorse, the offering of the
Shares;
12. The execution, delivery and performance by the Subscriber of the
Subscription Agreement are within the powers of the Subscriber, have been
duly authorized and will not constitute or result in a breach or default
under, or conflict with, any order, ruling or regulation of any court or
other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Subscriber is a party or by
which the Subscriber is bound; and, if the Subscriber is not an individual,
will not violate any provision of the charter documents, by-laws, indenture
of trust or partnership agreement, as applicable, of the Subscriber. The
signatures on the Subscription Agreement are genuine; and the signatory, if
the Subscriber is an individual, has legal competence and capacity to
execute the same, or, if the Subscriber is not an individual, the signatory
has been duly authorized to execute the same; and the Subscription
Agreement constitutes the legal, valid and binding obligations of the
Subscriber, enforceable in accordance with its terms except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization or other similar laws and legal and equitable principles
limiting or affecting the rights of creditors generally and/or (ii) general
principles of equity, regardless of whether considered in a proceeding in
equity or at law;
13. The Subscriber acknowledges that no general solicitation or
general advertising (including communications published in any newspaper,
magazine or other broadcast) has been received by him and that no public
solicitation or advertisement with respect to the offering of the Shares;
14. The Subscriber has relied solely upon the advice of his own tax
and legal advisors with respect to the tax and other legal aspects of this
investment;
15. The Subscriber understands that the Company will review this
Subscription Agreement and certain additional information, where
applicable, and the Company is hereby given authority by the Subscriber to
call the Subscriber's bank or place of employment or otherwise investigate
or review the financial standing of the Subscriber; and it is further
agreed that the Company reserves the unrestricted right to reject or limit
any subscription and to close or terminate the offering of the Shares for
any reason whatsoever;
16. The Subscriber is not aware that any person, and has been advised
that no person, will receive from the Company any compensation as a broker,
finder, adviser or in any other capacity in connection with the purchase of
Shares. The Company has also
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<PAGE> 4
agreed to indemnify its affiliates and certain other related persons
against certain liabilities under the federal securities laws, including
its general partner and its affiliates; and
17. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY
ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY
WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
The foregoing representations and warranties are true and accurate as of
the date hereof, shall be true and accurate as of the date of delivery of this
Subscription Agreement and accompanying documents to the Company and shall
survive the delivery of the Shares. If, in any respect, those representations
and warranties shall not be true and accurate prior to delivery of the payment
pursuant to paragraph A hereof, the undersigned shall immediately give written
notice to the Company specifying which representations and warranties are not
true and accurate and the reason therefor.
D. Indemnification. The Subscriber acknowledges that he understands the
meaning and legal consequences of the representations, warranties and covenants
in paragraph C hereof and that the Company has relied upon such representations,
warranties and covenants, and he hereby agrees to indemnify and hold harmless
the Company and its officers, directors, controlling persons, agents and
employees (collectively, the "Indemnified Persons"), who are or may be parties
or are or may be threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made or alleged to have been made by the undersigned to the Company or the
Indemnified Persons (or any agent or representative of any of them), or omitted
or alleged to have been omitted by the undersigned, concerning the undersigned
or the undersigned's authority to invest or financial position in connection
with the offering or sale of the Shares, including, without limitation, any such
misrepresentation, misstatement or omission contained herein, against losses,
damages, liabilities or expenses for which the Company or any Indemnified Person
has not otherwise been reimbursed (including attorney's fees, judgments, fines
and amounts paid in settlement) actually and reasonably incurred by the Company
or any Indemnified Person in connection with such action, suit or proceeding.
Notwithstanding the foregoing, however, no representation, warranty, covenant,
acknowledgment or agreement made herein by the Subscriber shall in any manner be
deemed to constitute a waiver of any rights granted to the Subscriber under
federal or state securities laws. All representations, warranties
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<PAGE> 5
and covenants contained in this Subscription Agreement and the indemnification
contained in this paragraph D shall survive the acceptance of this subscription.
E. Restrictions on Transfer. The Subscriber understands and agrees that the
following restriction and limitation is applicable to the Subscriber's
investment in the Shares pursuant to Section 4(2) of the Securities Act and
shall appear on each certificate representing the Shares:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS
AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
SATISFACTORY TO COUNSEL FOR THIS COMPANY, IS AVAILABLE."
F. Representations, Warranties and Covenants of the Company. The Company
hereby represents and warrants to, and covenants with, the Subscriber as
follows:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power to own and/or lease its properties and to conduct its
business as currently conducted;
2. The execution, delivery and performance of this Subscription
Agreement by the Company is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by (i) bankruptcy, insolvency,
moratorium, reorganization or other similar laws and legal and equitable
principles limiting or affecting the rights of creditors generally and/or
(ii) general principles of equity, regardless of whether considered in a
proceeding in equity or at law;
3. The Shares, when issued against payment therefor in accordance with
the terms and conditions hereof, will be validly issued, duly authorized,
fully paid and nonassessable shares of Preferred Stock and will be free of
any and all liens, options, encumbrances, charges, third-party rights or
claims of any nature whatsoever except for restrictions on transfers set
forth therein granted by the Subscriber or imposed by law; and
4. To the best of the Company's knowledge, no material consent,
approval, qualification, order or authorization of, or filing with, any
local, state, or federal governmental authority is required on the part of
the Company in connection with the Company's valid execution, delivery or
performance of this Subscription Agreement or the offer, sale or issuance
of the Shares, except for filings that shall be made at or prior to any
closing of the sale of Shares hereunder.
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<PAGE> 6
G. Modification. Neither this Subscription Agreement nor any provision
hereof shall be waived, modified, changed, discharged or terminated except by an
instrument in writing signed by the party against whom any waiver, modification,
change, discharge or termination is sought.
H. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
1. If to the Subscriber, to the address set forth on the signature
page of this Subscription Agreement;
2. If to the Company, to:
GO2NET, INC.
1301 Fifth Avenue
Suite 3320
Seattle, Washington 98101; or
3. At such other address as the Subscriber or the Company may
hereafter have advised the other.
I. Binding Effect. This Subscription Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and assigns.
J. Entire Agreement. This Subscription Agreement contains the entire
agreement of the parties with respect to the matters set forth herein and there
are no representations, covenants or other agreements except as stated or
referred to herein or as are embodied in the Agreement.
K. Assignability. This Subscription Agreement is not transferable or
assignable by the undersigned or any successor thereto.
L. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to the principles thereof relating to conflicts of law.
M. Certain Disclosures. The Company may present this Subscription Agreement
to such persons as they deem advisable if compelled by law or called upon to
establish the availability under any federal or state securities laws of an
exemption from registration of the private placement or if the contents thereof
are relevant to any issue in any action, suit, or proceeding to which the
Company is a party or by which it is or may be bound.
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<PAGE> 7
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of the _____ day of ________, 1996.
GO2NET, INC.
By:
-------------------------
Name: Russell C. Horowitz
Title: President
SUBSCRIBER
----------------------------
(Signature of Subscriber)
----------------------------
(Name Typed or Printed)
----------------------------
(Signature of Co-Subscriber)
----------------------------
(Name Typed or Printed)
TYPE OF OWNERSHIP
(CHECK ONE):
NATURAL PERSONS
_____ Individual Mailing Address (if not residence):
_____ Joint tenants with
rights of survivorship
_____ Tenants in common
_____ Tenants by the entirety
ENTITIES
_____ Corporation, Company or Trust Residence Address:
_____ Pension or Profit Sharing Plan or Trust
_____ Individual Retirement Account
_____ Tax Exempt Organization Estate
_____ Other (specify) _________________________
Social Security or Federal Tax Identification
Number of Subscriber: _____________________
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of 1st day of March, 1996, between GO2NET, INC., a
Delaware corporation (the "Corporation"), and RUSSELL C. HOROWITZ (the
"Employee").
WHEREAS, the Corporation desires to employ the Employee as President and
Chief Executive Officer; and
WHEREAS, the Employee desires to accept such employment with the
Corporation upon the terms and conditions offered;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth herein, the parties agree as follows:
1. EMPLOYMENT AND DUTIES.
a. The Corporation desires to employ the Employee and the Employee
desires to accept the positions of President and Chief Executive Officer. As the
President and Chief Executive Officer of the Corporation, the Employee shall
report to the Board of Directors.
b. As President and Chief Executive Officer, the Employee shall perform
such duties and services, consistent with those duties and services ordinarily
and customarily performed by a person holding such position in similar
organizations, as may be assigned to him from time to time by the Board of
Directors.
c. The Employee warrants and agrees to use his best efforts to perform
well and faithfully such duties and other reasonable duties and
responsibilities, consistent with his position properly assigned to him.
<PAGE> 2
2. DURATION OF AGREEMENT. Subject to the conditions set forth within, this
Agreement shall be in effect for a four-year period (forty-eight months)
commencing on the date of execution of the Agreement.
3. TIME TO BE DEVOTED TO EMPLOYMENT. The Corporation acknowledges that the
Executive is currently engaged in other business activity and that the Executive
shall continue to pursue such other business activities. As such the Employee
agrees to devote such time as the Executive deems necessary and appropriate to
serve the best interests of the Corporation.
4. RESTRICTIONS ON OTHER EMPLOYMENT. During the term of employment, the
Employee agrees that, unless he has the express prior written approval of the
Board of Directors, he shall not accept a membership on a Board of Directors,
act as an officer, employee or consultant, or engage in any other business
activity which is in a similar or competing business of the Corporation that
would in any way conflict with the business of the Corporation that would in any
way conflict with the business of the Corporation or the time needed by the
Employee to perform his duties hereunder.
5. COMPENSATION; BENEFITS; REIMBURSEMENTS.
a. SALARY. Upon appointment as President and Chief Executive Officer by
the Board of Directors of the Corporation, the Employee shall receive a salary
of thirty-six thousand dollars ($36,000) per year, which shall be payable in
equal monthly or bi-monthly installments (or at such other intervals as the
parties may mutually agree at the end of each such month).
b. REIMBURSEMENT OF BUSINESS EXPENSES. The Corporation shall reimburse
the Employee, in accordance with standard business practices of accounting and
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<PAGE> 3
receipts, for all reasonable and necessary business and traveling expenses, and
other disbursements incurred by him for or on behalf of the Corporation in the
performance of his duties hereunder and evidenced by appropriate documentation.
c. BENEFITS. (1) Commencing on the date hereof until such time as
otherwise determined by the Board of Directors of the Company, the Employee
shall be entitled to participate in and enjoy the benefits of any retirement,
pension, health insurance, or other similar plan or plans which may be
instituted by the Corporation for the benefit of its executive officers or
employees generally, upon such term as may be therein provided.
(2) During the term of employment, the Employee shall be entitled to
participate in and enjoy the benefits of any profit sharing, stock option, group
insurance or other similar plan or plans which may be instituted by the
Corporation for the benefit of its executive officers or employees generally,
upon such term as may be therein provided.
(3) During the term of employment, the Employee shall be entitled to
the use of an automobile and a parking space, each of which shall be paid for by
the Corporation.
d. VACATIONS; SICK DAYS. The Employee shall be entitled to a paid
vacation of two (2) weeks during each year of the term of his employment. In
addition, the Employee shall be entitled to as many holidays, sick days and
personal days as are in accordance with the Corporation's policy then in effect
for its executive officers generally (but no less favorable than the
Corporation's policy existing on the date hereof), upon such terms as may be
provided to all executive officers of the Corporation generally.
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<PAGE> 4
6. TERMINATION.
a. WITHOUT CAUSE. The Corporation may terminate this Agreement at any
time upon thirty (30) days notice; however, in the event this provision is
exercised by Corporation, the Employee shall not receive less salary and
benefits than would otherwise be due to him for the balance of the duration of
this Agreement, or six (6) months, whichever is longer.
b. WITH CAUSE. The Corporation may terminate this Agreement for cause,
and the Corporation shall be obligated to pay the Employee his salary only
through the date of his termination. For purposes of this paragraph, "cause"
shall mean that the Employee has (1) misappropriated or done material,
intentional damage to the Corporation, or its business or financial situation or
(2) been convicted of a felony involving moral turpitude.
c. TERMINATION BY DISABILITY. If, during the term of this Agreement, the
Employee becomes disabled so that he is unable substantially to perform his
services hereunder (i) for a period of six (6) consecutive months, or (ii) for
an aggregate of six (6) months within any period of eighteen (18) consecutive
months, this Agreement and the Corporation's obligations hereunder shall
terminate and the Employee shall continue to receive compensation for six (6)
months following the date of disability.
d. VOLUNTARY RESIGNATION. The Employee may voluntarily terminate this
Agreement at any time upon thirty (30) days notice. The Corporation shall then
only be obligated to pay the Employee any compensation due up to the date of
resignation. Paragraph 7 relating to non-disclosure shall immediately become
effective upon resignation.
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<PAGE> 5
7. NON-DISCLOSURE OF BUSINESS INFORMATION. The Employee acknowledges that
by virtue of his employment with the Corporation, the Employee will obtain such
knowledge, know-how, training and experience that is not generally known to
those engaged in the computer or tele-communications industry or with respect to
the Internet or the World Wide Web ("Trade Secrets"), and there is a possibility
that such knowledge, know-how, training and experience could be used by a
competitor of the Corporation to the Corporation's detriment. Therefore, the
Employee covenants and agrees, as follows: (a) The Employee agrees that he will
not, at any time during or after the term of employment, disclose, reproduce,
assign or transfer to any person, firm, corporation or other business entity,
except as required by law, any Trade Secrets concerning the business, finances,
clients, affairs, business plans, strategies, methods, software, hardware,
results from on-going investigations by others, and present and future plans of
the Corporation, any subsidiary or affiliate thereof or any company formed or
funded by the Corporation at any time for any reason or purpose whatsoever,
without the Corporation's express written consent; nor shall the Employee make
use of any of such Trade Secrets for his own purpose or for the benefit of any
person, firm, corporation or other business entity, except the Corporation or
any subsidiary or affiliate thereof. Upon termination of employment for any
reason, Employee will immediately return all books, files, papers, records, and
documents of any kind (including those contained in computer disks) relating to
the business of Corporation; (b) during the term of this Agreement and for a
period of one year thereafter, the Employee shall not, without the prior written
consent of the Corporation, engage in, for any purpose whatsoever, any activity
that competes directly with the Corporation; or (c) the Employee shall not,
without the prior written consent of the Corporation, within the one year period
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<PAGE> 6
following the termination or expiration of this Agreement solicit any employees
of the Corporation to join the Employee as a partner or employee in any
computer, tele-communications, Internet or World Wide Web related enterprise.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EMPLOYEE. The Employee
represents that he has the capacity and desire to enter into this Agreement, and
the voluntary execution, delivery and performance of this Agreement and
compliance with its provisions will not conflict with or result in any breach of
any of the terms, conditions, obligations, covenants or provisions of, or
constitute a default under, any note, mortgage, agreement, contract or
instrument to which the Employee is a party or by which he may be bound or
affected, including specifically any pre-existing or existing consulting,
employment, or independent contractor arrangements, understandings, or
agreements whether oral or written. Furthermore, the Employee agrees to
indemnify the Corporation against any claims brought by any predecessor employer
alleging breach of employment contract or fiduciary responsibilities.
9. ENFORCEMENT. This Agreement shall be enforced to the fullest extent
permissible under the laws and public policies of the State of Washington.
Accordingly, to the extent a restriction contained in this Agreement is more
restrictive than permitted by the laws of any jurisdiction where this Agreement
may be subject to review and interpretation, the terms of such restriction, for
the purpose only of the operation of such restriction in such jurisdiction,
shall be the maximum restriction allowed by the laws of such jurisdiction and
such restriction shall be deemed to have been revised accordingly herein.
10. REMEDIES FOR BREACH, INJUNCTIVE RELIEF: ARBITRATION.
-6-
<PAGE> 7
a. REMEDY FOR BREACH OF PARAGRAPH 7. It is acknowledged by the Employee
that he will be devoting his work efforts towards establishing relationships for
the Corporation; that Employee will be knowledgeable in all aspects of the
business, including the type of transactions the Corporation is involved with,
thus, the Employee would be able to enter the same business as the Corporation
and unfairly compete against the Corporation to its detriment. Thus, the
restrictions contained in paragraph 7 and the injunction contained in this
paragraph are reasonable and justified. The Employee recognizes that irreparable
injury to the Corporation will inevitably occur in the event of any breach of
the terms and conditions of this Agreement and, specifically, if paragraph 7 is
breached by the Employee. The Employee agrees in such event that the Corporation
shall be entitled, in addition to any other remedies available to it, without
proof of monetary or immediate damage, to maintain an action for an injunction
to restrain any violation of this Agreement by the Employees and all persons
acting for or with the Employee.
11. PRIOR AGREEMENTS/ORAL MODIFICATION. This Agreement supersedes all prior
agreements and constitutes the entire Agreement and understanding between
parties. It may not be amended, modified in any manner or terminated orally; and
no amendment, modification, termination or attempted waiver of any of the
provisions hereof shall be binding unless in writing and signed by the parties
against whom the same is sought to be enforced; provided, however, that the
Employee's compensation may be increased at any time by the Corporation without
in any way affecting any of the other terms and conditions of this Agreement
which in all other respects shall remain in full force and effect.
-7-
<PAGE> 8
12. GOVERNING LAW. This Agreement will be governed by, and construed and
enforced in accordance with the laws of the State of Washington, without giving
effect to the conflict of laws of principles thereof.
13. SUBMISSION TO JURISDICTION. The parties hereby irrevocably agree that
all claims relating to this Agreement shall be submitted exclusively to federal
and state courts located in the County of King and State of Washington and
irrevocably consent to the jurisdiction and venue of such courts and service of
process by certified or registered mail, return receipt requested, directed to
the parties at the addresses set forth below or as otherwise provided by law.
14. BINDING AGREEMENT; BENEFIT. The provisions of this Agreement will be
binding upon, and will inure to the benefit of, the respective heirs, legal
representatives and successors of the parties hereto.
15. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and shall not
operate or be construed as a waiver of any other or subsequent breach by such
other party.
16. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements or understandings among the parties with respect
thereto. This Agreement may be amended only by an agreement in writing signed by
the parties hereto.
17. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
-8-
<PAGE> 9
18. SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
19. ASSIGNMENT. This Agreement is personal in its nature and the parties
hereto shall not, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder; PROVIDED, HOWEVER, that the
provisions hereof shall inure to the benefit of, and be binding upon each
successor of the Corporation whether by merger, consolidation, transfer of all
or substantially all assets, or otherwise.
20. NOTICES. All notices and other communications which are required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by air courier (e.g., Federal Express) or first class certified or
registered mail, postage prepaid, return receipt requested. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of delivery if
personally delivered; on the business day after the date when sent if sent by
air courier; and on the third business day after the date when sent if sent by
mail, in each case addressed to such party as set forth below or in accordance
with the latest unrevoked direction from such party.
If to the Employee:
Russell C. Horowitz
800 Fifth Avenue
#171
Seattle, Washington 98104
-9-
<PAGE> 10
If to the Corporation:
GO2NET, INC.
800 Fifth Avenue
#171
Seattle, Washington 98104
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
GO2NET, INC.
By: /s/ Russell C. Horowitz
---------------------------
Name: Russell C. Horowitz
Title: President
RUSSELL C. HOROWITZ
/s/ Russell C. Horowitz
------------------------------
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of 1st day of March, 1996, between GO2NET, INC., a
Delaware corporation (the "Corporation"), and JOHN KEISTER (the "Employee").
WHEREAS, the Corporation desires to employ the Employee as Chief Operating
Officer; and
WHEREAS, the Employee desires to accept such employment with the
Corporation upon the terms and conditions offered;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth herein, the parties agree as follows:
1. EMPLOYMENT AND DUTIES.
a. The Corporation desires to employ the Employee and the Employee
desires to accept the position of Chief Operating Officer. As the Chief
Operating Officer of the Corporation, the Employee shall report to the
President, Chief Executive Officer and the Board of Directors.
b. As Chief Operating Officer, the Employee shall perform such duties
and services, consistent with those duties and services ordinarily and
customarily performed by a person holding such position in similar
organizations, as may be assigned to him from time to time by the President,
Chief Executive Officer or the Board of Directors.
c. The Employee warrants and agrees to use his best efforts to perform
well and faithfully such duties and other reasonable duties and
responsibilities, consistent with his position properly assigned to him.
<PAGE> 2
2. DURATION OF AGREEMENT. Subject to the conditions set forth within, this
Agreement shall be in effect for a four-year period (forty-eight months)
commencing on the date of execution of the Agreement.
3. TIME TO BE DEVOTED TO EMPLOYMENT. The Employee agrees to devote his
business time, attention, and energies to the best interests of the Corporation.
The Employee is expected to be resident in the Corporation's offices on a
day-to-day basis when not otherwise travelling on behalf of the Corporation.
4. RESTRICTIONS ON OTHER EMPLOYMENT. During the term of employment, the
Employee agrees that, unless he has the express prior written approval of the
Board of Directors, he shall not accept a membership on a Board of Directors,
act as an officer, employee or consultant, or engage in any other business
activity which is in a similar or competing business of Corporation that would
in any way conflict with the business of Corporation that would in any way
conflict with the business of Corporation or the time needed by the Employee to
perform his duties hereunder.
5. COMPENSATION; BENEFITS; REIMBURSEMENTS.
a. SALARY. Upon appointment as Chief Operating Officer by the Board of
Directors of the Corporation, the Employee shall receive a salary of forty-five
thousand dollars ($45,000) per year, which shall be payable in equal monthly or
bi-monthly installments (or at such other intervals as the parties may mutually
agree at the end of each such month).
b. REIMBURSEMENT OF BUSINESS EXPENSES. The Corporation shall reimburse
the Employee, in accordance with standard business practices of accounting and
receipts, for all reasonable and necessary business and traveling expenses, and
other
-2-
<PAGE> 3
disbursements incurred by him for or on behalf of the Corporation in the
performance of his duties hereunder and evidenced by appropriate documentation.
c. BENEFITS. (1) Commencing on the date hereof until such time as
otherwise determined by the Board of Directors of the Corporation, the Employee
shall be entitled to participate in and enjoy the benefits of any retirement,
pension, health insurance, or other similar plan or plans which may be
instituted by the Corporation for the benefit of its executive officers or
employees generally, upon such term as may be therein provided.
(2) During the term of employment, the Employee shall be entitled to
participate in and enjoy the benefits of any profit sharing, stock option, group
insurance or other similar plan or plans which may be instituted by the
Corporation for the benefit of its executive officers or employees generally,
upon such term as may be therein provided.
(3) During the term of employment, the Employee shall be entitled to
the use of an automobile and a parking space, each of which shall be paid for by
the Corporation.
d. VACATIONS; SICK DAYS. The Employee shall be entitled to a paid
vacation of two (2) weeks during each year of the term of his employment. In
addition, the Employee shall be entitled to as many holidays, sick days and
personal days as are in accordance with the Corporation's policy then in effect
for its executive officers generally (but no less favorable than the
Corporation's policy existing on the date hereof), upon such terms as may be
provided to all executive officers of the Corporation generally.
-3-
<PAGE> 4
6. TERMINATION.
a. WITHOUT CAUSE. The Corporation may terminate this Agreement at any
time upon thirty (30) days notice; however, in the event this provision is
exercised by Corporation, the Employee shall not receive less salary and
benefits than would otherwise be due to him for the balance of the duration of
this Agreement, or six (6) months, whichever is shorter.
b. WITH CAUSE. The Corporation may terminate this Agreement for cause,
and the Corporation shall be obligated to pay the Employee his salary only
through the date of his termination. For purposes of this paragraph, "cause"
shall mean that the Employee has (1) knowingly acted fraudulently in his
relations with the Corporation, (2) misappropriated or done material,
intentional damage to the Corporation, or its business or financial situation,
(3) been convicted of a felony involving moral turpitude, (4) willfully and
materially failed to follow a legal and reasonable order or directive by the
President, Chief Executive Officer and the Board of Directors (which order or
directive is consistent with the provisions of this Agreement), or (6) willfully
and materially failed to perform duties as directed, which the President, Chief
Executive Officer or a majority of the Board of Directors in good faith finds to
be in the best interest of the Corporation.
c. TERMINATION BY DISABILITY. If, during the term of Agreement, the
Employee becomes disabled so that he is unable substantially to perform his
services hereunder (i) for a period of six (6) consecutive months, or (ii) for
an aggregate of six (6) months within any period of eighteen (18) consecutive
months, this Agreement and the Corporation's obligations hereunder shall
terminate and the Employee shall continue to receive compensation for six (6)
months following the date of disability.
-4-
<PAGE> 5
d. VOLUNTARY RESIGNATION. The Employee may voluntarily terminate this
Agreement at any time upon thirty (30) days notice. The Corporation shall then
only be obligated to pay the Employee any compensation due up to the date of
resignation. Paragraph 7 relating to non-disclosure shall immediately become
effective upon resignation.
7. NON-DISCLOSURE OF BUSINESS INFORMATION. The Employee acknowledges that
by virtue of his employment with the Corporation, the Employee will obtain such
knowledge, know-how, training and experience that is not generally known to
those engaged in the computer or tele-communications industry or with respect to
the Internet or World Wide Web ("Trade Secrets"), and there is a possibility
that such knowledge, know-how, training and experience could be used by a
competitor of the Corporation to the Corporation's detriment. Therefore, the
Employee covenants and agrees, as follows: (a) the Employee agrees that he will
not, at any time during or after the term of employment, disclose, reproduce,
assign or transfer to any person, firm, corporation or other business entity,
except as required by law, any Trade Secrets concerning the business, finances,
clients, affairs, business plans, strategies, methods, software, hardware,
results from on-going investigations by others, and present and future plans of
the Corporation, any subsidiary or affiliate thereof or any company formed or
funded by the Corporation at any time for any reason or purpose whatsoever,
without the Corporation's express written consent; nor shall the Employee make
use of any of such Trade Secrets for his own purpose or for the benefit of any
person, firm, corporation or other business entity, except the Corporation or
any subsidiary or affiliate thereof. Upon termination of employment for any
reason, Employee will immediately return all books, files, papers, records, and
documents of any kind (including those contained in computer disks) relating to
the business of Corporation; (b)
-5-
<PAGE> 6
during the term of this Agreement and for a period of one year thereafter, the
Employee shall not, without the prior written consent of the Corporation, engage
in, for any purpose whatsoever, any activity that competes directly with the
Corporation; or (c) the Employee shall not, without the prior written consent of
the Corporation, within the one year period following the termination or
expiration of this Agreement solicit any employees of the corporation to join
the Employee as a partner or employee in any computer or tele-communications
related enterprise.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EMPLOYEE. The Employee
represents that he has the capacity and desire to enter into this Agreement, and
the voluntary execution, delivery and performance of this Agreement and
compliance with its provisions will not conflict with or result in any breach of
any of the terms, conditions, obligations, covenants or provisions of, or
constitute a default under, any note, mortgage, agreement, contract or
instrument to which the Employee is a party or by which he may be bound or
affected, including specifically any pre-existing or existing consulting,
employment, or independent contractor arrangements, understandings, or
agreements whether oral or written. Furthermore, the Employee agrees to
indemnify the Corporation against any claims brought by any predecessor employer
alleging breach of employment contract or fiduciary responsibilities.
9. ENFORCEMENT. This Agreement shall be enforced to the fullest extent
permissible under the laws and public policies of the State of Washington.
Accordingly, to the extent a restriction contained in this Agreement is more
restrictive than permitted by the laws of any jurisdiction where this Agreement
may be subject to review and interpretation, the terms of such
-6-
<PAGE> 7
restriction, for the purpose only of the operation of such restriction in such
jurisdiction, shall be the maximum restriction allowed by the laws of such
jurisdiction and such restriction shall be deemed to have been revised
accordingly herein.
10. REMEDIES FOR BREACH, INJUNCTIVE RELIEF: ARBITRATION.
a. REMEDY FOR BREACH OF PARAGRAPH 7. It is acknowledged by the Employee
that he will be devoting his work efforts towards establishing relationships for
the Corporation; that Employee will be knowledgeable in all aspects of the
business, including the type of transactions the Corporation is involved with,
thus, the Employee would be enable to enter the same business as the Corporation
and unfairly compete against the Corporation to its detriment. Thus, the
restrictions contained in paragraph 7 and the injunction contained in this
paragraph are reasonable and justified. The Employee recognizes that irreparable
injury to the Corporation will inevitably occur in the event of any breach of
the terms and conditions of this Agreement and, specifically, if paragraph 7 is
breached by the Employee. The Employee agrees in such event that the Corporation
shall be entitled, in addition to any other remedies available to it, without
proof of monetary or immediate damage, to maintain an action for an injunction
to restrain any violation of this Agreement by the Employees and all persons
acting for or with the Employee.
11. PRIOR AGREEMENTS/ORAL MODIFICATION. This Agreement supersedes all prior
agreements and constitutes the entire Agreement and understanding between
parties. It may not be amended, modified in any manner or terminated orally; and
no amendment, modification, termination or attempted waiver of any of the
provisions hereof shall be binding unless in writing and signed by the parties
against whom the same is sought to be enforced; provided, however, that the
Employee's compensation may be increased at any
-7-
<PAGE> 8
time by the Corporation without in any way affecting any of the other terms and
conditions of this Agreement which in all other respects shall remain in full
force and effect.
12. GOVERNING LAW. This Agreement will be governed by, and construed and
enforced in accordance with the laws of the State of Washington, without giving
effect to the conflict of laws of principles thereof.
13. SUBMISSION TO JURISDICTION. The parties hereby irrevocably agree that
all claims relating to this Agreement shall be submitted exclusively to federal
and state courts located in the County of King and State of Washington and
irrevocably consent to the jurisdiction and venue of such courts and service of
process by certified or registered mail, return receipt requested, directed to
the parties at the addresses set forth below or as otherwise provided by law.
14. BINDING AGREEMENT; BENEFIT. The provisions of this Agreement will be
binding upon, and will inure to the benefit of, the respective heirs, legal
representatives and successors of the parties hereto.
15. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and shall not
operate or be construed as a waiver of any other or subsequent breach by such
other party.
16. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements or understandings among the parties with respect
thereto. This Agreement may be amended only by an agreement in writing signed by
the parties hereto.
-8-
<PAGE> 9
17. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
19. ASSIGNMENT. This Agreement is personal in its nature and the parties
hereto shall not, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder; provided, however, that the
provisions hereof shall inure to the benefit of, and be binding upon each
successor of the Corporation whether by merger, consolidation, transfer of all
or substantially all assets, or otherwise.
20. NOTICES. All notices and other communications which are required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by air courier (e.g., Federal Express) or first class certified or
registered mail, postage prepaid, return receipt requested. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of delivery if
personally delivered; on the business day after the date when sent if sent by
air courier; and on the third business day after the date when sent if sent by
mail, in each case addressed to such party as set forth below or in accordance
with the latest unrevoked direction from such party.
-9-
<PAGE> 10
If to the Employee:
John Keister
2360 43rd Avenue East
No. 303
Seattle, Washington 98104
If to the Corporation:
GO2NET, INC.
800 Fifth Avenue
#171
Seattle, Washington 98104
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
GO2NET, INC.
By: /s/ Russell C. Horowitz
---------------------------
Name: Russell C. Horowitz
Title: President
JOHN KEISTER
/s/ John Keister
------------------------------
-10-
<PAGE> 1
EXHIBIT 10.4
PROMISSORY NOTE
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C>
$500,000.00 11-20-1996 11-15-1997 750-26 020 3368276869 74260
- ---------------------------------------------------------------------------------------------------------------------------------
References in the shaded are for Lender's use only and do not limit the applicability of this document to any particular loan or
item
- ---------------------------------------------------------------------------------------------------------------------------------
Borrower: GO2NET, INC. Lender: U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
11301 FIFTH AVENUE - SUITE 3320 East King County Private Banking
SEATTLE, WA 98101 10800 NE 8th Street, Suite 500
Bellevue, WA 98004
</TABLE>
================================================================================
Principal Amount: $500,000.00 Date of Note: November 20, 1996
PROMISE TO PAY. GO2NET, INC. ("Borrower") promises to pay to U.S. BANK OF
WASHINGTON, NATIONAL ASSOCIATION ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Five Hundred Thousand and
00/100 Dollars ($500,000.00) or so much as may be outstanding, together with
Interest on the unpaid outstanding principal balance of each advance. Interest
shall be calculated from the date of each advance until repayment of each
advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid Interest on
November 15, 1997. In addition, Borrower will pay regular monthly payments of
accrued unpaid Interest beginning December 20, 1996, and all subsequent interest
payments are due on the same day of each month after that. Interest on this Note
is computed on a 365/360 simple interest basis; that is, by applying the ratio
of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the LENDER'S PRIME RATE. THIS
IS THE RATE OF INTEREST WHICH LENDER FROM TIME TO TIME ESTABLISHES AS ITS PRIME
RATE AND IS NOT, FOR EXAMPLE, THE LOWEST RATE OF INTEREST WHICH LENDER COLLECTS
FROM ANY BORROWER OR CLASS OF BORROWERS (the "Index"). The interest rate shall
be adjusted without notice effective on the day Bank's prime rate changes.
Lender will tell Borrower the current Index rate upon Borrower's request.
Borrower understands that Lender may make loans based on other rates as well.
The interest rate change will not occur more often than each DAY. THE INTEREST
RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A
RATE OF 1,000 PERCENTAGE POINT[S] OVER THE INDEX. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate allowed by
applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower or
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding is commenced either by Borrower
or against Borrower under any bankruptcy or insolvency laws. (f) Borrower is in
default under any other note, security agreement, lease agreement or lease
schedule, loan agreement or other agreement, whether now existing or hereafter
made, between Borrower and U.S. Bankcorp or any direct or indirect subsidiary of
U.S. Bankcorp. (g) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (h) Any of the events described in this
default section occurs with respect to any guarantor of this Note. (i) Lender in
good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 6.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF WASHINGTON. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF KING COUNTY, THE STATE OF WASHINGTON. SUBJECT TO THE PROVISIONS ON
ARBITRATION, THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF WASHINGTON.
<PAGE> 2
PROMISSORY NOTE
11-20-96 Page 2
Loan No. 760-26
================================================================================
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: RUSSELL C. HOROWITZ,
C.E.O. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lenders'
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreements made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than authorized Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS NOTE OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT AND
TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to take or dispose
of any collateral securing this Note shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or exercising any
rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any right, concerning
any collateral securing this Note, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral securing this Note,
shall also be arbitrated, provided however that no arbitrator shall have the
right or the power to enjoin or restrain any act of any party. Judgment upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Note shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and enforcement
of this arbitration provision.
LATE CHARGE. If a payment is 15 days or more past due, borrower will be charged
a late charge of 5% of the delinquent payment.
STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lenders' security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
GO2NET, INC.
By: /s/ Russell C. Horowitz
Title:CEO
---
LENDER:
U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
By: /s/ Mollie Wilson
------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10.5
COMMERCIAL GUARANTY
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C>
020 3368276869 74260
- --------------------------------------------------------------------------------------------------------------------------------
References in the shaded are for Lender's use only and do not limit the applicability of this document to any particular loan or
item
- --------------------------------------------------------------------------------------------------------------------------------
Borrower: GO2NET, INC. Lender: U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
11301 FIFTH AVENUE - SUITE 3320 East King County Private Banking
SEATTLE, WA 98101 10800 NE 8th Street, Suite 500
Bellevue, WA 98004
Guarantor: RUSSELL C. HOROWITZ
800 FIFTH AVENUE #171
SEATTLE, WA 98104
</TABLE>
================================================================================
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including without
limitation the principal Note amount of Five Hundred Thousand & 00/100 Dollars
($500,000.00).
GUARANTY. For good and valuable consideration, RUSSELL C. HOROWITZ ("Guarantor")
absolutely and unconditionally guarantees and promises to pay to U.S. BANK OF
WASHINGTON, NATIONAL ASSOCIATION ("Lender") or its order, on demand, in legal
tender of the United States of America, the indebtedness (as that term is
defined below of GO2NET, INC. ("Borrower") to Lender on the terms and conditions
set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty.
Borrower. The word "Borrower" means GO2NET, INC.
Guarantor. The word "Guarantor" means RUSSELL C. HOROWITZ.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated November 10, 1996.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services.
Lender. The word "Lender" means U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION, its successors and assigns.
Note. The work "Note" means the promissory note or credit agreement dated
November 20, 1996, IN THE ORIGINAL PRINCIPAL AMOUNT OF $500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement. NOTE TO GUARANTOR: THE NOTE EVIDENCES A
REVOLVING LINE OF CREDIT FROM LENDER TO BORROWER.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
MAXIMUM LIABILITY. The maximum liability of Guarantor under this guaranty shall
not exceed at any one time the amount of the indebtedness described above, plus
all costs and expenses of (a) enforcement of this guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty. Any married person who signs this
Guaranty as the Guarantor hereby expressly agrees that recourse under this
agreement may be had against both his or her separate property and community
property, whether now owned or hereafter acquired. THIS GUARANTY COVERS A
REVOLVING LINE OF CREDIT AND GUARANTOR UNDERSTANDS AND AGREES THAT THIS
GUARANTEE SHALL BE OPEN AND CONTINUOUS UNTIL THE LINE OF CREDIT IS TERMINATED
AND THE INDEBTEDNESS IS PAID IN FULL, AS PROVIDED BELOW.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the indebtedness shall not
affect the liability of guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors
<PAGE> 2
COMMERCIAL GUARANTY
11-20-96 Page 2
Loan No. 760-26
================================================================================
shall not affect the liability of any remaining Guarantors under this guaranty.
THIS GUARANTY COVERS A REVOLVING LINE OF CREDIT AND IT IS SPECIFICALLY
ANTICIPATED THAT FLUCTUATIONS WILL OCCUR IN THE AGGREGATE AMOUNT OF INDEBTEDNESS
OWING FROM BORROWER TO LENDER. GRANTOR SPECIFICALLY ACKNOWLEDGES AND AGREES THAT
FLUCTUATIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS ($0.00), SHALL
NOT CONSTITUTE A TERMINATION OF THIS GUARANTY. GUARANTOR'S LIABILITY UNDER THIS
GUARANTY SHALL TERMINATE ONLY UPON (a) TERMINATION IN WRITING BY BORROWER AND
LENDER OF THE LINE OF CREDIT, (b) PAYMENT OF THE INDEBTEDNESS IN FULL IN LEGAL
TENDER, AND (c) PAYMENT IN FULL IN LEGAL TENDER OF ALL OTHER OBLIGATIONS OF
GUARANTOR UNDER THIS GUARANTY.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the indebtedness or any part of the indebtedness, including increases
and decreases of the rate of interest on the indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the indebtedness, and exchange,
enforce, waive, subordinate, fall or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means by any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligations to disclose to guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the party of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to pursue
any other remedy within Lender's power; or (f) to commit any act or omission of
any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
indebtedness shall not at all time until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or be exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the indebtedness; (d) any right to claim discharge of the indebtedness on the
basis of unjustified impairment of any collateral for the indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the borrower, the Guarantor, or both.
<PAGE> 3
COMMERCIAL GUARANTY
11-20-96 Page 3
Loan No. 760-26
================================================================================
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extend permitted by law or public outcry.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff or to enforce such security
interest or by any delay in so doing. Every right of setoff and security
interest shall continue in full force and effect until such right of setoff or
security interest is specifically waived or released by an instrument in writing
executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may nor or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however that such assignment shall be effective only for the purpose of
assuring to Lender full payment in legal tender of the indebtedness. If Lender
so requests, any notes or credit agreements now or hereafter evidencing any
debts or obligations of Borrower to Guarantor shall be marked with a legend that
the same are subject to this guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of King
County, State of Washington. Subject to the provisions on arbitration, this
Guaranty shall be governed by and construed in accordance with the laws of
the State of Washington.
Arbitration. Lender and Guarantor agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Guaranty or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing in this Guaranty shall preclude any
party from seeking equitable relief from a court of competent jurisdiction.
The statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes. The
Federal Arbitration Act shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the Untied
States mail, first class postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor
<PAGE> 4
COMMERCIAL GUARANTY
11-20-96 Page 4
Loan No. 760-26
================================================================================
will constitute notice to all Guarantors. For notice purposes, Guarantor
agrees to keep Lender informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guarantor or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FORM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED NOVEMBER 20, 1996.
GUARANTOR:
/s/Russell C. Horowitz
- ----------------------
RUSSELL HOROWITZ
<PAGE> 1
EXHIBIT 10.6
SUBLEASE AGREEMENT
------------------
SECURITY PACIFIC TOWER
----------------------
THIS SUBLEASE is made as of this 17th day of April, 1996, by and between
Olympic Capital Management, Inc., a Washington Corporation ("Subsublessor") and
go2net, Inc., a Delaware corporation ("Subsublessee").
UNICO PROPERTIES, INC., a Delaware corporation, as "Landlord," and Graham &
Dunn, a professional service corporation, as "Tenant," entered into that certain
Agreement of Lease dated May 8, 1987 (the "Lease"), which is attached as Exhibit
A. The Lease covers approximately 44,564 square feet of office space which is
located in the Security Pacific Tower (formerly known as the Rainier Bank
Tower), 1301 Fifth Avenue, Seattle, Washington (hereinafter referred to as "the
Premises"). Tenant assigned the Lease to Pacific First Center Partnership, a
Washington general partnership ("PFCP"), pursuant to that certain Assignment of
Lease, Assumption of Obligations Thereunder and Consent Thereto (Security
Pacific Tower) attached hereto as Exhibit B (the "Assignment"). PFC Holdings, a
Washington general partnership ("Sublessor") has succeeded to the interest of
PFCP under the Lease. Nothing in this Sublease shall be construed to amend the
Assignment in any manner whatsoever.
On June 1, 1989, Sublessor entered into a Sublease Agreement (the "Underlying
Sublease") with Olympic Capital Management, as Sublessee thereunder, for 7,166
square feet ("Sublease Premises") located on the 33rd floor of the Premises in
the area shown on the space plan attached hereto as Exhibit C. Subsublessee
wishes to sublease from Subsublessor all of the Subleased Premises and Sublessor
hereby consents to the sublease of the Subleased Premises to Subsublessee on the
terms set forth in this Sublease.
NOW THEREFORE, the parties agree as follows:
1. TERMS AND CONDITIONS. This Sublease is subject to all of the terms
and conditions of the Underlying Sublease and the Assignment except as otherwise
noted or contrary to the provisions herein, and Subsublessee hereby assumes and
agrees to perform all of the obligations of Subsublessor and Tenant under the
Lease to the extent said terms and conditions are applicable to the Subleased
Premises. Subsublessee shall not commit or permit to be committed on the
Subleased Premises any act or omission which shall violate any term or condition
of the Lease.
2. USE OF SUBLEASE PREMISES. The Subleased Premises shall be used and
occupied only for general office purposes and for no other use or purpose
without the prior written approval of Sublessor and Landlord.
3. TERM. The term of this Sublease shall commence April 26, 1996 (the
"Sublease Commencement Date") and shall terminate on July 30, 1997. Subsublessee
shall have no right to extend the term of this Sublease, notwithstanding the
provisions of the Lease regarding extension. Subsublessee may occupy the
Subleased Premises on the Sublease Commencement Date.
Page 1
<PAGE> 2
4. INITIAL GROSS RENT AND ADDITIONAL RENT. Subsublessee shall pay
Subsublessor directly a rental as defined in the schedule below, payable in
advance on the first day of each calendar month:
Monthly Rent Installment Gross
Months Monthly Rent
------ ------------
April 1996 $ 0.00
May 1996 $1,250.00
June 1, 1996 - July 31, 1997 $7,166.00
5. CONSENT OF SUBLESSOR. In each instance where the Sublease requires
the consent of the Landlord, Subsublessee agrees that the consent of the Tenant,
Sublessor and Subsublessor shall also be required. Sublessor and Subsublessor
agrees to not unreasonably withhold or delay their consent in connection with
any matter which has been consented by Tenant and Landlord.
6. LIMITATION OF SUBLESSOR'S LIABILITY. In consideration of the
benefits accruing under this Sublease, Subsublessee and all successor and
assigns covenant and agree that in the event of any actual or alleged failure,
breach or default under this Sublease by Sublessor: (a) the sole and exclusive
remedy shall be against the partnership which is the Sublessor and its
partnership assets; (b) no partner of Sublessor shall be sued or named as a
party in any suit or action (except as may be necessary to secure jurisdiction
over the partnership); (c) no service or process shall be made against any
partner of Sublessor (except as may be necessary to secure jurisdiction over the
partnership); (d) no judgment will be taken against any partner of Sublessor;
(e) no writ of execution will ever be levied against the assets of any partner
of Sublessor except the partnership assets; (f) the covenants and agreements are
enforceable both by Sublessor and also by any partner of Sublessor; and (g) each
of the covenants and agreements contained in this paragraph shall be applicable
to any covenant or agreement either expressly contained in this Sublease or
imposed by statute or common law.
7. TRANSFER OF SUBLESSOR'S INTEREST. In the event Sublessor transfers
its interest in the lease to a party approved by Landlord, other than a transfer
for security purposes only, Sublessor shall be relieved of any obligations under
this Sublease after the effective date of that transfer. In such event the
approved new Sublessor shall be liable and shall assume in writing all
obligations, terms and conditions of Sublessor under this Sublease.
8. PREPAID RENT. As security for the performance of this Sublease by
Subsublessee, Subsublessee has paid to Subsublessor the deposit of $14,332.00
hereof, receipt of which is hereby acknowledged. This represents both the June
1996 rent and July 1997 rent.
9. ASSIGNMENT AND SUBLETTING. Subsublessee shall not assign this
Sublease or sublet all or any part of the Premises without the prior written
consent of Sublessor and Subsublessor, which consent shall not be unreasonably
withheld, and without the consent of the Landlord and Tenant if such is required
under the terms of the Lease.
Page 2
<PAGE> 3
10. NOTICES. Any notice required or desired to be given under this
Sublease shall be in writing with copies directed as indicated below and shall
be personally served or given by mail. Any notice given by mail shall be deemed
to have been given when seventy-two (72) hours have elapsed from the time such
notice was deposited in the United States mail, certified mail, return receipt
requested, and postage prepaid, addressed to the party to be served at the last
address given by that party to the other party under the provisions of this
section.
Sublessor:
PFC Holdings
c/o General Manager
LaSalle Partners Management Limited
1420 Fifth Avenue, Suite 3620
Seattle, WA 98101
Subsublessor:
Olympic Capital Management
c/o Sirach Capital
600 University Street, 33rd Floor
Seattle, WA 98101
Subsublessee:
go2net, Inc.
3320 Security Pacific Tower
1301 Fifth Avenue
Seattle, WA 98101
11. COUNTERPARTS. This Sublease may be executed by the parties in
counterparts, and each counterpart shall be deemed to be an original.
12. LEGAL FEES AND COSTS. If either party requires the services of any
attorney in connection with enforcing the terms of this Sublease or if a Suit is
brought for the recovery of any rent or other charges due under this Sublease
for the branch of any covenant or condition of this Sublease, or for the
restitution of the Subleased Premises to Subsublessor, and/or eviction of
Subsublessee during or after the term of this Sublease, the prevailing party
shall be entitled to a reasonable sum for attorneys' fees, witness fees and
other court costs, both at trial and appeal.
13. AMENDMENTS. Any amendments or additions to this Sublease shall be
in writing and neither Subsublessor nor Subsublessee shall be bound by any
verbal or implied agreements.
14. HOLD HARMLESS. Subsublessor shall indemnify, defend and hold
Subsublessee harmless from any costs, expense or liability resulting from any
default of Subsublessor under the Underlying Sublease prior to the Commencement
Date of the Sublease. Conversely, Subsublessee shall indemnify and hod
Subsublessor harmless from any cost, expenses
Page 3
<PAGE> 4
or liability resulting from any default by Subsublessee under the Lease with
respect to the Subleased premises after the Sublease Commencement Date.
15. TIME. Time is expressly declared to be of the essence in this
Sublease.
16. LATE CHARGES. Subsublessee agrees that late payment by
Subsublessee will cause Subsublessor to incur costs not contemplated by this
Sublease and the exact amount of those costs include, but are not limited to,
processing and accounting charges and late charges which may be imposed on
Subsublessor. Therefore, in the event that Subsublessee shall fail to pay any
installment of rent or any other sum when due, and Subsublessee fails to pay
such amount with ten (10) days prior written notice by Subsublessor of such
default, Subsublessee shall pay to Subsublessor a late charge equal to two
percent (2%) of each installment.
17. CONFLICTING PROVISIONS. Where provisions of this Sublease and
provisions of the underlying Sublease or Lease are conflicting, the provisions
of this Sublease shall control.
18. FURNITURE. Olympic Capital Management will make best efforts to
remove all furniture by June 1, 1996. Subsublessee will allow furniture that is
not moved to new location to remain in space for a reasonable period of time
until it can be relocated.
19. PARKING. Subsublessee shall have the right to parking rights as
set forth in the underlying Sublease dated June 1, 1989.
20. Subsublessor hereby warrants that it and Sublessor are not in
default under any term or provision of the lease, the assignment or the
underlying sublease.
SUBSUBLESSOR: Sirach Capital Management, Inc., a Washington
corporation successor to Olympic Capital
Management, a Washington corporation
by:/s/ Craig F. Hintze
-------------------------------------------
its: Principal
------------------------------------------
SUBSUBLESSEE: go2net, Inc., a Delaware corporation
by:/s/ Russell C. Horowitz
-------------------------------------------
its: CEO
------------------------------------------
EXHIBITS: (A) Unico Properties, Inc. Lease Agreement
(B) Assignment of Lease, Assumption of Obligations Thereunder
and Consent Thereto (Security Pacific Tower)
(C) Space Plan
Page 4
<PAGE> 5
CONSENT OF LANDLORD, TENANT AND SUBLESSOR
UNICO PROPERTIES, INC. ("UNICO") hereby consents to the foregoing
Sublease. This Consent is specifically conditioned upon the Tenant, Sublessor
and Subsublessor, remaining primarily liable for all performance of obligations
of the Tenant, Sublessor and Subsublessor under the Lease, and nothing in this
Consent shall be deemed to bean express or an implied release or waiver of any
claim or right held by Unico against Tenant, Sublessor and Subsublessor. By
execution of this Consent, the Tenant and Sublessor hereby acknowledge the
further sublease of the Subleased Premises shall not terminate, alter or in any
manner diminish the Tenant, Sublessor's and Subsublessor's liabilities under the
Lease, including without limitation, its obligations to keep the Subleased
Premises free from liens as more fully set forth in Section 15 of the Lease.
EXECUTED this 29th day of May, 1996.
UNICO UNICO PROPERTIES, INC., a Delaware corporation
By:/s/ Stephen Camp
-------------------------------------------
Its: Vice President
------------------------------------------
TENANT: GRAHAM & DUNN, a Washington professional
service corporation
By:/s/ John T. John
-------------------------------------------
Its: President
------------------------------------------
SUBLESSOR: PFC HOLDINGS, a Washington general partnership
By: HAZAMA GROUP LIMITED PARTNERSHIP, a
Washington limited partnership, Its Managing
Partner
By: HAZAMA USA CORPORATION, a California
corporation, Its General Partner
By:/s/ Yasuo Tanaka
-------------------------------------------
Its: Vice President
------------------------------------------
Page 5
<PAGE> 6
LESSOR'S ACKNOWLEDGMENT
-----------------------
STATE OF WASHINGTON)
) ss.
COUNTY OF KING )
On this 29th of May 1996, before me personally appeared Stephen W. Camp to me
known to be the vice President of UNICO PROPERTIES, INC., the corporation that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that he was authorized
to execute the said instrument and that the seal affixed (if any) is the
corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year first above written.
/s/ Jackie Hennes
-------------------------------------
Jackie Hennes
-------------------------------------
(print notary's name)
Notary Public in and for the State of
Washington, residing at Seattle.
My Commission expires 4-9-99
Page 6
<PAGE> 7
SUBSUBLESSOR'S ACKNOWLEDGMENT
-----------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 24th of April, 1996, before me personally appeared before me Craig
F. Hintze, to me known to be the ______________________. of
______________________, the corporation that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation for the uses and purposes therein mentioned,
and on oath stated that he was authorized to execute the said instrument and
that the seal affixed (if any) is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year first above written.
/s/ Susan L. Burke
-------------------------------
Notary Public in and for the
State of Washington
residing at Seattle, Washington
My Commission expires 7/17/98
Page 7
<PAGE> 8
SUBSUBLESSEE'S ACKNOWLEDGMENT
-----------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 17th of April, 1996, before me personally appeared before me
Russell Horowitz, to me known to be the ______________________. of
______________________, the corporation that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation for the uses and purposes therein mentioned,
and on oath stated that he was authorized to execute the said instrument and
that the seal affixed (if any) is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year first above written.
/s/ Janet Nyt
-------------------------------
Notary Public in and for the
State of Washington residing at
Seattle, Washington
My Commission expires 7/17/98
Page 8
<PAGE> 9
SUBSUBLESSOR'S ACKNOWLEDGMENT
-----------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 16th of May, 1996, before me personally appeared before me John T.
John, to me known to be the President of Graham & Dunn, the corporation that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that he was authorized
to execute the said instrument and that the seal affixed (if any) is the
corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year first above written.
-------------------------------
-------------------------------
Notary Public in and for the
State of Washington residing at
Seattle My Commission expires
10/10/98
Page 9
<PAGE> 10
SUBSUBLESSOR'S ACKNOWLEDGMENT
-----------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this 21st day of May, 1996, before me personally appeared Yasuo Tanaka,
to me known to be the Vice President of Hazama USA Corporation, General Partner
of Hazama Group Limited Partnership, Managing Partner of PFC Holdings, a
Washington general partnership, the partnership executed the within and
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that he/she was authorized to execute said
instrument.
WITNESS my hand and official seal hereto affixed the day and year first
above written.
Notary Public in and for the
State of California
residing at Gardena
My Commission expires 10/31/97
Page 10
<PAGE> 1
EXHIBIT 10.7
GUARANTY OF SUBLEASE
SUBSUBLESSOR: OLYMPIC CAPITAL MANAGEMENT
SUBSUBLESSEE: go2net, inc.
DATE OF SUBLEASE:
SUBLEASED PREMISES: 1301 Fifth Avenue, Suite 3320
Seattle, Washington
7,166 RSF
SUBLEASE TERM: April 1996 - July 31, 1997
1. GUARANTY: In consideration for and as a condition of the execution
by Olympic Capital Management of the above-described Sublease (the "Sublease"),
to the above-named Subsublessee, and simultaneously with the execution of the
Sublease, the undersigned, on behalf of himself and his marital community, if
any, does by these presents jointly, and severally and unconditionally guarantee
full and prompt payment of all of Subsublessee's obligations to Olympic Capital
Management under the Sublease.
2. CONTINUING: The guaranty of the undersigned is continuing and
irrevocable during the Sublease Term including any extensions, renewals or
modifications.
3. INTEREST: The undersigned represents and warrants that he is
financially interested in Subsublessee.
4. WAIVER: Guarantor hereby waives:
(a) Any right or claim of right to cause a marshaling of
Subsublessee's assets, or to require Olympic Capital Management
to: (i) proceed against Subsublessee, Guarantor, any other
Sublease Guarantor, or any other party in any order or at all;
(ii) proceed against or exhaust any security received from
Subsublessee; (iii) bring suit to collect all or part of the
Subsublessee's obligations owing under the Sublease; (iv)
pursue any other remedy in Olympic Capital Management's power.
(b) Any of the following defenses, counterclaims, or offsets: (i)
any defense based upon or arising from the disability,
insolvency or bankruptcy of Subsublessee or any other Sublease
guarantor (ii) any defense that this guaranty may be or become
barred by any statute of limitations; (iii) any defense,
counter claim, or offset arising by reason of any modification
extension, renewal of the Sublease, or any compromises or
settlement of any claim Olympic Capital Management may have
against Subsublessee relating to
<PAGE> 2
Subsublessee's default(s) under the Sublease; and (iv) any
defense, counterclaim, or offset arising from surety, community
or separate property, or dower and courtesy rights, all to the
fullest extent permitted by law; and
(c) Any presentments for payment, demands for performance, protests
and any notices including without limitation notices of demand,
default, delinquency, protest, dishonor and acceleration.
5. AUTHORIZED ACTS OF OLYMPIC CAPITAL MANAGEMENT: In addition to all
other rights conferred herein, Guarantor agrees that Olympic Capital Management
may, without further notice or demand to Guarantor, and without affecting or
impairing Guarantor's liability to Olympic Capital Management under this
Guaranty, from time to time and upon such terms as Olympic Capital Management
may deem advisable in its sole discretion.
(a) Settle or compromise any claim of Olympic Capital Management
against Subsublessee or against any other person or entity
whose obligation is held by Olympic Capital Management as
security for the Sublease; and
(b) Assign this guaranty in whole or in part.
6. ELECTION OF REMEDIES: Olympic Capital Management shall not be
required to institute or prosecute proceedings against Subsublessee or others to
recover any amounts owing to Olympic Capital Management as a condition of any
payment or enforcement of this Guaranty. In the event that Subsublessee executes
any collateral agreement in favor of Olympic Capital Management, the exercise by
Olympic Capital Management of any right or remedy shall not impair or diminish
the obligations of Guarantor under the Guaranty. Any partial collection of
Subsublessee's sublease obligation shall not exhaust or impair Olympic Capital
Management's right hereunder, and Olympic Capital Management may reassert at any
time its rights under this Guaranty as to any uncollected portion owing under
the Sublease.
7. DEFAULT: Upon the default of Subsublessee with respect to any of
its obligations or liabilities to Olympic Capital Management relating to the
Sublease, or in case Subsublessee or any person comprising Guarantor shall
become insolvent or make an assignment for the benefit of creditors, or if a
petition in bankruptcy or for corporate reorganization or for an arrangement be
filed by or against Subsublessee or Guarantor, or in the event of the
appointment of a receiver for Subsublessee or Guarantor, then all or any part of
any obligations and liabilities of Guarantor to Olympic Capital Management,
whether direct or contingent, and of every kind and description, shall, without
notice or demand, at the sole option of Olympic Capital Management, become
immediately due and payable.
8. ATTORNEYS' FEES; COSTS: Guarantor agrees to reimburse Olympic
Capital Management for all costs expenses, and reasonable attorneys' fees that
Olympic Capital Management incurs in connection with the realization or
enforcement of any obligation or remedy contained in this Guaranty, with or
without litigation.
-2-
<PAGE> 3
9. TIME; OTHER AGREEMENTS UNIMPAIRED: Time is of the essence of every
term, covenant, and condition contained in this Guaranty. Nothing in this
Guaranty shall be construed to prevent Olympic Capital Management from enforcing
any other notes or security instruments between the parties in accordance with
their respective terms.
10. MODIFICATION; SUCCESSORS: This Guaranty contains the entire
agreement of the parties with respect to the subject matter hereof and may be
amended, modified, changed, or varied only by a written agreement signed by both
Guarantor and Olympic Capital Management. This Guaranty shall insure to the
benefit of and bind all of the parties, their successors, estates, heirs,
personal representatives and assigns.
11. NATURE OF GUARANTY/INDEPENDENT COVENANT: This Guaranty is a
separate and independent contract with and obligation to Olympic Capital
Management, and Guarantor recognizes and intends that this Guaranty shall be a
separate and continuing source of repayment of the indebtedness and that Olympic
Capital Management may rely upon this Guaranty in transacting all business with
Subsublessee. This is a separate obligation of Guarantor which shall not be
affected or diminished by any other Sublease guarantees. Guarantor's obligation
hereunder may be discharged only by payment as provided herein.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed as of the date of the Sublease.
GUARANTEED BY:
/s/ Russell C. Horowitz
- --------------------------------------------------
Russell C. Horowitz
DATE: 4/17/96
---------
-3-
<PAGE> 1
EXHIBIT 10.8
go2net, Inc.
1996 STOCK OPTION PLAN
1. Purpose of the Plan.
-------------------
This stock option plan (the "Plan") is intended to provide incentives: (a)
to the officers and other employees of go2net, Inc. (the "Company") and any
present or future subsidiaries of the Company by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); and
(b) to officers, employees, directors and consultants of the Company and any
present or future subsidiaries by providing them with opportunities to purchase
stock in the Company pursuant to options granted hereunder which do not qualify
as ISOs ("Non-Qualified Option" or "Non-Qualified Options"). As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code and the Treasury Regulations promulgated thereunder (the "Regulations").
2. Stock Subject to the Plan.
-------------------------
(a) The total number of shares of the authorized but unissued shares of the
common stock, $.01 par value, of the Company ("Common Stock") for which options
may be granted under the Plan shall not exceed 750,000 shares, subject to
adjustment as provided in Section 11 hereof.
(b) If an option granted hereunder shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall again be available for subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee (as defined in Section 3
below).
3. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by a committee (the "Committee")
consisting of two or more members of the Company's Board of Directors, each of
whom is a disinterested person as defined from time to time in Rule 16b-3
promulgated under the Securities Exchange Act of 1934. The Board of Directors
may from time to time appoint a member or members of the Committee in
substitution for or in addition to the member or members then in office and may
fill vacancies on the Committee however caused. The Committee shall choose one
of its members as Chairman and shall hold meetings at such times and places as
it shall deem advisable. A majority of the members of the Committee shall
constitute a quorum and any action may be taken by a majority of those present
and voting at any meeting. Any action may also be taken without the necessity of
a meeting by a written instrument signed by a majority
<PAGE> 2
of the Committee. The decision of the Committee as to all questions of
interpretation and application of the Plan shall be final, binding and
conclusive on all persons. The Committee shall have the authority to adopt,
amend and rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement granted hereunder in the manner and to the extent it shall
deem expedient to carry the Plan into effect and shall be the sole and final
judge of such expediency. No Committee member shall be liable for any action or
determination made in good faith. Prior to the date of registration of an equity
security of the Company under Section 12 of the Exchange Act, the Plan may be
administered by the Board of Directors and in such event all references in this
Plan to the Committee shall be deemed to mean the Board of Directors.
(b) Subject to the terms of the Plan, the Committee shall have the
authority to (i) determine the employees of the Company and its subsidiaries
(from among the class of employees eligible under Section 4 to receive ISOs) to
whom ISOs may be granted, and to determine (from the class of individuals
eligible under Section 4 to receive Non-Qualified Options) to whom Non-Qualified
Options may be granted; (ii) determine the time or times at which options may be
granted; (iii) determine the option price of shares subject to each option which
price shall not be less than the minimum price specified in Section 6; (iv)
determine whether each option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to Section 9) the time or times when each option shall
become exercisable and the duration of the exercise period; and (vi) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to options and the nature of such restrictions.
4. Eligibility.
-----------
Options designated as ISOs may be granted only to officers and other
employees of the Company or any subsidiary. Non-Qualified Options may be granted
to any officer, employee, director or consultant of the Company or of any of its
subsidiaries.
In determining the eligibility of an individual to be granted an option, as
well as in determining the number of shares to be optioned to any individual,
the Committee shall take into account the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.
No option designated as an ISO shall be granted to any employee of the
Company or any subsidiary if such employee owns, immediately prior to the grant
of an option, stock representing more than 10% of the voting power or more than
10% of the value of all classes of stock of the Company or a parent or a
subsidiary, unless the purchase price for the stock under such option shall be
at least 110% of its fair market value at the time such option is granted and
the option, by its terms, shall not be exercisable more than five years from the
- 2 -
<PAGE> 3
date it is granted. In determining the stock ownership under this paragraph, the
provisions of Section 424(d) of the Code shall be controlling. In determining
the fair market value under this paragraph, the provisions of Section 6 hereof
shall apply.
The maximum number of shares of Common Stock with respect to which an
option or options may be granted to any employee in any one calender year shall
not exceed 250,000 shares of Common Stock, taking into account shares under
Options that are granted during such calender year and also terminated in such
calender year.
5. Option Agreement.
----------------
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Committee, provided that options designated as ISOs shall meet all of the
conditions for ISOs as defined in Section 422 of the Code. The date of grant of
an option shall be as determined by the Committee. More than one option may be
granted to an individual.
6. Option Price.
------------
The option price or prices of shares of the Company's Common Stock for
options designated as Non-Qualified Options shall be as determined by the
Committee, but in no event shall the option price be less than the minimum legal
consideration required therefor under the laws of the State of Delaware or the
laws of any jurisdiction in which the Company or its successors in interest may
be organized. The option price or prices of shares of the Company's Common Stock
for ISOs shall be the fair market value of such Common Stock at the time the
option is granted as determined by the Committee in accordance with the
Regulations promulgated under Section 422 of the Code. If such shares are then
listed on any national securities exchange, the fair market value shall be the
mean between the high and low sales prices, if any, on such exchange on the
business day immediately preceding the date of the grant of the option or, if
none, shall be determined by taking a weighted average of the means between the
highest and lowest sales prices on the nearest date before and the nearest date
after the date of grant in accordance with Treasury Regulations Section
25.2512-2. If the shares are not then listed on any such exchange, the fair
market value of such shares shall be the mean between the high and low sales
prices, if any, as reported in the National Association of Securities Dealers
Automated Quotation System National Market System ("NASDAQ/NMS") for the
business day immediately preceding the date of the grant of the option, or, if
none, shall be determined by taking a weighted average of the means between the
highest and lowest sales on the nearest date before and the nearest date after
the date of grant in accordance with Treasury Regulations Section 25.2512-2. If
the shares are not then either listed on any such exchange or quoted in
NASDAQ/NMS, the fair market value shall be the
- 3 -
<PAGE> 4
mean between the average of the "Bid" and the average of the "Ask" prices, if
any, as reported in the National Daily Quotation Service for the business day
immediately preceding the date of the grant of the option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices on the nearest date before and the nearest date after the
date of grant in accordance with Treasury Regulations Section 25.2512-2. If the
fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Committee.
7. Manner of Payment; Manner of Exercise.
-------------------------------------
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee having a fair market value
equal in amount to the exercise price of the options being exercised, or (iii)
any combination of (i) and (ii), provided, however, that payment of the exercise
price by delivery of shares of Common Stock of the Company owned by such
optionee may be made only under such circumstances and on such terms as may from
time to time be established by the Committee and reflected in the Option
Agreements. The fair market value of any shares of the Company's Common Stock
which may be delivered upon exercise of an option shall be determined by the
Committee in accordance with Section 6 hereof. With the consent of the Committee
and reflected in the Option Agreements, payment may also be made by delivery of
a properly executed exercise notice to the Company, together with a copy of
irrevocable instruments to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the exercise price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, after ten business days from the
date of receipt of the notice by the Company, as shall be designated in such
notice, or at such time, place and manner as may be agreed upon by the Company
and the person or persons exercising the option.
8. Exercise of Options.
-------------------
Subject to the provisions of paragraphs 9 through 11, each option granted
under the Plan shall be exercisable as follows:
- 4 -
<PAGE> 5
(a) VESTING. The option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
(b) FULL VESTING OF INSTALLMENTS. Once an installment becomes exercisable
it shall remain exercisable until expiration or termination of the option,
unless otherwise specified by the Committee.
(c) PARTIAL EXERCISE. Each option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable.
(d) ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment or any option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any option granted to any employee as an ISO
if such acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code.
9. Term of Options; Exercisability.
-------------------------------
(a) TERM. Each option shall expire not more than ten (10) years from the
date of the granting thereof, but shall be subject to earlier termination as
provided in the Agreement.
(b) EXERCISABILITY. An option granted to an employee optionee who ceases to
be an employee of the Company or one of its subsidiaries shall be exercisable
only to the extent that the right to purchase shares under such option has
accrued and is in effect on the date such optionee ceases to be an employee of
the Company or one of its subsidiaries.
10. Options not Transferable.
------------------------
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution, or (solely with respect to
Non-Qualified Options) pursuant to a qualified domestic relations order, as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder, and any such option shall be exercisable during the
lifetime of such optionee only by him. Any option granted under the Plan shall
be null and void and without effect upon the bankruptcy of the optionee to whom
the option is granted, or upon any attempted assignment or transfer, except as
herein provided, including without limitation any purported assignment, whether
voluntary or by operation of law, pledge, hypothecation or other disposition,
attachment, divorce, except as provided above with respect to Non-Qualified
Options, trustee process or similar process, whether legal or equitable, upon
such option.
11. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to options granted to him or her hereunder shall
be adjusted as hereinafter
- 5 -
<PAGE> 6
provided, unless otherwise specifically provided in the written agreement
between the optionee and the Company relating to such option:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Committee or the board of
directors of any entity assuming the obligations of the Company hereunder (the
"Successor Board"), shall, as to outstanding options, either (i) make
appropriate provision for the continuation of such options by substituting on an
equitable basis for the shares then subject to such options the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition; or (ii) upon written notice to the optionees, provide that
all options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the options shall terminate; or (iii) terminate all options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such options (to the extent then exercisable) over the exercise price
thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph (b) above) pursuant to which securities of the Company or of
another corporation are issued with respect to the outstanding shares of Common
Stock, an optionee upon exercising an option shall be entitled to receive for
the purchase price paid upon such exercise the securities he would have received
if he had exercised his option prior to such recapitalization or reorganization.
(d) MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs shall be
made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
(e) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate immediately prior to the
consummation of such proposed action or at such other time and subject to such
other conditions as shall be determined by the Committee.
- 6 -
<PAGE> 7
(f) ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(g) FRACTIONAL SHARES. No fractional shares shall be issued under the Plan
and the optionee shall receive from the Company cash in lieu of such fractional
shares.
(h) ADJUSTMENTS. Upon the happening of any of the events described in
subparagraphs (a), (b) or (c) above, the class and aggregate number of shares
set forth in Section 2 hereof that are subject to options which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events described in such subparagraphs. The Committee or
the Successor Board shall determine the specific adjustments to be made under
this paragraph 11 and, subject to Section 3, its determination shall be
conclusive.
If any person or entity owning restricted Common Stock obtained by exercise
of an option made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs (a), (b) or (c) above as
a result of owning such restricted Common Stock, such shares or securities or
cash shall be subject to all of the conditions and restrictions applicable to
the restricted Common Stock with respect to which such shares or securities or
cash were issued, unless otherwise determined by the Committee or the Successor
Board.
12. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option granted under the Plan shall
confer upon any option holder any right with respect to the continuation of his
employment by the Company (or any subsidiary) or interfere in any way with the
right of the Company (or any subsidiary), subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the option holder from the rate
in existence at the time of the grant of an option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Committee at the time.
13. Withholding.
-----------
The Company's obligation to deliver shares upon the exercise of any
Non-Qualified Option granted under the Plan shall be subject to the option
holder's satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements. With the approval of the Committee,
which it shall have sole discretion to grant, and on such terms and conditions
as the Committee may impose, the option holder may satisfy the
- 7 -
<PAGE> 8
foregoing condition by electing to have the Company withhold from delivery
shares having a value equal to the amount of tax to be withheld. The Committee
shall also have the right to require that shares be withheld from delivery to
satisfy such condition.
14. Restrictions on Issue of Shares.
-------------------------------
(a) Notwithstanding the provisions of Section 7, the Company may delay the
issuance of shares covered by the exercise of an option and the delivery of a
certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such shares are
exempt from registration and qualification under applicable Federal and state
securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
15. Purchase for Investment; Rights of Holder on Subsequent Registration.
--------------------------------------------------------------------
Unless the shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933, as now
in force or hereafter amended, the Company shall be under no obligation to issue
any shares covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to the
Company which is satisfactory in form and scope to counsel for the Company and
upon which, in the opinion of such counsel, the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such exercise of the
option for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares, and that he or
she will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act of
1933, or any other applicable law, and that if shares are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued. In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the Securities Act of 1933 or other applicable
statutes any shares with respect to which an option shall have been exercised,
or to qualify any such shares for exemption from
- 8 -
<PAGE> 9
the Securities Act of 1933 or other applicable statutes, then the Company may
take such action and may require from each optionee such information in writing
for use in any registration statement, supplementary registration statement,
prospectus, preliminary prospectus or offering circular as is reasonably
necessary for such purpose and may require reasonable indemnity to the Company
and its officers and directors and controlling persons from such holder against
all losses, claims, damages and liabilities arising from such use of the
information so furnished and caused by any untrue statement of any material fact
therein or caused by the omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made.
16. Loans.
-----
The Company may make loans to optionees to permit them to exercise options.
If loans are made, the requirements of all applicable Federal and state laws and
regulations regarding such loans must be met.
17. Modification of Outstanding Options.
-----------------------------------
The Committee may authorize the amendment of any outstanding option with
the consent of the optionee when and subject to such conditions as are deemed to
be in the best interests of the Company and in accordance with the purposes of
this Plan.
18. Approval of Shareholders.
------------------------
The Plan shall be subject to approval by the vote of shareholders holding
at least a majority of the voting stock of the Company voting in person or by
proxy at a duly held shareholders' meeting, or by written consent of
shareholders holding at least a majority of the voting stock of the Company,
within twelve (12) months after the adoption of the Plan by the Board of
Directors and shall take effect as of the date of adoption by the Board of
Directors upon such approval. The Committee may grant options under the Plan
prior to such approval, but any such option shall become effective as of the
date of grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.
19. Termination and Amendment.
-------------------------
Unless sooner terminated as herein provided, the Plan shall terminate ten
(10) years from the date upon which the Plan was duly adopted by the Board of
Directors of the Company. The Board of Directors may at any time terminate the
Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 19, the Board of
Directors may not, without the approval of the shareholders of the Company
obtained in the manner stated in Section 18, increase the maximum number of
shares for which options may be granted or change the designation of the
- 9 -
<PAGE> 10
class of persons eligible to receive options under the Plan, or make any other
change in the Plan which requires shareholder approval under applicable law or
regulations, including any approval requirement which is a prerequisite for
exemptive relief under Section 16 of the Securities Exchange Act of 1934. The
Committee may grant options to persons subject to Section 16(b) of the
Securities and Exchange Act of 1934 after an amendment to the Plan by the Board
of Directors requiring shareholder approval under Section 19, but any such
option shall become effective as of the date of grant only upon such approval
and, accordingly, no such option may be exercisable prior to such approval. The
Committee may terminate, amend or modify any outstanding option without the
consent of the option holder, provided, however, that, except as provided in
Section 11, without the consent of the optionee, the Committee shall not change
the number of shares subject to an option, nor the exercise price thereof, nor
extend the term of such option.
20. Compliance with Rule 16b-3.
--------------------------
It is intended that the provisions of the Plan and any option granted
hereunder to a person subject to the reporting requirements of Section 16(a) of
the Securities Exchange Act of 1934 (the "Act") shall comply in all respects
with the terms and conditions of Rule 16b-3 under the Act, or any successor
provisions. Any agreement granting options shall contain such provisions as are
necessary or appropriate to assure such compliance. To the extent that any
provision hereof is found not to be in compliance with such Rule, such provision
shall be deemed to be modified so as to be in compliance with such Rule, or if
such modification is not possible, shall be deemed to be null and void, as it
relates to a recipient subject to Section 16(a) of the Act.
21. Reservation of Stock.
--------------------
The Company shall at all times during the term of the Plan reserve and keep
available such number of shares of stock as will be sufficient to satisfy the
requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
22. Limitation of Rights in the Option Shares.
-----------------------------------------
An optionee shall not be deemed for any purpose to be a shareholder of the
Company with respect to any of the options except to the extent that the option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the optionee.
23. Notices.
-------
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company,
- 10 -
<PAGE> 11
to its principal place of business, attention: President, and, if to an
optionee, to the address as appearing on the records of the Company.
- 11 -
<PAGE> 1
EXHIBIT 11.1
go2net, Inc.
<TABLE>
Computation of Net Loss Per Share
<CAPTION>
Period from Inception
(February 12, 1996)
through September 30,
1996
---------------------
<S> <C>
Net loss $ (417,757)
==========
Weighted average common shares for shares issued from Inception (February 12,
1996) through September 30, 1996, calculated using the treasury stock method at
an assumed offering price of $8 per share, and treated as outstanding for the
period presented 1,619,100
Weighted average common shares for shares issued from September 30, 1996 through
December 27, 1996, calculated using the treasury stock method at an assumed
offering price of $8 per share, and treated as outstanding for the period
presented 91,750
Weighted average number of common shares issued upon the conversion of the 9%
Cumulative, Redeemable, Convertible Preferred Stock, calculated using the
treasury stock method at an assumed offering price of $8 per share, and treated
as outstanding for the period presented 837,830
----------
2,548,680
==========
Net loss per share $(0.16)
======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Selected Financial
Data" and "Experts" and to the use of our report dated October 23, 1996, except
for Note 7, as to which the date is December 27, 1996, in the Registration
Statement on Form S-1 and the related Prospectus of go2net, Inc. for the
registration of 1,725,000 shares of its common stock.
Seattle, Washington /s/ Ernst & Young LLP
December 30, 1996
