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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-22047
GO2NET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1710182
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
999 Third Avenue, Suite 4700
Seattle, WA 98104
-----------------
(Address of principal executive offices)
(206) 447-1595
--------------
(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes X No
------ ------
As of May 3, 1999, there were 12,971,763 shares of the Registrant's common
stock outstanding.
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<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION NUMBER
<S> <C> <C>
ITEM 1: Financial Statements (Unaudited)
Condensed Balance Sheets as of March 31, 1999
and September 30, 1998....................................................... 3
Condensed Statements of Operations for the three and six
months ended March 31, 1999 and 1998......................................... 4
Condensed Statements of Cash Flows for the six
months ended March 31, 1999 and 1998......................................... 5
Notes to Financial Statements......................................................... 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 9
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk............................ 14
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings..................................................................... 15
ITEM 2: Changes in Securities................................................................. 15
ITEM 3: Defaults Upon Senior Securities....................................................... 15
ITEM 4: Submission of Matters to a Vote of Security Shareholders.............................. 15
ITEM 5: Other Information..................................................................... 16
ITEM 6: Exhibits and Reports on Form 8-K...................................................... 16
SIGNATURES............................................................................ 17
Exhibit 27 Financial Data Schedule............................................................... 18
</TABLE>
2
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Go2Net, Inc.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 129,882,994 $ 941,351
Short-term investments.................................................. 44,294,249 7,944,249
Trade account receivables, net.......................................... 1,979,453 1,402,340
Other account receivables............................................... 1,046,105 48,043
Prepaid expenses........................................................ 491,272 445,874
------------- ------------
Total current assets................................................. 177,694,073 10,781,857
Property and equipment, net............................................... 1,277,384 1,315,168
Other assets, net......................................................... 150,465 138,181
Long-term investments..................................................... 5,055,656 -
Deposits.................................................................. 250,000 300,000
------------- ------------
Total assets......................................................... $ 184,427,578 $ 12,535,206
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................... $ 1,646,994 $ 770,387
Accrued compensation and benefits....................................... 395,782 269,240
Short term debt......................................................... 13,229 90,616
Deferred revenue........................................................ 1,429,914 503,798
------------- ------------
Total current liabilities............................................ 3,485,919 1,634,041
COMMITMENTS AND CONTINGENCIES -- --
Shareholders' equity:
Preferred stock, $0.01 par value, authorized 1,000,000 shares, outstanding
167,507 shares at March 31, 1999 and 0 shares at September 30, 1998;. 219,712,624 -
Common stock, $0.01 par value, authorized 49,000,000 shares;
outstanding 12,899,412 shares at March 31, 1999 and 12,550,354 shares at
September 30, 1998................................................... 18,206,747 15,347,048
Accumulated deficit..................................................... (56,977,712) (4,445,883)
------------- ------------
Total shareholders' equity........................................... 180,941,659 10,901,165
------------- ------------
Total liabilities and shareholders' equity........................... $ 184,427,578 $ 12,535,206
------------- ------------
------------- ------------
</TABLE>
See notes to condensed financial statements.
3
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Go2Net, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue ........................................ $ 4,325,243 $ 1,543,395 $ 6,925,283 $ 2,653,284
Cost of revenue ................................ 938,666 568,057 1,626,758 916,661
------------ ------------ ------------ ------------
Gross profit .................................. 3,386,577 975,338 5,298,525 1,736,623
Operating expenses:
Sales and marketing ........................ 1,216,420 470,450 2,137,303 915,445
Product development ........................ 422,767 329,660 817,693 631,899
General and administrative ................. 1,213,164 492,354 1,946,725 868,559
Merger and acquisition related costs........ -- -- 650,257 --
Stock compensation ......................... 6,320 35,474 77,267 70,948
------------ ------------ ------------ ------------
Total operating expenses ....................... 2,858,671 1,327,938 5,629,245 2,486,851
Income (loss) from operations................... 527,906 (352,600) (330,720) (750,228)
Interest income, net ........................... 613,406 123,265 729,178 248,170
------------ ------------ ------------ ------------
Net income (loss) 1,141,312 (229,335) 398,458 (502,058)
Preferred stock dividend 52,930,286 -- 52,930,286 --
------------ ------------ ------------ ------------
Net loss applicable to common shareholders $(51,788,974) $ (229,335) $(52,531,828) $ (502,058)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted net loss per share (Note 2) $ (4.07) $ (.02) $ (4.15) $ (.04)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Number of shares used in computing basic and
diluted net loss per share applicable to common
shareholders 12,714,525 12,155,475 12,653,634 12,130,579
</TABLE>
See notes to condensed financial statements.
4
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Go2Net, Inc.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Operating activities:
Net income (loss).............................. $ 398,458 $ (502,058)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization............. 388,864 297,813
Stock compensation........................ 77,267 70,948
Changes in working capital:
Receivables............................... (1,575,175) (685,644)
Prepaid expenses and other assets......... (80,182) 25,749
Deferred revenue.......................... 926,116 80,028
Accounts payable and accrued expenses..... 1,003,149 215,650
------------- ------------
Net cash provided by (used in) operating activities 1,138,497 (497,514)
Investing activities:
Purchases of available for sale investments.. (42,797,900) (8,620,844)
Maturities of available for sale investments. 1,700,000 1,220,844
Acquisition of property and equipment........ (336,353) (597,507)
Minority equity investments.................. (249,983) -
------------- ------------
Net cash used in investing activities.......... (41,684,236) (7,997,507)
Financing activities:
Proceeds from issuance of preferred stock, net.. 166,782,338 -
Proceeds from issuance of common stock, net..... - 89,751
Proceeds from exercise of stock options......... 2,782,431 -
Borrowing on line of credit..................... - 200,000
Payment on line of credit....................... - (200,000)
Payments on short term borrowing................ (77,387) (33,993)
------------- ------------
Net cash provided by financing activities......... 169,487,382 55,758
------------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 128,941,643 (8,439,263)
Cash and cash equivalents at beginning
of period...................................... 941,351 11,070,089
------------- ------------
Cash and cash equivalents at end of period........ $ 129,882,994 $ 2,630,826
------------- ------------
------------- ------------
</TABLE>
See notes to condensed financial statements.
5
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GO2NET, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1 THE COMPANY AND BASIS OF PRESENTATION
Go2Net, Inc. ("the Company") (http://www.go2net.com) offers through the World
Wide Web a network of branded, technology and community-driven Web sites
focused on the following categories: personal finance, search and directory,
commerce, and games. The Company also develops Web-related software. Go2Net's
properties include: Silicon Investor (http://www.siliconinvestor.com), the
Web's premier financial discussion site; StockSite
(http://www.stocksite.com), which offers proprietary articles, portfolio
tracking tools, company research and news relating to business and finance;
MetaCrawler (http://www.metacrawler.com), a metasearch service that combines
various existing search/index guides into one service; HyperMart
(http://www.hypermart.net), the Web's leading provider of free business
hosting services; WebMarket (http://www.webmarket.com), a one-stop comparison
shopping service; PlaySite (http://www.playsite.com), a Java-based
multiplayer online games site; and 100hot (http://www.100hot.com), a
directory of the most popular sites on the Web.
The unaudited condensed financial statements included herein have been
prepared by the Company in accordance with generally accepted accounting
principles and reflect all adjustments, which in the opinion of management
are necessary to fairly state the Company's financial position, result of
operations and cash flows for the periods presented.
In December 1998, the Company acquired Web21, Inc. through a merger of a
wholly-owned subsidiary into Web21 in a transaction accounted for as a
pooling of interests. All financial information has been retroactively
adjusted to reflect the combined operations of the Company and Web21.
These financial statements should be read in conjunction with the
Company's audited financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1998.
The results of operations for the period ended March 31, 1999 are not
necessarily indicative of the results to be expected for any subsequent
quarter or for the entire fiscal year ending September 30, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenue is derived principally from the sale of
advertisements on short-term contracts. Advertising revenue is recognized
ratably in the period in which the advertisement is displayed, provided that
no significant Company obligations remain and collection of the resulting
receivable is probable. To the extent that minimum guarantees are not met,
the Company defers recognition of the corresponding revenue until the
remaining guaranteed levels are achieved.
The Company has also entered into a number of longer-term advertising
and commerce sponsorship agreements. These agreements generally involve more
integration with the Company's services and provide for more varied sources
of revenue to the Company over the term of the agreements. The portion of
revenues that is attributable to ongoing service obligations is generally
recognized ratably over the term of the agreements, provided that the Company
does not have any significant remaining obligations and collection of the
resulting receivable is probable.
Deferred revenue is comprised of billings in excess of recognized
revenue relating to contracts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates, and such
differences may be material to the financial statements.
6
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INVESTMENTS
The Company principally invests its excess cash in money market funds,
short term municipal debt instruments and in high-quality corporate issuers. All
highly liquid instruments with an original maturity of three months or less are
considered cash equivalents, those with original maturities greater than three
months and current maturities less than twelve months from the balance sheet
date are considered short-term investments, and those with maturities greater
than twelve months from the balance sheet date are considered long-term
investments.
The Company accounts for marketable securities under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS 115). SFAS 115 establishes the
accounting and reporting requirements for all debt securities and for
investments in equity securities that have readily determinable fair value.
The Company classifies its investments as available for sale. At March 31,
1999 the difference between fair market value and cost was immaterial,
accordingly, unrealized gains and losses on these securities have not been
reflected in the accompanying financial statements. The cost of securities
sold is based on specific identification.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable at
March 31, 1999. Allowance for doubtful accounts was approximately $173,000 at
March 31, 1999 and $328,000 at September 30, 1998. Generally, the Company
does not require collateral or other security to support customer
receivables. The Company performs periodic credit evaluations of its
customers and maintains an allowance for potential credit losses based on
historical experience and other information available to management. Actual
credit losses may differ significantly from estimated amounts included in the
allowance for doubtful accounts and such difference could be material to the
financial statements.
NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Basic earnings per share also excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. The
computation of basic and diluted earnings per share is set forth in the
statement of operations.
RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform to the
current year presentation.
3. STOCK SPLIT
In January 1999, the Company's Board of Directors approved a two-for-one
common stock split. Shareholders of record on February 5, 1999 (the record
date) received one additional share of the Company's common stock for every
share held on February 23, 1999. All share and per share amounts presented in
the condensed financial statements have been restated to reflect the stock
split.
4. PREFERRED STOCK
The Company entered into a Stock Purchase Agreement under which the
Company agreed to issue and sell to Vulcan Ventures Incorporated ("Vulcan")
300,000 shares of the Company's Series A Convertible Preferred Stock, par
value $.01 per share for a purchase price of $1,000 per share, in two
separate issuances of 167,507 (the "First Issuance") and 132,493 shares (the
"Second Issuance"). The Series A Preferred Stock is initially convertible at
a conversion price of $66.11 per share into 4,537,891 shares of Common Stock.
The First Issuance was consummated concurrently with the execution of the
Stock Purchase Agreement on March 15, 1999. Simultaneously with the closing
of the First Issuance of preferred stock, the Company and Vulcan entered into
a Registration Rights Agreement, and Vulcan entered into a Management
Agreement with each director of the Company pursuant to which Vulcan will
purchase 1,403,312 shares of Common Stock from the directors of the Company,
three of whom are executive officers of the Company, at a price of $90.00 per
share. The Second Issuance is subject to shareholder approval. On March 19,
1999, pursuant to the Stock Purchase Agreement, Vulcan commenced a tender
offer to purchase 3,596,688 shares of Common Stock for a purchase price of
$90.00 per share. The tender offer expired on April 15, 1999 with no shares
being tendered.
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On the date of the First Issuance, the price of the Series A Convertible
Preferred Stock was at a discount to the price of the common stock into which
the preferred stock was then convertible. The discount was recognized as a
return to the preferred shareholder and reflected as a dividend.
5. RELATED PARTY TRANSACTION
During the quarter, the Company entered into advertising and licensing
agreements with DirectWeb, Inc., the CEO of which is a member of the Board of
Directors. The Company recognized revenues of $206,496 under the agreements
with DirectWeb, Inc. during the three months ended March 31, 1999.
6. BUSINESS COMBINATIONS
On April 16, 1999, the Company entered into a definitive merger
agreement to acquire Haggle Online (http://www.haggle.com/) in exchange for
41,032 shares of the Company's Common Stock valued at approximately $6.5
million as of April 16, 1999. The transaction will be accounted for under the
purchase method of accounting, and accordingly, the purchase price will be
allocated to assets acquired and liabilities assumed based on their
respective fair values.
On April 28, 1999, the Company entered into a definitive merger
agreement to acquire Virtual Avenue (http://www.virtualave.net/) and USA
Online (http://www.usaol.com/) in exchange for 150,000 shares of the
Company's Common Stock valued at approximately $23 million as of April 28,
1999. The transaction will be accounted for under the purchase method of
accounting, and accordingly, the purchase price will be allocated to assets
acquired and liabilities assumed based on their respective fair values.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed in this report contain forward-looking statements
that involve risks and uncertainties. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed below in "Additional Factors that May Affect Future Results" as
well as those discussed in this section and elsewhere in this Report, and the
risks discussed in the "Additional Factors that May Affect Future Results"
section included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1998.
OVERVIEW
Go2Net, Inc. ("The Company") (http://www.go2net.com) offers through the World
Wide Web a network of branded, technology and community-driven Web sites
focused on the following categories: personal finance, search and directory,
commerce, and games. The Company also develops Web-related software. Go2Net's
properties include: Silicon Investor (http://www.siliconinvestor.com), the
Web's premier financial discussion site; StockSite
(http://www.stocksite.com), which offers proprietary articles, portfolio
tracking tools, company research and news relating to business and finance;
MetaCrawler (http://www.metacrawler.com), a metasearch service that combines
various existing search/index guides into one service; HyperMart
(http://www.hypermart.net), the Web's leading provider of free business
hosting services; WebMarket (http://www.webmarket.com), a one-stop comparison
shopping service, PlaySite (http://www.playsite.com), a Java-based
multiplayer online games site; and 100hot (http://www.100hot.com), a
directory of the most popular sites on the Web. The Go2Net Labs division
develops innovative technologies to enhance the features and functionality of
the Go2Net sites and for licensing to other Internet companies. The Company
focuses on utilizing innovative technologies to deliver its content and to
enhance the attractiveness and utility of its product offerings.
The Company has a limited operating history upon which an evaluation of its
prospects can be based. The Company anticipates that advertising revenues
from Internet sites will constitute a majority of the revenues during the
foreseeable future. The Company believes that its success will depend upon
its ability to generate revenues from advertising and subscription fees from
its Internet sites, 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 emerging growth companies in general, and
specifically with respect to the new and rapidly evolving market for
Internet-based products 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, enter into distribution relationships and strategic alliances
to drive traffic to its Websites, provide original and compelling products
and services 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 extensive operating
history makes prediction of future operating results difficult. Accordingly,
there can be no assurance that the Company will be able to generate
significant 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 on an annual basis
and, as of March 31, 1999, had an accumulated deficit of $56,977,712 of which
$4,047,426 was from operations. The Company currently intends to
substantially increase 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 technologies, applications and
other products and services.
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 sites, the amount and
timing of capital expenditures and other costs relating to the development,
costs and expenses relating to acquisitions, 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
9
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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.
RESULTS OF OPERATIONS
REVENUE
Total revenues for the three and six months ended March 31, 1999 were
$4,325,243 and $6,925,283, respectively. Revenues for the comparable periods
in 1998 were $1,543,395 and $2,653,284, respectively. The increase in revenue
is the result of the development and increase in usage of the Company's Web
sites over the last year resulting in an increase in the number of
advertisers purchasing advertising banners on the Company's Web sites, an
increase in sponsorship advertising revenue, and an increase in sales of
targeted advertisements with higher rates. This increase is also the result
of an increase in subscription revenues and partnership license fees
year-over-year.
COSTS OF REVENUE
Cost of revenue consists primarily of expenses associated with the
production, enhancement, maintenance and support of the Company's Web sites.
These costs consist primarily of fees paid to third parties for content
included in the online properties, Internet connection charges, personnel
costs, equipment depreciation, and overhead allocations. Costs of revenue
also include, for all periods presented, expenses associated with license
agreements and royalties for revenue sharing agreements and other services.
For the three and six months ended March 31, 1999, costs of revenue were
$938,666 and $1,626,758, respectively. Costs of revenue for the comparable
periods in 1998 were $568,057 and $916,661, respectively. The increase is due
primarily to increases in support and maintenance costs as a result of the
increase in traffic, along with increased royalties associated with the
increase in revenues.
Cost of revenues in future periods are expected to increase in absolute
dollars and may increase as a percentage of revenues as the Company increases
costs to support expanded services and content.
GROSS PROFIT
Gross profit as a percentage of revenue was 78% for the three months
ended March 31, 1999 compared to 63% for the comparable period in 1998. Gross
profit as a percentage of revenue was 76% for the six months ended March 31,
1999 compared to 65% for the comparable period in 1998. The increase in the
gross profit in absolute dollars and as a percentage of revenue was due
primarily to the fact that revenues have increased at a faster rate than
costs to support those revenues, a favorable mix of advertising rates and the
reduction of amortization of licensed technology.
In the future, the types of advertisements sold and revenue sharing
provisions of content agreements may affect gross margins. Advertisements
that target a specific audience typically have higher gross margins than
advertisements which target a broader demographic. Furthermore, in certain
circumstances, the Company shares advertising revenue with third party
content providers based upon the number of consumers directed to specific
areas within its sites. A decrease in targeted advertising sold, advertising
rates or an increase in revenue sharing obligations could adversely affect
gross margins.
Increases in service and content offerings will also adversely affect
gross margins. Furthermore, pursuant to the provisions of certain agreements
with content providers, the Company shares advertising revenues upon select
co-branded pages within its network. An increase in targeted advertising
rates or an increase in the Company's advertising revenue within these
co-branded areas could adversely affect gross margins in the future.
10
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OPERATING EXPENSES
The Company's operating expenses have increased since inception through
March 31, 1999. This reflects the Company's investment in infrastructure and
personnel costs to develop, market and sell its services. The Company
believes that continued expansion of operations is essential to achieving and
maintaining market share. As a result, the Company intends to continue to
increase expenditures in all operating areas for the foreseeable future.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
sales and marketing personnel costs, agency and consulting fees, travel, and
promotional and advertising expenses. Sales and marketing expenses incurred
by the Company for the three and six months ended March 31, 1999 were
$1,216,420 and $2,137,303, respectively. Sales and marketing expenses for the
comparable periods in 1998 were $470,450 and $915,445, respectively. The
increase is primarily attributable to the hiring of additional sales staff,
increased commissions associated with higher sales, and expenses associated
with the Company's expanded marketing and public relations campaign. The
Company intends to significantly increase its sales and marketing expenses in
future periods.
PRODUCT DEVELOPMENT. Product development expenses consist of expenses
incurred by the Company in its development and creation of its Internet sites
as well as enhancements to the sites. Product development expenses include
compensation and related expenses, costs of computer hardware and software,
and the cost of acquiring, designing and developing Internet technologies,
products and services. All of the costs incurred to date in connection with
the development of the Company's Internet sites have been expensed. Product
development expenses incurred by the Company for the three and six months
ended March 31, 1999 were $422,767 and $817,693, respectively. Product
development expenses for the comparable periods in 1998 were $329,660 and
$631,899, respectively. The overall increase in research and development
expenses was primarily due to increased engineering staffing to continue to
develop and enhance the Company's expanded product offerings. The Company
believes that significant investments in enhancing its Internet sites will be
necessary to be 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 for the three and six months
ended March 31, 1999 were $1,213,164 and $1,946,725, respectively. General
and administrative expenses for the comparable periods in 1998 were $492,354
and $868,559, respectively. The increase was primarily attributable to an
increase in personnel and facilities costs to support the Company's growth.
In addition, general overhead costs increased along with the Company's
growth. The Company anticipates that its general and administrative expenses
may continue to increase in absolute dollars as the Company expands its
administrative and executive staff, adds infrastructure and integrates
acquired technologies and businesses.
MERGER AND ACQUISITION RELATED EXPENSES. During the six months ended
March 31, 1999, the Company incurred $650,257 related to the merger with
Web21, Inc. The expenses were primarily for investment banking, legal,
accounting and other professional fees. The Company may in the future,
acquire businesses, technologies, and other Web sites.
STOCK COMPENSATION CHARGES. Compensation charges associated with the
granting of stock options to a consultant and employees for the three and six
months ended March 31, 1999 were $6,320 and $77,267, respectively.
Compensation charges associated with these stock options for the three and
six months ended March 31, 1998 were $35,474 and $70,948, respectively. These
charges relate to the assumption of stock options granted to selling and
marketing consultants and employees of companies acquired during the
respective periods.
INTEREST INCOME. Interest income for the three and six months ended
March 31, 1999 was $613,406 and $729,178, respectively. Interest income for
the comparable periods in 1998, was $123,265 and $248,170, respectively.
Interest income was higher in 1999 as compared to 1998 as a result of
interest earned on cash received from the sale of Preferred Stock.
INCOME TAXES. For the three and six months ended March 31, 1999 the Company
has not recorded an income tax expense because it has utilized net operating
losses carryforwards. In prior periods the Company did not
11
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recognize the tax benefit associated with net operating losses because of the
uncertainty of the Company being able to utilize the operating losses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company's principal source of liquidity was
$129,882,994 in cash and cash equivalents, along with $44,294,249 in
short-term investments, derived primarily from the sale of the Company's
preferred and common equity securities. The Company also has a $1,000,000
revolving line of credit with a commercial bank that expires on December 13,
1999. All borrowings under such line of credit accrue interest at such bank's
prime annual lending rate. As of March 31, 1999, no amounts were outstanding
under this line of credit.
Capital expenditures were approximately $336,353 and $597,507 for the
six months ended March 31, 1999 and March 31, 1998, respectively. The Company
has no material commitments for capital expenditures other than approximately
$525,000 relating to the purchase of computer hardware and software. The
Company anticipates a substantial increase in its capital expenditures
through the remainder of fiscal 1999 consistent with its anticipated growth.
Additionally, the Company will continue to evaluate possible acquisitions of,
or investments in businesses, products, and technologies that are
complementary to those of the Company, which may require the use of cash.
The Company currently believes that available funds, cash flows
generated from the completion of the Second Issuance of preferred stock, cash
flows expected to be generated from operations, if any, and the existing line
of credit will be sufficient to fund its working capital and capital
expenditures requirements for at least the next twelve months. 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-based
products and services. 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-based products and services) 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 plans,
respond to competitive forces or take advantage of perceived business
opportunities, which could have a material adverse effect on the Company's
business, financial condition and operating results.
YEAR 2000 RISKS
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the application of computer programs which have been written using two
digits, rather than four, to define the applicable year of business
transactions. The Company has completed its review of the potential impact of
year 2000 issues and does not anticipate any significant costs, problems or
uncertainties associated with becoming Year 2000 compliant.
The supplier of the Company's current financial and accounting software
has informed the Company that such software is year 2000 compliant. Further,
the Company relies, upon various vendors, financial institutions, utility
companies, telecommunications service companies, delivery service companies
and other service providers who are outside of the Company's control. While
the Company has surveyed some, but not all of it's major vendors, there is no
assurance that such parties will not suffer a year 2000 business disruption,
which could have a material adverse effect on the Company's financial
condition and results of operations.
12
<PAGE>
To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating year 2000 compliance issues. Most
of its expenses have related to the opportunity cost of time spent by
employees of the Company evaluating its systems and year 2000 compliance
matters generally.
The Company has not developed a year 2000-specific contingency plan. If year
2000 compliance issues are discovered, the Company then will evaluate the
need for contingency plans relating to such issues.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company has a limited operating history upon which an evaluation of
the Company and its prospects can be based. The Company and its prospects
must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets. To address these
risks, the Company must, among other things, respond to competitive
developments, continue to attract, retain and motivate qualified persons and
continue to upgrade its technologies and commercialize products and services
incorporating such technologies. There can be no assurance that the Company
will be successful in addressing such risks. The limited operating history of
the Company makes the prediction of future results of operations difficult or
impossible, and therefore there can be no assurance that the Company will
achieve revenue growth or profitability.
As a result of the Company's limited operating history, the Company does
not have historical financial data for any significant period of time on
which to base planned operating expenses. The Company's expense levels are
based in part on its expectations as to future revenues and to a large extent
are fixed. Quarterly sales and operating results generally depend on
advertising revenues, which are difficult to forecast. The Company may be
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall in relation to the
Company's expectations would have an immediate adverse impact on the
Company's business, results of operations and financial condition. In
addition, the Company plans to significantly increase its operating expenses
to fund greater levels of research and development, increase its sales and
marketing operations, broaden its customer support capabilities and establish
brand identity and strategic alliances. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, results of operations and financial condition will be materially
adversely affected.
The Company's operating results may fluctuate significantly in the
future as a result of a variety of factors, some of which are outside of the
Company's control. These factors include general economic conditions,
specific economic conditions in the Internet industry, usage of the Internet,
demand for Internet advertising, seasonal trends in advertising sales, the
advertising budgeting cycles of individual advertisers, capital expenditures
and other costs relating to the expansion of operations, costs and expenses
relating to acquisitions, the introduction of new products or services by the
Company or its competitors, the mix of services sold, the channels through
which those services are sold and pricing changes. As a strategic response to
a changing competitive environment, the Company may elect from time to time
to make certain pricing, service or marketing decisions or acquisitions that
could have a material adverse effect on the Company's business, results of
operations and financial condition. 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. The Company also
expects that, in the future, it may experience seasonality in its business,
with advertising revenues being somewhat lower during the summer and year-end
vacation and holiday periods, when usage of the Company's Internet sites and
services may be expected to decline. Due to all of the foregoing factors, it
is likely that in some future quarter, the Company's operating results may be
below the expectations of public market analysts and investors. In such
event, the price of the Company's common stock would likely be materially
adversely affected.
The Company derives the majority of its revenues from the sale of
advertising, including advertisements on the Company's various Web sites.
Many of the Company's customers purchasing advertisements purchase these
advertisements on a short-term basis, and many of these customers may
terminate their commitments at any time without penalty. Consequently, there
can be no assurance that these customers will continue or increase their
level of advertising on the Company's Web sites or that these customers will
not move their advertising to competing Web sites or to other forms of media.
Therefore, there can be no assurance that the Company will be successful in
maintaining or increasing the amount of advertising on the Company's Web
sites, and the failure to do so would have a material adverse effect on the
Company's business, results of operations and financial condition.
13
<PAGE>
In addition, there is intense competition in the sale of advertising on
the Web, resulting in a wide range of rates and a variety of pricing models
offered by different vendors for a variety of advertising services, which
makes it difficult to project future levels of advertising revenues and
rates. It is also difficult to predict which pricing models the industry or
advertisers will adopt. For example, advertising rates based on the number of
"click throughs", or user requests for additional information made by
clicking on the advertisement from the Company's network to the advertiser's
Web pages, instead of rates based solely on the number of impressions
displayed on users' computer screens, could materially adversely affect the
Company's revenues. As a result of these risks, there can be no assurance
that the Company will be successful in generating significant future
advertising revenues from Web-based advertising, and the failure to do so
would have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company operates in a rapidly changing environment that involves a
number of risks and uncertainties, some of which are beyond the Company's
control. In addition to the factors discussed in this report, factors that
could cause or contribute to such differences include, but are not limited
to, those discussed in the "Additional Factors that May Affect Future
Results" section included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1998.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the Company's investment activities is to
preserve the principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, the Company
maintains its portfolio of cash equivalents and short-term investments in a
variety of securities, including both municipal and corporate obligations and
money market funds. As of March 31, 1999, approximately 97% of the Company's
total portfolio matures in one year or less, with the remainder maturing in
less than three years. The average rate on the entire portfolio was
approximately 4.94% as of March 31, 1999. See Note 2 of Notes to Financial
Statements.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities
The Company has agreed to issue and sell to Vulcan Ventures
Incorporated ("Vulcan") 300,000 shares of the Company's Series A
Convertible Preferred Stock (the "Series A Preferred Stock") for a
purchase price of $1,000 per share, in two separate issuances
of 167,507 shares (the "First Issuance") and 132,493 shares
(the "Second Issuance"). The Series A Preferred Stock is initially
convertible at a conversion price of $66.11 per share into 4,537,891
shares of Common Stock. The First Issuance was consummated
concurrently with the execution of the Stock Purchase Agreement
on March 15, 1999. Simultaneously with the closing of the First
Issuance, the Company and Vulcan entered into a Registration
Rights Agreement (the "Registration Rights Agreement") and
Vulcan entered into a Stock Purchase and Voting Agreement with each
director of the Company (the "Management Stock Agreements"). The
Second Issuance is expected to be consummated in the third fiscal
quarter.
ITEM 3: Defaults Upon Senior Securities
None.
ITEM 4: Submission of Matters to a Vote of Security Shareholders
At the Annual Meeting of the Stockholders held on March 23, 1999, the
Company's nominees for directors to serve until the 1999 Annual
Meeting of Stockholders were elected, and the following proposals were
approved; (i) an amendment to the Go2Net, Inc. 1996 Stock Option Plan
to increase the number of shares covered thereby from 5,000,000 to
8,000,000, (ii) the selection of Ernst & Young LLP as the independent
auditors of the Company for fiscal 1999 and (iii) adopt the Company's
1999 Employee Stock Purchase Plan.
With respect to the election of directors, the voting was as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Russell C. Horowitz 4,676,441 2,360
John Keister 4,676,541 2,260
Dennis Cline 4,676,491 2,310
Michael J. Riccio, Jr. 4,676,541 2,260
Martin L. Schoffstall 4,676,541 2,260
Dr. Oren Etzioni 4,676,491 2,310
</TABLE>
With respect to the approval of the amendment to the Go2Net, Inc. 1996
Stock Option Plan, the voting was as follows:
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
2,338,020 181,590 5,057 2,154,134
</TABLE>
With respect to the approval of the selection of Ernst & Young LLP,
the voting was as follows:
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
4,629,981 3,779 3,319 0
</TABLE>
15
<PAGE>
With respect to the approval of the Company's 1999 Employee Stock
Purchase Plan, the voting was as follows:
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
2,491,728 23,477 9,462 2,154,134
</TABLE>
ITEM 5: Other Information.
On April 16, 1999 the Company entered into an agreement and plan of
merger with respect to the acquisition of Haggle, Inc. See notes to
financial statements - Business Combinations.
On April 28, 1999 the Company entered into an agreement and plan of
merger with respect to the acquisition of Virtual Avenue and USA
Online. See notes to financial statements - Business Combinations.
ITEM 6:Exhibits and Reports on Form 8-K
Form 8K was filed with the SEC on January 12, 1999. The Company filed
Form 8-K with the Securities and Exchange Commission on April 12, 1999
with respect to the proposed transaction with Vulcan Ventures, Inc.
Exhibit 2.1 - Russell C. Horowitz Amended and Restated Employment
Agreement
Exhibit 2.2 - John Keister Amended and Restated Employment Agreement.
Exhibit 2.3 - Michael J. Riccio, Jr. Employment Agreement.
Exhibit 27 - Financial Data Schedule
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GO2NET, INC.
Date: May 4, 1999
By: /s/ Russell C. Horowitz .
--------------------------------------
Russell C. Horowitz
President, Chief Executive Officer, Chief
Financial Officer and Director
(Principal Executive and Accounting
Officer)
17
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of March, 1999 between
Go2Net, Inc., a Delaware corporation (the "Company"), and Russell C.
Horowitz, an individual residing at 800 5th Avenue, #171, Seattle,
Washingtion 98104 (the "Executive"). This Agreement amends and restates in
its entirety the Employment Agreement dated as of March 1, 1996 between the
Company and the Executive.
RECITALS
WHEREAS, the Company currently employs the Executive as the Chief
Executive Officer of the Company, and the Executive desires to continue to
serve as the Chief Executive Officer of the Company, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound
hereby, agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as the Chief
Executive Officer of the Company, and the Executive accepts such employment
for the term of employment specified in Section 3 below (the "Employment
Term"). During the Employment Term, as the Chief Executive Officer of the
Company, the Executive shall, subject to the direction of the Board of
Directors of the Company, perform such duties consistent with those duties
ordinarily and customarily performed by a person holding such position in
similar organizations, as may from time to time be reasonably assigned to him
by the Board of Directors of the Company. During the Employment Term, the
Executive will also be entitled to continue to serve as a member of the
Company's Board of Directors.
2. PERFORMANCE; LOCATION OF EMPLOYMENT. The Executive agrees to
devote his reasonable best efforts and substantially all of his business time
to the performance of his duties hereunder during the Employment Term. From
the date of this Agreement through January 31, 2001, the Executive will
perform his duties hereunder at the Company's executive offices located in
Seattle, Washington. Thereafter, the Executive may elect to perform his
duties hereunder at an office located in California.
3. EMPLOYMENT TERM. The term of employment under this Agreement shall
begin on the date of this Agreement and continue until January 31, 2002 (the
"Initial Employment Term"). Employment shall thereafter continue on the basis
hereby established for successive one year terms unless, more than ninety days
prior to the expiration of the Initial Employment Term or any successive one
year term, either the Executive or the Company provides the other with written
notice that this Agreement will not be renewed (the "Subsequent Employment Term"
and
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<PAGE>
with the Initial Employment Term, the "Employment Term"). Employment during
the Employment Term shall be subject to earlier termination in accordance
with the terms of this Agreement.
4. COMPENSATION.
(a) SALARY. During the Employment Term, the Company shall pay the
Executive a base salary, payable in equal installments in accordance with the
Company's then current compensation practices for all of its executives,
subject to withholding and other applicable taxes, at an annual rate of
Thirty Six Thousand Dollars ($36,000.00). The base salary may be reviewed
periodically by the Board of Directors, provided that the base salary shall
not be decreased during the Employment Term.
(b) BONUS. The Executive shall be eligible to participate in a
bonus plan of the Company pursuant to which he will be entitled to receive an
annual bonus equal to a specified percentage of the annual base salary then
in effect, subject to achieving specified performance objectives. The actual
amount of such bonus and the performance objectives for the payment thereof
shall be as mutually established by the Executive and the Compensation
Committee of the Board of Directors of the Company.
(c) INSURANCE; OTHER BENEFITS. The Executive and his dependants
shall be entitled to receive full family medical, dental and disability
insurance, at the Company's expense. The Executive shall also be entitled to
participate in all executive benefit plans now existing or hereinafter
established by the Company, including, but not limited to, family medical and
dental plans, group life and disability insurance plans, life insurance plan;
pension, 401(k), profit sharing or bonus plans, and any other benefit plan or
arrangement made available to executive officers of the Company. In
addition, the Executive shall be entitled to the use of an automobile of like
quality used by other executives of the Company and a parking space in the
Company's building, which shall be paid for by the Company.
(d) VACATION. The Executive shall be entitled to the same paid
vacation benefits as the other executive officers of the Company, but in no
case shall it be less than three weeks of paid vacation during each year of
the Employment Term to be taken at such time or times as shall be mutually
convenient and consistent with his duties and obligations to the Company.
5. EXPENSES. The Executive shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.
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<PAGE>
6. TERMINATION.
(a) TERMINATION AT END OF TERM. The employment of the Executive
hereunder shall terminate at the end of the Initial Employment Term or any
Subsequent Employment Term if either party provides notice of termination at
least 90 days prior to expiration of the Initial Employment Term or
Subsequent Employment Term, or if earlier terminated by the Board of
Directors of the Company pursuant to this Section 6.
(b) TERMINATION BY THE COMPANY WITH CAUSE. The Company shall have
the right at any time to terminate the Executive's employment hereunder upon
the occurrence of any of the following (any such termination being referred
to as a termination for "Cause"): (i) the Executive has misappropriated or
done material, intentional damage to the Company or its business or financial
situation, or (ii) the Executive has been convicted of a felony involving
moral turpitude.
(c) TERMINATION UPON DEATH OR DISABILITY. The Executive's
employment hereunder shall automatically terminate upon the Executive's death
or upon his inability to perform his duties hereunder by reason of any
mental, physical or other disability for a period of at least six consecutive
months, or six months within any 18 month period, as determined by a
qualified physician selected by the Company and reasonably acceptable to the
Executive or his guardian, in the case where the Executive is incapacitated.
(d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company shall
have the right to terminate the Executive's employment at any time prior to
the expiration of the Initial Employment Term or any Subsequent Employment
Term for any reason without Cause with at least ninety days written notice.
(e) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive
shall have the right to terminate his employment at any time for Good Reason
upon written notice to the Company. For purposes of this Agreement, "Good
Reason" shall mean (a) the failure to elect or appoint the Executive as Chief
Executive Officer and to the Board of Directors of the Company, (b) the
Executive's authority or duties are materially changed without the prior
consent of the Executive, which change is not remedied within ten (10)
business days after written notice thereof is delivered to the Company by the
Executive, (c) any material breach of this Agreement by the Company, which
breach is not remedied within ten (10) business days after written notice
thereof is delivered to the Company by the Executive, or (d) the relocation
of Executive's place of work more than 30 miles from the Seattle, Washington
area. For purposes of this Agreement, the Executive's authority or duties
shall be deemed to be "materially changed" if, without the Executive's
consent, there is any diminution or adverse modification in the Executive's
title, compensation, responsibilities or reporting relationship.
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<PAGE>
(f) VOLUNTARY RESIGNATION. In addition to the right to terminate
his employment for Good Reason under Section 6(e) above, the Executive may
voluntarily terminate his employment at any time upon thirty days notice.
The provisions of Section 8 relating to non-disclosure shall immediately
become effective upon the Executive's resignation without Good Reason.
7. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) WITH CAUSE; RESIGNATION; DEATH OR DISABILITY. If the
Executive's employment is terminated with Cause pursuant to Section 6(b), if
the Executive's employment is terminated by the death or disability of the
Executive pursuant to Section 6(c) or if the Executive elects to terminate
his employment voluntarily under Section 6(f) (other than for Good Reason),
the Executive's salary and other benefits specified in Section 4 shall cease
at the time of such termination; provided, however, that (i) the Executive
shall be entitled to continue to participate in the Company's medical benefit
plans to the extent required by law and shall be entitled to the
reimbursement for expenses incurred by him through the date of termination
pursuant to Section 5, and (ii) in the case of termination due to death or
disability, the Executive or his estate shall continue to receive his then
current annual base salary payable under Section 4(a) for a period of three
months from the date of termination.
(b) WITHOUT CAUSE BY THE COMPANY. If the Executive's employment
is terminated either by the Company without Cause pursuant to Section 6(d) or
by the Executive for Good Reason pursuant to Section 6(e), in each case,
prior to the expiration of the Initial Employment Term or any Subsequent
Employment Term, the Executive's salary and other benefits specified in
Section 4 shall cease at the time of such termination, and the Executive
shall be entitled to receive his then current annual base salary payable
under Section 4(a) for a period equal to the longer of the remainder of the
Employment Term or six months from the date of termination. In addition, in
any of such events or if the Company does not renew this Agreement beyond the
Initial Employment Term or any Subsequent Employment Term (i) the Executive
shall also be entitled to receive any bonus accrued or earned by the
Executive through the date of termination pursuant to Section 4(b) and the
amount of any expenses incurred by the Executive through the date of
termination pursuant to Section 5, (ii) all stock options to purchase Common
Stock then held by the Executive shall immediately vest and become
exercisable, and (iii) the Executive shall continue to receive the insurance
benefits specified in Section 4, at the Company's expense, until the
expiration of the Employment Term. The Company agrees that, in the event
that the Company accelerates the vesting of any options held by any other
employee of the Company in connection with a change of control of the
Company, then all options held by the Executive shall be accelerated and
become vested and exercisable in the same manner as such other options are
accelerated.
(c) TAX PAYMENTS. In the event that any compensation payable by the
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<PAGE>
Company under this Agreement or otherwise (including any deemed compensation
attributable to the acceleration of stock options) constitutes an excess
parachute payment which is subject to tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Excise Tax"), the Company shall pay to
the Executive an additional amount (the "Gross-Up Amount") which, after the
payment of all Federal, state and local income taxes thereon (assuming the
Executive is at the highest marginal Federal and applicable state and local
tax rate in effect on the date of payment of the Gross-Up Amount) and payment
of the Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable
by the Executive on such excess parachute payment. The Gross-Up Amount
payable with respect to each excess parachute payment shall be paid by the
Company coincident with payment of such excess parachute payment.
8. NON-DISCLOSURE OF BUSINESS INFORMATION. The Executive acknowledges
and agrees that by virtue of his employment with the Company, the Executive
will obtain such knowledge, know-how, training and experience that is not
generally known by those engaged in the Internet or World Wide Web industry
("Trade Secrets"), and there is a possibility that such knowledge, know-how,
training and experience could be used by a competitor of the Company to the
Company's detriment. Therefore, the Executive covenants and agrees, as
follows: (a) the Executive agrees that he will not, at any time during or
after the Employment Term, disclose, reproduce, assign or transfer to any
person, firm, corporation or other business entity, except as required by
law, any Trade Secrets concerning the business, finances, patents, affairs,
business plans, strategies, methods, software, hardware, results from ongoing
investigations from others, and present and future plans of the Company, any
subsidiary or affiliate thereof or any company formed or founded by the
Company at any time for any reason or purpose whatsoever, without the
Company's express written consent; nor shall the Executive make use of any
such Trade Secrets for his own purpose or for the benefit of any person,
firm, corporation or other business entity, except the Company or any
subsidiary or affiliate thereof and upon the termination of the Executive's
employment for any reason, the Executive will immediately return all books,
files, papers, records and documents of any kind (including those contained
in computer disks) relating to the business of the Company; (b) during the
period which the Executive is employed by the Company and for a period of
one year thereafter, the Executive shall not, without the prior written
consent of the Company, engage in, for any purpose whatsoever, any activity
that competes directly with the Company, except that the Executive shall have
no obligations under this clause (b) in the event he is terminated by the
Company without Cause or he elects to terminate his employment for Good
Reason, and (c) the Executive shall not, without the prior written consent of
the Company, within the one year period following the termination of his
employment solicit any employee of the Company to join the Executive as a
partner, employee or consultant in any Internet or World Wide Web related
enterprise that competes directly with the Company.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EXECUTIVE. The
Executive represents that he has the capacity and desire to enter into this
Agreement, and the voluntary
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<PAGE>
execution, delivery and performance of the Agreement and compliance with its
provisions will not conflict with or result in any breach of any of the
terms, conditions, obligations, covenants or provisions of, or constitute a
default under, any note, mortgage, agreement, contract or instrument to which
the Executive is a party or by which he may be bound or affected, including
specifically any pre-existing or existing consulting, employment, or
independent contractor arrangements, understandings, or agreements whether
written or oral. Furthermore, the Executive agrees to indemnify the Company
against any claims brought by any predecessor employer alleging breach of
employment contract or fiduciary responsibilities.
10. INSURANCE. The Company may purchase insurance on the life of the
Executive, and if it does so, the Executive shall cooperate fully by
performing all the requirements of the life insurer which are necessary
conditions precedent to the issuance of the life insurance policy issued by
it. If the Company elects to purchase such insurance, the Executive may
elect to designate a beneficiary for up to $1 million of such insurance.
11. NOTICE. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or
when mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:
If to the Executive:
Russell C. Horowitz
800 5th Avenue, #171
Seattle, WA 98104
If to the Company:
Go2Net, Inc.
999 Third Avenue
Suite 4700
Seattle, WA 98104
Attn.: President
12. GENERAL.
(a) GOVERNING LAW; SUBMISSION TO JURISDICTION. The terms of this
Agreement shall be governed by and construed under the laws of the State of
Washington without regard to its principles of conflicts of laws.
Accordingly, to the extent a restriction contained in this Agreement is more
restrictive than permitted by the laws of any jurisdiction where this
Agreement may be subject to review and interpretation, the terms of such
restriction, for the purpose only of the operation of such restriction in
such jurisdiction, shall be the maximum
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<PAGE>
restriction allowed by the laws of such jurisdiction and such restriction
shall be deemed to have been revised accordingly herein. The parties hereto
irrevocably agree that all claims relating to this Agreement shall be
submitted exclusively to federal and state courts located in the County of
King and the State of Washington and irrevocably consent to the jurisdiction
and venue of such courts and service of process by certified or registered
mail, return receipt requested, directed to the parties at the addresses set
forth herein or as otherwise provided by law.
(b) REMEDY FOR BREACH OF SECTION 8. It is acknowledged by the
Executive that he will be devoting his work efforts towards establishing
relationships for the Company; that the Executive will be knowledgeable in
all aspects of the business, including the type of transactions the Company
is involved with, thus, the Executive would be able to enter the same
business as the Company and unfairly compete against the Company to its
detriment. Thus, the restrictions contained in Section 8 and the provisions
contained in this Section regarding injunctive relief are reasonable and
justified. The Executive agrees that irreparable injury to the Company will
inevitably occur in the event of any breach of the terms and conditions of
this Agreement and, specifically, if Section 8 is breached by the Executive.
The Executive agrees in such event that the Company shall be entitled, in
addition to any other remedies available to it, without proof of monetary or
immediate damage, to seek an action for any injunction to retrain any
violation of this Agreement by the Executive and all persons acting for or
with the Executive.
(c) ASSIGNABILITY. The Executive may not assign his interest in
or delegate his duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without written consent of
Executive.
(d) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company, its permitted successors and assigns,
and the Executive, his representatives and heirs.
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof and it may not be modified or amended in any way except in writing by
the parties hereto.
(f) DURATION. Notwithstanding the term of employment hereunder,
this Agreement shall continue for so long as any obligations remain under
this Agreement.
* * *
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
GO2NET, INC.
By:
-----------------------------------
Name: John Keister
Title: President
EXECUTIVE
--------------------------------------
Russell C. Horowitz
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<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of March, 1999 between
Go2Net, Inc., a Delaware corporation (the "Company"), and John Keister, an
individual residing at 2125 1st Avenue, Seattle, Washingtion (the
"Executive"). This Agreement amends and restates in its entirety the
Employment Agreement dated as of March 1, 1996 between the Company and the
Executive.
RECITALS
WHEREAS, the Company currently employs the Executive as the President of
the Company, and the Executive desires to continue to serve as the President
of the Company, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound
hereby, agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as the
President of the Company, and the Executive accepts such employment for the
term of employment specified in Section 3 below (the "Employment Term").
During the Employment Term, as the President of the Company, the Executive
shall, subject to the direction of the Chief Executive Officer of the Company
and the Board of Directors of the Company, perform such duties consistent
with those duties ordinarily and customarily performed by a person holding
such position in similar organizations, as may from time to time be
reasonably assigned to him by the Chief Executive Officer or the Board of
Directors of the Company. During the Employment Term, the Executive will
also be entitled to continue to serve as a member of the Company's Board of
Directors.
2. PERFORMANCE; LOCATION OF EMPLOYMENT. The Executive agrees to
devote his reasonable best efforts and substantially all of his business time
to the performance of his duties hereunder during the Employment Term. From
the date of this Agreement through January 31, 2001, the Executive will
perform his duties hereunder at the Company's executive offices located in
Seattle, Washington. Thereafter, the Executive may elect to perform his
duties hereunder at an office located in California.
3. EMPLOYMENT TERM. The term of employment under this Agreement shall
begin on the date of this Agreement and continue until January 31, 2002 (the
"Initial Employment Term"). Employment shall thereafter continue on the basis
hereby established for successive one year terms unless, more than ninety days
prior to the expiration of the Initial Employment Term or any successive one
year term, either the Executive or the Company provides the other with written
notice that this Agreement will not be renewed (the "Subsequent Employment Term"
and
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with the Initial Employment Term, the "Employment Term"). Employment during
the Employment Term shall be subject to earlier termination in accordance
with the terms of this Agreement.
4. COMPENSATION.
(a) SALARY. During the Employment Term, the Company shall pay the
Executive a base salary, payable in equal installments in accordance with the
Company's then current compensation practices for all of its executives,
subject to withholding and other applicable taxes, at an annual rate of
Seventy Two Thousand Dollars ($72,000.00). The base salary may be reviewed
periodically by the Board of Directors, provided that the base salary shall
not be decreased during the Employment Term.
(b) BONUS. The Executive shall be eligible to participate in a
bonus plan of the Company pursuant to which he will be entitled to receive an
annual bonus equal to a specified percentage of the annual base salary then
in effect, subject to achieving specified performance objectives. The actual
amount of such bonus and the performance objectives for the payment thereof
shall be as mutually established by the Executive and the Compensation
Committee of the Board of Directors of the Company.
(c) INSURANCE; OTHER BENEFITS. The Executive and his dependants
shall be entitled to receive full family medical, dental and disability
insurance, at the Company's expense. The Executive shall also be entitled to
participate in all executive benefit plans now existing or hereinafter
established by the Company, including, but not limited to, family medical and
dental plans, group life and disability insurance plans, life insurance plan;
pension, 401(k), profit sharing or bonus plans, and any other benefit plan or
arrangement made available to executive officers of the Company. In
addition, the Executive shall be entitled to the use of an automobile of like
quality used by other executives of the Company and a parking space in the
Company's building, which shall be paid for by the Company.
(d) VACATION. The Executive shall be entitled to the same paid
vacation benefits as the other executive officers of the Company, but in no
case shall it be less than three weeks of paid vacation during each year of
the Employment Term to be taken at such time or times as shall be mutually
convenient and consistent with his duties and obligations to the Company.
5. EXPENSES. The Executive shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.
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6. TERMINATION.
(a) TERMINATION AT END OF TERM. The employment of the Executive
hereunder shall terminate at the end of the Initial Employment Term or any
Subsequent Employment Term if either party provides notice of termination at
least 90 days prior to expiration of the Initial Employment Term or
Subsequent Employment Term, or if earlier terminated by the Board of
Directors of the Company pursuant to this Section 6.
(b) TERMINATION BY THE COMPANY WITH CAUSE. The Company shall have
the right at any time to terminate the Executive's employment hereunder upon
the occurrence of any of the following (any such termination being referred
to as a termination for "Cause"): (i) the Executive has misappropriated or
done material, intentional damage to the Company or its business or financial
situation, or (ii) the Executive has been convicted of a felony involving
moral turpitude.
(c) TERMINATION UPON DEATH OR DISABILITY. The Executive's
employment hereunder shall automatically terminate upon the Executive's death
or upon his inability to perform his duties hereunder by reason of any
mental, physical or other disability for a period of at least six consecutive
months, or six months within any 18 month period, as determined by a
qualified physician selected by the Company and reasonably acceptable to the
Executive or his guardian, in the case where the Executive is incapacitated.
(d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company shall
have the right to terminate the Executive's employment at any time prior to
the expiration of the Initial Employment Term or any Subsequent Employment
Term for any reason without Cause with at least ninety days written notice.
(e) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive
shall have the right to terminate his employment at any time for Good Reason
upon written notice to the Company. For purposes of this Agreement, "Good
Reason" shall mean (a) the failure to elect or appoint the Executive as the
President of the Company and to the Board of Directors of the Company, (b)
the Executive's authority or duties are materially changed without the prior
consent of the Executive, which change is not remedied within ten (10)
business days after written notice thereof is delivered to the Company by the
Executive, (c) any material breach of this Agreement by the Company, which
breach is not remedied within ten (10) business days after written notice
thereof is delivered to the Company by the Executive, or (d) the relocation
of Executive's place of work more than 30 miles from the Seattle, Washington
area. For purposes of this Agreement, the Executive's authority or duties
shall be deemed to be "materially changed" if, without the Executive's
consent, there is any diminution or adverse modification in the Executive's
title, compensation, responsibilities or reporting relationship.
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(f) VOLUNTARY RESIGNATION. In addition to the right to terminate
his employment for Good Reason under Section 6(e) above, the Executive may
voluntarily terminate his employment at any time upon thirty days notice.
The provisions of Section 8 relating to non-disclosure shall immediately
become effective upon the Executive's resignation without Good Reason.
7. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) WITH CAUSE; RESIGNATION; DEATH OR DISABILITY. If the
Executive's employment is terminated with Cause pursuant to Section 6(b), if
the Executive's employment is terminated by the death or disability of the
Executive pursuant to Section 6(c) or if the Executive elects to terminate
his employment voluntarily under Section 6(f) (other than for Good Reason),
the Executive's salary and other benefits specified in Section 4 shall cease
at the time of such termination; provided, however, that (i) the Executive
shall be entitled to continue to participate in the Company's medical benefit
plans to the extent required by law and shall be entitled to the
reimbursement for expenses incurred by him through the date of termination
pursuant to Section 5, and (ii) in the case of termination due to death or
disability, the Executive or his estate shall continue to receive his then
current annual base salary payable under Section 4(a) for a period of three
months from the date of termination.
(b) WITHOUT CAUSE BY THE COMPANY. If the Executive's employment
is terminated either by the Company without Cause pursuant to Section 6(d) or
by the Executive for Good Reason pursuant to Section 6(e), in each case,
prior to the expiration of the Initial Employment Term or any Subsequent
Employment Term, the Executive's salary and other benefits specified in
Section 4 shall cease at the time of such termination, and the Executive
shall be entitled to receive his then current annual base salary payable
under Section 4(a) for a period equal to the longer of the remainder of the
Employment Term or six months from the date of termination. In addition, in
any of such events or if the Company does not renew this Agreement beyond the
Initial Employment Term or any Subsequent Employment Term (i) the Executive
shall also be entitled to receive any bonus accrued or earned by the
Executive through the date of termination pursuant to Section 4(b) and the
amount of any expenses incurred by the Executive through the date of
termination pursuant to Section 5, (ii) all stock options to purchase Common
Stock then held by the Executive shall immediately vest and become
exercisable, and (iii) the Executive shall continue to receive the insurance
benefits specified in Section 4, at the Company's expense, until the
expiration of the Employment Term. The Company agrees that, in the event
that the Company accelerates the vesting of any options held by any other
employee of the Company in connection with a change of control of the
Company, then all options held by the Executive shall be accelerated and
become vested and exercisable in the same manner as such other options are
accelerated.
(c) TAX PAYMENTS. In the event that any compensation payable by the
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Company under this Agreement or otherwise (including any deemed compensation
attributable to the acceleration of stock options) constitutes an excess
parachute payment which is subject to tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Excise Tax"), the Company shall pay to
the Executive an additional amount (the "Gross-Up Amount") which, after the
payment of all Federal, state and local income taxes thereon (assuming the
Executive is at the highest marginal Federal and applicable state and local
tax rate in effect on the date of payment of the Gross-Up Amount) and payment
of the Excise Tax on the Gross-Up Amount, is equal to the Excise Tax payable
by the Executive on such excess parachute payment. The Gross-Up Amount
payable with respect to each excess parachute payment shall be paid by the
Company coincident with payment of such excess parachute payment.
8. NON-DISCLOSURE OF BUSINESS INFORMATION. The Executive acknowledges
and agrees that by virtue of his employment with the Company, the Executive
will obtain such knowledge, know-how, training and experience that is not
generally known by those engaged in the Internet or World Wide Web industry
("Trade Secrets"), and there is a possibility that such knowledge, know-how,
training and experience could be used by a competitor of the Company to the
Company's detriment. Therefore, the Executive covenants and agrees, as
follows: (a) the Executive agrees that he will not, at any time during or
after the Employment Term, disclose, reproduce, assign or transfer to any
person, firm, corporation or other business entity, except as required by
law, any Trade Secrets concerning the business, finances, patents, affairs,
business plans, strategies, methods, software, hardware, results from ongoing
investigations from others, and present and future plans of the Company, any
subsidiary or affiliate thereof or any company formed or founded by the
Company at any time for any reason or purpose whatsoever, without the
Company's express written consent; nor shall the Executive make use of any
such Trade Secrets for his own purpose or for the benefit of any person,
firm, corporation or other business entity, except the Company or any
subsidiary or affiliate thereof and upon the termination of the Executive's
employment for any reason, the Executive will immediately return all books,
files, papers, records and documents of any kind (including those contained
in computer disks) relating to the business of the Company; (b) during the
period which the Executive is employed by the Company and for a period of one
year thereafter, the Executive shall not, without the prior written consent
of the Company, engage in, for any purpose whatsoever, any activity that
competes directly with the Company, except that the Executive shall have no
obligations under this clause (b) in the event he is terminated by the
Company without Cause or he elects to terminate his employment for Good
Reason, and (c) the Executive shall not, without the prior written consent of
the Company, within the one year period following the termination of his
employment solicit any employee of the Company to join the Executive as a
partner, employee or consultant in any Internet or World Wide Web related
enterprise that competes directly with the Company.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EXECUTIVE. The
Executive represents that he has the capacity and desire to enter into this
Agreement, and the voluntary
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execution, delivery and performance of the Agreement and compliance with its
provisions will not conflict with or result in any breach of any of the
terms, conditions, obligations, covenants or provisions of, or constitute a
default under, any note, mortgage, agreement, contract or instrument to which
the Executive is a party or by which he may be bound or affected, including
specifically any pre-existing or existing consulting, employment, or
independent contractor arrangements, understandings, or agreements whether
written or oral. Furthermore, the Executive agrees to indemnify the Company
against any claims brought by any predecessor employer alleging breach of
employment contract or fiduciary responsibilities.
10. INSURANCE. The Company may purchase insurance on the life of the
Executive, and if it does so, the Executive shall cooperate fully by
performing all the requirements of the life insurer which are necessary
conditions precedent to the issuance of the life insurance policy issued by
it. If the Company elects to purchase such insurance, the Executive may
elect to designate a beneficiary for up to $1 million of such insurance.
11. NOTICE. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or
when mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:
If to the Executive:
John Keister
2125 1st Avenue, #2503
Seattle, WA 98121
If to the Company:
Go2Net, Inc.
999 Third Avenue
Suite 4700
Seattle, WA 98104
Attn.: Chief Executive Officer
12. GENERAL.
(a) GOVERNING LAW; SUBMISSION TO JURISDICTION. The terms of this
Agreement shall be governed by and construed under the laws of the State of
Washington without regard to its principles of conflicts of laws.
Accordingly, to the extent a restriction contained in this Agreement is more
restrictive than permitted by the laws of any jurisdiction where this
Agreement may be subject to review and interpretation, the terms of such
restriction, for the
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purpose only of the operation of such restriction in such jurisdiction, shall
be the maximum restriction allowed by the laws of such jurisdiction and such
restriction shall be deemed to have been revised accordingly herein. The
parties hereto irrevocably agree that all claims relating to this Agreement
shall be submitted exclusively to federal and state courts located in the
County of King and the State of Washington and irrevocably consent to the
jurisdiction and venue of such courts and service of process by certified or
registered mail, return receipt requested, directed to the parties at the
addresses set forth herein or as otherwise provided by law.
(b) REMEDY FOR BREACH OF SECTION 8. It is acknowledged by the
Executive that he will be devoting his work efforts towards establishing
relationships for the Company; that the Executive will be knowledgeable in
all aspects of the business, including the type of transactions the Company
is involved with, thus, the Executive would be able to enter the same
business as the Company and unfairly compete against the Company to its
detriment. Thus, the restrictions contained in Section 8 and the provisions
contained in this Section regarding injunctive relief are reasonable and
justified. The Executive agrees that irreparable injury to the Company will
inevitably occur in the event of any breach of the terms and conditions of
this Agreement and, specifically, if Section 8 is breached by the Executive.
The Executive agrees in such event that the Company shall be entitled, in
addition to any other remedies available to it, without proof of monetary or
immediate damage, to seek an action for any injunction to retrain any
violation of this Agreement by the Executive and all persons acting for or
with the Executive.
(c) ASSIGNABILITY. The Executive may not assign his interest in
or delegate his duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without written consent of
Executive.
(d) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company, its permitted successors and assigns,
and the Executive, his representatives and heirs.
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof and it may not be modified or amended in any way except in writing by
the parties hereto.
(f) DURATION. Notwithstanding the term of employment hereunder,
this Agreement shall continue for so long as any obligations remain under
this Agreement.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
GO2NET, INC.
By:
------------------------------------
Name: Russell C. Horowitz
Title: Chief Executive Officer
EXECUTIVE
---------------------------------------
John Keister
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<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the 13th day of October, 1998 between
go2net, Inc., a Delaware corporation (the "Company"), and Michael J. Riccio,
Jr., an individual residing at 330 Dartmouth Street, Boston, Massachusetts
02116 (the "Executive").
RECITALS
WHEREAS, the Company desires to employ the Executive as the Chief
Operating Officer of the Company, and the Executive desires to serve as the
Chief Operating Officer of the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound
hereby, agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as an
employee of the Company, and the Executive accepts such employment for the
term of employment specified in Section 3 below (the "Employment Term").
Effective January 1, 1999, the Executive shall become Chief Operating Officer
of the Company. On and after January 1, 1999 and during the remainder of the
Employment Term, as the Chief Operating Officer of the Company, the Executive
shall, subject to the direction of the Chief Executive Officer of the
Company, perform such duties consistent with those duties ordinarily and
customarily performed by a person holding such position in similar
organizations, as may from time to time be reasonably assigned to him by the
Chief Executive Officer or the Board of Directors of the Company. During the
Employment Term, the Executive will also be entitled to continue to serve as
a member of the Company's Board of Directors.
2. PERFORMANCE; LOCATION OF EMPLOYMENT; OTHER ACTIVITIES.
(a) The Executive agrees to devote his reasonable best efforts
and substantially all of his business time to the performance of his duties
hereunder during the Employment Term, except that from the period commencing
on the date hereof and ending on January 31, 1999, the Executive may continue
to be based in the Boston, Massachusetts area. From January 31, 1999 through
January 31, 2001, the Executive will perform his duties hereunder at the
Company's executive offices located in Seattle, Washington. Thereafter, the
Executive may elect to perform his duties hereunder at an office located in
the Boston, Massachusetts area.
(b) During the Employment Term, the Executive agrees that, unless
he has the express prior written approval of the Chief Executive Officer of
the Company, he shall not accept
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a membership on a Board of Directors of, or act as an officer, employee or
consultant to, any entity which is in a similar or competing business of the
Company that would in any way conflict with the business of the Company or
the time needed by the Executive to perform his duties hereunder.
3. EMPLOYMENT TERM. The term of employment under this Agreement shall
begin on the date of this Agreement and continue until January 31, 2002 (the
"Initial Employment Term"). Employment shall thereafter continue on the
basis hereby established for successive one year terms unless, more than
ninety days prior to the expiration of the Initial Employment Term or any
successive one year term, either the Executive or the Company provides the
other with written notice that this Agreement will not be renewed (the
"Subsequent Employment Term" and with the Initial Employment Term, the
"Employment Term"). Employment during the Employment Term shall be subject
to earlier termination in accordance with the terms of this Agreement.
4. COMPENSATION.
(a) SALARY. During the Employment Term, the Company shall pay the
Executive a base salary, payable in equal installments in accordance with the
Company's then current compensation practices for all of its executives,
subject to withholding and other applicable taxes, at an annual rate of One
Hundred Fifty Thousand Dollars ($150,000.00), provided that the Executive
will not receive any salary from the date hereof through December 31, 1998.
The base salary may be reviewed annually by the Board of Directors, provided
that the base salary shall not be decreased during the Employment Term.
(b) BONUS. The Executive shall be eligible to participate in a
bonus plan of the Company pursuant to which he will be entitled to receive an
annual bonus equal to a specified percentage of the annual base salary then
in effect, subject to achieving specified performance objectives. The actual
amount of such bonus and the performance objectives for the payment thereof
shall be as mutually established by the Executive and the Chief Executive
Officer of the Company. In addition, in consideration of the Executive's
willingness to relocate to the Seattle, Washington area, upon the Executive's
relocation, the Executive will be paid a bonus of $25,000.
(c) STOCK OPTIONS. Upon the execution and delivery of this
Agreement, the Executive shall be granted non-qualified stock options (the
"Options") to purchase 300,000 shares of Common Stock of the Company (the
"Common Stock") at an exercise price equal to $16.125 per share, representing
the closing market price of the Common Stock as reported on the Nasdaq
National Market on the date of this Agreement. Of the Options, (i) Options
to purchase 35,000 shares of Common Stock shall be immediately vested and
exercisable on the date hereof, (ii) Options to purchase an additional
215,000 shares of Common Stock shall vest in nine equal
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quarterly installments of 23,889 shares commencing on December 31, 1998, and
(iii) Options to purchase the remaining 50,000 shares of Common Stock shall
vest in four equal quarterly installments of 12,500 shares commencing on
March 31, 2001. In the event the Executive's employment is terminated by the
Company without Cause (as defined herein) or by the Executive for Good Reason
(as defined herein), all Options shall immediately become vested and
exercisable. In the event that the Company accelerates the vesting of any
options held by any other employee of the Company in connection with a change
of control of the Company, then all Options held by the Executive shall be
accelerated and become vested and exercisable in the same manner as such
other options are accelerated.
(d) RELOCATION EXPENSES. The Executive shall be reimbursed for
all reasonable out-of-pocket expenses incurred by him and his immediate
family in relocating to the Seattle, Washington area upon receipt of
appropriate documentation.
(e) INSURANCE; OTHER BENEFITS. The Executive and his dependants
shall be entitled to receive full family medical, dental and disability
insurance, at the Company's expense. The Executive shall also be entitled to
participate in all executive benefit plans now existing or hereinafter
established by the Company, including, but not limited to, family medical and
dental plans, group life and disability insurance plans, life insurance plan;
pension, 401(k), profit sharing or bonus plans, and any other benefit plan or
arrangement made available to executive officers of the Company. In
addition, the Executive shall be entitled to the use of an automobile of like
quality used by other executives of the Company and a parking space in the
Company's building, which shall be paid for by the Company.
(f) VACATION. The Executive shall be entitled to the same paid
vacation benefits as the other executive officers of the Company, but in no
case shall it be less than three weeks of paid vacation during each year of
the Employment Term to be taken at such time or times as shall be mutually
convenient and consistent with his duties and obligations to the Company.
5. EXPENSES. The Executive shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.
6. TERMINATION.
(a) TERMINATION AT END OF TERM. The employment of the Executive
hereunder shall terminate at the end of the Initial Employment Term or any
Subsequent Employment Term if either party provides notice of termination at
least 90 days prior to expiration of the Initial Employment Term or
Subsequent Employment Term, or if earlier terminated by the Board of
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Directors of the Company pursuant to this Section 6.
(b) TERMINATION BY THE COMPANY WITH CAUSE. The Company shall have
the right at any time to terminate the Executive's employment hereunder upon
the occurrence of any of the following (any such termination being referred
to as a termination for "Cause"): (i) the Executive has misappropriated or
done material, intentional damage to the Company or its business or financial
situation, or (ii) the Executive has been convicted of a felony involving
moral turpitude.
(c) TERMINATION UPON DEATH OR DISABILITY. The Executive's
employment hereunder shall automatically terminate upon the Executive's death
or upon his inability to perform his duties hereunder by reason of any
mental, physical or other disability for a period of at least six consecutive
months, or six months within any 18 month period, as determined by a
qualified physician selected by the Company and reasonably acceptable to the
Executive or his guardian, in the case where the Executive is incapacitated.
(d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company shall
have the right to terminate the Executive's employment at any time prior to
the expiration of the Initial Employment Term or any Subsequent Employment
Term for any reason without Cause with at least ninety days written notice.
(e) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive
shall have the right to terminate his employment at any time for Good Reason
upon written notice to the Company. For purposes of this Agreement, "Good
Reason" shall mean (a) the failure to elect or appoint the Executive as Chief
Operating Officer and to the Board of Directors of the Company, (b) the
Executive's authority or duties are materially changed without the prior
consent of the Executive, which change is not remedied within ten (10)
business days after written notice thereof is delivered to the Company by the
Executive, (c) any material breach of this Agreement by the Company, which
breach is not remedied within ten (10) business days after written notice
thereof is delivered to the Company by the Executive, or (d) the relocation
of Executive's place of work more than 30 miles from the Seattle, Washington
or the Boston, Massachusetts area. For purposes of this Agreement, the
Executive's authority or duties shall be deemed to be "materially changed"
if, without the Executive's consent, there is any diminution or adverse
modification in the Executive's title, compensation, responsibilities or
reporting relationship.
(f) VOLUNTARY RESIGNATION. In addition to the right to terminate
his employment for Good Reason under Section 6(e) above, the Executive may
voluntarily terminate his employment at any time upon thirty days notice.
The provisions of Section 8 relating to non-disclosure shall immediately
become effective upon the Executive's resignation without Good Reason.
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7. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) WITH CAUSE; RESIGNATION; DEATH OR DISABILITY. If the
Executive's employment is terminated with Cause pursuant to Section 6(b), if
the Executive's employment is terminated by the death or disability of the
Executive pursuant to Section 6(c) or if the Executive elects to terminate
his employment voluntarily under Section 6(f) (other than for Good Reason),
the Executive's salary and other benefits specified in Section 4 shall cease
at the time of such termination; provided, however, that (i) the Executive
shall be entitled to continue to participate in the Company's medical benefit
plans to the extent required by law and shall be entitled to the
reimbursement for expenses incurred by him through the date of termination
pursuant to Section 5, and (ii) in the case of termination due to death or
disability, the Executive or his estate shall continue to receive his then
current annual base salary payable under Section 4(a) for a period of three
months from the date of termination.
(b) WITHOUT CAUSE BY THE COMPANY. If the Executive's employment
is terminated either by the Company without Cause pursuant to Section 6(d) or
by the Executive for Good Reason pursuant to Section 6(e), in each case,
prior to the expiration of the Initial Employment Term or any Subsequent
Employment Term, the Executive's salary and other benefits specified in
Section 4 shall cease at the time of such termination, and the Executive
shall be entitled to receive his then current annual base salary payable
under Section 4(a) for a period equal to the longer of the remainder of the
Employment Term or six months from the date of termination. In addition, in
any of such events or if the Company does not renew this Agreement beyond the
Initial Employment Term or Subsequent Employment Term (i) the Executive shall
also be entitled to receive any guaranteed bonus and any bonus accrued or
earned by the Executive through the date of termination pursuant to Section
4(b) and the amount of any expenses incurred by the Executive through the
date of termination pursuant to Section 5, (ii) all stock options then held
by the Executive shall immediately vest and become exercisable, and (iii) the
Executive shall continue to receive the insurance benefits specified in
Section 4, at the Company's expense, until the expiration of the Employment
Term.
(c) TAX PAYMENTS. In the event that any compensation payable by
the Company under this Agreement or otherwise (including any deemed
compensation attributable to the acceleration of stock options) constitutes
an excess parachute payment which is subject to tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Excise Tax"), the Company
shall pay to the Executive an additional amount (the "Gross-Up Amount")
which, after the payment of all Federal, state and local income taxes thereon
(assuming the Executive is at the highest marginal Federal and applicable
state and local tax rate in effect on the date of payment of the Gross-Up
Amount) and the payment of the Excise Tax on the Gross-Up Amount, is equal to
the Excise Tax payable by the Executive on such excess parachute payment.
The Gross-Up Amount payable with respect to each excess parachute payment
shall be paid by the Company coincident with the payment of such excess
parachute payment.
-5-
<PAGE>
8. NON-DISCLOSURE OF BUSINESS INFORMATION. The Executive acknowledges
and agrees that by virtue of his employment with the Company, the Executive
will obtain such knowledge, know-how, training and experience that is not
generally known by those engaged in the Internet or World Wide Web industry
("Trade Secrets"), and there is a possibility that such knowledge, know-how,
training and experience could be used by a competitor of the Company to the
Company's detriment. Therefore, the Executive covenants and agrees, as
follows: (a) the Executive agrees that he will not, at any time during or
after the Employment Term, disclose, reproduce, assign or transfer to any
person, firm, corporation or other business entity, except as required by
law, any Trade Secrets concerning the business, finances, patents, affairs,
business plans, strategies, methods, software, hardware, results from ongoing
investigations from others, and present and future plans of the Company, any
subsidiary or affiliate thereof or any company formed or founded by the
Company at any time for any reason or purpose whatsoever, without the
Company's express written consent; nor shall the Executive make use of any
such Trade Secrets for his own purpose or for the benefit of any person,
firm, corporation or other business entity, except the Company or any
subsidiary or affiliate thereof and upon the termination of the Executive's
employment for any reason, the Executive will immediately return all books,
files, papers, records and documents of any kind (including those contained
in computer disks) relating to the business of the Company; (b) during the
period which the Executive is employed by the Company and for a period of one
year thereafter, the Executive shall not, without the prior written consent
of the Company, engage in, for any purpose whatsoever, any activity that
competes directly with the Company, except that the Executive shall have no
obligations under this clause (b) in the event he is terminated by the
Company without Cause or he elects to terminate his employment for Good
Reason, and (c) the Executive shall not, without the prior written consent of
the Company, within the one year period following the termination of his
employment solicit any employee of the Company to join the Executive as a
partner, employee or consultant in any Internet or World Wide Web related
enterprise that competes directly with the Company.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EXECUTIVE. The
Executive represents that he has the capacity and desire to enter into this
Agreement, and the voluntary execution, delivery and performance of the
Agreement and compliance with its provisions will not conflict with or result
in any breach of any of the terms, conditions, obligations, covenants or
provisions of, or constitute a default under, any note, mortgage, agreement,
contract or instrument to which the Executive is a party or by which he may
be bound or affected, including specifically any pre-existing or existing
consulting, employment, or independent contractor arrangements,
understandings, or agreements whether written or oral. Furthermore, the
Executive agrees to indemnify the Company against any claims brought by any
predecessor employer alleging breach of employment contract or fiduciary
responsibilities.
10. INSURANCE. The Company may purchase insurance on the life of the
Executive,
-6-
<PAGE>
and if it does so, the Executive shall cooperate fully by performing all the
requirements of the life insurer which are necessary conditions precedent to
the issuance of the life insurance policy issued by it. If the Company
elects to purchase such insurance, the Executive may elect to designate a
beneficiary for up to $1 million of such insurance.
11. NOTICE. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or
when mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:
If to the Executive:
Michael J. Riccio, Jr.
330 Dartmouth Street
Boston, MA 02116
If to the Company:
go2net, Inc.
999 Third Avenue
Suite 4700
Seattle, WA 98104
Attn.: Russell C. Horowitz
12. GENERAL.
(a) GOVERNING LAW; SUBMISSION TO JURISDICTION. The terms of this
Agreement shall be governed by and construed under the laws of the State of
Washington without regard to its principles of conflicts of laws.
Accordingly, to the extent a restriction contained in this Agreement is more
restrictive than permitted by the laws of any jurisdiction where this
Agreement may be subject to review and interpretation, the terms of such
restriction, for the purpose only of the operation of such restriction in
such jurisdiction, shall be the maximum restriction allowed by the laws of
such jurisdiction and such restriction shall be deemed to have been revised
accordingly herein. The parties hereto irrevocably agree that all claims
relating to this Agreement shall be submitted exclusively to federal and
state courts located in the County of King and the State of Washington and
irrevocably consent to the jurisdiction and venue of such courts and service
of process by certified or registered mail, return receipt requested,
directed to the parties at the addresses set forth herein or as otherwise
provided by law.
(b) REMEDY FOR BREACH OF SECTION 8. It is acknowledged by the
Executive that he will be devoting his work efforts towards establishing
relationships for the Company; that the Executive will be knowledgeable in
all aspects of the business, including the type of transactions
-7-
<PAGE>
the Company is involved with, thus, the Executive would be able to enter the
same business as the Company and unfairly compete against the Company to its
detriment. Thus, the restrictions contained in Section 8 and the provisions
contained in this Section regarding injunctive relief are reasonable and
justified. The Executive agrees that irreparable injury to the Company will
inevitably occur in the event of any breach of the terms and conditions of
this Agreement and, specifically, if Section 8 is breached by the Executive.
The Executive agrees in such event that the Company shall be entitled, in
addition to any other remedies available to it, without proof of monetary or
immediate damage, to seek an action for any injunction to retrain any
violation of this Agreement by the Executive and all persons acting for or
with the Executive.
(c) ASSIGNABILITY. The Executive may not assign his interest in
or delegate his duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without written consent of
Executive.
(d) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company, its permitted successors and assigns,
and the Executive, his representatives and heirs.
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement and the Option
Grant Agreement constitute the entire agreement of the parties hereto with
respect to the subject matter hereof and they and may not be modified or
amended in any way except in writing by the parties hereto.
(f) DURATION. Notwithstanding the term of employment hereunder,
this Agreement shall continue for so long as any obligations remain under
this Agreement.
* * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
GO2NET, INC.
By:
--------------------------------------------
Name: Russell C. Horowitz
Title: President and Chief Executive Officer
EXECUTIVE
-----------------------------------------------
Michael J. Riccio, Jr.
-9-
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219,712,624
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