<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1997
REGISTRATION NO. 333-19051
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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:
<TABLE>
<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) 558-6700
</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. [ ]
------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
================================================================================================================
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
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share......... 1,825,000 $9.00 $16,425,000 $4,978
================================================================================================================
</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.
(3) $4,705 of the registration fee was previously paid to the Securities and
Exchange Commission at the time of the initial filing.
----------------------------
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 FEBRUARY 13, 1997
PROSPECTUS
1,600,000 SHARES
[GO2NET 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>
==============================================================================
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........... $ $ $
- ------------------------------------------------------------------------------
Total(3)............ $ $ $
==============================================================================
</TABLE>
- ---------------
(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. As of February 13, 1997, the Company has advanced to Maxwell
Capital, Inc. $80,000 in expenses. 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. CREDIT RESEARCH & TRADING LLC
------------------------
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 shares of Common Stock offered hereby involve a high
degree of risk. See "Risk Factors."
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 which allows users to obtain commodity
information and search the World Wide Web while simultaneously accessing other
Internet sites or running other applications. 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/>.
On January 31, 1997, the Company sublicensed from Netbot, Inc. ("Netbot")
on an exclusive basis (with certain limited exceptions) Metacrawler
<http://www.metacrawler.com>, a metasearch engine developed by the University of
Washington and Netbot, and associated intellectual property rights (the
"Metacrawler Service"). The Metacrawler Service is a free World Wide Web search
service which sends search queries to several Web search engines. The Company
anticipates that the Metacrawler Service will be integrated into the Company's
product offerings under the go2search name by April 1997.
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 Company was incorporated on February 12, 1996 under the laws of the
State of Delaware.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........................... 1,600,000 shares
Common Stock to be outstanding
after the Offering........................... 4,257,100 shares(1)
Use of proceeds................................ For working capital, capital expenditures,
and other general corporate purposes. See
"Use of Proceeds."
Nasdaq SmallCap Market symbol.................. GNET
</TABLE>
3
<PAGE> 6
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(FEBRUARY 12, 1996) THREE MONTHS ENDED
TO SEPTEMBER 30, 1996 DECEMBER 31, 1996
--------------------- ---------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................................... $ -- $ --
Total operating expenses............................... 431,141 369,951
Loss from operations................................... (431,141) (369,951)
Interest income, net................................... 13,383 7,280
Net loss............................................... (417,757) (362,671)
Net loss per share (2)................................. (0.16) (0.14)
Shares used in net loss per share computation (2)...... 2,548,680 2,644,260
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
AS
ACTUAL ADJUSTED(3)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................................... $692,938 12,012,938
Working capital................................................... 668,540 11,988,540
Total assets...................................................... 921,086 12,241,086
Stockholders' equity.............................................. 888,472 12,208,472
</TABLE>
- ---------------
(1) Excludes 534,500 shares of Common Stock issuable upon the exercise of
outstanding options as of December 31, 1996 at an exercise price 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 outstanding during such period. See Note 1 to Notes to
Financial Statements.
(3) Reflects the receipt of the estimated net proceeds of the sale by the
Company of 1,600,000 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' over-allotment.
See "Use of Proceeds" and "Capitalization".
-----------------------------
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
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.
No 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 no 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 Company's lack of
an operating history 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 December 31, 1996, had an accumulated
deficit of $780,428. 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 lack of an 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 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
5
<PAGE> 8
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 "-- No
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."
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
6
<PAGE> 9
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."
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
7
<PAGE> 10
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 pressures, the Company may make certain pricing, content and/or
marketing decisions or enter into
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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."
Expansion of Operations and 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. 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" and "Management."
No Specific Use of Proceeds; Broad Discretion of Management. One purpose
of the Offering is to establish a public market for the Common Stock, which will
facilitate future access by the Company to public equity and debt markets, and
enhance the Company's ability to use its Common Stock as a means of attracting
and retaining key employees. The Company has not designated any specific use for
the net proceeds from the sale of the shares of Common Stock being offered
hereby. Approximately 13.9% of the net proceeds of this Offering has been
allocated for working capital and other general corporate purposes. The
remaining net proceeds have been allocated to advertising and marketing, product
development, acquisitions, content licensing and collaborative ventures, capital
expenditures, expansion of facilities, personnel, and general and
administrative. The allocation of the net proceeds of this Offering represents
the Company's best estimate based on the expected utilization of funds necessary
to finance the Company's existing activities in accordance with management's
current objectives and market conditions. 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.
Accordingly, management of the Company has significant flexibility in applying
the net proceeds of the Offering. See "Use of Proceeds."
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Benefits of the Offering to Current Stockholders. Prior to the Offering,
there has been no public market for the Company's Common Stock. As a result, the
Company's existing stockholders (which include all of the Company's directors,
officers and employees) will benefit from the establishment of a public market
for the Common Stock, despite the fact that all of such shares of Common Stock
are currently "restricted securities" as that term is defined in Rule 144 of the
Securities Act of 1933 (the "Securities Act") and 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. Upon
completion of this Offering, the Company's existing stockholders will hold
shares of Common Stock having an aggregate value equal to $21,256,800, based on
an assumed public offering price of $8.00 per share. In addition, completion of
the Offering will result in an increase in the tangible book value of the
existing stockholders' shares of Common Stock from $0.33 per share to $2.87 per
share. See "Risk Factors -- Dilution," "Risk Factors -- Shares Eligible for
Future Sale," "Dilution" and "Shares Eligible for Future Sale."
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
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."
Expiration of Sublease. While the Company believes its current office
space is adequate for its needs for the present and the immediate future, the
sublease for the Company's current 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. See "Business -- Facilities."
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. Each of
Messrs. Horowitz, Keister and Phillips has entered into employment agreements
with the Company. 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
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<PAGE> 13
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 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
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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."
Dependence on the Metacrawler License. The Company and Netbot have entered
into a License Agreement (the "Metacrawler License Agreement") pursuant to which
Netbot has granted the Company an exclusive (subject to certain limited
exceptions), worldwide license to provide the Metacrawler Service. As part of
the Metacrawler License Agreement, the Company has the exclusive right to
operate, modify and reproduce the Metacrawler Service (including, without
limitation, the exclusive right to use, modify and reproduce the name
"Metacrawler" and the Metacrawler URL in connection with the operation of the
Metacrawler Service). Netbot has licensed the Metacrawler Service and the other
intellectual property rights associated therewith from the University of
Washington ("UW") on an exclusive basis. The license has been granted to the
Company by Netbot on an exclusive basis, but Netbot has reserved the right to
use, modify, reproduce and license the Metacrawler search engine for any purpose
other than the provision of the Metacrawler Service and the license is subject
to the rights of UW to use, modify and reproduce the Metacrawler search engine
and derivatives of the Metacrawler site to operate Internet sites for internal
purposes within the UW domain and to use, modify and reproduce any of the
licensed technologies for research, instructional and academic purposes. The
search technology underlying the Metacrawler Service and the Metacrawler
trademark is licensed to or owned by Netbot and sublicensed to the Company
pursuant to the Metacrawler License Agreement. The Company anticipates that a
substantial portion of the traffic to its Internet site will be derived from
users of the Metacrawler Service. Although the Metacrawler License Agreement may
be terminated by Netbot only upon a material default by the Company thereunder,
the termination of the Metacrawler License Agreement could have a material
adverse effect on the Company's business, financial condition and operating
results. Moreover, the termination of the License Agreement between UW and
Netbot relating to Netbot's license of the Metacrawler Service would result in
the inability of the Company to continue to provide the Metacrawler Service
under the Metacrawler License Agreement, which could have a material adverse
effect on the Company's business, financial condition and operating results. In
addition, if the Company fails to successfully integrate the Metacrawler Service
into its Internet service in a timely manner or if the Company is unable to
continue to provide the Metacrawler Service for any reason, either of such
events could have a material adverse effect on the Company's business, financial
condition and operating results. See "Business -- Metacrawler License
Agreement."
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
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<PAGE> 15
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 "No 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
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interruptions in service will not materially adversely affect the Company's
operations in the future. While the 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."
Limited Underwriting History and Relationship with Underwriters. 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. No assurance
can be given that Maxwell Capital Inc.'s lack of experience may not adversely
affect the proposed offering and subsequent development of a trading market, if
any. In addition, Russell C. Horowitz, President and Chief Executive Officer of
the Company, is the brother of David M. Horowitz, the President, Chief Executive
Officer and controlling stockholder of Maxwell Capital, Inc. Further, certain
employees of Maxwell Capital, Inc. own in the aggregate 171,000 shares of the
Company's Common Stock and an investor in Maxwell Capital, Inc. is a limited
partner in Xanthus Capital, Inc. and directly owns 50,000 shares of the
Company's Common Stock. Consequently,
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Maxwell Capital, Inc. has determined to follow certain of the provisions of
Schedule E to the By-Laws of the National Association of Securities Dealers,
Inc., Accordingly, the Company and Maxwell Capital, Inc. have designated Credit
Research & Trading LLC to perform certain functions typically assigned to a
"qualified independent underwriter", including making a recommendation as to the
maximum offering price for the shares of Common Stock offered hereby. Credit
Research & Trading LLC has performed due diligence with respect to the
information contained in this Prospectus and has participated in the preparation
of the Registration Statement of which this Prospectus is a part. See
"Underwriting."
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
Company's Common Stock. As officers and directors of such companies, Mr.
Horowitz will be required to devote a portion of his time, and Mr. Rubio will be
required to devote a substantial portion of his time, to the affairs of such
companies. Messrs. Horowitz and Rubio will not, however, cause any of such
companies to engage in activities, or invest in companies, which directly
compete with the Company. Moreover, as directors and/or executive officers of
the Company, Messrs. Horowitz and Rubio will consider not only the impact of
strategic decisions on the Company, but also the impact of such decisions on
Xanthus Capital, L.P. In some cases, the impact of such decisions could be
disadvantageous to the Company while advantageous to Xanthus Capital, L.P., or
vice versa. In addition, Mr. Horowitz is the brother of the President, Chief
Executive Officer and controlling stockholder 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 "Management," "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
15
<PAGE> 18
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 47.7% 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 26.0% of the Common Stock.
In addition, Mr. Horowitz, along with Manuel 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 11.7% 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
16
<PAGE> 19
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."
Listing and Maintenance Criteria for Nasdaq Securities; Penny Stock
Rules. The Company has applied to have the Common Stock approved for quotation
on the National Association of Securities Dealers Automated Quotation System
("Nasdaq") for the SmallCap Market. If the Common Stock is approved for
quotation on the Nasdaq SmallCap Market, in order to continue to maintain such
listing, the Company must continue to meet the maintenance standards of Nasdaq.
Nasdaq has proposed rule changes increasing its quantitative listing standards
which, if enacted, would make it more difficult for the Company to maintain
compliance with the listing requirements of the Nasdaq SmallCap Market. If the
Company is unable to satisfy Nasdaq's maintenance criteria in the future, its
securities will be subject to being delisted, and trading, if any, would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. There is no assurance that the Company will be able to
sustain the maintenance standards for Nasdaq SmallCap Market listing with
respect to the shares of Common Stock in the future. If the Company's shares of
Common Stock fail to maintain Nasdaq's SmallCap Market listing, the market value
of the securities likely would decline and purchasers in this Offering likely
would find it more difficult to dispose of or to obtain accurate quotations as
to the market value of the securities.
In addition, if the Company fails to maintain Nasdaq's SmallCap Market
listing for its securities, and no other exclusion from the definition of a
"penny stock" under the Exchange Act is available, then any broker engaging in a
transaction in the Company's Common Stock would be required to provide any
customer with a risk disclosure document, disclosure of market quotations, if
any, disclosure of the compensation of the broker-dealer and its salesperson in
the transaction, and monthly account statements showing the market value of the
Company's securities held in the customer's accounts. The bid and offer
quotation and compensation information must be provided prior to effecting the
transaction and must be contained on the customer's confirmation. If brokers
become subject to the "penny stock" rules when engaging in transactions in the
Company's securities, they likely would become less willing to engage in such
transactions, thereby making it more difficult for purchasers in this Offering
to dispose of their securities.
Dilution. Purchasers in the Offering will suffer an immediate and
substantial dilution in the net tangible book value of the Common Stock from the
initial public offering price. Purchasers of shares of Common Stock in the
Offering will experience an immediate dilution in the net tangible book value of
$5.13 per share, representing an immediate dilution of approximately 64% from
the initial public offering price. See "Dilution."
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 "Dividend Policy" and "Description of Capital Stock."
Shares Eligible for Future Sale. Upon completion of the Offering, the
Company will have outstanding an aggregate of 4,257,100 shares of Common Stock,
assuming no exercise of any portion of the Underwriters' over-allotment option.
Of these shares, the 1,600,000 shares to be sold in the Offering will be freely
tradable
17
<PAGE> 20
without restriction or further registration under 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 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 31, 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 31, 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."
18
<PAGE> 21
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."
On January 31, 1997, the Company sublicensed from Netbot on an exclusive
basis (with certain limited exceptions) the Metacrawler Service
<http://www.metacrawler.com/>, a metasearch engine developed by the University
of Washington and Netbot, and associated intellectual property rights. The
Metacrawler Service is a free World Wide Web search service which sends search
queries to several Web search engines. The Company anticipates that the
Metacrawler Service will be integrated into the Company's product offerings
under the go2search name by April 1997.
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 service marks of the Company for which applications for
registration have been filed with the United States Patent and Trademark Office.
The Metacrawler name is a servicemark of Netbot. All other trademarks,
tradenames and servicemarks used in this Prospectus are the property of their
respective owners.
19
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,600,000 shares of
Common Stock offered hereby are estimated to be approximately $11,320,000
($12,940,000 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) establish 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, (iv) develop new Internet
content and applications, and (v) expand the Company's facilities. The Company
intends to utilize the net proceeds from the Offering approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
DOLLAR AMOUNT NET PROCEEDS
------------- -------------
<S> <C> <C>
Advertising and marketing....................................... $ 2,000,000 17.7%
Product development............................................. 2,250,000 19.9
Acquisitions, content licensing and collaborative ventures...... 2,500,000 22.1
General and administrative...................................... 1,000,000 8.8
Capital expenditures............................................ 750,000 6.6
Personnel (recruiting, hiring, training and other associated
costs)........................................................ 750,000 6.6
Facilities (rent, capital improvements, moving expenses and
deposit)...................................................... 500,000 4.4
Working capital and other general corporate purposes............ 1,570,000 13.9
----------- ----
$11,320,000 100%
</TABLE>
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the Offering, based on the expected utilization of funds
necessary to finance the Company's existing activities in accordance with
management's current objectives and market conditions. 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 which will result in a reallocation of
the estimated amounts set forth in the table above (which reallocation may be
substantial). 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 -- No 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."
20
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, (i) on an actual basis and (ii) on an as adjusted basis to
reflect the sale of the 1,600,000 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>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Stockholders' equity (deficit)(1):
9% Cumulative Redeemable Convertible Preferred Stock, par value
$1.00 per share; 1,000,000 shares authorized; no shares issued
and outstanding, actual; and as adjusted...................... $ -- $ --
Common Stock, par value $.01 per share; 9,000,000 shares
authorized; 2,657,100 shares issued and outstanding, actual;
4,257,100 shares issued and outstanding, as adjusted.......... 1,668,900 12,988,900
Accumulated deficit................................................ (780,428) (780,428)
---------- -----------
Total Stockholders' Equity and Capitalization............ $ 888,472 $12,208,472
========= ==========
</TABLE>
- ---------------
(1) Excludes 534,500 shares of Common Stock issuable upon the exercise of
outstanding options as of December 31, 1996, 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 and 6 to
Notes to Financial Statements.
21
<PAGE> 24
DILUTION
At December 31, 1996, the Company's net tangible book value was $878,325,
or $0.33 per share. 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) by the number of shares of Common
Stock outstanding as of December 31, 1996. After giving effect to the receipt of
$11,320,000 from the sale of 1,600,000 shares of Common Stock in the Offering at
an assumed initial public offering price of $8.00 per share (assuming no
exercise by the Underwriters of their over-allotment 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 net tangible book value, as adjusted, of the Company at December
31, 1996 would have been $12,198,325, or $2.87 per share, based on 4,257,100
shares of Common Stock to be outstanding after the Offering. This represents an
immediate increase in net tangible book value of $2.54 per share to the existing
stockholders of the Company, and an immediate dilution in net tangible book
value of $5.13 per share to new investors, or approximately 64%. The following
table illustrates the per share dilution as of December 31, 1996:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $8.00
Net tangible book value per share............................... $0.33
Increase per share attributable to new investors................ $2.54
-----
Adjusted net tangible book value per share after the Offering........ $2.87
-----
Dilution per share to new investors.................................. $5.13
=====
</TABLE>
The following table sets forth, as of December 31, 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>
SHARES PURCHASED TOTAL CONSIDERATION PAID
--------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 2,657,100 62.4% $ 1,668,900 11.5% $0.63
New investors...................... 1,600,000 37.6% 12,800,000 88.5% $8.00
--------- ------ ----------- ------
Total.................... 4,257,100 100.00% $14,468,900 100.00%
========= ====== =========== ======
</TABLE>
The foregoing tables assume the exercise of neither the Underwriters'
over-allotment option nor any outstanding stock options. At January 31, 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.
22
<PAGE> 25
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 THREE MONTHS
(FEBRUARY 12, 1996) ENDED
TO SEPTEMBER 30, 1996 DECEMBER 31, 1996
--------------------- -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ -- $ --
Cost of revenues................................... -- --
Operating expenses:
Advertising and marketing........................ 10,150 12,512
Product development.............................. 137,159 137,395
General and administrative....................... 283,832 220,044
--------- ---------
Total operating expenses................. 431,141 369,951
--------- ---------
Loss from operations............................... (431,141) (369,951)
Interest income.................................... 13,383 7,280
-------- ---------
Net loss........................................... $(417,757) $(362,671)
========= =========
Net loss per share................................. $ (0.16) $ (0.14)
Shares used in computing net loss per share(1)..... 2,548,680 2,644,260
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 865,742 $692,938
Working capital.................................... 828,860 668,540
Total assets....................................... 1,066,241 921,086
Total liabilities.................................. 45,098 32,614
Stockholders' equity............................... 1,021,143 888,472
</TABLE>
- ---------------
(1) Net loss per share is calculated using the weighted average number of shares
of Common Stock outstanding during such period. See Note 1 to Notes to
Financial Statements.
23
<PAGE> 26
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 no 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
Company's lack of an operating history 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 December 31,
1996, had an accumulated deficit of $780,428. 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 -- No 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 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
24
<PAGE> 27
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 from the date of inception through December 31, 1996, other than the
sale of equity, has been interest income in the amount of $20,663. See "Risk
Factors -- No 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 December 31, 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 for the period from
inception through the Company's fiscal year ended on September 30, 1996 and the
three months ended December 31, 1996 were $10,150 and $12,512, respectively. 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 for the period from inception
through the Company's fiscal year ended on September 30, 1996 and the three
months ended December 31, 1996 were $137,159 and $137,395, respectively. 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 for the
period from inception through the Company's fiscal year ended on September 30,
1996 and the three months ended December 31, 1996 were $283,832 and $220,044,
respectively. 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.
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Income Taxes. The Company has not recorded an income tax benefit because
it has incurred net operating losses since its inception. As of December 31,
1996, the Company had Federal net operating loss carry forward of approximately
$750,000. The Federal net operating loss carry forwards 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 December 31, 1996, the Company's principal source of liquidity was
$692,938 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%. In January 1997, the Company borrowed $125,000 under this line of
credit. The Company has primarily financed its operations through the private
sale of equity securities. See "Certain Transactions."
Capital expenditures were approximately $197,202 and $25,213 for the period
from inception through the Company's fiscal year ended on September 30, 1996 and
the three months ended December 31, 1996, respectively. The Company has no
material commitments for capital expenditures other than $96,000 relating to the
purchase of computer hardware and software. The Company anticipates a
substantial increase in its capital expenditures in 1997 consistent with its
anticipated growth.
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."
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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/>.
On January 31, 1997, the Company sublicensed from Netbot on an exclusive
basis (with certain limited exceptions) Metacrawler
<http://www.metacrawler.com>, a metasearch engine developed by the University of
Washington and Netbot, and associated intellectual property rights (the
"Metacrawler Service"). The Metacrawler Service is a free World Wide Web search
service which sends search queries to several Web search engines. The Company
anticipates that the Metacrawler Service will be integrated into the Company's
product offerings under the go2search name by April 1997.
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
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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
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,
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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 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
certain services on 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, NBA.com, 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.
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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 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.
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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.
The Company's existing product offerings, all of which first appeared on
the Internet on November 7, 1996, 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 Page 2, 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. From November 7, 1996 through February 2, 1997, there were
approximately 19,100 unique visitors to go2sports. This number does not
include repeat visitors to the go2sports area.
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 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. From November 7, 1996 through
February 2, 1997, there were approximately 15,600 unique visitors to
go2business. This number does not include repeat visitors to the
go2business area.
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 Paul Phillips, Internet security expert and the Company's Vice
President -- Technology, and Martin L. Schoffstall, co-founder of PSINet,
Inc. and a director of the Company, 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. From
November 7, 1996 through February 2, 1997, there were approximately 127,600
unique visitors to go2internet. This number does not include repeat
visitors to the go2internet area.
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. From November 7, 1996 through February 2, 1997, there
were approximately 6,300 unique visitors to go2search. This number does not
include repeat visitors to the go2search area.
Metacrawler <http://www.metacrawler.com> is a World Wide Web search
service developed by UW and Netbot. The Company has sublicensed the
Metacrawler Service from Netbot, and intends to base the next version of
go2search on the Metacrawler Service. The name "go2search" will remain as
the name of the Company's search engine. The Company anticipates that the
Metacrawler Service will be integrated into go2search by April 1997. Based
on a seven-day log of traffic to the Metacrawler Service
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taken by Netbot in January 1997, there was an average of approximately
30,000 visitors (measured as unique machine addresses) per day to the
Metacrawler Service and an average of approximately 135,000 queries
(searches) per day.
Metacrawler differs from other services in that it does not maintain
an internal database. Instead, it utilizes the databases of various
Web-based search engines and indexes. The exact search engines utilized by
Metacrawler have changed from time to time based on utility and the
relationship with individual search services. In January 1997, Metacrawler
sent its user queries to several Web search engines, including Lycos,
WebCrawler, Excite, Alta Vista and Yahoo! The Web search engines to which
Metacrawler sends its queries may change from time to time. Metacrawler
works by querying a number of search engines simultaneously, organizing the
results into a uniform format, and displaying them. With Metacrawler, the
user also has the option of scoring the hits.
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. From November 7, 1996 through
February 2, 1997, there were approximately 3,800 unique visitors to
go2vision. This number does not include repeat visitors to the go2vision
area.
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 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.
In January 1997, the Company licensed the Metacrawler Service from Netbot.
See "-- Metacrawler License Agreement."
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
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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 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
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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 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
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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 for the period from inception through the Company's
fiscal year ended on September 30, 1996 and the three months ended December 31,
1996 were $137,159 and $137,395, respectively.
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 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.
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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."
EMPLOYEES
As of December 31, 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.
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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."
METACRAWLER LICENSE AGREEMENT
The Company and Netbot have entered into the Metacrawler License Agreement
pursuant to which Netbot has granted the Company an exclusive (subject to
certain limited exceptions), worldwide license to provide the Metacrawler
Service. As part of the Metacrawler License Agreement, the Company has the
exclusive right to operate, modify and reproduce the Metacrawler Service
(including, without limitation, the exclusive right to use, modify and reproduce
the name "Metacrawler" and the Metacrawler URL in connection with the operation
of the Metacrawler Service). Netbot has licensed the Metacrawler Service and the
other intellectual property rights associated therewith from UW on an exclusive
basis. The license has been granted to the Company by Netbot on an exclusive
basis, but Netbot has reserved the right to use, modify, reproduce and license
the Metacrawler search engine for any purpose other than the provision of the
Metacrawler Service and the license is subject to the rights of UW to use,
modify and reproduce the Metacrawler search engine and derivatives of the
Metacrawler site to operate Internet sites for internal purposes within the UW
domain and to use, modify and reproduce any of the licensed technologies for
research, instructional and academic purposes. The search technology underlying
the Metacrawler Service and the Metacrawler trademark is licensed to or owned by
Netbot and sublicensed to the Company pursuant to the Metacrawler License
Agreement. The Company anticipates that a substantial portion of the traffic to
its Internet site will be derived from users of the Metacrawler Service.
Although the Metacrawler License Agreement may be terminated by Netbot only upon
a material default by the Company thereunder, the termination of the Metacrawler
License Agreement could have a material adverse effect on the Company's
business, financial condition and operating results. Moreover, the termination
of the License Agreement between UW and Netbot relating to Netbot's license of
the Metacrawler Service would result in the inability of the Company to continue
to provide the Metacrawler Service under the Metacrawler License Agreement which
could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, if the Company fails to
successfully integrate the Metacrawler Service into its Internet service in a
timely manner or if the Company is unable to continue the Metacrawler Service
for any reason, either of such events could have a material adverse effect on
the Company's business, financial condition and operating results.
The Metacrawler License Agreement provided for an initial license fee of
$100,000 to be paid by the Company to Netbot. The Company is also required to
pay Netbot up to $20,000 on a quarterly basis in 1997 if
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the average daily queries made through the Metacrawler Service exceeds certain
targets. In the event certain specified search engines remain available through
the Metacrawler Service after the first anniversary of the date of the
Metacrawler License Agreement, the Company is required to pay Netbot an
additional fee of $50,000. In addition, commencing on January 1, 1999, the
Company is required to pay to Netbot an annual fee of $25,000. The Company has
agreed to pay Netbot annual royalties based on the Company's gross revenues
received from the Metacrawler Service, which royalties will be reduced by the
$25,000 minimum annual payment.
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. 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
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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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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, Secretary
</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 Technology Officer and a director of PSINet, Inc. since its
inception in 1990 until 1996. In
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1996 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> 44
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. While Mr. Horowitz's employment
agreement provides that he may be engaged in other non-competing business
activities, Mr. Horowitz has devoted substantially all of his time and effort to
performing his duties as an executive officer of the Company.
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<PAGE> 45
Mr. Horowitz will continue to devote substantially all of his time and effort to
serving as an executive officer of the Company until, if ever, replacements or
successors to his duties are employed by the Company.
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
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 31, 1996, options to acquire 534,500 shares of Common Stock
had 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, at the earliest, the 90th
day following the effective date of this Prospectus.
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<PAGE> 46
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 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."
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<PAGE> 47
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).
Between November 8, 1996 and November 20, 1996, all of the Company's
927,500 shares of Preferred Stock issued and outstanding were converted, at a
conversion rate of one share of Preferred Stock for one share of Common Stock,
into an aggregate of 927,500 shares of Common Stock.
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).
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,
Chief Executive Officer and controlling stockholder 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 on an
arms-length basis from unaffiliated third parties. The Company has adopted a
policy pursuant to which all transactions (including, without limitation, the
borrowing of money) between the Company and its officers, directors and
affiliates will be on terms no less favorable to the Company than could be
obtained on an arms-length basis from unrelated third parties and will be
approved by a majority of the disinterested members of the Company's Board of
Directors.
45
<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1996 and as adjusted
to reflect the sale of 1,600,000 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).............................. 1,605,000 60.4% 1,605,000 37.7%
c/o go2net, Inc.
1301 Fifth Avenue, Suite 3320
Seattle, Washington 98101
Xanthus Capital, L.P.(4)............................... 500,000 18.9% 500,000 11.7%
1301 Fifth Avenue, Suite 3320
Seattle, Washington 98101
John Keister........................................... 125,000 4.7% 125,000 2.9%
c/o go2net, Inc.
1301 Fifth Avenue, Suite 3320
Seattle, Washington 98101
Manuel Rubio(4)........................................ 600,000 22.6% 600,000 14.1%
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 2,030,000 76.4% 2,030,000 47.7%
persons)(4)..........................................
</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 4,257,100 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> 49
(4) Includes 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.
47
<PAGE> 50
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 31, 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.
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<PAGE> 51
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, 3,992,900 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 1,600,000 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.
49
<PAGE> 52
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 4,257,100 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option. Of these shares, the 1,600,000 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 31, 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.
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<PAGE> 53
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 42,571 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 31, 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.
51
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, Maxwell Capital, Inc.
and Credit Research & Trading LLC 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...............................
Credit Research & Trading LLC......................
----------------
Total.................................... 1,600,000
=============
</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.
52
<PAGE> 55
None of the Underwriters have, or will have, the right to designate or
nominate a member to the Company's Board of Directors.
The Underwriters do not intend to confirm sales of Common Stock offered
hereby to any accounts over which they exercise discretionary control.
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, Chief Executive Officer and controlling stockholder 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 ("Credit Research") to perform certain functions
typically assigned to a qualified independent underwriter for this Offering.
Credit Research has been a NASD registered broker dealer since March 10, 1992.
Prior to that date and from its inception in 1989, Credit Research provided
brokerage services as a branch office of Access Securities, a NASD registered
broker dealer. Credit Research makes markets in various over-the-counter stocks
on NASDAQ, trades debt and equity securities both as a principal and as an agent
of middle market companies, creates special situations debt and equity research
and provides various investment banking services. In the last year, Credit
Research has served as an underwriter in one firm commitment underwriting of
shares of common stock. The principals of Credit Research have participated in
several firm commitment underwritten offerings with other NASD registered
brokerage firms prior to their employment by Credit Research.
53
<PAGE> 56
Credit Research 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, 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 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 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 exceed the maximum fair price. Maxwell Capital,
Inc. will pay a fee to Credit Research of $75,000 and will reimburse such firm
for actual out-of-pocket disbursements of up to $5,000 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 December
31, 1996 and for the period from February 12, 1996 (inception) to September 30,
1996 and the three months ended December 31, 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.,
54
<PAGE> 57
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.
55
<PAGE> 58
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> 59
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
go2net, Inc.
We have audited the accompanying balance sheets of go2net, Inc. as of
December 31, 1996 and September 30, 1996, and the related statements of
operations, stockholders' equity and cash flows for the three month period ended
December 31, 1996 and 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 audits 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 audits 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 December 31,
1996 and September 30, 1996, and the results of its operations and its cash
flows for the three month period ended December 31, 1996 and the period from
Inception (February 12, 1996) through September 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
February 3, 1997
Seattle, Washington
F-2
<PAGE> 60
GO2NET, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 692,938 $ 865,742
Prepaid expenses.............................................. 8,216 8,216
---------- ----------
Total current assets.................................. 701,154 873,958
Property and equipment, net..................................... 184,479 179,328
Other assets.................................................... 35,453 12,955
---------- ----------
Total assets.......................................... $ 921,086 $ 1,066,241
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -- accrued expenses......................... $ 32,614 $ 45,098
Stockholders' equity:
9% Cumulative Redeemable Convertible Preferred Stock, $1.00
par value, authorized 1,000,000 shares; no shares and
927,500 shares outstanding................................. -- 1,505,000
Common stock, $0.01 par value, authorized 9,000,000 shares;
outstanding 2,657,100 and 1,619,100 shares................. 1,668,900 13,900
Less 9% Cumulative Redeemable Convertible Preferred Stock
subscriptions receivable................................... -- (80,000)
Accumulated deficit........................................... (780,428) (417,757)
---------- ----------
Total stockholders' equity............................ 888,472 1,021,143
---------- ----------
Total liabilities and stockholders' equity............ $ 921,086 $ 1,066,241
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 61
GO2NET, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
THREE MONTHS ENDED (FEBRUARY 12, 1996)
DECEMBER 31, 1996 THROUGH SEPTEMBER 30, 1996
------------------ --------------------------
<S> <C> <C>
Operating expenses:
Advertising and marketing................... $ 12,512 $ 10,150
Product development......................... 137,395 137,159
General and administrative.................. 220,044 283,832
--------- ---------
Total operating expenses............ 369,951 431,141
--------- ---------
Loss from operations.......................... (369,951) (431,141)
Interest income, net.......................... 7,280 13,383
--------- ---------
Net loss...................................... $(362,671) $(417,757)
========= =========
Net loss per share............................ $ (0.14) $ (0.16)
Common shares and common equivalent shares
used to calculate net loss per share........ 2,644,260 2,548,680
--------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE> 62
GO2NET, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM INCEPTION (FEBRUARY 12, 1996) THROUGH SEPTEMBER 30, 1996
AND THREE MONTH PERIOD ENDED DECEMBER 31, 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
Sale 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
Payment of note receivable.... 80,000 80,000
Issuance of common stock at no
cost........................ 35,500
Conversion of preferred
stock....................... (927,500) (1,505,000) 927,540 1,505,000
Sale of common stock.......... 75,000 150,000 150,000
Net loss for three month
period ended December 31,
1996........................ (362,671) (362,671)
-------- ----------- ---------- ---------- ------------ ----------- -----------------
-- -- 2,657,100 $1,668,900 -- $(780,428) $ 888,472
========= ============ ========== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 63
GO2NET, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
THREE MONTH (FEBRUARY 12, 1996)
PERIOD ENDED THROUGH
DECEMBER 31, 1996 SEPTEMBER 30, 1996
----------------- ---------------------
<S> <C> <C>
Operating activities:
Net loss............................................ $(362,671) $ (417,757)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 21,620 19,278
Changes in assets and liabilities:
Prepaid expenses.................................... (8,216)
Other assets........................................ (1,000) (1,758)
Accrued expenses.................................... (12,483) 45,098
--------- ----------
Net cash used in operating activities................. (354,534) (363,355)
Investing activities:
Acquisition of property and equipment............... (25,213) (197,202)
Other assets........................................ (23,057) (12,601)
--------- ----------
Net cash used in investing activities................. (48,270) (209,803)
Financing activities:
Proceeds from issuance of 9% Cumulative Redeemable
Convertible Preferred Stock...................... 80,000 1,425,000
Proceeds from issuance of common stock.............. 150,000 13,900
--------- ----------
Net cash provided by financing activities............. 230,000 1,438,900
--------- ----------
Net increase in cash and cash equivalents............. (172,804) 865,742
Net cash and cash equivalents at beginning of
period.............................................. 865,742 --
--------- ----------
Cash and cash equivalents at end of period............ $ 692,938 $ 865,742
========= ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 64
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.
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 offering price during the twelve-month period prior to
the proposed offering have been included in the
F-7
<PAGE> 65
GO2NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
calculation as if they were outstanding throughout the periods presented
regardless of whether they are antidilutive (using the treasury stock method at
an assumed public offering price of $8.00).
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. Implementation of SFAS No. 123 will have
no 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>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
Cash................................................. $ 69,975 $ 25,354
Money market balances................................ 622,963 840,388
-------- --------
Cash and cash equivalents............................ $692,938 $ 865,742
======== ========
</TABLE>
The carrying value of the Company's cash equivalents approximate their fair
values based on quoted market prices.
Property and Equipment
A summary of property and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
1996 1996
------------ ------------
<S> <C> <C>
Computer equipment................................... $184,510 $160,756
Office equipment..................................... 28,884 27,425
Leasehold improvements............................... 7,221 7,221
Other................................................ 1,800 1,800
-------- --------
222,415 197,202
Less accumulated depreciation and amortization....... (37,936) (17,874)
-------- --------
$184,479 $179,328
======== ========
</TABLE>
3. INCOME TAXES
As of December 31, 1996 and September 30, 1996, the Company had
approximately $749,000 and $394,000, respectively, 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).
F-8
<PAGE> 66
GO2NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
Depreciation and amortization........................ $ (1,845) $ (6,304)
Net operating losses................................. 262,041 133,953
Accruals, reserves and other......................... 9,152 12,540
---------
269,348 140,189
Less valuation allowance............................. (269,348) (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.
In November , 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.
Common Stock
From Inception (February 12, 1996) through September 30, 1996, the Company
sold 1,390,000 shares to its founders at par value and during the three month
period ended December 31, 1996 sold 75,000 shares of common stock for $2.00 per
share to a member of its Board of Directors. The Company also issued 264,600
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 172,150 shares of common
stock subject to repurchase by the Company at December 31, 1996.
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-9
<PAGE> 67
GO2NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 and $24,050
for the three month period ended December 31, 1996.
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 December 31, 1996, the Company had granted options that allowed
employees to acquire 447,500 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.
As of December 31, 1996, the Company had issued options that allowed
independent contractors to acquire 87,000 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 December 31, 1996, the Company had reserved 750,000 shares of common
stock for issuance under the Plan. The Company had a total of 534,500 options
outstanding to purchase shares of common stock, none of which were exercisable.
There were 215,500 options available for future grant under the Plan as of
December 31, 1996.
7. REVOLVING CREDIT AGREEMENT
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 (8.5% per annum as of December 31, 1996) 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.
F-10
<PAGE> 68
===============================================================================
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........................... 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 27
Management............................ 40
Certain Transactions.................. 45
Principal Stockholders................ 46
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 52
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 54
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.
===============================================================================
1,600,000 SHARES
[GO2NET LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MAXWELL CAPITAL, INC.
CREDIT RESEARCH & TRADING LLC
, 1997
===============================================================================
<PAGE> 69
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 and the non-accountable expense allowance
payable to Maxwell Capital, Inc. 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....................... $ 4,978
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................................................... 3,522
--------
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 employees, consultants and
independent contractors of the Company pursuant to the Company's 1996 Stock
Option Plan.
II-1
<PAGE> 70
(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.
10.10+ License Agreement dated as of January 31, 1997 between Netbot, Inc. and the Company.
10.11+ Subscription Agreement dated as of August 7, 1996 between SportsTicker Enterprises,
L.P. and the Company.
10.12+ S&P Comstock Information Distribution License Agreement dated as of August 16, 1996
between S&P Comstock, Inc. and the Company.
10.13+ Distributor Agreement dated as of September 6, 1996 between Comtex Scientific
Corporation and the Company.
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.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
(b) Financial Statement Schedules. No financial statement schedules are
filed with this Registration Statement because they are not applicable.
II-2
<PAGE> 71
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> 72
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 13th day of February, 1997.
go2net, Inc.
By: /s/RUSSELL C. HOROWITZ
Russell C. Horowitz
President, Chief Executive
Officer,
Chief Financial Officer and
Director
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 February 13, 1997
- --------------------------------------------- Officer, Chief Financial
Russell C. Horowitz Officer and Director
(principal executive and
accounting officer)
/s/ MANUEL RUBIO Secretary and Director February 13, 1997
- ---------------------------------------------
Manuel Rubio
* Director February 13, 1997
- ---------------------------------------------
Martin L. Schoffstall
* Director February 13, 1997
- ---------------------------------------------
Dennis Cline
</TABLE>
*
By: /s/MANUEL RUBIO
Manuel Rubio
As Attorney-In-Fact
II-4
<PAGE> 73
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.............................
10.10+ License Agreement dated as of January 31, 1997 between Netbot, Inc. and
the Company.
10.11+ Subscription Agreement dated as of August 7, 1996 between SportsTicker
Enterprises, L.P. and the Company
10.12+ S&P Comstock Information Distribution License Agreement dated as of
August 16, 1996 between S&P Comstock, Inc. and the Company.
10.13+ Distributor Agreement dated as of September 6, 1996 between Comtex
Scientific Corporation and the Company
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........................................................
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
<PAGE> 1
EXHIBIT 1.1
1,600,000 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 1,600,000 shares of Common Stock, $.01 par value
per share (the "Common Stock"), of the Company. The aggregate of 1,600,000
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. 333-19051) 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
-2-
<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 through Maxwell 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, whether or not
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, prospects 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.
-3-
<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.
-4-
<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, prospects, 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 or
contemplated 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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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 and December 31, 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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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 as are
prudent and customary in the business of the Company 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 Schedule E to the
NASD By-Laws) or otherwise performing certain duties otherwise typically
performed by a "qualified independent underwriter", 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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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 or 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, 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 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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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 through Maxwell
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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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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<PAGE> 18
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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<PAGE> 19
(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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<PAGE> 20
(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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<PAGE> 21
(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......................... _________
1,600,000
<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 data 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
-2-
<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
COMMON STOCK COMMON STOCK
[EMBLEM] [GO2NET LOGO] [EMBLEM]
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 383486 10 7
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
GO2NET, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Manuel Rubio [GO2NET SEAL] /s/ Russell C. Horowitz
- -------------------------- --------------------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE> 2
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ................Custodian................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act......................................
in common (State)
UNIF TRF MIN ACT -- ..........Custodian (until age..........)
(Cust)
..................under Uniform Transfers
(Minor)
to Minors Act............................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------
X
-----------------------------------------------
X
-----------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By
-------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-13.
<PAGE> 1
Exhibit 5.1
February 13, 1997
go2net, Inc.
1301 Fifth Avenue
Suite 3320
Seattle, Washington 98101
Gentlemen:
We have acted as counsel to go2net, Inc., a Delaware corporation (the
"Company"), in connection with proceedings being taken to register under the
Securities Act of 1933, as amended, up to 1,825,000 shares of the Company's
Common Stock, $.01 par value per share (the "Common Stock") pursuant to a
Registration Statement on Form S-1 (File No. 333-19051) (the "Registration
Statement"), which includes 225,000 shares which may be sold upon exercise of
the underwriters' overallotment option described in the Registration Statement.
As such counsel, we have examined (i) certain corporate records of the
Company, including its Restated Certificate of Incorporation, its Bylaws, stock
records and Minutes of Meetings of its Board of Directors; (ii) a Certificate of
the Secretary of State of the State of Delaware as to the legal existence of the
Company; and (iii) such other documents as we have deemed necessary as a basis
for the opinions hereinafter expressed. For purposes of rendering this opinion,
we have assumed that the Restated Certificate of Incorporation of the Company in
the form filed as an Exhibit to the Registration Statement will be filed with
the Secretary of the State of Delaware prior to the issuance and sale of its
Common Stock under the circumstances contemplated in the Registration Statement.
Based upon the foregoing, and having regard for such legal considerations
as we deem relevant, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware.
2. The Company, as of the effective date of the foregoing Restated
Certificate of Incorporation, will be authorized to issue 9,000,000
shares of Common Stock,
<PAGE> 2
go2net, Inc.
February 13, 1997
Page 2
par value $.01 per share and 1,000,000 shares of Preferred Stock,
par value $.01 per share.
3. When issued and sold under the circumstances contemplated in the
Registration Statement, the 1,825,000 shares of Common Stock offered
by the Company will be duly authorized, validly issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
<PAGE> 1
Exhibit 10.10
LICENSE AGREEMENT
This Agreement, dated as of January 31, 1997, is made and entered into by
and between Netbot, Inc. ("Netbot") and go2net, Inc. ("Go2net"). Netbot and
Go2net agree as follows:
SECTION 1. DEFINITIONS
Whenever used in this Agreement with initial letters capitalized, the
following terms will have the following specified meanings:
"AVERAGE DAILY QUERIES" means the daily average of the number of queries
made through the Metacrawler Service during any Month of the Term, excluding any
day that any Go2net Internet server is not available at least 95% of the time
during the period from 5:00 a.m. to 6:00 p.m. Pacific Standard Time.
"FISCAL QUARTER" means any of the successive periods of three consecutive
Months commencing after the date of this Agreement, except that the first Fiscal
Quarter will be the two Months of February and March 1997. The second Fiscal
Quarter will be the Months of April, May and June 1997. The third Fiscal Quarter
will be the Months of July, August and September 1997. The fourth Fiscal Quarter
will be the Months of October, November and December 1997.
"GO2NET TECHNOLOGIES" means any and all features and functions that Go2net
may integrate with, or incorporate into, the Metacrawler Service or the
Metacrawler Site and that are not based upon or derived from any of the Licensed
Technologies.
"GROSS REVENUES" means the gross revenues (whether in cash, barter,
property or other consideration) received by Go2net from the Metacrawler Service
(including, without limitation, any revenues from advertisements or other
displays at the Metacrawler Site) after deducting any commissions paid by Go2net
to third parties (e.g., not employees of Go2net) for selling advertisements or
other displays at the Metacrawler Site; provided that any gross revenues
received in a form other than cash will be included in Gross Revenues at only
fifty percent (50%) of fair market value and provided further that Go2net may
give away for free or barter up to twenty-five percent (25%) of the total number
of advertising displays on the Metacrawler Site and exclude the same from the
determination of Gross Revenues hereunder. Gross Revenues do not include any
retail sales, use or similar taxes collected for remittance to any governmental
authority. Gross Revenues will be determined in accordance with generally
accepted accounting principles.
<PAGE> 2
"LICENSE" means the license granted under paragraph 2.1.
"LICENSED TECHNOLOGIES" means the Metacrawler Search Engine, the
Metacrawler Site and the Metacrawler URL. The Licensed Technologies do not
include:
(a) any of the Shopbot, Ahoy! or Occam software technologies referred
to in the UW License Agreement; or
(b) any of the Go2net Technologies.
"METACRAWLER SEARCH ENGINE" means the computer programs comprising the
meta-search engine utilized by Netbot in providing the Metacrawler Service as of
the date of this Agreement, together with any modifications of such computer
programs made pursuant to the License. The files included in the Metacrawler
Search Engine as of the date of this Agreement are listed in the attached
Exhibit A.
"METACRAWLER SERVICE" means the World Wide Web search service provided
through the Metacrawler Site by Netbot as of the date of this Agreement, as the
same may be modified and provided by Go2net after the date of this Agreement.
"METACRAWLER SITE" means the HTML page (i.e., screen displays and HTML
files that generate the screen displays) operated by Netbot at the Metacrawler
URL as of the date of this Agreement, as the same may be modified and operated
by Go2net after the date of and pursuant to this Agreement.
"METACRAWLER URL" means the URL for the Metacrawler Site (i.e.,
www.metacrawler.com), as the same may be modified pursuant to the License.
"MONTH" means a calendar month.
"TERM" means the period of time described in Section 5.
"UW" means the University of Washington.
"UW LICENSE AGREEMENT" means the provisions of the Exclusive License
Agreement between the UW and Netbot (formerly known as Softbots, Inc.) attached
as Exhibit B.
SECTION 2. THE LICENSE
2.1 GRANT
<PAGE> 3
Netbot hereby grants to Go2net an exclusive, worldwide license to provide
the Metacrawler Service during the Term. Subject to the restrictions and other
provisions set forth in Section 4, Go2net may modify the Metacrawler Service
during the Term according to its own discretion. As part of the License, Go2net
will have the exclusive right to operate, modify and reproduce the Metacrawler
Site (including, without limitation, the exclusive right to use, modify and
reproduce the name "Metacrawler" and the Metacrawler URL in connection with the
operation of the Metacrawler Site) during the Term. Further, the License
includes the nonexclusive right to use, modify and reproduce the Metacrawler
Search Engine as reasonably required in connection with the provision of the
Metacrawler Service during the Term.
2.2 RESTRICTION ON SUBLICENSING
Go2net will not sublicense any of the Licensed Technologies or rights under
the License without the prior written consent of Netbot.
2.3 RESERVATION OF RIGHTS
The License sets forth all of the rights granted by Netbot to Go2net with
respect to the Metacrawler Service and the Licensed Technologies. Except for the
License, Netbot reserves all patent, copyright, trade secret, trademark and
other proprietary rights in the Metacrawler Service and the Licensed
Technologies. Without limitation of the foregoing, Netbot reserves the right to
use, modify, reproduce and license the Metacrawler Search Engine for any purpose
other than the provision of the Metacrawler Service. Further, Netbot reserves
the right for the UW to use, modify and reproduce the Metacrawler Search Engine
and derivatives of the Metacrawler Site to operate Internet sites for internal
purposes within the UW domain and to use, modify and reproduce any of the
Licensed Technologies for research, instructional and academic purposes and as
otherwise provided in the UW License Agreement. Go2net hereby assigns to Netbot
any and all patent, copyright, trade secret, trademark and other proprietary
rights that it may have in any modification to the Licensed Technologies made
pursuant to the License; provided that this assignment will not apply to any
Go2net trademark or Go2net Technologies; and provided, further, that Go2net will
not be obligated to deliver any such modification to Netbot until the end of the
Term as provided for in paragraph 5.4. Go2net will take such additional action
(including, without limitation, the execution and delivery of separate
assignments or other documents) as Netbot may reasonably request to effect,
perfect or evidence any such assignment. Go2net reserves all patent, copyright,
trade secret, trademark and other proprietary rights in the "go2net" name, the
go2net URL (i.e. WWW.go2search.com) and the Go2net Technologies.
<PAGE> 4
2.4 THE UW LICENSE AGREEMENT
The License, as applied to any Licensed Materials licensed by Netbot from
the UW pursuant to the UW License Agreement, is subject to any applicable
provisions of the UW License Agreement. However, the parties desire and intend
for Go2net's rights with respect to the Metacrawler Service and the Licensed
Technologies to be determined and governed by this Agreement to the fullest
extent possible. To that end:
(a) Netbot will not amend, breach or terminate the UW License
Agreement in any manner that may adversely affect any of Go2net's rights
under this Agreement; and
(b) to the fullest extent possible, this Agreement will survive any
termination of the UW License Agreement.
SECTION 3. COMPENSATION
3.1 INITIAL LICENSE FEE
Upon execution of this Agreement, Go2net will pay Netbot an initial
license fee of $100,000.
3.2 FEES BASED UPON AVERAGE DAILY QUERIES
3.2.1 If the Average Daily Queries during the first Fiscal Quarter
exceed 100,000, then Go2net will pay Netbot an additional fee of $20,000 within
thirty (30) days after the end of such Fiscal Quarter.
3.2.2 If the Average Daily Queries during the second Fiscal Quarter
exceed 125,000, then Go2net will pay Netbot an additional fee of $20,000 within
thirty (30) days after the end of such Fiscal Quarter. If the Average Daily
Queries during the second Fiscal Quarter exceed 100,000 but not 125,000, then
Go2net will pay Netbot an additional fee of $10,000 within thirty (30) days
after the end of such Fiscal Quarter.
3.2.3 If the Average Daily Queries during the third Fiscal Quarter
exceed 150,000, then Go2net will pay Netbot an additional fee of $20,000 within
thirty (30) days after the end of such Fiscal Quarter. If the Average Daily
Queries during the third Fiscal Quarter exceed 125,000 but not 150,000, then
Go2net will pay Netbot an additional fee of $10,000 within thirty (30) days
after the end of such Fiscal Quarter.
<PAGE> 5
3.2.4 If the Average Daily Queries during the fourth Fiscal Quarter
exceed 200,000, then Go2net will pay Netbot an additional fee of $20,000 within
thirty (30) days after the end of such Fiscal Quarter. If the Average Daily
Queries during the fourth Fiscal Quarter exceed 175,000 but not 200,000, then
Go2net will pay Netbot an additional fee of $10,000 within thirty (30) days
after the end of such Fiscal Quarter.
3.3 FEES BASED UPON ACCESS TO THIRD PARTY SEARCH ENGINES
If each of the following five Internet search engines are available (i.e.,
not filtered or otherwise blocked by the third-party provider of such search
engines such that they are less available to the Metacrawler Service than they
are generally available to the public) to the Metacrawler Service after the
first anniversary of the date of this Agreement, then Go2net will pay to Netbot
an additional fee of $50,000 within thirty (30) days after the date of such
anniversary:
*
If any of the foregoing search engines is not generally available to the public
(e.g., because the provider of such search engine is no longer in business or
for any other reason), then such search engine will nonetheless be considered to
be available to the Metacrawler Service for purposes of this paragraph.
3.4 ROYALTIES
<TABLE>
Go2net will pay Netbot royalties based upon a percentage of the Gross
Revenues received by Go2net as follows:
<CAPTION>
Percentage
Period
<S> <C>
Prior to April 1997 40%
April - June 1997 20%
July - September 1997 15%
October - December 1997 10%
1998 10%
After 1998 7.5%
</TABLE>
* Information omitted for confidential treatment.
<PAGE> 6
Go2net will pay Netbot the royalties payable with respect to any Gross Revenues
received during any Fiscal Quarter within thirty (30) days after the end of the
Fiscal Year. Each royalty payment will be accompanied by a written statement of
the Gross Revenues and calculation of royalties for the applicable Fiscal
Quarter. Each statement will be supported by such documentation and information
as Netbot may reasonably request to verify the same. Go2net will keep current,
complete and accurate records regarding the Gross Revenues and calculation of
royalties under this Agreement in accordance with generally accepted accounting
principles. Go2net will provide Netbot or its designated representative access
to such records for examination, reproduction and audit upon Netbot's reasonable
advance request.
3.5 ANNUAL FEE BEGINNING JANUARY 1, 1999
On or before January 1 of each year during the Term beginning January 1,
1999, Go2net will pay Netbot a nonrefundable annual fee of $25,000. Go2net may
apply the annual fee under this paragraph as a credit against the royalties
payable under paragraph 3.4 with respect to the Gross Revenues received during
the year for which the annual fee is paid (e.g. the annual fee payable on or
before January 1, 1999 is for the calendar year 1999), but not any other
payments under this Agreement (e.g. the annual fee for 1999 may not be applied
against royalties payable with respect to Gross Revenues received during any
subsequent year).
3.6 CUMULATIVE PAYMENTS
The payments described in paragraphs 3.1, 3.2, 3.3, 3.4 and 3.5 are
cumulative. Except as specifically provided in paragraph 3.5, no payment under
paragraph 3.1, 3.2, 3.3, 3.4 or 3.5 will be applied to offset or reduce any
payment due under any other provision of this Agreement.
3.7 INTEREST ON LATE PAYMENTS
Any amount not paid when due under this Section 3 will bear interest at the
rate of 12% per annum or the highest rate permitted by applicable usury law,
whichever is less, calculated on a daily basis from the date due until the date
paid.
SECTION 4. PROVISION OF METACRAWLER SERVICE DURING THE TERM
4.1 GENERAL
The parties will cooperate to effect an orderly, expeditious and efficient
transfer of the Metacrawler Service to Go2net as soon as practicable after the
date of this Agreement. Without limitation of the foregoing, Netbot will deliver
the Licensed
<PAGE> 7
Technologies to Go2net via encrypted email or other mutually acceptable means
upon Netbot's receipt of the initial license fee described in paragraph 3.1.
Netbot will continue to operate and maintain the Metacrawler Service in
substantially the same manner as it has operated and maintained the Metacrawler
Service prior to the date of this Agreement until the earlier of the date upon
which Go2net begins to operate the Metacrawler Service or March 3, 1997. Go2net
will use its best efforts to commercially exploit the Metacrawler Service and
generate Gross Revenues throughout the Term.
4.2 NETBOT SUPPORT
During the first six Months of the Term, Netbot will make available to
Go2net free of charge up to twelve hours of consultation with respect to the
Metacrawler Service and Licensed Technologies; provided that Netbot will not be
obligated to provide more than four hours of consultation in any Month. Netbot
will provide such additional consultation for such compensation and upon such
terms and conditions as may be agreed upon from time to time by the parties.
Such consultation will be provided via electronic mail or other mutually
acceptable means of communication.
4.3 BANNER ADVERTISING
During the first twelve Months of the Term, Go2net will make available to
Netbot for Netbot's use (but not for resale by Netbot) free of charge up to
* of the total of number banner advertising impressions made
available at the Metacrawler Site (e.g., one out of every twenty banner
advertisements will be made available to Netbot). The position, size, prominence
and other details of such banner advertising will be determined by mutual
agreement of the parties and not less favorable to Netbot than offered by Go2net
to any other advertiser.
4.4 NETBOT LINK
Throughout the Term prior to January 1, 1998, Go2net will make available to
Netbot free of charge space on the Metacrawler Site for a link to one other
Internet site to be designed by Netbot. Unless otherwise agreed by the parties,
the position, size, prominence and other details of such space will be
substantially as described in the attached Exhibit C. Netbot will provide and be
responsible for the content of this space. Netbot will indemnify Go2net from any
claims arising out of such content as provided for in paragraph 6.2.
4.5 REFERENCES
Netbot may include references to the Metacrawler Site and the Licensed
Technologies in its advertising, promotional and other materials so long as any
* Information omitted for confidential treatment.
<PAGE> 8
reference to the Metacrawler Site includes the Metacrawler URL, as the same may
be modified from time to time by Go2net during the Term. Further, Netbot and the
UW may maintain pointers and links to the Metacrawler Site from other Internet
sites operated by Netbot or the UW.
4.6 DEVELOPER CREDIT
Go2net will prepare and maintain as part of the Metacrawler Site a mutually
acceptable history page or other display providing appropriate credit to the
developers of the Licensed Technologies. Unless and until such display is
implemented, attribution to such developers will be provided in substantially
the same manner, position, size and prominence as is provided in the Licensed
Technologies as of the date of this Agreement.
4.7 PROTECTION OF METACRAWLER SEARCH ENGINE CODES
The source and object codes to the Metacrawler Search Engine involve
valuable trade secrets and other proprietary rights of Netbot. Go2net will
protect such codes from any unauthorized use, disclosure, copying, dissemination
or distribution. Without limitation of the foregoing, Go2net will restrict
access to such codes to those of its employees who need access to provide the
Metacrawler Service and have agreed to protect such codes from unauthorized use,
disclosure, copying, dissemination and distribution. Further, Go2net will use,
modify and copy the Metacrawler Search Engine solely for the provision of the
Metacrawler Service in accordance with this Agreement. Go2net will not use,
modify or copy any of the Metacrawler Search Engine for any other purpose (e.g.,
to develop or provide any other Internet search service).
SECTION 5. TERM AND TERMINATION
5.1 GENERAL
The Term will commence as of the date of this Agreement and will continue
in perpetuity, unless and until terminated in accordance with paragraphs 5.2 or
5.3.
5.2 OPTIONAL TERMINATION BY GO2NET
Go2net may terminate the Term by giving Netbot written notice of such
termination, provided that no termination under this paragraph will be effective
prior to the later of:
(a) the expiration of ninety (90) days after Netbot's receipt of
Go2net's written notice of termination; or
<PAGE> 9
(b) the expiration of one year after the date of this Agreement.
5.3 TERMINATION FOR DEFAULT
Either party may terminate the Term by giving the other party written
notice of termination if:
(a) the other party commits a material breach of or default under this
Agreement and fails to cure such breach or default within thirty (30) days
after the terminating party gives the other party written notice of its
intent to terminate the Term if the breach or default is not cured within
thirty (30) days; or
(b) any of the following take place with regard to the other party:
(i) such party makes a general assignment or general arrangement for the
benefit of its creditors; (ii) the filing by or against such party of a
petition to have it adjudged bankrupt or of a petition for reorganization
or arrangement of such party under any law relating to bankruptcy or
insolvency unless, in the case of a filing against such party, the same is
dismissed within thirty (30) days; (iii) the appointment of a trustee or a
receiver to take possession of substantially all of such party's assets or
its interests in this Agreement, where such possession is not restored
within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of substantially all of such party's assets or its
interests in this Agreement, where such seizure is not discharged within
thirty (30) days.
5.4 EFFECT OF TERMINATION
Upon any termination of the Term pursuant to paragraph 5.2 or 5.3, the
following will apply, except as otherwise specifically provided in paragraph
5.5:
(a) the License will terminate;
(b) Go2net will not have any license or other right to the Metacrawler
Service or the Licensed Technologies;
(c) Go2net will cooperate to effect an orderly, expeditious and
efficient transfer of the Metacrawler Service to Netbot;
(d) Go2net will deliver to Netbot any and all copies of any of the
Licensed Technologies (including, without limitation, any modifications
made pursuant to the License) in the possession or control of Go2net;
<PAGE> 10
(e) the parties' respective obligations under paragraph 2.3, 4.7, 5.4
and 5.5 and Sections 3, 6, 7 and 8 will survive; and
(f) Go2net will retain its rights in the "go2search" name, the go2net
URL (i.e., www.go2search.com) and the Go2net Technologies.
5.5 TERMINATION BY GO2NET FOR NETBOT'S DEFAULT
In the event of any termination of the Term by Go2net pursuant to paragraph
5.3, the following will apply, notwithstanding any provision of paragraph 5.4 to
the contrary:
(a) Go2net will have a nonexclusive, royalty-free, perpetual license
to use, modify and reproduce any and all modifications to the Metacrawler
Service or Licensed Technologies made by Go2net pursuant to the License;
(b) Go2net may refer www.metacrawler.com to a URL of Go2net's
designation; and
(c) as to the Metacrawler URL Go2net will be obligated to return
"www.metacrawler.com" only.
5.6 OTHER SEARCH SITES
This Agreement will not be interpreted or construed to prohibit or restrict
Go2net from operating an Internet search service, site and/or search engine
independent of the Licensed Technologies. Without limitation of the foregoing,
upon any termination of the Term, Go2net may operate an Internet search service,
site and/or search engine that are virtually or substantially identical in
function to the Licensed Technologies; provided that such other Internet search
service, site and/or search engine:
(a) are not based upon or derived from any of the Licensed
Technologies; and
(b) do not infringe, misappropriate or otherwise violate any patent,
copyright, trade secret, trademark or other proprietary right of Netbot or
the UW.
SECTION 6. WARRANTIES AND REMEDIES
6.1 WARRANTY
<PAGE> 11
Netbot warrants that:
(a) Netbot has the right to grant the License as it applies to the
Licensed Technologies as of the date of this Agreement (e.g., Netbot does
not warrant any modifications made by Go2net or any third party pursuant to
the License or otherwise after the date of this Agreement); and
(b) the grant of the License does not conflict with, violate or
constitute a breach or default under any contract or other obligation of
Netbot.
6.2 REMEDY
Netbot will defend and indemnify Go2net and its directors, officers,
employees and representatives from any claim of any third party arising out of
(i) any breach of Netbot's warranties under paragraph 6.1 or (ii) the content
provided by Netbot for the space linking the Metacrawler Site to a site
designated by Netbot pursuant to paragraph 4.4; provided that: Go2net gives
Netbot prompt written notice of the claim; Go2net cooperates with Netbot in
connection with the defense, compromise and settlement of the claim; and Go2net
does not compromise or settle the claim without the prior written consent of
Netbot, which consent will not be unreasonably withheld.
6.3 EXCLUSIVITY
THE WARRANTIES SET FORTH IN PARAGRAPH 6.1 AND THE REMEDIES SET FORTH IN
PARAGRAPH 6.2 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF NETBOT AND
REMEDIES OF GO2NET. WITHOUT LIMITATION OF THE FOREGOING, THE METACRAWLER SERVICE
AND THE LICENSED TECHNOLOGIES ARE LICENSED TO GO2NET "AS IS" AND WITH ALL
DEFECTS, ERRORS AND DEFICIENCIES. NETBOT DOES NOT MAKE ANY WARRANTY WHATSOEVER
WITH REGARD TO THE FEATURES, FUNCTIONS, PERFORMANCE, QUALITY OR OTHER
CHARACTERISTICS OF THE METACRAWLER SERVICE OR THE LICENSED TECHNOLOGIES. NETBOT
DISCLAIMS ANY AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH REGARD TO THE
METACRAWLER SERVICE OR THE LICENSED TECHNOLOGIES (INCLUDING, WITHOUT LIMITATION,
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ANY
IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE
OF TRADE, AND ANY IMPLIED WARRANTY WITH REGARD TO TITLE OR INFRINGEMENT).
WITHOUT LIMITATION OF THE FOREGOING, NETBOT DOES NOT MAKE ANY WARRANTY WITH
RESPECT TO, AND WILL NOT BE RESPONSIBLE FOR,
<PAGE> 12
ANY INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET, TRADEMARK OR OTHER
PROPRIETARY RIGHT BY THE METACRAWLER SERVICE OR ANY LICENSED TECHNOLOGIES.
6.4 SPECIFIC PERFORMANCE
The parties acknowledge that the obligations undertaken by Netbot and
Go2net hereunder are unique and extraordinary and require specific expertise and
relationships. Accordingly, in the event of a default by either party hereto,
the other party shall be entitled to specific performance by the defaulting
party of its obligations hereunder.
SECTION 7. LIMITATIONS OF LIABILITY
7.1 NO CONSEQUENTIAL DAMAGES
NEITHER PARTY WILL BE LIABLE TO THE OTHER UNDER THIS AGREEMENT FOR ANY
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT
LIMITATION, ANY LOSS OF REVENUE, PROFIT OR USE) ARISING OUT OF THIS AGREEMENT,
THE EXERCISE OF THE LICENSE OR ANY BREACH OF OR DEFAULT UNDER THIS AGREEMENT.
7.2 LIMITATION OF NETBOT'S LIABILITY
Netbot's total liability arising out of this Agreement, the License or any
breach of or default under this Agreement will not exceed the total compensation
paid by Go2net to Netbot under Section 3.
7.3 GO2NET INDEMNITY
Except as otherwise provided in paragraphs 6.1 and 6.2, Go2net will defend
and indemnify Netbot and its directors, officers, employees and representatives
from and against any claim arising out of Go2net's provision of the Metacrawler
Service during the Term or the exercise of the License, provided that: Netbot
gives Go2net prompt written notice of the claim; Netbot cooperates with Go2net
in connection with the defense, compromise and settlement of the claim; and
Netbot does not compromise or settle the claim without the prior written consent
of Go2net, which consent will not be unreasonably withheld. This paragraph will
not apply to any claims of infringement arising out of Netbot's development of
the Licensed Technologies or provision of the Metacrawler Service prior to the
date of this Agreement.
<PAGE> 13
SECTION 8. MISCELLANEOUS
8.1 NOTICES
Any notice required or permitted under this Agreement will be given in
writing and will be deemed effective upon receipt (whether given by personal
delivery, mail, telecopy, electronic mail or other means) by the party for whom
it is intended as follows:
If to Netbot, Inc. Netbot, Inc.
Union Bay Plaza, Suite 208
4530 Union Bay N.E.
Seattle, WA 98105
Attn: President
Telecopy: (206) 522-9980
E-mail: _______________
If to Go2net: go2net, Inc.
1301 FIFTH AVENUE, SUITE 3320
Seattle, WA 98101
Attn: President
Telecopy: (206) 447-1946
E-mail: [email protected]
Either party may change its address for notices under this Agreement by
giving the other party notice of such change in accordance with this paragraph.
8.2 NONWAIVER
Any failure by either party to insist upon or enforce any provision of this
Agreement or to exercise any right or remedy under this Agreement or applicable
law will not be construed as a waiver or relinquishment to any extent of such
party's right to assert or rely upon any such provision, right or remedy in that
or any other instance; rather the same will be and remain in full force and
effect.
8.3 ASSIGNMENT
Go2net will not assign or otherwise transfer the License, this Agreement or
any of its rights under the License or this Agreement without the prior written
consent of Netbot. Subject to the foregoing, this Agreement will be enforceable
by, inure to the benefit of and be binding upon each of the parties and their
respective successors and assigns.
<PAGE> 14
8.4 APPLICABLE LAW AND VENUE
This Agreement will be interpreted, construed and enforced in accordance
with the laws of the State of Washington, without reference to its choice of law
principles. Neither party will commence or prosecute any action, suit,
proceeding or claim arising under this Agreement other than in the state or
federal courts located in King County, Washington. Each party irrevocably
consents to the jurisdiction of the state or federal courts located in King
County, Washington in connection with any action, suit, proceeding or claim
arising under this Agreement.
8.5 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement, and supersedes any and all
prior agreements, between Netbot and Go2net with respect to the Metacrawler
Service and Licensed Technologies. No amendment, modification or waiver of this
Agreement will be valid unless set forth in a written instrument signed by the
party to be bound thereby.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first set forth above.
Netbot: Go2net:
- ------ ------
NETBOT, INC. GO2NET, INC.
By By
ItsPresident ItsPresident
<PAGE> 15
EXHIBIT B
Exclusive License Agreement
The University of Washington, a public institution of higher education
having administrative offices in Seattle, Washington 98195 ("UW") and Softbots,
Inc., a Delaware corporation having a place of business in Seattle, Washington
("Company"), agree as follows:
1. Background
1.1 UW through the agency of certain faculty members, a post-doctoral
employee, and graduate students has developed various software agent
technologies capable of enhancing utilization of internet resources, including
search engines.
<TABLE>
1.2 Research leading to the development of certain of these software agent
technologies has been supported, at least in part, by contracts with agencies of
the United States Government, as follows:
<CAPTION>
- -------------------------------------------------------------------------------
Software Agency Grant Number
- -------------------------------------------------------------------------------
<S> <C> <C>
Shopbot 1.0 Office of Naval Research N00014-9101-0060
- -------------------------------------------------------------------------------
Advanced Projects Research F30602-95-1-0024
Agency
- -------------------------------------------------------------------------------
Ahoy! 1.0 Office of Naval Research 92-J-1946
- -------------------------------------------------------------------------------
Occam 1.0 Office of Naval Research N00014-9101-0060
- -------------------------------------------------------------------------------
</TABLE>
1.3 UW desires to transfer these software agent technologies to a
commercial concern for use in the public benefit.
1.4 Company desires to obtain an exclusive commercial license to these
technologies.
2. Definitions
2.1 "Agreement" shall mean this agreement, together with any Exhibits
referenced by this agreement.
2.2 "Effective Date" shall be May 28, 1996.
2.3 "Faculty Developers" shall mean *
of the UW's Department of Computer Science and Engineering.
2.4 *
* Information omitted for confidential treatment.
<PAGE> 16
2.5 "Developers" shall mean Faculty Developers and Non-Faculty Developers.
2.6 "UW Personnel" shall mean Developers and other faculty, students, and
employees and other personnel with obligations to UW acting within the scope of
their normal duties and obligations to UW.
2.7 "Software" shall mean, individually or collectively, as the context
requires, the MetaCrawler 1.0, Shopbot 1.0, Occam 1.0, and Ahoy! 1.0 software
technologies as set forth on Exhibit A, together with any and all prior versions
of the same.
2.8 "Modification" shall mean any work based on or derived from the
Software. Modifications may include, but are not limited to, corrections of
program errors, translations and stylistic restructuring of the Software,
addition or deletion of functions of the Software, enhancement of existing
functions of the Software, changes required to operate the Software into other
applications, preparations of derivative works, and other adaptions of the
Software.
2.12 "Software Identifiers" shall mean any and all names, logos, graphics,
and other identifiers under which the Software has been fielded for general
public access on UW equipment, or are employed by the Software to distinctively
identify services performed by the Software, but excluding any personal names or
marks and identifiers specific to the University of Washington (such as
"University of Washington", "UW", the UW seal, UW department and research
project names).
2
<PAGE> 17
2.13 "Internet Domain Names" shall mean any and all domain designations
obtained by UW for use in fielded versions of the Software and having a .com
extension, and in particular, the domain "metacrawler.com" and the subdomain
"metacrawler.cs.washington.edu".
2.14 "Documentation" shall mean any and all written documents and recorded
technical data pertaining to the structure, function and operation of the
Software and in the possession and control of UW, including but not restricted
to databases and performance data.
2.15 "Licensed Products" shall mean the Software, Minor Modifications, and
Documentation prepared by UW or UW Personnel, and any Major Modifications or
Collateral Developments (including patent rights) licensed to or developed by
Company under this Agreement.
2.17 "Sale" (and related words such as "Sell" and "Sold") shall mean the
sale, lease, rental, loan, licensing, or other transfer of a copy of Licensed
Products to an end user or other customer, of the Sale of advertising space on
world wide web pages, internet sites, or other network sites directly offering
services provided by Licensed Products.
3. Grant
3.1 UW hereby grants to Company and Company accepts an exclusive, worldwide
license, with the right to sublicense, to copy, reproduce, modify, prepare
Modifications, distribute, make, have made, use, and Sell, and otherwise exploit
Licensed Products. UW reserves the non-exclusive right to make, use, and modify
the Software and Documentation for
3
<PAGE> 18
research and instructional purposes, and to operate the Software within the UW
domain and as otherwise provided in this Agreement.
3.2 UW hereby assigns to Company any and all rights it may hold in Software
Identifiers, and specifically the identifiers "MetaCrawler", "Shopbot", "Occam",
and "Ahoy!", together with any and all goodwill associated with Software
Identifiers. Company grants to UW and UW accepts a limited, non-exclusive,
non-transferable license to use Software Identifiers in conjunction with the
rights reserved by UW in 3.1 above and elsewhere in this Agreement.
3.3 Sublicenses granted by Company to end users of Licensed Products shall
include such terms and conditions as are consistent with Company's obligations
to UW under this Agreement.
4. Delivery
4.1 UW shall deliver promptly to Company all source code and Documentation
for the Software and any Modifications or Collateral Developments licensed to
Company under this Agreement.
4.2 UW may operate public access world wide web sites using the Software
until the sooner of such time as Company notifies UW that Company has
established a commercial site and that the public UW site is no longer desired.
Thereafter, UW may maintain pointers and links to Company's site and UW may
continue to operate Software web sites for internal purposes within the UW
domain.
4.3 UW shall maintain for a period of at least three (3) years the
subdomain address "metacrawlers.cs.washington.edu" and point all requesters to
Company's internet domain address as specified by Company.
5. Modifications
5.1 Modifications delivered by UW or UW Personnel shall be controlled by
UW, and Modifications developed by Company shall be controlled by Company.
6. Patents
6.1 If Company or UW identifies any patentable subject matter pertaining to
the Software, the identifying party will promptly notify the other party for a
determination of ownership, U.S. Government rights, if any, and disposition of
any such rights.
6.2 If any UW Personnel are determined to be inventors of patent rights
pertaining to the Software or any Modification or Collateral Development by the
UW or UW Personnel as of the Effective Date or any Modifications or Collateral
Developments by UW or UW Personnel,
4
<PAGE> 19
UW shall have control of any preparation, filing, and prosecution of any patent
applications, including divisionals, continuations, and continuations-in-part,
in U.S. and foreign jurisdictions, unless UW agrees in writing to transfer such
control to Company. However, upon Company's request, UW shall prepare, file and
prosecute an application for, and otherwise use its best efforts to secure and
maintain, any such patent rights controlled by UW; provided that the Company
pays or reimburses all reasonable costs incurred by UW in preparing, filing, and
prosecuting any such patent application or to secure and maintain any patents
that may issue on any such application.
6.3 For any patent rights licensed to Company pursuant to this Agreement,
UW shall make an express grant (or confirmation of rights) to Company under a
separate Patent License Agreement. Licenses which apply to a field of use beyond
internet and intranet software agent technology and to patent rights in Major
Modifications and Collateral Developments may include reasonable license fee and
royalty provisions consistent with the scope of claims in the licensed patent
rights and in excess of the maximum license fee anticipated in 5.4. However,
Company shall not in any event be obligated to pay any additional license fees,
royalties, or other compensation for any patent rights within the scope of the
license granted under paragraph 3.1.
6.4 UW may restrict at the time of licensing any license granted to Company
in any UW patent right to a field of use consistent with the rights granted in
this Agreement and including internet or intranet software agent technology, if
Company is unwilling or unable to undertake diligence obligations with regard to
all fields of use anticipated for the patent upon issuance.
7. Use of Names
7.1 Nothing in this Agreement shall be construed as conferring any right to
use in advertising, publicity or other promotional activities any name, trade
name, trademark or other designation of a party hereto including any
contraction, abbreviation or simulation of any of the foregoing, unless the
express written permission of the other party has been obtained. Company agrees
not to use "University of Washington" in any advertising, publicity, or
promotional activities without the express written consent of UW. Company may
identify the UW affiliations of Developers, and to provide to third parties
factual information regarding this Agreement and Company's relationship to UW.
7.2 UW agrees that it will make no press releases or otherwise release
information regarding this Agreement or the Company prior to May 1, 1997, unless
approved by Company or required by state or federal law.
8. Publication
8.1 UW and Developers reserve the right to prepare and publish scholarly
articles and other scholarly publications and to make presentations concerning
the Software, including
5
<PAGE> 20
discussion and inclusion of source code statements and operating
characteristics, elements of design and algorithms employed by the Software,
descriptions and screen displays of the user interface of the Software;
provided, however, that UW and Developers shall take reasonable steps to
preserve and protect the license and other rights granted to Company under this
Agreement. Without limitation of the foregoing, UW and Developers shall not be
entitled to publish any trade secret of Company or take any other action in
derogation of the rights granted hereunder.
8.2 Company may receive copies of any manuscripts pertaining to the
Software, Major Modifications, or Collateral Developments prior to their
publication or presentation. Without limiting the generality of the foregoing,
UW and Developers shall not be entitled to include more than twenty-five (25)
lines of source code in any publication or presentation.
8.3 The right of publication set forth in this Agreement shall not extend
to subject matter developed exclusively within and by Company and provided to UW
under provisions of confidentiality.
8.4 Company and UW shall cooperate to provide to the fullest extent
possible, within the scope of rights granted, the opportunity for Developers to
use, publish reports concerning, and associate their names with the Software as
originally licensed to Company.
9. Fees and Royalties
6
<PAGE> 21
10. Diligence
10.1 Company shall utilize its commercially reasonable efforts in
proceeding with the development, manufacture, Sale, and other commercial
exploitation of Licensed Products, and in creating demand for Licensed Products.
10.2 Company shall use its commercially reasonable efforts to have Licensed
Products available for commercial use or Sale no later than the following dates,
and available in commercial versions thereafter:
Metacrawler December 31, 1996
7
<PAGE> 22
13. Product Marking and Licensing
13.1 Company shall affix proper copyright and other legal notice to all
copies of Licensed Products distributed or made available for public use.
13.2 Company shall affix the appropriate restricted rights legend to all
copies of Licensed Products prepared for delivery to the U.S. Government, using
such language as is then required to ensure any Licensed Products delivered to
the U.S. Government is received with "restricted rights" or similar rights as
defined in the relevant Federal Acquisition Regulations, such as DFARS
252.227-7013 and FAR 52.227-19.
13.3 Company shall display in fielded versions of the Software attribution
to the appropriate Developers in such form as is reasonably acceptable to such
Developers. With regard to Metacrawler and Ahoy!, Company shall display the
names of the present Developers of such Software, and require the display of
such names in any sublicensed versions, in such position, size, and prominence
substantially as displayed in the presently fielded UW version, unless changes
in such attribution are authorized in writing by the Developers.
14. Record Keeping
14.1 Company shall keep complete and accurate records and books of account
containing all information necessary for the computation and verification of the
amounts to be paid hereunder. Said records and books shall be kept for a period
of three (3) years following the end of the accounting period to which the
information pertains.
14.2 Company agrees, at the request of UW, upon reasonable advance written
notice, to permit one or more accountants selected by UW to have access during
ordinary working hours to such records and books of account, and access to such
premises, as may be necessary to audit with respect to any payment period ending
prior to such request, the correctness of any report or payment made under this
Agreement, or to obtain information as to the payments due for any such period
in the case of failure of the Company to report or make payment pursuant to the
terms of this Agreement. UW will not undertake any audit unless it has
reasonable cause to believe Company is materially under reporting amounts owed
to UW. Such accountant shall agree to sign Company's standard non-disclosure
agreement and agree to keep all information confidential and shall not disclose
to UW any information relating to the business of Company except that which in
accountant's reasonable judgment, after notification of Company, is necessary to
inform UW of (a) the accuracy or inaccuracy of Company's reports and payments;
(b) compliance or noncompliance by Company with the terms and conditions of this
Agreement; and (c) the extent of any such inaccuracy or noncompliance.
14.3 Should any such accountant discover information indicating material
inaccuracy in any of the Company's payments or material noncompliance by the
Company with any of such
8
<PAGE> 23
terms and conditions, the accountant shall have the right to make and retain
copies (including photocopies) of any pertinent portions of the records and
books of account.
14.4 In the event that Company's royalties calculated for any semi-annual
period are under reported by more than ten percent (10%), the costs of any audit
and review initiated by UW will be borne by Company; otherwise, UW shall bear
the cost of any audit initiated by UW.
15. Term and Termination
15.1 The term of this Agreement shall commence on the Effective Date and
shall continue for the term of the last to expire of the UW's intellectual
property right controlling Licensed Products, unless sooner terminated as set
forth in this Agreement.
15.2 In the event of any material breach of this Agreement by either party
(other than any breach of Company's obligations under Paragraphs 10.2, 10.3, or
10.4), then the other party shall be entitled to terminate this Agreement by
giving the breaching party written notice of such termination, provided that:
(a) the terminating party has given the other party written notice of
such breach and its intent to terminate this Agreement if the breach is not
cured within thirty (30) days after the date of such notice or such later date
as may be specified by the terminating party; and
(b) the breach is not cured within the cure period specified in the
terminating party's notice and (a) above or, if the breach cannot reasonably be
cured within such cure period, the party in breach commences to cure the breach
within such cure period and thereafter diligently pursues the same to
completion; and
(c) the notice of termination is given prior to completion of the
cure.
15.3 Company shall have a right to terminate this Agreement or any license
granted herein, with or without cause, upon ninety (90) days' prior written
notice to UW.
15.4 Except as otherwise provided in Paragraph 10.5, the provisions under
which this Agreement or any licenses, options, or obligations may be terminated
or suspended shall be in addition to any and all other legal remedies which
either party may have for the enforcement of any and all terms hereof, and do
not in any way limit any other legal remedy such party may have.
15.5 Termination of this Agreement shall terminate all rights and licenses
granted to Company relating to Licensed Products. Further, in such event,
Company shall assign to UW and/or to any of the Developers as appropriate any
and all Software Identifiers and Internet Domain Names, together with any
goodwill if used as a trademark or service mark, previously assigned or
transferred to Company by UW and/or Developers. Company may with the prior
9
<PAGE> 24
approval of UW fulfill any outstanding orders for the Licensed Products, and
distribute any copies of Licensed Products remaining in its inventory for a
period of ninety (90) days from the date of termination of this Agreement.
15.6 Termination of any license granted herein shall terminate all rights
granted by UW to Company under this Agreement relating to Licensed Products
except that Company may fulfill any outstanding order for the Licensed Products,
and distribute any copies of Licensed Products remaining in its inventory for a
period of ninety (90) days from the date of termination of license.
15.7 Termination by UW or Company under the options set forth in this
Agreement shall not relieve Company from any financial obligation to UW accruing
prior to or after termination or from performing according to any and all other
provisions of this Agreement expressly agreed to survive termination.
16. Notices
16.1 Any notice or other communication required or permitted to be given by
either party hereto shall be deemed to have been properly given and be effective
upon the date of delivery if delivered in writing to the respective addresses
set forth below, or to such other address as either party shall designate by
written notice given to the other party. If notice or other communication is
given by facsimile transmission, said notice shall be confirmed by prompt
delivery of the hardcopy original.
In the case of Company:
Softbots, Inc.
c/o Richard R. Rohde
Perkins Coie
One Bellevue Center, Suite 1800
411 - 108th Avenue N.E.
Bellevue, WA 98004-5584
Facsimile Address: (206) 453-7350
10
<PAGE> 25
In the case of UW:
Director of Technology Transfer
University of Washington
Office of Technology Transfer
1107 N.E. 45th Street, Suite 200
Seattle, WA 98105-4631
Facsimile Address: (206) 685-4767
17. Infringement
17.1 Company and UW shall promptly inform the other of any alleged
infringement of any rights granted by UW to Company by a third party, and
provide any available evidence thereof.
17.2 Company shall have the first right, in cooperation with UW, to address
any alleged infringement of exclusively licensed rights.
17.3 If Company chooses to institute suit against an alleged infringer,
Company may bring such suit in its own name (or, if required by law, in its and
UW's name) and at its own expense, and UW shall, but at Company's expense for
UW's direct associated expenses, fully and promptly cooperate and assist Company
in connection with any such suit. Any net recoveries from settlements of
infringement claims shall be shared Ninety percent (90%) to Company and Ten
percent (10%) to UW.
17.4 If UW chooses to institute suit against an alleged infringer, UW may
do so in Company's name (if required by law, otherwise, in UW's name) but at
UW's expense, and Company shall fully and promptly cooperate and assist UW in
connection with any such suit. Any net recoveries from settlements of
infringement claims shall be shared Ninety percent (90%) to UW and Ten percent
(10%) to Company.
17.5 Neither Company nor UW is obligated under this Agreement to institute
a suit against an alleged infringer.
18. Representations, Warranties, and Risk
18.1 UW represents and warrants that:
(a) it has the right to grant the licenses as set forth in this
Agreement;
(b) to the best of its knowledge, UW has acquired all right, title and
interest (including, without limitation, any patent or copyright) of the
Developers in the Software;
11
<PAGE> 26
(c) to the best of UW's knowledge (i) the Software includes all
versions of the Software in existence as of the Effective Date other than
certain Modifications which may be under development and not yet complete, (ii)
the Developers are the sole authors, creators and inventors of the Software and
(iii) UW has received no notice of any claim that the Software as developed and
used at UW infringes, misappropriates or otherwise violates any proprietary
right of any third party;
(d) except for Mr. Selberg's claim with respect to "Metacrawler", UW
has not received notice of any claim that any of the Software Identifiers
infringes, misappropriates or otherwise violates any trademark, trade name or
similar proprietary right of any third party.
18.2 The Software is experimental in nature and is supplied "AS IS",
without obligation by the UW to provide accompanying services or support. The
entire risk as to the quality and performance of Licensed Products is with
Company. Should Licensed Products prove defective, Company agrees to assume the
cost of all necessary servicing, repair, or other corrective action.
18.3 UW EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES REGARDING LICENSED
SUBJECT MATTER, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
WARRANTIES PERTAINING TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
18.4 Company agrees to indemnify, hold harmless and defend UW, its
officers, developers, employees, students, and agents, against any and all
claims, suits, losses, damages, costs, fees and expenses resulting from or
arising out of the Company's exercise of its licenses under this Agreement,
including but not limited to any damages, losses, or liabilities whatsoever with
respect to death or injury to any person and damage to any property arising from
the possession, use, or operation of Licensed Products by Company or any
customers, users, or others affected by Licensed Products copies, distributed,
modified or otherwise commercially exploited by Company in any manner
whatsoever. This indemnification clause shall survive the termination of this
Agreement. However, Company shall not have any obligation under this Paragraph
18.4 with respect to any claim, suit, loss, damage, cost, fee or expense
resulting from or arising out of any breach of Paragraph 18.1 or any other
provision of this Agreement by UW.
19. General
19.1 This Agreement shall be construed in accordance with, and its
performance shall be governed by, the laws of the State of Washington.
19.2 Any suit, action, or proceeding arising out of or relating to this
Agreement shall be decided in King County, Washington or Thurston County,
Washington. Company accepts the venue and jurisdiction of the Federal District
Court of Western Washington, Seattle, or the King or Thurston County Superior
Courts.
12
<PAGE> 27
19.3 If any provision of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not be in any way affected or impaired thereby.
19.4 If any dispute shall arise under this Agreement, the prevailing party
shall be entitled to its reasonable attorney's fees and costs of litigation and
appeal.
19.5 No omission or delay of either party hereto in requiring due and
punctual fulfillment of the obligations of any other party hereto shall be
deemed to constitute a waiver by such party of its rights to require such due
and punctual fulfillment, or of any other of its remedies hereunder.
19.6 No amendment or modification hereof shall be valid or binding upon the
parties unless it is made in writing, cites this Agreement, and is signed by
duly authorized representatives of UW and Company.
19.7 This Agreement and the rights and benefits conferred upon Company
hereunder may not be assigned or transferred by Company without the prior
written consent of UW. However UW hereby consents to any assignment or transfer
to a successor of Company's business (whether by way of any sale or transfer of
assets or any merger, consolidation or other corporate reorganization); provided
that the successor assumes or is otherwise bound by all of the Company's
obligations under this Agreement.
19.8 The headings of the several sections of this Agreement are inserted
for convenience and reference only, and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
19.9 This Agreement embodies the entire understanding of the parties and
supersedes all previous communications, representations, or understandings,
either oral or written, between the parties relating to the subject matter
hereof.
13
<PAGE> 28
IN WITNESS WHEREOF, UW and Company have executed this Agreement, in
duplicate originals but collectively evidencing only a single contract, by their
respective duly authorized officers, on the dates hereinafter written.
Softbots, Inc. University of Washington
By:______________________________ By:_______________________________
Name:____________________________ Name:_____________________________
Title:_____________________________ Title:______________________________
Date:_____________________________ Date:______________________________
14
<PAGE> 1
Exhibit 10.11
<TABLE>
SPORSTICKER
HARBORSIDE FINANCIAL CENTER, 600 PLAZA TWO, JERSEY CITY, NEW JERSEY 07311 [bullet] (201) 309-1200
<S> <C>
COMPANY NAME AREA CODE/PHONE NO.
go2net, Inc. (206) 447-1595
================================================================================================================
INSTALLATION
ADDRESS: 1301 5th Avenue, Suite 3320 Seattle, WA 98101
--------------------------------------------------------------------------------------------------------
(Street) (City/State) (Zip)
NEAREST CROSS STREET:
-------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
INSTALL LOCATION: CONTACT AT ADDRESS ABOVE TYPE OF BUSINESS:
DEPT./FLOOR ROOM # (INCLUDE PHONE NUMBER)
Mr. John Keister Vendor/Internet Site/World Wide
- ----------------------------------------------------------------------------------------------------------------
BILLING INFORMATION IF OTHER THAN ABOVE:
------------------------------------------------------------------------
(Contact Name and Phone Number)
- ----------------------------------------------------------------------------------------------------------------
(Company Name) (Street) (City/State) (Zip)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
SERVICES MONTHLY NON-RECURRING TOTAL MONTHLY
SUBJECT TO AGREEMENT SERVICE FEE CHARGES FEES
*
* Monthly Information:
- ----------------------------------------------------------------------------------------------------------------
SUBSCRIPTION TERM AND RATES
- ----------------------------------------------------------------------------------------------------------------
The subscription service period is for a minimum of 24 months (beginning on
the first day of service operation or __________) and service shall continue
on a revolving 12-month renewal term basis thereafter until terminated
effective at the end of the term or any renewal with thirty (30) days prior
written notice by either party. The month service fee is * . The
installation charge is $ * . The security deposit is $ XXX and will be
returned to the subscriber upon cancellation and return of all SportsTicker
equipment.
- ----------------------------------------------------------------------------------------------------------------
INTENDED USE
- ----------------------------------------------------------------------------------------------------------------
SPECIFY INTENDED USE OF
SPORTSTICKER INFORMATION: SEE ADDENDUM
----------------------- --------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
ACCEPTANCE
- ----------------------------------------------------------------------------------------------------------------
THE SUBSCRIBER HEREBY ACKNOWLEDGES RECEIPT OF CURRENT SPORTSTICKER RATES AND
ACKNOWLEDGES THAT SUBSCRIBER HAS CAREFULLY READ AND UNDERSTANDS THE PROVISIONS
OF THE AGREEMENT WHICH INCLUDE THE TERMS AND CONDITIONS AS INDICATED ABOVE AND
THE REVERSE SIDE HEREOF.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Information omitted for confidential treatment.
<PAGE> 2
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------
SERVICE REQUESTED BY SUBSCRIPTION ACCEPTED BY
go2net, Inc. /s/
-------------------------------------------------- -----------------------------------------------
(Company Name) Authorized SportsTicker Officer
/s/ Russell Horowitz
-------------------------------------------------- -----------------------------------------------
(Signature & Title of duly authorized (Date)
officer, partner or proprietor)
- ----------------------------------------------------------------------------------------------------------------
THIS AGREEMENT IS SUBJECT TO ACCEPTANCE BY SPORTSTICKER ENTERPRISES, L.P.
</TABLE>
<PAGE> 3
ADDENDUM TO THE SPORTSTICKER SUBSCRIPTION AGREEMENT
THIS ADDENDUM TO THE SPORTSTICKER SUBSCRIPTION AGREEMENT, dated as of
July 31, 1996 (THE "Agreement"), BY AND BETWEEN SportsTicker Enterprises, L.P.
("ST") and go2net ("g2n").
The Agreement shall be amended as follows:
1. ST grants to g2n the non-exclusive right to redistribute information
through an Internet site offered directly by g2n, to individuals or
entities solely for their personal, private, non-commercial use.
2. Each month during the term of the Agreement, g2n shall pay to ST the
monthly service fee noted in the ST Subscription Agreement. Should g2n
become delinquent (past due 30 days) with these payments, ST may
discontinue the service upon ten (10) days written notice.
3. The Agreement shall be for a term of twenty-four (24) months,
beginning on the first day of installation of the ST service and shall
continue on a revolving twelve (12) month renewal term basis
thereafter until terminated effective at the end of the term or any
renewal with thirty (30) days prior written notice by either party. In
addition, either party hereto may terminate this Agreement at any time
upon ninety (90) days prior written notice to the other party hereto.
4. g2n shall not permit any third party to brand that part of g2n's
service utilizing the ST information in such a way as to imply that
the ST information is the property of or provided by any party other
than ST or that any relationship exists between ST and any such third
party.
5. g2n shall not use the ST names, trademarks, or other corporate
identification for promotional or any advertising purposes without the
express written consent of ST, except for copyright purposes.
6. The terms and conditions of the Agreement and this Addendum shall be
kept confidential by g2n and not disclosed to any third party.
/s/ Russell C. Horowitz /s/
--------------------------- ------------------------------
For: go2net For: SportsTicker Enterprises, L.P.
Date: 7/31/96 Date: 8-7-96
---------------------- -------------------------
<PAGE> 1
Exhibit 10.12
S&P COMSTOCK INFORMATION DISTRIBUTION
LICENSE AGREEMENT
AGREEMENT, made as of August 16, 1996, by and between S&P ComStock, Inc. a
corporation having offices at 600 Mamaroneck Avenue, Harrison, New York 10528,
and Go2net, Inc. ("Distributor"), having an office at 1301 Fifth Avenue, Ste.
3320, Seattle, WA 98101.
WHEREAS, S&P ComStock, Inc. gathers, formats and distributes an information
service comprised of certain securities and commodities prices and other data
which is known as the S&P ComStock Service ("ComStock") and
WHEREAS, S&P ComStock, Inc. is licensed to distribute information from
various Stock Exchanges, Commodity Exchanges, and other sources (collectively,
"Sources") as part of S&P ComStock; and
WHEREAS, the parties desire that certain delayed information from S&P
ComStock ("the ComStock Information") as specified in Exhibit A (Part 1),
attached hereto, be made available to Distributor for display by Distributor on
its Internet and World Wide Web site (collectively, the "Distributor Service"),
as described fully in Exhibit B, attached hereto.
NOW, THEREFORE, the parties mutually agree as follows:
1. Distribution License.
(a) Distributor is hereby granted for the term of this Agreement a
nonexclusive, nontransferable right and license to distribute electronically the
ComStock Information via the Distributor Service solely for access by Internet
users of the Distributor Service (such users referred to herein as
"Subscribers"), provided that Distributor has executed in advance any and all
necessary documents with the various Sources, which documents have been accepted
and approved by the Sources. Notice of such Sources' acceptance and approval
must be supplied to S&P ComStock, Inc. prior to Distributor's use or
distribution of the ComStock Information.
(b) Distributor agrees and understands that it is not permitted to
sublicense, transfer, or assign its rights hereunder and that it shall not allow
the redistribution of the ComStock Information by any Subscriber or by any other
third party without the express prior authorization of S&P ComStock, Inc.
pursuant to a separate agreement or by mutually agreeable amendment executed and
attached hereto.
2. ComStock Equipment.
<PAGE> 2
(a) During the term of this Agreement, S&P Comstock, Inc. shall provide
Distributor the equipment listed in Exhibit C, attached hereto ("the ComStock
Equipment"), for installation only at the site(s) specified therein. Distributor
shall not relocate the Comstock Equipment without the written permission of S&P
Comstock, Inc.
(b) S&P Comstock, Inc. shall, at Distributor's expense and request,
install, furnish, and maintain necessary modems and/or communications interface
equipment.
(c) Distributor shall not attach, or permit or cause to be attached, any
nonComStock equipment to the Comstock communications line or the ComStock
Equipment without the prior written permission of S&P ComStock, Inc.
(d) Distributor shall have no right in or to any of the ComStock Equipment
except for the rights of use herein granted. Distributor shafl pay all
extraordinary costs for repair or replacement of the Comstock Equipment, over
and above ordinary maintenance which shall be performed by S&P ComStock, Inc.
Such extraordinary maintenance includes electrical work external to the ComStock
Equipment, maintenance of accessories or attachments, and repair of damage to
the ComStock Equipment resulting from accident, neglect, misuse, failure of
electrical power or causes other than ordinary use. Distributor shall promptly
return the Comstock Equipment in good condition, ordinary wear and tear
excepted, upon termination of this Agreement for any reason.
3. ComStock Information.
(a) The ftirnishing to Distributor of the Comstock Information is
conditioned upon strict compliance with the provisions of this Agreement, the
applicable policies of the Sources, and with all local, state and federal
regulations which might pertain to the use of the ComStock Information. It shall
be the sole responsibility of Distributor to confirm with the applicable Sources
whether or not all of the Comstock Information may be distributed by Distributor
to its Subscribers. S&P Comstock, Inc. may discontinue provision of the Comstock
Information hereunder, without notice, whenever the terms of its agreements with
the Sources require such discontinuance, or if in its reasonable judgment S&P
ComStock, Inc. finds a breach by Distributor of any of the provisions of this
Agreement.
(B) NEITHER S&P COMSTOCK, INC., NOR ANY OF ITS AFFILIATES, NOR ANY SOURCES
MAKE ANY EXPRESS OR IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE).
NEITHER S&P COMSTOCK, INC., ANY OF ITS AFFILIATES, OR ANY SOURCES WARRANT THAT
THE COMSTOCK INFORMATION WILL BE UNINTERRUPTED OR ERROR-FREE. DISTRIBUTOR
EXPRESSLY AGREES THAT ITS USE AND DISTRIBUTION OF THE COINSTOCK INFORMATION AND
ITS USE OF THE COMSTOCK EQUIPMENT IS AT THE SOLE RISK OF
- 2 -
<PAGE> 3
DISTRIBUTOR AND ITS SUBSCRIBERS. S&P COMSTOCK, INC., ITS AFFILIATES, AND ALL
SOURCES INVOLVED IN CREATING OR PROVIDING THE COMSTOCK INFORMATION WILL IN NO
WAY BE LIABLE TO DISTRIBUTOR OR ANY OF ITS SUBSCRIBERS FOR ANY INACCURACIES,
ERRORS OR OMISSIONS, REGARDLESS OF CAUSE, IN THE COMSTOCK INFORMATION OR FOR ANY
DEFECTS OR FAILURES IN THE COMSTOCK EQUIPMENT, OR FOR ANY DAMAGES (WHETHER
DIRECT OR INDIRECT, OR CONSEQUENTIAL, PUNITIVE OR EXEMPLARY) RESULTING
THEREFROM. THE LIABILITY OF S&P COMSTOCK., INC. AND ITS AFFILIATES IN ANY AND
ALL CATEGORIES, WHETHER ARISING FROM CONTRACT, WARRANTY, NEGLIGENCE, OR
OTHERWISE SHALL, IN THE AGGREGATE, IN NO EVENT EXCEED ONE MONTH'S COMSTOCK
INFORMATION DELIVERY FEE.
(c) Distributor agrees that it shall not display the ComStock Information
in the Distributor Service without a prominent notice indicating that the
ComStock Information is being displayed on a minimum fifteen (15) minute
delayed basis.
(d) Distributor also agrees to include S&P ComStock's Terms and Condition
of Use, a copy of which is attached hereto as Exhibit E, within the Distributor
Service in a manner which alerts Subscribers of the applicability thereof.
(e) Distributor shall clearly and prominently identify S&P ComStock as the
source of the ComStock Information by display of the S&P ComStock logo (the
"Logo") in a manner to be agreed to by the parties. Distributor shall also
create a hypertext or other computer link from the Logo to the S&P ComStock site
on the World Wide Web.
(f) Distributor represents and warrants that it has and will employ
adequate security procedures to prevent the unauthorized access to the ComStock
Information or corruption of the ComStock Information.
(g) Distributor agrees to indemnify and hold S&P ComStock, Inc. and its
affiliates harmless from and against any and all losses, damages, liabilities,
costs, charges and expenses, including reasonable attorneys' fees, arising out
of (i) any liability of S&P ComStock, Inc. to any Subscriber where Distributor
has failed to include the Terms and Conditions of Use in the Distributor Service
pursuant to Section 3(d) above- or (ii) any breach or alleged breach on the part
of Distributor or any Subscribers with respect to its/their obligations to
obtain prior approvals from appropriate Sources and to comply with any
applicable conditions, restrictions or limitations imposed by any Source.
(h) S&P ComStock, Inc. represents that it has the rights and licenses
necessary to transmit the ComStock Information to Distributor, and that to the
best of S&P ComStock,
- 3 -
<PAGE> 4
Inc.'s knowledge, the license granted to Distributor hereunder does not infringe
any proprietary right or any third party right at common law or any statutory
copyright.
(i) S&P ComStock, Inc. shall deliver the ComStock Information to
Distributor at the site(s) set forth in Exhibit C or at such other locations as
Distributor may designate within the continental United States or Canada.
4. Payments.
In consideration for the license granted to Distributor by S&P ComStock,
Inc. under this Agreement, Distributor shall make the following payments to S&P
CorriStock, Inc.:
(a) Distributor shall pay to S&P ComStock, Inc. a basic ComStock
Information Delivery Fee of $ * , beginning at installation date,
which includes all recurring charges for ComStock Satellite network connection,
Satellite Communications fees, modem/line interface equipment, and standard
equipment maintenance services as determined by S&P ComStock, Inc.'s standard
price list. These charges, plus any applicable Source fees and state/local
taxes, will be billed monthly in advance. Nonrecurring charges such as
installation, relocation and removals of ComStock Equipment will be separately
billed in accordance with S&P ComStock, Inc.'s then-current standard rates.
(b) Distributor shall pay to S&P ComStock, Inc. a monthly Redistribution
Fee, in the amount of $ per month, commencing at the conclusion of
development period, not to exceed 90 days from installation of service, and as
specified in the Schedule of Fees attached hereto as Exhibit D. The
Redistribution Fees will be due and payable on the fifteenth (15th) day of each
month.
(c) Distributor shall be liable for fees due and owing to Sources from
which Distributor has agreed to receive information related to the securities
and commodities market. Any bills or invoices with respect to the foregoing
which are either sent or billed (either by error or as part of such Source's
customary billing procedure) to S&P ComStock, Inc. are the responsibility of,
and shall be paid by Distributor. Distributor shall not be liable for any fees
payable by S&P ComStock, Inc. for S&P ComStock, Inc.'s right to receive any
information from the Sources. The parties hereto acknowledge that they are
currently unaware of any fees, with the exception of OPRA and North American
Market Statistics and Indices, in addition to those provided for in Section 4
(a) and (b) hereof which would have to be paid by Distributor to either S&P
ComStock, Inc. or the Sources for the services to be rendered by S&P Comstock,
Inc. hereunder. Distributor shall provide to S&P ComStock, Inc. a copy of its
monthly Source fee reports when and as filed with the Sources.
- 4 -
* Information omitted for confidential treatment.
<PAGE> 5
(d) Any amounts payable to S&P ComStock, Inc. by Distributor hereunder
which are more than thirty (30) days past due shall bear interest at the rate of
* per month.
(e) S&P ComStock, Inc. may, in its sole discretion and at any time
following the initial term of this Agreement, change the Redistribution fee
payment schedule and/or the ComStock Information Delivery Fee as specified
herein. The change in fees instituted by Comstock, if any, will be capped at 10%
total over the term of the Agreement. In addition if Go2net is advised of an
increase in charges, Go2net has the right to terminate the Agreement upon (30)
days notice.
(f) Once each calendar quarter, Distributor shall furnish S&P ComStock with
information regarding the number of quotes requested by Subscribers for the
previous quarter and such other additional information regarding use of the
ComStock Information as the parties agree.
5. Information Enhancements; Changes to Data Specification.
(a) Any additions of new Sources or other enhancements to the ComStock
Information which may be made by S&P ComStock, Inc. during the term of this
Agreement, while unidentified at this time, will be offered to Distributor under
terms and conditions to be negotiated, provided that (i) S&P ComStock, Inc. has
the necessary rights to convey such new information to Distributor for
redistribution; and (ii) Distributor and S&P ComStock, Inc. execute a separate
agreement or an amendment to this Agreement.
(b) S&P ComStock, Inc. shall have the right, on at least six (6) months
prior written notice, to change the ComStock Data Format Specification, provided
that any such change shall be made effective generally by S&P ComStock, Inc. to
its customers. Distributor shall be responsible at its own expense for making
any modifications to its software necessitated by such change.
6. Term.
(a) This Agreement shall take effect upon its execution by an authorized
Representative of S&P ComStock, Inc. and of Distributor.
(b) The term of this Agreement shall be for an initial term of
years commencing from the conclusion of customers development period, which
shall not exceed 90 days from installation of service, and shall continue
thereafter for additional consecutive twelve (12) month terms, unless written
notice of termination shall have been received by either party from the other at
least ninety (90) days prior to the end of the initial term or of any additional
twelve-month term. If S&P ComStock, Inc. increases charges to Distributor
pursuant to Paragraph 4(e), above, Distributor shall have the option to
terminate this
- 5 -
* Information omitted for confidential treatment.
<PAGE> 6
Agreement by written notice to S&P ComStock, Inc. within sixty (60) days of
Distributor's receipt of notice of such increases, such termination will become
effective no sooner than thirty (30) days from the last day of the month in
which notice of termination by Distributor is received by S&P ComStock, Inc.
*
7. Marketing.
Distributor may not use the names "ComStock", "SK.", or "S&P ComStock,
Inc.", which are proprietary to S&P ComStock, Inc., or refer to the ComStock
Information in marketing or advertising materials without the prior written
consent of S&P ComStock, Inc., such consent not to be unreasonably withheld.
Upon S&P ComStock, Inc.'s written request, Distributor shall notify Subscribers
by a display in the service itself that S&P ComStock is the source of the quote
information and any sales literature discussing ComStock provided quotes she
list S&P ComStock as the provider of the service. Distributor may identify S&P
ComStock in its published listing of available services and sources without the
prior consent of S&P ComStock.
8. Rights to Data Specification; Other Confidential Information.
(a) Distributor agrees and acknowledges that the Data Specification is a
confidential and proprietary trade secret belonging to ComStock, and nothing in
this Agreement conveys any proprietary rights whatsoever with regard to the Data
Specification to Distributor. The Data Specification is provided to the
Distributor strictly and solely for the purpose of developing internal computer
software to receive the ComStock Information. Distributor may not use the Data
Specification for any other purpose whatsoever, including, but not limited to,
the development of systems for the receipt or transmission of computer data.
Distributor may not give, transmit, or provide access to the ComStock Data
Specification to any Subscriber or other third party. On any termination of this
Agreement, regardless of cause, Distributor shall promptly return the Data
Specification to S&P ComStock, Inc. and shall provide a written certification by
an officer that no copies have been retained by Distributor.
(b) In addition to the duties imposed on Distributor pursuant to Paragraph
8(a), above, S&P ComStock, Inc. and Distributor agrees to hold confidential any
and all of each other's trade secrets, procedures, formulae, financial data,
Subscriber lists, and future plans, which may be learned before and during the
term of this Agreement. Notwithstanding the foregoing, however, such duty of
confidentiality shall not extend to information which is or comes into the
public domain, is rightfully obtained from third parties not under a duty of
- 6 -
* Information omitted for confidential treatment.
<PAGE> 7
confidentiality, or which is independently developed without reference to the
other party's confidential information.
(c) The duties of confidentiality imposed herein shall survive any
termination of this Agreement.
9. Prevention of Performance.
Neither party shall be liable for any failure in performance of this
Agreement if such failure is caused by acts of God, war, Governmental decree,
power failure, Judgment or order, strike, or other circumstances, whether or not
similar to the foregoing, beyond the reasonable control of the party so
affected. Neither party shall have any liability for any default resulting from
force majeure, which shall be deemed to include any circumstances beyond its
control. Such circumstances shall include, but are not limited to acts of the
government, fires, flood, strikes, power failures or communications line or
network failures.
10. Right of Termination in the Event of Breach or Bankruptcy; Right to
Injunctive Relief.
(a) Either party shall have the right to terminate this Agreement for
material breach by the other party by giving thirty (30) days prior written
notice, such termination to take effect unless the breach is cured or corrected
within such notice period.
(b) If a receiver is appointed for either party's business or if either
party petitions under the Bankruptcy Act and is adjudicated a bankrupt, declared
an insolvent, or makes an assignment for the benefit of creditors, then the
other party shall, upon thirty (30) days prior written notice, have the right to
terminate this Agreement.
(c) Upon termination of this Agreement for any reason, Distributor shall
cease all use and distribution of any of the ComStock Information.
(d) In addition to and notwithstanding the above, if Distributor, or any of
its employees, agents or representatives, shall attempt to use or dispose of the
ComStock Information or the Data Specification in a manner contrary to the terms
of this Agreement, S&P ComStock, Inc. shall have the right, in addition to such
other remedies as may be available to it, to injunctive relief enjoining such
acts or attempt, it being acknowledged that legal remedies are inadequate.
11. Assignment.
This Agreement may not be assigned, sublicensed or otherwise transferred by
either party without the written consent, except to a wholly owned subsidiary,
of the other party,
- 7 -
<PAGE> 8
such consent not to be unreasonably withheld, provided, however, that no such
consent shall be required with respect to any assignment by S&P ComStock, Inc.
to its parent company, or to any S&P ComStock, Inc. affiliate. Any attempted
transfer or assignment of this Agreement in violation of this provision shall be
null and void.
12. Entire Agreement.
This Agreement and its Exhibits embodies the entire agreement between the
parties hereto. There are no promises, representations, conditions or terms
other than those herein contained. No modification, change or alteration of this
Agreement shall be effective unless in writing and signed by the parties
hereto.
13. Non-Waiver.
The failure of either party to exercise any of its rights under this
Agreement for a breach thereof shall not be deemed to be a waiver of such rights
nor shall the same be deemed to be a waiver of any subsequent breach.
14. Notices.
All notices under this Agreement shall be given in writing to the parties
as follows:
To: S&P ComStock, Inc.
600 Mamaroneck Avenue
Harrison, New York 10528
Attn: Mr. Paul Zinone
To: Go2net, Inc.
1301 Fifth Avenue
Suite 3320
Seattle, WA 98101
15. Governing Law.
This Agreement shall be governed by the laws of the State of New York and
the parties agree to select New York Jurisdiction for any claims or disputes
which may arise hereunder.
IN WITNESS WHEREOF, Distributor and S&P ComStock, Inc. have caused this
Agreement to be executed by their duly authorized respective officers, as of the
day and year above written.
- 8 -
<PAGE> 9
S&P COMSTOCK, INC.
By: /s/
Title: V.P. of Sales
Date: 8/22/96
GO2NET
By: /s/ Russell C. Horowitz
Title: CEO
Date: 8/20/96
- 9 -
<PAGE> 10
EXHIBITS
A. COMSTOCK INFORMATION DEFINITION; AUTHORIZED COUNTRIES
B. DESCRIPTION OF DISTRIBUTOR SERVICE
C. LISTING OF COMSTOCK EQUIPMENT, DISTRIBUTOR DELIVERY SITES
D. SCHEDULES OF SUBSCRIBER FEES
E. TERMS AND CONDITIONS OF USE
- 10 -
<PAGE> 11
EXHIBIT A
PART 1: DELAYED INFORMATION DEFINITION
STOCKS:
NYSE
NYSE Corporate Bonds
AMEX, Boston, Philadelphia, Cincinnati, Northwest, Pacific
Stock Exchanges and Instinet, NASD
AMEX Corporate Bonds
ComStock Market Indicators
NASDAQ Over-the-Counter
NASDAQ National Market System
U.S. Mutual Funds - Money Markets
OTC Bulletin Board
Small Cap NASDAQ
Market Statistic's and Indices - North America
STOCK/CURRENCY OPTIONS -
AMEX, OPRA: Chicago Board of Options Exchange
NYSE, Pacific, Philadelphia Stock Exchange
PART II: AUTHORIZED GEOGRAPHICAL AREA
Distribution of the ComStock Information may only be made by Distributor to
Subscribers located on the Internet or World Wide Web.
- 11 -
<PAGE> 12
EXHIBIT B
DESCRIPTION OF DISTRIBUTOR SERVICE
Go2net is an interactive technology and media company, focusing on the
distribution of its products via the Internet. The primary initial product will
be the Go2net network, which will be based on both commodity and proprietary
content, and will be enhanced with strategic links and partnerships. The
proprietary content will offer authoritative perspectives and ongoing
interaction between Internet users and the Company's content and technology
partners. One of the departments within the network will be a business
department, which will offer proprietary writings from Go2net business staff
writers, business news and delayed quotes.
- 12 -
<PAGE> 13
EXHIBIT C
DESCRIPTION OF COMSTOCK EQUIPMENT
Licensee will use the ComStock Digital Data feed from equipment to be
provided at the Licensee's site. The feed will be distributed through a port of
the ComStock Terminal Interface Device into the head end service of the
Licensee. The ComStock T.I.D. is fed with 19200 baud data run via Contel
satellite equipment.
Licensee location is registered at: Go2net
1301 Fifth Avenue, Ste. 3320
Seattle, WA 98101
Phone: 206-447-1595
Fax: 206-447-1625
- 13 -
<PAGE> 14
EXHIBIT D
SCHEDULE OF FEES
*
* Information omitted for confidential treatment.
<PAGE> 15
EXHIBIT E
TERMS AND CONDITIONS OF USE OF COMSTOCK INFORMATION
All information provided by S&P ComStock, Inc. ("ComStock") and its
affiliates (the "ComStock Information") on Go2net Internet and World Wide Web
site is owned by or licensed to ComStock and its affiliates and any user is
permitted to store, manipulate, analyze, reformat, print and display the
ComStock Information only for such user's personal use. In no event shall any
user publish, re transmit, redistribute or otherwise reproduce any ComStock
Information in any format to anyone, and no user shall use any ComStock
Information in or in connection with any business or commercial enterprise,
including, without limitation, any securities, investment, accounting, banking,
legal or media business or enterprise.
Prior to the execution of a security trade based upon the ComStock
Information, you are advised to consult with your broker or other Financial
representative to verify pricing information.
Neither ComStock nor its affiliates make any express or implied warranties
(including, without limitation, any warranty or merchant ability or fitness for
a particular purpose or use) regarding the ComStock Information. The ComStock
Information is to the users "as is." Neither ComStock nor its affiliates will be
liable to any user or anyone else for any interruption, inaccuracy, error or
omission, regardless of cause, in the ComStock Information or for any damages
(whether direct or indirect, consequential, punitive or exemplary) resulting
therefrom.
- 16 -
<PAGE> 1
Exhibit 10.13
DISTRIBUTOR AGREEMENT
This Distributor Agreement ("Agreement") is entered into by and between
COMTEX Scientific Corporation ("COMTEX"), a New York corporation with its
principal offices at 4900 Seminary Road, Suite 800, Alexandria, Virginia 22311,
and Go2Net (the "Distributor"), with its principal offices at 1301 5th Avenue,
Suite 3320, Seattle, WA 98101.
1. DEFINITIONS
a. Service. The term "the Service" means the electronic information
services identified in Exhibit A to this Agreement.
b. Content. The term "Content" means all material, whether or not protected
by copyright, including but not limited to text, images, and other multimedia
data, provided or made available as part of the Service.
c. Information Providers. The term "Information Providers" means third
parties from whom COMTEX acquires the right to distribute Content provided or
made available as part of the Service.
d. Users. The term "Users" means all third parties to whom Distributor,
subject to the terms and conditions of this Agreement, may license, sell,
transfer, make available or otherwise distribute the Service.
2. DISTRIBUTION
a. Grant of Rights. Subject to the terms and conditions of this Agreement,
COMTEX grants Distributor a nonexclusive license and right to market the
Service, distribute the Service to Users, and license Users to use the Service
for their internal use.
b. *
* Information omitted for confidential treatment.
<PAGE> 2
c. User Agreements. Distributor shall require that each User enter into an
agreement that contains the provisions set forth in Exhibit D or provisions
substantially equivalent thereto. Such agreement, which may be obtained in an
electronic or hard-copy format, shall be retained by Distributor for the term of
this Agreement and three (3) years thereafter. Upon the request of COMTEX,
Distributor shall provide COMTEX a copy of such user agreement.
d. *
3. MARKETING
a. Promotion. Distributor agrees to use commercially reasonable efforts to
promote and market the Service to prospective Users and to enter into licenses
for use of the Service by Users.
b. Expenses. Distributor shall be responsible for all expenses incurred by
Distributor in promoting and marketing the Service.
c. Use of Name. Distributor shall name COMTEX as one of its information
services in its formal promotional and marketing materials relating to the
Service, including press releases and advertisements.
d. Prior Approval. COMTEX and Distributor each agrees to submit to the
other party for written approval all press releases, advertising or other
promotional materials that use Service names or a party's company name not less
than fifteen (15) days before the proposed use. Each party shall not
unreasonably withhold its approval. Unless notice of approval or disapproval is
received within ten (10) days of receipt of promotional materials, approval
shall be deemed granted. Either party, however, may identify the other in its
published listing of available services or Distributors without such written
approval.
- 2 -
* Information omitted for confidential treatment.
<PAGE> 3
4. DELIVERY OF THE SERVICE
a. Provision of the Service. Subject to the terms and conditions of this
Agreement, COMTEX shall provide the Service to Distributor and Distributor shall
receive the Service from COMTEX in conformance with the Technical Specifications
set forth in Exhibit A.
b. *
c. Proprietary Notices. Where supplied as part of the Service by COMTEX or
its Information Providers, Distributor will cause to be displayed appropriate
copyright or other proprietary notices relating to the Service.
d. Modifications. Distributor shall not edit, abridge, rewrite or in any
other way alter the Content of the Service or create any work derived from the
Content of the Service; provided, however, that Distributor may choose not to
display every story or article.
e. Remedies
i. CORRECTIONS. Upon receipt of written notice from COMTEX of an error
in the distribution of the Service and Content to a User, Distributor shall
use commercially reasonable efforts to promptly correct such error.
ii. WITHDRAWAL OF INFORMATION PROVIDER. Notwithstanding Subparagraph
4.e.i., in the event that Distributor violates Subparagraphs 2.b., 4.c. or
4.d., infringes any copyright of an Information Provider, or otherwise
violates the proprietary rights of an Information Provider, COMTEX, at its
sole discretion, immediately may cease distribution of such Information
Provider's Content to Distributor until the violation or infringement is
remedied by Distributor, during which period Distributor acknowledges that
such actions by COMTEX shall not result in a breach of Subparagraphs 4.a.
and 4.b.
f. Review of COMTEX
i. ACCESS. Throughout the term of this Agreement, Distributor shall
provide COMTEX reasonable access to Distributor's system for distribution
of the Service to Users for the sole purpose of reviewing Distributor's
implementation of the Service. This access shall be provided by Distributor
at no charge to COMTEX
- 3 -
* Information omitted for confidential treatment.
<PAGE> 4
ii. Opportunity to Review. Distributor shall provide notice to COMTEX
to allow COMTEX a reasonable opportunity to review Distributor's
implementation of the Service before or, if prior review is impracticable,
as soon as possible after Distributor implements the Service or any
substantial changes in its implementation of the Service.
5. PAYMENT
a. Payment Schedule. Distributor shall pay COMTEX the Monthly Fees and
Royalties set forth in the Payment Schedule in Exhibit B.
*
- 4 -
* Information omitted for confidential treatment.
<PAGE> 5
6. TERM AND TERMINATION
a. Term. This Agreement commences on the date of the last signature hereto
or the first commercial distribution of the Service, whichever occurs first (the
"Effective Date"), and shall remain in effect for the Initial Term set forth in
Exhibit A. This Agreement shall renew automatically for successive periods of
the duration of the Renewal Term set forth in Exhibit A, unless either party
notifies the other party in writing, at least ninety (90) days before the end of
the Initial Term or any Renewal Term, of its election not to renew.
b. *
c. Insolvency. Either party may terminate this Agreement by written notice
to the other if the other party becomes insolvent, makes a general assignment
for the benefit of creditors, permits the appointment of a receiver for its
business or assets, or takes steps to wind up or terminate its business.
d. Obligations upon Termination. Effective upon termination of the
Agreement, Distributor shall not license, sell, transfer, make available or
otherwise distribute the Service or Content nor access, use or retransmit the
Service or Content. Within thirty (30) days of termination, Distributor shall
(i) pay to COMTEX all amounts owed under Paragraph 5 of this
- 5 -
* Information omitted for confidential treatment.
<PAGE> 6
Agreement, and (ii) for all Content, either (A) erase and purge the Content from
any on-line and off-line storage media and certify, in writing, to COMTEX that
such erasure and purge has been completed. or (13) certify, in writing, to
COMTEX that certain Content has been retained in creating back-ups during the
normal course of business and that such Content shall not be used in any manner
whatsoever without the prior consent of COMTEX.
e. Remedies upon Breach. Upon termination under Subparagraphs b. and c.
above, COMTEX shall terminate the Service and shall be entitled to recover from
Distributor (i) any payments due hereunder, (ii) the total of Distributor's
Monthly Fee multiplied by the number of months between such termination and the
date of expiration of the then current term, less savings realized by COMTEX,
(iii) all costs and expenses of collection, including attorneys' fees, and (iv)
any and all direct damages under law.
f. Survival. The provisions of Paragraphs 5, 6, 7, 8, 9, 13, 14, 15, 16 and
17 of this Agreement shall survive termination of this Agreement.
7. CONFIDENTIAL INFORMATION
a. Definition. "Confidential Information" shall mean information which is
designated as Confidential Information by the party disclosing such information
(the "Disclosing Party") (i) in Exhibit C to this Agreement, (ii) with respect
to information provided on paper, by facsimile or electronic mail, on magnetic
media, electronically or by any other medium (collectively "in writing"), by
labeling such information as "CONFIDENTIAL INFORMATION" before the information
is provided to the other party (the "Receiving Party"), or (iii) with respect to
information disclosed either verbally or in writing, by notifying the Receiving
Party, in writing within thirty (30) days of the disclosure, that the
information identified in such notice is designated Confidential Information
effective as of the Receiving Party's receipt of such written notice.
b. Exclusions. "Confidential Information" shall not include information
that (i) is or shall become generally available without fault of the Receiving
Party, (ii) is in the Receiving Party's possession prior to its disclosure by
the Disclosing Party, (iii) is independently developed by the Receiving Party,
or (iv) is rightfully obtained by the Receiving Party from third parties without
similar restrictions.
c. Restrictions. The Receiving Party shall not disclose or otherwise
transfer Confidential Information of the Disclosing Party to any third party,
without first obtaining the Disclosing Party's consent, and shall take all
reasonable precautions to prevent inadvertent disclosure of such Confidential
Information. Except as necessary to perform under this Agreement, the Receiving
Party shall not use or copy Confidential Information of the Disclosing Party,
without first obtaining the Disclosing Party's consent, and will take all
reasonable precautions to prevent inadvertent use and copying of such
Confidential Information.
- 6 -
<PAGE> 7
d. Injunctive Relief; Exclusion of Liability Limitation. The parties agree
that damages shall be an inadequate remedy in the event of a breach by either
party of this paragraph and that any such breach by a Receiving Party will cause
the Disclosing Party great and irreparable injury and damage. Accordingly, a
party shall be entitled, without waiving any additional rights or remedies
otherwise available at law or in equity or by statute, to injunctive and other
equitable relief in the event of a breach or intended or threatened breach of
this paragraph. The provisions of Paragraph 13 shall not apply to any breach of
this Paragraph 7.
8. CONTENT
a. Ownership. Distributor acknowledges that this Agreement does not
transfer to Distributor or Users any proprietary right, title or interest,
including copyright, in the Content made available as part of the Service.
b. *
9. TRADEMARKS
Distributor agrees that COMTEX' trademarks are the sole and exclusive
property of COMTEX. Pursuant to Paragraph 3.d., COMTEX shall have the right to
approve the use of its trademarks by Distributor to identify and promote use of
the Service. Upon compliance with this provision, use of such marks by
Distributor for such purposes shall be deemed approved during the term of this
Agreement unless COMTEX specifically notifies Distributor to the contrary.
10. LIMITED WARRANTIES OF COMTEX
a. Agreement. COMTEX warrants that its entry into this Agreement does not
violate any agreement between COMTEX and any third party.
b. Laws and Regulations. COMTEX warrants that its performance under this
Agreement and the use of the Service conforms to all applicable laws and
government rules and regulations, subject to the terms of this Agreement.
c. *
- 7 -
* Information omitted for confidential treatment.
<PAGE> 8
11. LIMITED WARRANTIES OF DISTRIBUTOR
a. Agreement. Distributor warrants that its entry into this Agreement does
not violate any agreement between Distributor and any third party.
b. Laws and Regulations. Distributor warrants that its performance under
this Agreement and the use of the Service shall conform to all applicable laws
and government rules and regulations, subject to the terms of this Agreement.
12. DISCLAIMER OF ALL OTHER WARRANTIES
THE PARTIES AGREE THAT (a) THE LIMITED WARRANTIES SET FORTH IN PARAGRAPHS
10 AND 11 OF THIS AGREEMENT ARE THE SOLE AND EXCLUSIVE WARRANTIES PROVIDED BY
EACH PARTY, AND (b) EACH PARTY DISCLAIMS ALL OTHER WARRANTIES, INCLUDING BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, RELATING TO THIS AGREEMENT, PERFORMANCE UNDER THIS
AGREEMENT, THE SERVICE AND CONTENT, AND EACH PARTY'S COMPUTING AND DISTRIBUTION
SYSTEM.
13. LIMITATION OF LIABILITY
/In no event shall COMTEX or its Information Providers be liable to Distributor
and its Users for any indirect, special, exemplary or consequential damages,
including lost profits, whether or not foreseeable or alleged to be based on
breach of warranty, contract, negligence or strict liability, arising under this
Agreement or any performance under this Agreement.
14. INDEMNIFICATION
Distributor shall indemnify and hold harmless COMTEX and its Information
Providers from and against any claims, losses, expenses, liabilities, and
damages, including reasonable legal fees and expenses, arising out of
Distributor's or its Users' breach of any provision of this Agreement, including
without limitation the restrictions, obligations and warranties set forth in
Paragraphs 2, 3, 4 and I 1 of this Agreement. COMTEX agrees to notify
Distributor of any such claim promptly in writing. The parties agree to
cooperate fully during such proceedings. Distributor shall defend and settle at
its sole expense all proceedings arising out of the foregoing.
15. *
- 8 -
* Information omitted for confidential treatment.
<PAGE> 9
16. FORCE MAJEURE
Neither party shall be liable for any delay or failure to perform under
this Agreement if caused by conditions beyond its control, including but not
limited to fire, flood, accident, storm, acts of war, riot, government
interference, strikes or walkouts; provided, however, no such event shall excuse
any delay or failure to perform by Distributor of its obligations to make
payment to COMTEX under Paragraph 5 of this Agreement. The affected performing
party shall promptly notify the other party of the nature and anticipated length
of continuance of such force majeure. Should any such failure or suspension of
performance by COMTEX continue for more than six (6) months, then either party
shall have the right to terminate this Agreement without further liability or
obligation on the part of either party.
17. NOTICES
All notices and demands hereunder shall be in writing and delivered by hand
delivery, certified or registered mail, return receipt requested, or confirmed
facsimile transmission at the addresses set forth below (or at such different
address as may be designated by either party by written notice to the other
party). Delivery shall be deemed to occur (i) if by hand delivery, upon such
delivery, (ii) if by mail, four (4) days after deposit with the U.S. Postal
Service, and (iii) if by facsimile transmission, upon receipt of confirmation.
If to COMTEX:
Debbie Ikins, Vice President, Sales
COMTEX Scientific Corporation
4900 Seminary Road, Suite 800
Alexandria, Virginia 22311
Facsimile transmission: (703) 820-2005
If to Distributor:
John Keister
1301 5th Avenue
Suite 3320
Seattle, WA 98101
Facsimile transmission: (206) 447-1625
- 9 -
<PAGE> 10
18. General Terms and Conditions
a. Not Agent. Neither party shall be considered an agent of the other party
nor shall either party have the authority to bind the other party.
b. No Assignment. Neither party may assign this Agreement without the
written consent of the other party; provided, however, that COMTEX may assign
this Agreement as part of a transaction in which substantially all of the assets
related to its rights and obligations under this Agreement are assigned to a
third party.
c. Governing Law. This Agreement and performance hereunder shall be
construed and governed by the laws of the Commonwealth of Virginia.
d. Severability. In case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed as if
such provision(s) had never been contained herein, provided that such
provision(s) shall be curtailed, limited or eliminated only to the extent
necessary to remove the invalidity, illegality or unenforceability.
e. Waiver. No waiver of any breach of any of the provisions of this
Agreement shall be deemed a waiver of any preceding or succeeding breach of the
same or any other provisions hereof. No such waiver shall be effective unless in
writing and then only to the extent expressly set forth in writing.
f. Complete Agreement. The parties agree that this Agreement is the
complete and exclusive statement of the agreement between the parties, which
supersedes and merges all prior proposals, understandings and other agreements,
oral or written, between the parties relating to this Agreement.
g. Amendment. This Agreement may not be modified, altered or amended except
by written instrument duly executed by both parties.
h. Attorneys' Fees. Should any action be brought by either party to enforce
the provisions of this Agreement, the prevailing party, whether by settlement,
adjudication or arbitration, shall have the right to collect reasonable
attorneys' fees, expenses and costs from the nonprevailing party.
i. No Inference Against Author. No provision of this Agreement shall be
interpreted against any party because such party or its legal representative
drafted such provision.
- 10 -
<PAGE> 11
j. Headings. The headings used in this Agreement are for convenience only
and are not to be construed to have a legal significance.
k. Read and Understood. Each party acknowledges that it has read and
understands this Agreement and agrees to be bound by its terms,
AGREED:
go2net, Inc.
- ---------------------------------------- COMTEX SCIENTIFIC
Distributor, by: CORPORATION, by:
/s/ Russell C. Horowitz /s/ Debbie Ikins
- ---------------------------------------- ------------------------------------
Signature Signature
Russell C. Horowitz Debbie Ikins
- ---------------------------------------- ------------------------------------
Printed Name Printed Name
CEO V.P. Sales
- ---------------------------------------- ------------------------------------
Title Title
Date: 8/23/96 Date: 9/6/96
- ---------------------------------------- ------------------------------------
- 11 -
<PAGE> 12
EXHIBIT A
THE SERVICE; TERM
I. The term "the Service" means the following electronic information services:
Top news of the day displayed from the current day's Business, Finance and
High Tech categories of the COMTEX Newsroom, provided by: A&G Information
Services, Alrica News Service, AsiaInfo Services, Inc., Agence France Presse,
Business Wire, Cineman Syndicate, Futures World News, Inter Press Service (IPS),
ITAR/TASS News Agency, PR Newswire (PRN), South American Business Information
(SABI), United Press International (UPI), U.S. Newswire (USN), Xinhua News
Agency, Washington Technology, and Ziff Wire Highlights. Provider list subject
to change per this agreement. Content can be archived for UP to 24 hours.
Top Business Headline's
The COMTEX' Business category focuses only on the stories that describe
activities of companies- doing business in the U.S. and abroad. Comm editors
watch for stories that may significantly impact-the way U.S. companies conduct
business in the future. Stories that contribute include: Actions Taken To
Increase Corporate Competitiveness, Events That Affect Corporate Credibility,
Product Performance And Reliability Issues, Major Changes In The Financial
Performance Of A Company, Executive News.
Top Finance Headlines -
The COMTEX Finance category focuses on news that impacts market activity.
Our editors watch for changes in economic environments. This product provides
the news behind the numbers. Stories that contribute include. Major Market
Movers, Hot Industries, Global Economies, Emerging Markets, Regulatory Actions.
Top High Tech Headlines
The COMTEX High Tech CustomWire focuses primarily on the computer and
telecommunications industry. Our editors watch for new products that will
enhance business and personal productivity. Stories that contribute include: New
Products/Advances, information Superhighway / Infrastructure Issues, Industry
News, Regulatory Issues.
The Go2Net service is a public Internet and World Wide Web site that is
supported by advertising revenues.
- 12 -
<PAGE> 13
2. Technical Specifications:
The data format will be the standard COMTEX proprietary format. Content will be
delivered via Internet e-mail.
*
- 13 -
* Information omitted for confidential treatment.
<PAGE> 14
EXHIBIT B
*
- 14 -
* Information omitted for confidential treatment.
<PAGE> 15
EXHIBIT C
Confidential Information
1. This Agreement and all Exhibits thereto, except for Exhibit D.
- 15 -
<PAGE> 16
EXHIBIT D
USER NOTICE
1. OWNERSHIP. User understands that Comtex Scientific Corporation
("COMTEX") and its information providers retain all rights, title and interests,
including copyright and other proprietary rights, in the Service and all
material, including but not limited to text, images, and other multimedia data,
provided or made available as part of the Service ("Content").
2. RESTRICTIONS ON USE. User understands that it will not copy nor license,
sell, transfer, make available or otherwise distribute the Service or Content to
any entity or person, except that User may (a) make available to its employees
electronic copies of Content, (b) allow its employees to store, manipulate, and
reformat Content, and (c) allow its employees to make paper copies of Content,
provided that such electronic and paper copies are used solely internally and
are not distributed to any third parties. User shall use its best efforts to
stop any unauthorized copying or distribution immediately after such
unauthorized use becomes known. The provisions of this paragraph are for the
benefit of COMTEX and its information providers, each of which shall have the
right to enforce its rights hereunder directly and on its own behalf.
3. NO WARRANTV. The Service is provided on an "AS IS" basis. COMTEX
DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, RELATING TO
THIS AGREEMENT, PERFORMANCE UNDER THIS AGREEMENT, THE SERVICE AND CONTENT.
COMTEX makes no warranties regarding the completeness, accuracy or availability
of the Service or Content.
4. LIMITATION OF LIABILITY. In no event shall COMTEX or its information
providers be liable to User or any other person or entity for any direct,
indirect, special, exemplary or consequential damages, including lost profits,
based on breach of warranty, contract, negligence, strict liability or
otherwise, arising under this Agreement or any performance under this Agreement,
whether or not they or it had any knowledge, actual or constructive, that such
damages might be incurred.
5. INDEMNIFICATION. User shall indemnify and hold harmless COMTEX and its
information providers against any claim, damages, loss, liability or expense
arising out of User's use of the Service or Content in any way contrary to this
Agreement.
- 16 -
<PAGE> 1
EXHIBIT 11.1
go2net, Inc.
<TABLE>
Computation of Net Loss Per Share
<CAPTION>
Period from Inception Three Months
(February 12, 1996) Ended
through September 30, December 31,
1996 1996
--------------------- ------------
<S> <C> <C>
Net loss $ (417,757) $ (362,671)
========== ==========
Weighted average common shares 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 2,180,510
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, through date of conversion 837,830 463,750
---------- ----------
2,548,680 2,644,260
========== ==========
Net loss per share $(0.16) $(0.14)
====== ======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated February 3, 1997, in
Amendment No. 1 to the Registration Statement on Form S-1 and the related
Prospectus of go2net, Inc. for the registration of 1,825,000 shares of its
common stock.
Seattle, Washington /s/ Ernst & Young LLP
February 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM S-1 OF WHICH THIS SCHEDULE IS FILED AS AN EXHIBIT, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 7-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1997
<PERIOD-START> FEB-12-1996 OCT-01-1996
<PERIOD-END> SEP-30-1996 DEC-31-1996
<CASH> 865,742 692,938
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 873,958 701,154
<PP&E> 197,202 222,415
<DEPRECIATION> (17,874) (37,936)
<TOTAL-ASSETS> 1,066,241 921,086
<CURRENT-LIABILITIES> 45,098 32,614
<BONDS> 0 0
0 0
1,505,000 0
<COMMON> 13,900 1,668,900
<OTHER-SE> (497,757) (780,428)
<TOTAL-LIABILITY-AND-EQUITY> 1,066,241 921,086
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 431,141 369,951
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (417,757) (362,671)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (417,757) (362,671)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (417,757) (362,671)
<EPS-PRIMARY> (0.16) (0.14)
<EPS-DILUTED> (0.16) (0.14)
</TABLE>
