<PAGE>
As filed with the Securities and Exchange Commission on June 15, 1999
Registration No. 333-78109
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
Amendment No. 1
To
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
HOOVER'S, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7375 74-2559474
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or organization)
</TABLE>
Hoover's, Inc.
1033 La Posada Drive #250
Austin, Texas 78752
(512) 374-4500
(Address, including zip code, and telephone number, including area code, of the
registrant's principal executive offices)
--------------------------
Patrick J. Spain
Chairman of the Board,
Chief Executive Officer and President
Hoover's, Inc.
1033 La Posada Drive #250
Austin, Texas 78752
(512) 374-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
RONALD G. SKLOSS ALAN DEAN
THOMAS R. NELSON Davis Polk & Wardwell
MARK T. GOGLIA 450 Lexington Avenue
Brobeck, Phleger & Harrison LLP New York, New York 10017
301 Congress Avenue, Suite 1200 (212) 450-4000
Austin, Texas 78701 Facsimile: (212) 450-4800
(512) 477-5495
Facsimile: (512) 477-5813
--------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Share Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per
share.............................. 3,737,500(a) $14.00 $52,325,000 $14,547(b)
</TABLE>
(a) Includes 487,500 shares as to which the Registrant has granted the
Underwriters an option to cover over-allotments.
(b) $13,588 was previously paid on May 7, 1999.
--------------------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to such Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities, and we are not soliciting offers to buy securities, in any
state where the offer or sale is not permitted.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
DATED JUNE 15, 1999
3,250,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This is our initial public offering of shares of our common stock.
We have filed an application to qualify the common stock for quotation on the
Nasdaq National Market under the symbol "HOOV." We estimate that the initial
public offering price will be between $12.00 and $14.00 per share.
INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS HOOVER'S
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Per Share $ $ $
- ---------------------------------------------------------------------------------
Total $ $ $
- ---------------------------------------------------------------------------------
</TABLE>
We have granted the underwriters the right to purchase up to an additional
487,500 shares of common stock to cover over-allotments.
J.P. MORGAN & CO. LEHMAN BROTHERS
JOINT LEAD MANAGERS
VOLPE BROWN WHELAN & COMPANY WIT CAPITAL CORPORATION
, 1999.
<PAGE>
Art
The inside front cover contains a gatefold with a number of Hoover's Online
screen shots. The screen shots consist of the Hoover's Online home page, a
company profile, a company capsule, financials of a company, the Store, Industry
Zone, Lead Finder, IPO Central, Stock Screener and Hoover's Online U.K.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.............................. 3
Summary Financial Information................... 6
Risk Factors.................................... 7
Use of Proceeds................................. 19
Dividend Policy................................. 19
Capitalization.................................. 20
Dilution........................................ 21
Selected Financial Data......................... 22
Forward-looking Statements...................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
<CAPTION>
Page
<S> <C>
Business........................................ 34
Management...................................... 49
Certain Transactions............................ 58
Principal Stockholders.......................... 60
Description of Capital Stock.................... 62
Shares Eligible for Future Sale................. 65
Underwriting.................................... 66
Legal Matters................................... 68
Experts......................................... 68
Available Information........................... 68
Index to Financial Statements................... F-1
</TABLE>
In deciding whether to buy our common stock, you should rely only on the
information contained in this prospectus. To understand this offering fully, you
should read this entire prospectus carefully, including the financial statements
and notes. Individual sections of the prospectus, such as the section entitled
"Prospectus Summary," are not complete and do not contain all of the information
that you should consider before investing in Hoover's. We have not authorized
anyone to provide you with information different from that contained in this
prospectus. We are offering to sell, and seeking offers to buy, shares of common
stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
Prospectus Summary
You should read this summary together with the more detailed information and our
financial statements and related notes appearing elsewhere in this prospectus.
All references to shares of common stock in this prospectus reflect a 2-for-1
split of our common stock which became effective on June 8, 1999 and a
0.7284-for-1 split of our common stock to be effective prior to the closing of
this offering. Except as otherwise specified, the information in this prospectus
assumes that the underwriters do not exercise the option we have granted to them
to purchase additional shares in this offering.
Our Business
Hoover's is recognized as a leading Internet provider of company and industry
information designed to meet the diverse needs of business organizations,
businesspeople and investment professionals worldwide. Our Web site is Hoover's
Online located at WWW.HOOVERS.COM. We were one of the first to provide
high-quality, proprietary business information on the Internet to the
mission-oriented businessperson, who seeks answers to specific questions.
Visitors to our Web site use our information for their professional endeavors,
including financial and competitive research, as well as for their personal
activities, including career development and personal investment. We provide our
advertisers, sponsors and the businesses with whom we have e-commerce
relationships with a large, demographically desirable audience, who as a group,
we believe are affluent, highly educated and willing to conduct business over
the Internet. For the quarter ended March 31, 1999, our Web site attracted
approximately two million unique visitors and the total number of pages they
accessed on our Web site, known as page views, was over 30 million during that
period. Our core asset is our proprietary editorial content which includes
information on approximately 14,000 public and private enterprises worldwide and
45 industry sectors. We continually expand and update our database of company
and industry information as well as offer our branded search and sort tools,
such as Lead Finder and StockScreener, to make our information more useful to
businesspeople. We also provide information on initial public offerings through
IPO Central, feature stories, news, career information, personal finance
information, SEC documents, management biographical information, brokerage
reports and credit reports.
We have developed a loyal audience by offering:
- - proprietary, trusted editorial content;
- - a focus on the needs of businesspeople;
- - tiered levels of service: free, paid subscription and pay-per-view; and
- - an efficient Internet sales channel.
We generate revenues from the following sources:
- - online information sales, consisting of subscriptions and licenses of our
editorial content;
- - advertising, sponsorship and e-commerce; and
- - sales of our company information in CD-ROM and print.
We have one of the largest subscription-based business information services on
the Internet, with an estimated 100,000 paying individual users, also known as
seats, as of March 31, 1999. Of these 100,000 seats, over 29,000 were individual
subscribers and the balance were attributable to over 1,300 corporate and
academic accounts, known as enterprise accounts or subscribers, which we
estimate represented over 70,000 seats. As we have built our subscriber base,
however, we have incurred net losses. We incurred a net loss of $2.3 million for
the fiscal year ended March 31, 1999 and a net loss of $1.8 million for fiscal
1998.
3
<PAGE>
In addition to our Hoover's Online Web site, we distribute our content through
several online channels in a format that includes our name and logo along with
the distributing channel's name and logo. This is known as co-branding. We
co-brand our information on the following widely followed Web sites: America
Online, Go/ Infoseek, Microsoft Network and Yahoo!. We license our information
for distribution through leading business and financial information services,
including Bloomberg, Dow Jones, LEXIS-NEXIS, Microsoft Network, OneSource and
Reuters who were our largest licensees based on revenues in fiscal 1999. We also
co-brand material with online versions of THE NEW YORK TIMES and THE WASHINGTON
POST. We generate e-commerce revenues from our paid relationships with
e-commerce companies such as Amazon.com, Multex.com and Winstar Telebase.
Through our e-commerce relationships, we offer digital products delivered over
the Internet, such as Dun & Bradstreet credit reports and brokerage research
reports distributed by Multex.com, as well as physical products. The businesses
with whom we have e-commerce relationships purchase advertisements on our Web
site, known as banners and buttons, pay us commissions for sending new customers
to their Web sites and/or pay us a percentage of the total transaction revenues
generated through Hoover's Online.
Our goals are to be one of the Internet destinations that businesspeople depend
on daily to perform mission-oriented tasks and to facilitate their
business-related transactions as well as to offer advertisers and businesses
with whom we have e-commerce relationships an attractive environment for selling
goods and services. The key elements of our strategy include:
- - increasing brand awareness;
- - enhancing and expanding core content and tools to increase frequency of visits
and duration of stay on our Web site;
- - increasing the number of visitors to our Web site; and
- - expanding markets and channels through selective acquisitions and strategic
relationships with other companies.
We believe that this strategy will generate increased revenues from the
following sources:
- - individual subscriptions, enterprise subscriptions and licenses; and
- - advertising, sponsorship and e-commerce.
Our principal executive offices are located at 1033 La Posada Drive #250,
Austin, Texas 78752. Our telephone number is (512) 374-4500. Our Web site is
WWW.HOOVERS.COM. The information contained on our Web site is not incorporated
by reference into this prospectus.
Recent Developments
In June 1999, we sold shares of our common stock in a strategic transaction to
National Broadcasting Company, Inc., or NBC, for $1.5 million. We also licensed
a portion of our content for distribution and marketing by NBC, CNBC and
CNBC.com and agreed to co-produce with NBC editorial content for use both online
at CNBC.com and on television on CNBC.
Also in June 1999, we sold shares of our common stock to two affiliates of
Knowledge Universe, L.L.C. for $7.4 million. We also entered into an agreement
with one of these entities to provide a combination of services, which may
include advertising on our Web site, sponsorship of feature or content areas of
our Web site, licensing of our company or industry information and/or enterprise
subscriptions.
4
<PAGE>
The Offering
The following information regarding shares outstanding is as of March 31, 1999
and reflects our sale of common stock in the June 1999 transactions described
above.
<TABLE>
<S> <C>
Common stock offered by Hoover's....... 3,250,000 shares
Common stock to be outstanding after
the offering......................... 11,187,216 shares
Use of proceeds........................ We intend to use the net proceeds from the offering
to fund increased marketing, for further
development of Hoover's Online, for potential
acquisitions, and for other general corporate
purposes.
Proposed Nasdaq National Market
Symbol............................... "HOOV"
</TABLE>
The outstanding share information set forth above excludes:
- - 2,064,431 shares issuable upon the exercise of stock options outstanding under
our stock option plans, with a weighted average exercise price of $2.97 per
share;
- - 2,893,831 shares reserved for issuance under our 1999 Stock Incentive Plan;
- - 1,588,903 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $4.02 per share; and
- - 145,680 shares reserved for issuance under our 1999 Employee Stock Purchase
Plan.
5
<PAGE>
Summary Financial Information
The following table contains our summary financial data which should be read
together with our financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Pro Forma column in the second table below reflects our sale of common stock
in the June 1999 transactions. The Pro Forma As Adjusted column reflects the
issuance of 3,250,000 shares of common stock in this offering at an assumed
initial public offering price of $13.00 per share.
<TABLE>
<CAPTION>
----------------------------------------
<S> <C> <C> <C>
Year Ended March 31,
----------------------------------------
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Statement of Operations Data:
Net revenues........................................................... $ 3,360 $ 5,182 $ 9,229
Gross profit........................................................... 1,231 2,147 4,227
Net loss............................................................... (944) (1,788) (2,255)
Basic and diluted net loss per share................................... $ (0.26) $ (0.39) $ (0.42)
Shares used in computing basic and diluted net loss per share.......... 3,570,818 4,583,130 5,306,726
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------
<S> <C> <C> <C>
As of March 31, 1999
-----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- ----------- -----------
DOLLARS IN THOUSANDS
Balance Sheet Data:
Cash and cash equivalents..................................................... $ 7,814 $ 16,692 $ 55,234
Total assets.................................................................. 10,076 20,055 58,597
Working capital............................................................... 5,705 14,583 53,125
Long-term debt and capital lease obligations, less current portion............ 168 168 168
Total stockholders' equity.................................................... 6,760 16,739 55,281
</TABLE>
6
<PAGE>
Risk Factors
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE OF VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISKS,
TOGETHER WITH ALL THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, BEFORE YOU
DECIDE WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
Risks Related to our Business
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.
We incurred net losses of $944,000 in fiscal 1997, $1.8 million in fiscal 1998
and $2.3 million in fiscal 1999. At March 31, 1999, we had an accumulated
deficit of $8.5 million. We expect operating losses and negative cash flow to
continue for the foreseeable future as we continue to incur significant
operating expenses and to make investments to enhance Hoover's Online. We intend
to substantially increase our marketing and promotional spending to increase our
audience. We may never generate sufficient revenues to achieve profitability.
Even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis in the future.
OUR BUSINESS IS SUBJECT TO FLUCTUATIONS IN OPERATING RESULTS WHICH MAY
NEGATIVELY IMPACT THE PRICE OF OUR STOCK.
Our operating results have varied in the past and may fluctuate significantly in
the future due to a variety of factors, many of which are outside of our
control. These factors include, among others:
- - the rate of new subscriber acquisitions and seasonal trends relating to
subscriber usage of our services;
- - the timing and effectiveness of our marketing efforts to acquire subscribers
and promote our brand;
- - the timing and effectiveness of any co-branding arrangements or other
strategic alliances into which we enter;
- - the demand for Internet advertising and seasonal trends relating to Internet
advertising spending;
- - expenses related to upgrading our computer systems and related infrastructure;
- - our ability to protect our systems from any telecommunications failures, power
loss, or software-related system failures;
- - the extent to which we experience increased competition in the markets for
Internet services and advertising;
- - changes in our operating expenses; and
- - economic conditions specific to the Internet as well as general economic and
market conditions.
In addition, our operating expenses are based on our expectations of our future
revenues, some of which are relatively fixed in the short term. We may be unable
to reduce our expenses quickly enough to offset any unexpected revenue
shortfall, which could have a material adverse effect on our business, operating
results and financial condition.
Due to all of the foregoing factors and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our operating
results as an indication of future performance. It is possible that in some
future periods our operating results may fall below the expectations of public
market analysts and investors. In this event, the price of our common stock is
likely to fall.
SEASONAL TRENDS IN OUR ADVERTISING REVENUES MAY CAUSE VOLATILITY IN OUR STOCK
PRICE.
We have experienced seasonal trends in our advertising revenues and in our
traffic. We believe that advertising sales in traditional media, such as
television and radio, are generally lower in the first and third quarters of
7
<PAGE>
each calendar year. Moreover, viewer traffic on Hoover's Online and the Web
sites of others with whom we license or co-brand our products is lower during
the summer and year-end vacation and holiday periods when business usage of the
Internet and Hoover's Online typically declines. Subscriber growth may decline
during low traffic periods. Our operating results may be affected if we
experience seasonality in future periods.
OUR FAILURE TO SIGNIFICANTLY INCREASE THE NUMBER OF OUR SUBSCRIBERS OR RETAIN
OUR CURRENT SUBSCRIBERS WOULD ADVERSELY AFFECT OUR BUSINESS.
Our future success is highly dependent on attracting Internet users who are
willing to subscribe to online business information services. The number of
Internet users willing to pay for online business information may not continue
to increase. If the market for subscription-based online business information
develops more slowly than we expect, our operating results and financial
condition may be materially and adversely affected.
Our costs of acquiring new subscribers are substantial relative to the monthly
fees derived from new subscribers. Accordingly, we believe that our long-term
success depends largely on our ability to retain our existing subscribers, while
continuing to attract new subscribers. We continue to invest significant
resources in our network infrastructure and customer and technical support
capabilities to provide high levels of customer service. We cannot be certain
that these investments will maintain or improve subscriber retention. In
addition, some new subscribers do not become consistent users of Internet
services and may discontinue or limit their use of our Web site. These factors
adversely affect our subscriber retention rates. Any decline in subscriber
retention rates would have a material adverse effect on our business, operating
results and financial condition.
WE ARE DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES THAT MAY NOT BE
ATTRACTIVE TO OUR EXISTING AUDIENCE AND MAY NOT INCREASE OUR AUDIENCE.
We intend to expand the content, services and features offered on Hoover's
Online by developing online resource centers in areas such as professional
development and business travel. Management will spend a significant amount of
time developing our online resource centers. We intend to increase substantially
our marketing expenses and activities in order to publicize our new and enhanced
offerings and to attract new visitors to Hoover's Online. We may not attract
sponsors that provide compelling content or products for our online resource
centers. Furthermore, the increase in marketing expenditures and activities may
fail to attract additional viewers or may fail to attract visitors who enjoy our
content and service offerings. Our business, operating results and financial
condition will be adversely affected if we experience difficulties in
introducing new and enhanced services or if these services are not accepted by
new or existing viewers.
OUR BUSINESS INFORMATION AND SERVICES MAY NOT ATTRACT AN AUDIENCE WITH
DEMOGRAPHIC CHARACTERISTICS DESIRABLE TO OUR ADVERTISERS.
Our future success depends on our ability to deliver compelling business
information and services that will attract an audience with demographic
characteristics valuable to our advertisers. If we are unable to continue to
develop business information and services that attract an audience desirable to
advertisers, it could have a material and adverse effect on our business,
operating results and financial condition.
OUR FAILURE TO SUCCESSFULLY DEVELOP OUR ADVERTISING SALES FORCE COULD REDUCE OUR
ADVERTISING REVENUES OR LIMIT THE GROWTH OF OUR ADVERTISING REVENUES.
Currently, we are developing and expanding our own advertising sales force. As
of March 31, 1999, our advertising sales group consisted of four members. We
intend to significantly increase our sales force. Our
8
<PAGE>
business would be adversely affected if we do not develop and maintain an
effective advertising sales force. We depend on our sales force to sell
advertising and sponsorships on Hoover's Online. This involves a number of
risks, including:
- - we may not be able to hire, retain, integrate and motivate additional
advertising sales personnel in light of intense competition from other
companies;
- - new advertising sales personnel generally require a significant amount of time
to become productive; and
- - our advertising sales force has only recently begun selling sponsorships.
FAILURE TO PROVIDE A SUCCESSFUL ONLINE ADVERTISING ENVIRONMENT WOULD ADVERSELY
AFFECT OUR BUSINESS.
If advertisers perceive the Internet in general or Hoover's Online in particular
to be a limited or ineffective advertising medium, they may be reluctant to
advertise online or on our Web site. We compete with other Web sites,
television, radio and print media for a share of advertisers' total advertising
budgets. Unlike traditional advertising media, no standards have been widely
accepted to measure the effectiveness of advertising on the Internet. If widely
accepted standards do not emerge, existing advertisers may discontinue or
decrease their Internet advertising. If standards emerge and we are unable to
offer advertisers effective advertising options as measured by the standards,
advertisers may not continue advertising on our Web site. Furthermore,
advertisers that have traditionally relied upon other advertising media may be
reluctant to advertise on the Internet. Our business, operating results and
financial condition would be materially and adversely affected if the market for
Internet advertising declines or develops more slowly than expected.
Different pricing models are used to sell advertising on the Internet. Prevalent
pricing models consist of cost per click through, cost per thousand impressions,
cost per placement and e-commerce or transaction share. We currently use all of
these models except for cost per click through. If our base audience decreases,
we will have to charge lower advertising rates for those transactions utilizing
cost per thousand impressions. Cost per placement is a relatively new model and
advertisers may not accept it. The e-commerce or transaction share model is
based on revenue-sharing. Therefore, if we don't attract a sufficiently large
audience willing to purchase from our advertisers, our revenues generated from
advertisements sold under this model will decrease.
It is difficult to predict which advertising pricing models, if any, will emerge
as industry standards. This uncertainty makes it difficult to project our future
advertising rates and revenues. We cannot assure you that we will be successful
under alternative pricing models that may emerge. Moreover, software programs
that limit or prevent advertising from being delivered to an Internet user's
computer are available. Widespread adoption of this software could materially
adversely affect the commercial viability of Internet advertising, which could
materially and adversely affect our advertising revenues.
IF WE ARE NOT SUCCESSFUL IN INCREASING BRAND AWARENESS OF, AND TRAFFIC TO,
HOOVER'S ONLINE, OUR BUSINESS WOULD BE MATERIALLY AND ADVERSELY AFFECTED.
The future success of Hoover's Online will depend, in part, on our ability to
increase our brand awareness. In order to build brand awareness and increase
traffic to Hoover's Online, we must succeed in our marketing efforts and provide
high-quality services. As part of our brand-building efforts, we have
substantially increased our marketing budget, and we intend to spend
approximately $10 million of the net proceeds of this offering on a new
marketing campaign. Our ability to increase advertising and subscription
revenues from Hoover's Online will depend in part on the success of this
marketing campaign and our ability to increase the number of visitors and
subscribers to our Web site. If our marketing efforts are unsuccessful or if we
cannot increase our brand awareness and traffic to our Web site, our business,
operating results and financial condition would be materially and adversely
affected.
9
<PAGE>
INCREASED COMPETITION COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.
Many Web sites compete for the attention and spending of businesspeople and
advertisers, particularly in the business information area. We expect this
competition to continue to increase. We compete for subscribers, visitors,
advertisers, and content providers with many types of companies, such as:
- - tiered Web sites focused on business, such as The Wall Street Journal
Interactive Edition;
- - providers of company information, such as Dun & Bradstreet, MarketGuide and
Standard & Poor's;
- - providers of proprietary business information, such as Bloomberg Business
News, Dow Jones and Reuters News Service;
- - business information aggregators, such as Dialog, LEXIS-NEXIS and OneSource;
- - consumer-oriented Web sites, such as Excite and Lycos; and
- - other Web sites with a business orientation or a business channel.
We also compete with a number of organizations with whom we have strategic
relationships, including THE WALL STREET JOURNAL, LEXIS-NEXIS and Bloomberg. We
form strategic relationships with these organizations in order to increase the
size of our audience by introducing Hoover's Online to a greater number of
people. Hoover's information is valued by these organizations and is licensed to
them. If these entities view us as a substantial competitive threat, they may
not renew any strategic relationship agreements currently in place and our
audience may decrease.
Some of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of their services. These competitors may
also undertake more far-reaching marketing campaigns, adopt more aggressive
pricing policies, including offering their business information for free, and
make more attractive offers to existing and potential new employees, businesses
with whom we have strategic relationships and advertisers. Our competitors may
develop content that is equal or superior to ours or that achieves greater
market acceptance than ours. It is also possible that new competitors may emerge
and rapidly acquire significant market share. We may not be able to compete
successfully for advertisers, visitors or staff, which could materially
adversely affect our business, operating results and financial condition.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which could materially adversely affect our business,
operating results and financial condition.
OUR FUTURE SUCCESS DEPENDS ON OUR EDITORIAL STAFF.
We depend upon the efforts of our editorial staff to produce original, timely,
comprehensive and trustworthy content. As of March 31, 1999, our editorial staff
consisted of over 100 writers, editors, researchers and online producers.
Competition for these personnel is intense, and we may not be able to retain
existing or attract additional highly qualified staff in the future. If we lose
the services of a significant number of our editorial staff or are unable to
continue to attract additional qualified staff, our business, operating results
and financial condition could be materially and adversely affected.
RAPID GROWTH IN OUR FUTURE OPERATIONS COULD CONTINUE TO STRAIN OUR MANAGERIAL,
OPERATIONAL AND FINANCIAL RESOURCES.
We have experienced rapid growth in our operations. As of March 31, 1999, we had
grown to a total of 162 full-time employees, from 48 full-time employees on
March 31, 1997. We expect that the number of our employees will continue to
increase for the foreseeable future. This rapid growth has placed, and any
additional growth will continue to place, a significant strain on our
managerial, operational and financial resources. As a
10
<PAGE>
result, we will need to continue to improve our operational and financial
systems and managerial controls and procedures. Our future success will also
depend on our ability to expand, train and manage our workforce, in particular
our sales and marketing organization. We will also have to maintain close
coordination among our technical, accounting, finance, marketing, sales and
editorial personnel. If we are unable to accomplish any of these objectives, our
business, operating results and financial condition could be materially and
adversely affected.
WE ARE DEPENDENT ON STRATEGIC RELATIONSHIPS AND OUR BUSINESS WOULD BE MATERIALLY
AND ADVERSELY AFFECTED IF WE WERE TO LOSE EXISTING OR FAIL TO GAIN ADDITIONAL
STRATEGIC RELATIONSHIPS.
We depend on the following strategic relationships:
- - CONTENT PROVIDERS. As of March 31, 1999, 18 organizations provided us with
free content that we integrated into our products. We also purchase content
from several other organizations. We have contracts with our content providers
that generally range from one to three years in duration and that generally
are not terminable at will by either party. If our relationships with any of
these content providers were terminated, we would have to extract their
information from our products and services. We would also need to locate
alternate content providers and integrate their information into our products
and services. Extracting previously integrated information, locating a new
provider and integrating their information will take time and may interrupt
the provision of affected services. We cannot assure you that we would be able
to replace any of our content providers in a timely manner.
- - LICENSEES. As of March 31, 1999, we licensed our proprietary information to
approximately 30 organizations. If any of these licensees were to terminate
their agreements with us, we may experience a decrease in our overall
revenues. Termination of one or more of our license agreements may also
adversely affect our reputation.
- - MARKETING RELATIONSHIPS. We have various marketing relationships with other
Web sites pursuant to which they display our content and logo and provide a
link back to Hoover's Online. The success of each of our marketing
relationships depends on the amount of increased viewer traffic we receive
from that organization's Web site. These relationships may not generate the
number of new viewers that we expect. Termination of one or more of our
marketing relationships may decrease the number of visitors to our Web site
and may adversely affect our revenues.
- - SPONSORS. To facilitate the expansion of our services and features, we are
seeking sponsors for resource centers we are developing for Hoover's Online.
We do not currently have resource centers. A resource center is a location on
the Web site to be dedicated to a specific topic, such as professional
development or business travel. Sponsors may provide content and/or
advertising for the resource center. In return, sponsors would receive the
opportunity to interact with visitors to the resource center. We believe that
those sponsors who provide content will increase their opportunity for visitor
interaction. The success of our sponsorship relationships will depend on the
quality of the content and products that the sponsors provide. If we fail to
attract sponsors for our online resource centers or if our sponsors fail to
provide content and products attractive to our audience, we may lose
subscribers and our audience may be reduced.
Many companies that we may approach for a strategic relationship may have
conflicting relationships with others. As a result, these companies may be
reluctant to enter into strategic relationships with us. Our business, operating
results and financial condition could be materially and adversely affected if we
do not establish additional, and maintain existing, strategic relationships on
commercially reasonable terms or if any of our strategic relationships do not
result in an increase in the number of subscribers or traffic to Hoover's
Online. In addition, strategic relationships may be difficult to implement and
may not provide the anticipated benefits.
11
<PAGE>
WE ARE INSTALLING NEW HARDWARE AND SOFTWARE SYSTEMS FOR OUR WEB SITE THAT WE MAY
NOT BE ABLE TO IMPLEMENT EFFECTIVELY.
We are upgrading and expanding our hardware and software systems to service the
increased levels of traffic on our Web site and to support new high-performance
applications. We are installing new hardware servers to host our Web site. In
addition, we are implementing a new content management system and relational
database systems. We are relying upon third-party consultants for some of this
work. We expect to spend approximately $1.3 million to $1.8 million to upgrade
and expand our hardware and software systems. We expect to install our new
systems by June 1999 but we may be unable to install them in a timely manner,
and our personnel may be unable to manage the new systems effectively. Any delay
in installing new systems or in our ability to integrate the systems into our
operations could delay our offering of new and enhanced services. Additionally,
the new systems may fail to perform as we expect. Material deviations from our
expectations could require us to incur significant expenses to correct, upgrade
or replace the new systems.
WE MAY EXPERIENCE CAPACITY CONSTRAINTS OR SYSTEM FAILURES THAT COULD DAMAGE OUR
BUSINESS.
If our systems cannot be expanded to cope with increased demand or fail to
perform effectively, we could experience:
- - disruptions in service;
- - slower response times;
- - reduced customer satisfaction; or
- - delays in the introduction of new products and services,
any of which could impair our reputation, damage the Hoover's brand and
materially and adversely affect our business, operating results and financial
condition.
Our ability to provide high quality customer service also depends on the
efficient and uninterrupted operation of our computer and communications
hardware systems. Hoover's Online experienced one major interruption due to a
power outage in Austin, Texas in September 1997. As a result of this
interruption, our servers were inaccessible beginning from the moment the
back-up generators of our hosting facility expired until power was restored. We
have also experienced minor interruptions due to software bugs and upgrades and
disk drive failures. These minor interruptions temporarily limited the capacity
of our current technology infrastructure and resulted in increased calls to our
customer service personnel. Our systems and operations also are vulnerable to
damage or interruption from human error, natural disasters, telecommunication
failures, break-ins, sabotage, computer viruses, intentional acts of vandalism
and similar events. We currently do not have redundant servers, and we do not
have alternative providers of hosting services that are available on short-term
notice. We are still developing a formal disaster recovery plan. We cannot
assure you that any plan we adopt will be sufficient. We do not carry sufficient
business interruption insurance to compensate for losses that could occur.
WE MAY BE SUBJECT TO LEGAL CLAIMS IN CONNECTION WITH THE CONTENT WE PUBLISH AND
DISTRIBUTE.
We may be subject to claims for defamation, negligence, copyright or trademark
infringement or based on other theories relating to the information we publish
on our Web site, on the Web sites of others with whom we license or co-brand our
products or in our books. These types of claims have been brought, sometimes
successfully, against online services as well as other print publications in the
past. We could also be subject to claims based upon the content that is
accessible from Hoover's Online through links to other Web sites. Our insurance
may not adequately protect us against these types of claims.
12
<PAGE>
CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL
INFORMATION OVER THE INTERNET MAY NEGATIVELY IMPACT OUR REVENUES.
We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers, prevents many
potential customers from engaging in online transactions. If we do not add
sufficient security features to Hoover's Online, our revenues generated from
subscriptions and e-commerce may decline or there may be additional legal
exposure to us.
Our infrastructure is potentially vulnerable to physical or electronic
break-ins, viruses or similar problems. If a person circumvents our security
measures, he or she could misappropriate proprietary information or cause
interruptions in our operations. Security breaches that result in access to
confidential information could damage our reputation and expose us to a risk of
loss or liability. We may be required to make significant investments and
efforts to protect against or remedy security breaches. As e-commerce becomes
more prevalent, our audience will become more concerned about security. If we do
not adequately address these concerns, our business, operating results and
financial condition could be materially and adversely affected.
THE LOSS OF ANY OF OUR KEY PERSONNEL OR OUR FAILURE TO ATTRACT ADDITIONAL
PERSONNEL COULD HAVE A MATERIAL AND ADVERSE EFFECT ON OUR BUSINESS.
Our future success will depend, in substantial part, on the continued service of
our senior management, particularly Patrick J. Spain, our Chairman of the Board,
President and Chief Executive Officer. None of our senior management has entered
into an employment agreement with us. We do not maintain key-person life
insurance on any of our employees. The loss of the services of one or more of
our key personnel could have a material and adverse effect on our business,
operating results and financial condition. Our future success will also depend
on our continuing ability to attract, retain and motivate highly qualified
technical, customer support, financial and accounting and managerial personnel.
Competition for these personnel is intense, and we cannot assure you that we
will be able to retain our key personnel or that we will be able to attract,
assimilate or retain other highly qualified personnel in the future. We have
from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining employees with
appropriate qualifications.
ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR BUSINESS.
We plan to acquire or make investments in complementary businesses, products and
technologies. Future acquisitions and investments are subject to the following
risks:
- - acquisitions may cause a disruption in our ongoing business, distract our
management and make it difficult to maintain our standards, controls and
procedures;
- - we may not be able to integrate successfully the services, content, products
and personnel of any acquisition into our operations;
- - we may be required to incur debt or issue debt or equity securities, which may
be dilutive to existing stockholders, to pay for acquisitions. We also may be
required to assume debt or contingent liabilities, amortize goodwill and other
intangibles or write-off in-process research and development and other
acquisition-related expenses; and
- - we may not derive the intended benefits of any acquisition and we may lose our
entire investment.
13
<PAGE>
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR FACE A
CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD-PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR SIGNIFICANT DAMAGES.
We rely primarily on a combination of copyrights, trademarks, trade secret laws,
our user policy, licensing agreements and restrictions on disclosure to protect
our intellectual property. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the content on our Web site or
our other intellectual property without authorization. We cannot assure you that
our precautions will prevent misappropriation or infringement of our
intellectual property. Failure to protect our intellectual property in a
meaningful manner could have a material and adverse effect on our business,
operating results and financial condition. In addition, we may need to engage in
litigation in order to enforce our intellectual property rights in the future or
to determine the validity and scope of the proprietary rights of others. Any
litigation could result in substantial costs and diversion of management and
other resources, either of which could have a material adverse effect on our
business, operating results and financial condition.
Because we license some data and content from third parties, such as Media
General Financial Services, our exposure to copyright infringement actions may
increase. We rely upon these third parties as to the origin and ownership of
licensed content. We generally obtain representations as to the origins and
ownership of licensed content and generally obtain indemnification to cover any
breach of any representations. However, we cannot assure you that these
representations will be accurate or that indemnification will be sufficient to
provide adequate compensation for any breach of these representations.
We cannot assure you that infringement or other claims will not be asserted or
prosecuted against us in the future, whether resulting from our internally
developed intellectual property or licenses or content from third parties. Any
future assertions or prosecutions could materially adversely affect our
business, operating results and financial condition. Any claims, with or without
merit, could be time-consuming, result in costly litigation and diversion of
technical and management personnel or require us to introduce new content or
trademarks, develop non-infringing technology or enter into royalty or licensing
agreements. These royalty or licensing agreements, if required, may not be
available on acceptable terms, if at all. In the event a claim of infringement
is successful and we fail or are unable to introduce new content, develop
non-infringing technology or license the infringed or similar technology on a
timely basis, our business, operating results and financial condition could be
materially and adversely affected.
PROBLEMS RELATING TO THE "YEAR 2000 ISSUE" COULD ADVERSELY AFFECT US.
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. Over the last year we have planned and implemented a year 2000 compliance
project to assess the readiness of internally-developed and third-party
software, content, and business systems. The "year 2000 issue" may affect
several areas, including:
INTERNALLY DEVELOPED SOFTWARE. We have substantially completed a year 2000
compliance review of our internally developed proprietary software. This review
has included testing to determine how our systems will function at and beyond
the year 2000. We expect to complete these tests during the summer of 1999.
Based on our assessment to date, we believe that our internally developed
proprietary software is year 2000 compliant.
CONTENT PUBLISHING SYSTEM AND CONTENT PROVIDERS. We have completed a year 2000
compliance review of our content publishing system and our significant content
providers. Based on our assessment of their data and our publishing processes,
we believe that our internally-developed database and the data provided to us
from third parties is year 2000 compliant.
14
<PAGE>
THIRD-PARTY SUPPLIERS. We are currently assessing the year 2000 readiness of
our third-party supplied software, computer technology and other services, which
include software for use in our accounting, database and security systems. The
failure of such software or systems to be year 2000 compliant could have a
material impact on our corporate accounting functions and the operation of our
Web site. As part of the assessment of the year 2000 compliance of these
systems, we have sought assurances from these vendors that their software,
computer technology and other services are year 2000 compliant. We expect this
assessment process to be completed during the summer of 1999. We expect to
complete any required remediation during the summer of 1999. At this time, the
expenses associated with this assessment and potential remediation plan that may
be incurred in the future cannot be determined; therefore, we have not developed
a budget for these expenses. The failure of our software and computer systems
and of our third-party suppliers to be year 2000 compliant would have a material
adverse effect on us.
WEB SITE UPGRADES. We completed an initial assessment of our hardware and
software to determine year 2000 compliance. All software and systems were
categorized as either compliant or non-compliant. We assessed each non-compliant
issue to determine how to correct for year 2000 readiness. Non-compliant
software and systems have been or are expected to be corrected by the
installation of a patch or the purchase and implementation of new software or
equipment during the summer of 1999. Our recent Web server upgrades were
performed to accommodate growth in our business and to provide greater
scalability, not in response to year 2000 compliance requirements. We believe
our upgraded servers are year 2000 compliant.
At this time, we have not yet developed a contingency plan to address situations
that may result if we or our vendors are unable to achieve year 2000 compliance
because we currently do not believe that such a plan is necessary. The cost of
developing and implementing such a plan, if necessary, could be material. Any
failure of our material systems, our vendors' material systems or the Internet
to be year 2000 compliant could have a material adverse consequence for us.
Consequences may include difficulties in operating our Web site effectively or
conducting other fundamental parts of our business. For instance, we rely on
computer-based systems for our day-to-day operations. In a worst case scenario,
we could lose the ability to serve the Web site and account billing would not be
processed correctly.
Risks Related to the Internet Industry
WE DEPEND ON THE CONTINUED GROWTH IN USE AND EFFICIENT OPERATION OF THE
INTERNET.
The Internet-based information market is new and rapidly evolving. Our business
would be materially adversely affected if Internet usage does not continue to
grow or grows more slowly than anticipated. Internet usage may be inhibited for
a number of reasons, including:
- - inadequate network infrastructure;
- - security concerns;
- - inconsistent quality of service, and
- - unavailability of cost-effective, high-speed access to the Internet.
Our audience depends on Internet service providers, online service providers and
other Web site operators for access to Hoover's Online. Many of these services
have experienced significant service outages in the past and could experience
service outages, delays and other difficulties due to system failure unrelated
to our systems. These occurrences could cause our visitors to perceive the
Internet in general or our Web site in particular as unreliable and, therefore,
cause them to use other media to obtain their company and business information.
We also depend on third-party information providers to deliver information and
data feeds to us on a timely basis.
15
<PAGE>
Our Web site could experience disruptions or interruptions in service due to the
failure or delay in the transmission or receipt of this information, which could
have a material adverse effect on our business, operating results and financial
condition.
WE CANNOT PREDICT THE SIZE OR VIABILITY OF THE ONLINE INFORMATION SERVICES
MARKET.
The market for our online business information services is rapidly evolving and
is characterized by an increasing number of market entrants. As is typical of a
new and rapidly evolving industry, demand and market acceptance for recently
introduced services is subject to a high level of uncertainty and risk. Because
the market for online business information services is new and evolving, it is
difficult to predict the future growth rate, if any, and size of this market. We
cannot assure you that the market for our online business information services
will continue to develop. If the use of online business information services
fails to continue to grow, our ability to establish other online services would
be materially and adversely affected. In addition, our business strategy
includes extending our online business information services model to additional
segments of business information. We cannot assure you that we will be
successful in our efforts.
IF WE CANNOT KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY AND DEMANDS OF OUR
CUSTOMERS, WE MAY BE UNABLE TO ENHANCE OUR EXISTING SERVICES OR INTRODUCE NEW
SERVICES.
The market in which we operate is characterized by rapidly changing technology,
evolving industry standards, frequent new service announcements, introductions
and enhancements and evolving customer demands. These market characteristics are
exacerbated by the emerging nature of the Internet and the electronic
distribution of business information. Accordingly, our future success will
depend on our ability to adapt to rapidly changing technologies and industry
standards, and our ability to continually improve the performance, features and
reliability of our services in response to both evolving customer demands and
competitive service offerings. Our inability to adapt successfully to these
changes in a timely manner could have a material and adverse effect on our
business, operating results and financial condition. Furthermore, we may
experience difficulties that could delay or prevent the successful design,
development, testing, introduction or marketing of new services. Any
enhancements to existing services may not adequately meet the requirements of
our current and prospective customers or achieve any degree of significant
market acceptance. If we are unable, for technological or other reasons, to
develop and introduce new services or enhancements to existing services in a
timely manner or in response to changing market conditions or customer
requirements, or if our services or enhancements contain defects or do not
achieve a significant degree of market acceptance, our business, results of
operations and financial condition would be materially and adversely affected.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES.
The laws governing the Internet remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws, including those governing intellectual property, privacy,
libel and taxation, apply to the Internet generally and the electronic
distribution of business information in particular. Legislation could reduce the
growth in the use of the Internet generally and decrease the acceptance of the
Internet as a communications and commercial medium, which could have a material
and adverse effect on our business, operating results and financial condition.
In addition, the growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure and many areas with high Internet
usage have begun to experience interruptions in phone service. As a result, some
local telephone carriers have petitioned governmental agencies to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on Internet service
providers and online service providers. If any of these petitions or the relief
that they seek is granted, the costs of communicating on the Internet could
increase substantially, potentially adversely affecting the growth in the
Internet. Further, due to the global nature of the Internet, it is possible
that, although transmissions relating to our services originate in the State of
Texas, governments of other states, the United States or foreign countries
16
<PAGE>
might attempt to regulate our service or levy sales or other taxes on our
activities. In Texas, sales of goods over the Internet are taxed the same as
sales of personal property through traditional channels. As a result, Internet
companies like us that are based in Texas may be at a competitive disadvantage
to Internet companies based outside of Texas with respect to sales to
Texas-based customers. We cannot assure you that violations of local or other
laws will not be alleged or charged by governmental authorities, that we might
not unintentionally violate these laws or that in the future these laws will not
be modified or new laws enacted. Any of these developments could have a material
and adverse effect on our business, operating results and financial condition.
PRIVACY CONCERNS MAY PREVENT OUR USE OF COOKIES.
Web sites typically place information known as cookies on a user's hard drive
without the user's knowledge or consent. Web sites use cookies for a variety of
reasons. This technology enables our subscribers to access our premium services
without entering their password upon each visit. Additionally, it allows us to
limit the frequency with which a viewer is shown a particular ad. Any reduction
or limitation in the use of cookies could adversely affect our ability to target
advertising effectively. Commonly used Internet browsers allow users to modify
their browser settings to remove cookies at any time or to prevent cookies from
being stored on their hard drives. In addition, some Internet commentators,
privacy advocates and governmental bodies have suggested limiting or eliminating
the use of cookies.
Risks Related to the Offering
AS AN INTERNET-RELATED COMPANY, THE MARKET PRICE OF OUR SHARES MAY EXPERIENCE
EXTREME PRICE AND VOLUME FLUCTUATIONS WHICH WOULD INCREASE THE LIKELIHOOD OF US
BECOMING SUBJECT TO SECURITIES LITIGATION.
The stock market has, from time to time, experienced extreme price and volume
fluctuations. The market prices of the securities of Internet-related companies
have been especially volatile, including fluctuations that are often unrelated
to the operating performance of the affected companies. Broad market
fluctuations of this type may adversely affect the market price of our common
stock.
The market price of our common stock could be subject to significant
fluctuations due to a variety of factors, including:
- - public announcements concerning us or our competitors, or the Internet
industry;
- - fluctuations in our operating results;
- - introductions of new products or services by us or our competitors;
- - changes in analysts' earnings estimates; and
- - announcements of technological innovations.
In the past, companies that have experienced volatility in the market price of
their stock have been the target of securities class action litigation. If we
were sued in a securities class action, we could incur substantial costs and
suffer from a diversion of our management's attention and resources, potentially
resulting in a material adverse effect on our business, operating results and
financial condition.
CONTROL BY PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS.
Our executive officers, directors and existing 5% and greater stockholders will
beneficially own or control, collectively, 7,207,505 shares of the common stock,
representing approximately 55% of the voting power after this offering. After
this offering, such persons, if they were to act together, will be in a position
to elect and remove directors and control the outcome of most matters submitted
to stockholders for a vote. Additionally, such persons would be able to
influence significantly a proposed amendment to our certificate of
incorporation,
17
<PAGE>
a merger proposal, a proposed substantial sale of assets or other major
corporate transaction or a non-negotiated takeover attempt. Such concentration
of ownership may discourage a potential acquiror from making an offer to buy our
company, which, in turn, could adversely affect the market price of our common
stock.
A THIRD PARTY'S ABILITY TO ACQUIRE US MIGHT BE MORE DIFFICULT BECAUSE OF OUR
ANTI-TAKEOVER PROVISIONS.
Our certificate of incorporation and bylaws and Delaware law contain provisions
that could make it more difficult for a third party to acquire us, even though
the acquisition might be beneficial to you and our other stockholders. If an
acquisition is delayed or prevented, the market price of our common stock could
be adversely affected.
MANAGEMENT HAS BROAD DISCRETION REGARDING THE USE OF PROCEEDS FROM THIS
OFFERING.
Our management will have broad discretion in how we use the net proceeds of this
offering. You must rely on the judgment of management regarding the application
of the proceeds of this offering. Our management may use the net proceeds of
this offering for purposes which may not prove to be beneficial to our company.
FUTURE SALES OF SHARES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK
PRICE.
If our stockholders sell substantial amounts of our common stock, including
shares issuable upon the exercise of outstanding options and warrants, in the
public market following this offering, the market price of our common stock
could be adversely affected. These sales also might make it more difficult for
us to sell equity securities in the future at a time and price that we deem
appropriate. Immediately after this offering, we will have outstanding
11,187,216 shares of common stock. Of these shares, the 3,250,000 shares being
offered in this offering will be freely tradable. Our directors, executive
officers and security holders, holding in the aggregate of our shares,
have signed lock-up agreements stating that they will not sell, directly or
indirectly, any common stock without the prior written consent of J.P. Morgan
Securities Inc. for a period of 150 days from the date of this prospectus.
However, J.P. Morgan Securities Inc. may, in its sole discretion and at any time
or from time to time, without notice, release all or any portion of the
securities subject to the lock-up agreements.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
You will incur immediate and substantial dilution in net tangible book value per
share of $8.16 per share. To the extent outstanding options and warrants to
purchase common stock are exercised, you will incur further dilution. Please see
the "Dilution" section of this prospectus for further information.
18
<PAGE>
Use of Proceeds
Assuming an initial public offering price of $13.00 per share, we will receive
approximately $38.5 million from our sale of 3,250,000 shares of common stock,
net of estimated expenses and estimated underwriting discounts and commissions
payable by us. If the underwriters exercise their over-allotment option in full,
we will receive an additional $5.9 million in net proceeds.
The principal purposes of this offering are to increase our equity capital, to
create a public market for our common stock, to facilitate future access by us
to the public equity markets and to provide increased visibility of Hoover's in
a marketplace where many of our competitors are publicly-held companies. We
currently intend to use up to $10 million of the net proceeds of this offering
for increased marketing activities. We expect to use the remainder of the net
proceeds to extend our range of services in conjunction with our expansion of
Hoover's Online and for other general corporate purposes, including expansion of
our sales and marketing activities and the acquisition of complementary
businesses and of content and distribution relationships. While there are no
current commitments with respect to any material transactions, we evaluate
acquisition opportunities from time to time. Pending such uses, we intend to
invest the net proceeds in government securities and other short-term,
investment-grade, interest-bearing instruments.
Dividend Policy
We have not declared or paid any cash dividends on our capital stock and we do
not intend to pay any cash dividends on our common stock in the foreseeable
future. We currently intend to retain future earnings, if any, to fund the
development and growth of our business. Future cash dividends, if any, will be
determined by our board of directors and will be dependent upon our operating
results, financial condition, capital requirements and such other factors as our
board of directors deems relevant.
19
<PAGE>
Capitalization
The following table sets forth our capitalization as of March 31, 1999:
- - on an actual basis;
- - on a pro forma basis to reflect our sale of common stock in the June 1999
transactions and amendments to our certificate of incorporation in June 1999
to authorize preferred stock and to increase our authorized common stock; and
- - on a pro froma as adjusted basis to reflect our receipt of the estimated net
proceeds from our sale of 3,250,000 shares of common stock in this offering at
an assumed initial public offering price of $13.00 per share, and after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
-----------------------------------
<S> <C> <C> <C>
As of March 31, 1999
-----------------------------------
<CAPTION>
Pro Forma
Actual Pro Forma As Adjusted
--------- ----------- -----------
<S> <C> <C> <C>
DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
Long-term debt and capital lease obligations, less current portion............ $ 168 $ 168 $ 168
Stockholders' equity:
Preferred stock, $0.01 par value, no shares authorized, actual; 10,000,000
shares authorized, pro forma and pro forma as adjusted; none issued,
actual, pro forma and pro forma as adjusted................................ -- -- --
Common stock, $0.01 par value, 7,500,000 shares authorized, actual;
150,000,000 shares authorized, pro forma and pro forma as adjusted;
6,886,512 shares issued, actual; 8,082,896 shares issued, pro forma; and
11,332,896 shares issued, pro forma as adjusted............................ 69 81 114
Additional paid-in capital.................................................... 18,069 28,036 66,545
Unearned stock compensation................................................... (2,764) (2,764) (2,764)
Accumulated deficit........................................................... (8,464) (8,464) (8,464)
Treasury stock at cost--145,680 shares........................................ (150) (150) (150)
--------- ----------- -----------
Total stockholders' equity................................................ 6,760 16,739 55,281
--------- ----------- -----------
Total capitalization.................................................... $ 6,928 $ 16,907 $ 55,449
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The outstanding share information set forth above excludes:
- - 2,064,431 shares issuable upon the exercise of stock options outstanding under
our stock option plans, with a weighted average exercise price of $2.97 per
share;
- - 2,893,831 shares reserved for issuance under our 1999 Stock Incentive Plan;
- - 1,588,903 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $4.02 per share; and
- - 145,680 shares reserved for issuance under our 1999 Employee Stock Purchase
Plan.
Please see "Management--Director Compensation," "--Stock Option Plans,"
"--Employee Stock Purchase Plan," "Certain Transactions" and notes 2 and 3 of
the notes to our financial statements.
20
<PAGE>
Dilution
Our pro forma net tangible book value at March 31, 1999 was approximately $15.6
million, or $1.97 per share of common stock. Pro Forma net tangible book value
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities, divided by the number of shares of common stock
outstanding, assuming our sale of shares of common stock in the June 1999
transactions. After giving effect to our sale of 3,250,000 shares of common
stock in this offering at an assumed initial public offering price of $13.00 per
share and, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, and application of the net proceeds
therefrom, our pro forma net tangible book value at March 31, 1999 would have
been approximately $54.2 million, or $4.84 per share. This represents an
immediate increase in pro forma net tangible book value of $2.87 per share to
our existing stockholders and an immediate dilution of $8.16 per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this per share dilution:
<TABLE>
<CAPTION>
--------------------
<S> <C> <C>
Assumed initial public offering price per share..................................... $ 13.00
Pro Forma net tangible book value per share at March 31, 1999....................... $ 1.97
Increase per share attributable to new investors.................................... 2.87
---------
Pro Forma net tangible book value per share after this offering..................... 4.84
---------
Dilution per share to new investors................................................. $ 8.16
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1999, the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid to us by existing stockholders and by
investors purchasing shares of common stock in this offering, based on an
assumed initial public offering price of $13.00 per share, before deducting
estimated underwriting discounts and commissions and estimated offering expenses
of this offering:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares Purchased Total Consideration
------------------------- -------------------------- Average Price
Number Percent Amount Percent Per Share
------------ ----------- ------------- ----------- -------------
Existing stockholders............................. 7,937,216 70.9% $ 24,616,585(1) 36.8% $ 3.06
New investors..................................... 3,250,000 29.1 42,250,000 63.2 13.00
------------ ----- ------------- -----
Total........................................... 11,187,216 100.0% $ 66,866,585 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- ------------------------
(1) Excludes the value of financial advisory services rendered by Wit Capital,
for which we issued 3,002 shares, in connection with our sale of common stock in
the June 1999 transactions.
The foregoing tables assume no exercise of stock options or warrants outstanding
as of March 31, 1999. Options to purchase 2,064,431 shares of common stock were
outstanding as of March 31, 1999 with a weighted average exercise price of $2.97
per share. Warrants to purchase 1,588,903 shares of common stock were
outstanding as of March 31, 1999 with a weighted average exercise price of $4.02
per share. To the extent these options and warrants are exercised, investors in
this offering will experience further dilution.
21
<PAGE>
Selected Financial Data
The following selected financial data should be read together with the section
of this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our financial statements and the related
notes and the other financial information included elsewhere in this prospectus.
The statement of operations data for the years ended March 31, 1997, 1998 and
1999 and the balance sheet data at March 31, 1998 and 1999 are derived from
audited financial statements included elsewhere in this prospectus. The
statement of operations data for the years ended March 31, 1995 and 1996 and the
balance sheet data at March 31, 1995, 1996 and 1997 are derived from audited
financial statements not included in this prospectus.
<TABLE>
<CAPTION>
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended March 31,
---------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Statement of Operations Data:
Revenues:
Online information sales....................... $ 215 $ 649 $ 1,192 $ 2,696 $ 6,764
Advertising, sponsorships, e-commerce.......... -- 71 514 1,182 961
CD-ROM and print............................... 1,362 1,901 2,254 1,591 1,637
----------- ----------- ----------- ----------- -----------
Total revenues................................... 1,577 2,621 3,960 5,469 9,362
Provision for returns of print products........ (126) (210) (600) (288) (133)
----------- ----------- ----------- ----------- -----------
Net revenues..................................... 1,451 2,411 3,360 5,182 9,229
Cost of revenues............................... 1,192 1,461 2,129 3,035 5,002
----------- ----------- ----------- ----------- -----------
Gross profit..................................... 259 950 1,231 2,147 4,227
Expenses:
Product development............................ 22 195 201 391 566
Sales and marketing............................ 372 427 865 1,501 2,184
General and administrative..................... 447 594 1,038 2,125 3,402
Non-cash compensation.......................... -- -- -- -- 451
----------- ----------- ----------- ----------- -----------
Total expenses................................... 841 1,216 2,104 4,017 6,603
----------- ----------- ----------- ----------- -----------
Operating loss................................... (582) (266) (873) (1,870) (2,376)
Interest income................................ -- 1 5 129 177
Interest expense............................... (31) (52) (76) (47) (56)
----------- ----------- ----------- ----------- -----------
Net loss......................................... $ (613) $ (317) $ (944) $ (1,788) $ (2,255)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Basic and diluted net loss per share............. $ (0.26) $ (0.10) $ (0.26) $ (0.39) $ (0.42)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shares used in computing basic and diluted net
loss per share(1).............................. 2,316,035 3,201,013 3,570,818 4,583,130 5,306,726
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of March 31,
---------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
DOLLARS IN THOUSANDS
Balance Sheet Data:
Cash and cash equivalents........................ $ 26 $ 41 $ 579 $ 3,860 $ 7,814
Total assets..................................... 482 1,000 1,583 5,772 10,076
Working capital.................................. (397) (18) 162 3,427 5,705
Long-term debt and capital lease obligations,
less current portion........................... -- -- 79 172 168
Total stockholders' equity (deficit)............. (319) 73 606 3,995 6,760
</TABLE>
- ------------------------
(1) See note 1 of the notes to our financial statements for the determination
of shares used in computing basic and diluted net loss per share.
22
<PAGE>
Forward-looking Statements
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "intend," "anticipate," "believe,"
"estimate" and "continue" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
condition or state other forward-looking information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed in the sections captioned "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward- looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in the "Risk Factors" section and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
23
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND THE RELATED NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS.
Overview
Hoover's is a leading Internet provider of company and industry information
designed to meet the diverse needs of business organizations, businesspeople and
investment professionals worldwide. We were incorporated in 1990 as The
Reference Press, Inc. and our staff of writers and editors created and published
reference and trade books containing our proprietary information on companies
and industries. Recognizing that our company and industry profiles would be
important resources for online and emerging Internet users, we licensed our
database for distribution on America Online in 1993 and launched Hoover's Online
in 1995. As the Internet has become widely accepted, we have shifted our focus
from publishing our information in traditional print media to providing
high-quality, low-cost business information via the Internet. Our proprietary
database now contains information on 45 industries and approximately 14,000
public and private enterprises worldwide.
Revenues from online sources have increased at a compound annual growth rate of
145% since 1995 and have grown from 14% of total revenues in 1995 to 83%
currently. For the quarter ended March 31, 1999, Hoover's Online attracted
approximately two million unique visitors, who accounted for over 30 million
page views. As of March 31, 1999, we had over 29,000 individual subscribers and
we had over 1,300 enterprise accounts, which we estimate represented over 70,000
seats.
Hoover's Online is being expanded to provide additional business-oriented
content, tools and features. We intend to add resource centers for performing
mission-oriented tasks in areas such as professional development, career
planning, personal finance and business travel. During our expansion, we plan to
substantially increase our marketing and promotional efforts, using both online
and traditional media to increase brand awareness and introduce new customers to
Hoover's Online.
Our revenues are derived from:
- - online information sales, consisting of individual and enterprise
subscriptions and licenses of our editorial content;
- - advertising, sponsorship and e-commerce; and
- - sales of our company information in CD-ROM and print.
Online information sales
SUBSCRIPTIONS. Approximately half of our revenues were generated from
individual and enterprise subscriptions. Individual subscriptions are currently
sold directly on our Web site for $14.95 per month or $109.95 per year. All of
our individual subscribers pay by credit card, and individual subscriptions are
automatically renewed at the end of each month or annual period, unless
cancelled. We also offer annual enterprise subscriptions ranging from $1,500 to
$30,000 per year, based on the number of users within the enterprise. We
recognize subscription revenues on a monthly basis, and we record annual
individual and enterprise subscriptions as deferred revenues, which are
amortized into revenues over the term of the subscription.
LICENSES. We also derive significant revenues by licensing portions of our
database for re-distribution through customized data feeds to online services
such as Dow Jones, LEXIS-NEXIS, Microsoft Network, OneSource, as well as Reuters
and other Web sites. As an extension of our enterprise subscriptions, we license
information directly to corporate intranets or extranets such as Andersen
Worldwide's KnowledgeSpace.com. Our licensing fees vary depending on factors
such as the number of users and the amount of proprietary content licensed.
Licensing agreements may be structured as fixed monthly fees or negotiated
revenue sharing. Licenses to corporate intranets start at $36,000 per year.
Revenues are recognized ratably over the contract period.
24
<PAGE>
Advertising, sponsorships and e-commerce
ADVERTISING. We derive revenues from the sale of banner and button
advertisements on our Web site. These advertisements may be displayed on a run
of site basis or may be targeted to a particular audience. These are generally
sold under short-term contracts and priced based on a price per thousand
impressions. An impression occurs anytime an advertisement on our Web site
appears on a page being viewed. We measure impressions internally and with
third-party services using the Internet Advertising Bureau's standards for
measurement. Our pricing per thousand impressions varies depending on the length
of the contract and the position of the advertisement on the Web site. Revenues
are recognized as the impressions are delivered.
SPONSORSHIPS. We derive revenues from the sale of sponsorships to advertisers
who request fixed placement on our Web site. Sponsorships integrate an
advertiser's message with Hoover's Online content in a number of creative,
contextual ways. Sponsorships may be ongoing or tailored to specific events.
Sponsorships are generally priced as a fixed monthly fee depending on the
placement on the Web site and may include a guaranteed number of impressions.
Revenues are generally recognized ratably over the contract period, provided
that no significant obligations remain.
E-COMMERCE. We derive e-commerce revenues from advertisers who pay either a fee
per transaction or a percentage of sales generated directly from their
advertisement on our Web site. In addition, we receive a share of revenues from
sales of the pay-per-view products provided by our content providers.
We also offer arrangements that include advertising, sponsorships and e-commerce
components. For example, our agreement with one customer provides for a fixed
monthly placement fee, payments to us for new customers sent to the customer's
Web site and a share of their Web sales generated by direct links from our Web
site.
CD-ROM and print sales
We sell CD-ROMs and print products containing company information. We recognize
these revenues when the goods are shipped. For our sale of CD-ROMs and print
products, we provide an allowance for returns when the products are shipped. In
September 1997, we discontinued producing new books suitable for distribution
through bookstores. We expect to continue to produce and sell CD-ROMs and print
products to non-bookstore distributors and to consumers for at least the next
two years. However, we expect revenues from these products to decline as a
percentage of our total revenues.
Costs and expenses
Our cost of revenues include editorial personnel costs, expenses associated with
licensing of third-party content, direct expenses associated with our Web site,
such as hosting, and other service fees and commissions paid to advertising
agencies. Our product development expenses include technology personnel costs
and related consulting fees. Sales and marketing expense includes sales and
marketing personnel costs, including commissions, as well as all marketing,
advertising and promotional expenses. General and administrative expenses
consist of compensation for administrative and executive staff, fees for
professional services, travel, depreciation and general office expenses.
During the fourth quarter of fiscal 1999, we recorded deferred compensation of
$3.2 million in connection with the grant of stock options to employees. The
exercise prices of each grant were determined by the board of directors based on
a variety of factors relevant at the time of each grant, including prices paid
in private transactions among stockholders. The $3.2 million represents the
difference between the deemed value of the common stock at the date of the
grant, for accounting purposes, and the exercise price of the related options.
The deferred compensation will result in non-cash compensation expense over the
four year vesting period of these options. Non-cash compensation for the quarter
ended March 31, 1999 was approximately $451,000.
25
<PAGE>
Losses
We have incurred significant losses since our inception, including a net loss of
$2.3 million for the fiscal year ended March 31, 1999 and a net loss of $1.8
million for the year ended March 31, 1998. Our accumulated deficit at March 31,
1999 was $8.5 million. We expect to continue to incur significant operating
expenses to expand and enhance our content and services and to significantly
increase our marketing efforts. As a result, we will need to generate
substantial revenue increases to achieve profitability, which may not occur.
Results of Operations
The following table sets forth, for the periods illustrated, certain statement
of operations data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
Year Ended March 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
Revenues:
Online information sales....................................................... 30% 49% 72%
Advertising, sponsorships, e-commerce.......................................... 13 22 10
CD-ROM and print............................................................... 57 29 18
--------- --------- ---------
Total revenues................................................................... 100 100 100
Provision for returns of print products........................................ (15) (5) (1)
--------- --------- ---------
Net revenues..................................................................... 85 95 99
Cost of revenues............................................................... 54 55 53
--------- --------- ---------
Gross profit..................................................................... 31 39 45
Expenses:
Product development............................................................ 5 7 6
Sales and marketing............................................................ 22 27 23
General and administrative..................................................... 26 39 36
Non-cash compensation.......................................................... -- -- 5
--------- --------- ---------
Total expenses................................................................... 53 73 70
--------- --------- ---------
Operating loss................................................................... (22) (34) (25)
Interest income.................................................................. -- 2 2
Interest expense................................................................. (2) (1) (1)
--------- --------- ---------
Net loss......................................................................... (24) (33) (24)
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
REVENUES. Total revenues for fiscal 1999 increased 71% to $9.4 million from
$5.5 million in fiscal 1998.
Our online information sales provided the most growth, increasing 151% to $6.8
million in fiscal 1999 from $2.7 million in fiscal 1998. Revenues from
individual subscribers increased due to the increase in the ending number of
subscribers and the effects of a full year of revenues related to the previous
year's growth in subscriber count. The growth in the number of new subscribers
was a result of increased traffic to our Web site with page views increasing to
over 11 million per month by March 1999 from six million per month in March
1998. Revenues from enterprise subscriptions for fiscal 1999 increased
significantly from fiscal 1998 due to the increase in the number of enterprise
accounts. Sales leads provided by the additional traffic to our Web site and our
increased number of salespeople contributed to the increase in new accounts. As
of March 31, 1999, we had over 29,000 individual subscribers and over 1,300
enterprise accounts, compared to 17,000 individual
26
<PAGE>
subscribers and 468 enterprise accounts as of March 31, 1998. Licensing revenues
for fiscal 1999 also increased from fiscal 1998 due to higher royalty payments
from licensees. Royalty payments are based on usage of Hoover's content or other
revenue sharing arrangements.
During fiscal 1999, advertising, sponsorships and e-commerce revenues were lower
than fiscal 1998 by 19%. In fiscal 1998 we had an agreement with Infoseek which
gave Infoseek exclusive rights to sell advertising on our Web site. Beginning in
April 1997, Infoseek was required to pay us minimum payments to the extent that
its sales of our advertising did not meet or exceed agreed upon minimum
advertising levels. During fiscal 1998, Infoseek paid us $686,000 under the
minimum payment provisions of the agreement. Infoseek's exclusive rights to sell
our advertising were terminated as of October 1, 1997 at which time we began to
build an internal advertising sales force. During fiscal 1999 we did not receive
minimum payments from Infoseek.
Revenues from CD-ROM and print products for fiscal 1999 increased 3% from fiscal
1998, due to a higher volume of products shipped. Substantially all of our
provision for returns of print products relates to trade books shipped to
bookstores. The provision for returns declined in fiscal 1999 as a percentage of
CD-ROM and print revenues as a result of our decision in September 1997 to
discontinue producing new books suitable for distribution through bookstores.
COST OF REVENUES. Cost of revenues for fiscal 1999 increased 65% to $5.0
million from $3.0 million in fiscal 1998. As a percentage of revenues, fiscal
1999 costs were slightly lower than fiscal 1998. The increase in cost of
revenues was primarily due to a $1.5 million, or 79%, increase in compensation
for existing and new editorial personnel, and a $287,000, or 149%, increase in
expenses associated with third-party content. In fiscal 1999, we added ten
full-time editorial personnel, including our Vice President, Editor-in-Chief,
and used over 20 temporary writers, editors and support staff to add and enhance
company and industry information. The increase in third-party content expenses
related to additional content provided to our Web site and higher costs
associated with existing content.
PRODUCT DEVELOPMENT. Product development expenses for fiscal 1999 increased 45%
to $566,000 from $391,000 in fiscal 1998. This increase was due to additional
programmers, analysts, and amounts paid to outside consultants. We increased our
personnel and consulting costs in order to plan and implement technology
upgrades which are currently in progress.
SALES AND MARKETING. Sales and marketing expenses for fiscal 1999 increased 46%
to $2.2 million from $1.5 million in fiscal 1998. The increase in sales and
marketing expenses was due primarily to an increase in the number of enterprise
sales representatives and an increase in the number of marketing and business
development personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for fiscal 1999
increased 60% to $3.4 million from $2.1 million in fiscal 1998. The increase was
primarily due to a $457,000, or 96%, increase in fees for professional services
and travel and a $404,000, or 57%, increase in salaries of existing personnel as
well as the addition of administrative personnel. General office expenses
increased $228,000, or 39%, due to facility expansion as well as increases in
credit card processing fees on individual subscription payments. Depreciation
increased $141,000, or 52%, due to an increase in capital expenditures.
INTEREST INCOME AND EXPENSE. Interest income for fiscal 1999 increased 37% to
$177,000 from $129,000 in fiscal 1998. The increase was due to our increased
cash position for fiscal 1999 which was primarily due to the $4.5 million in
proceeds received upon the sale of our equity securities to Media General in
September 1997. Interest expense of $56,000 in fiscal 1999 increased from
$46,000 in fiscal 1998 primarily from our increased bank debt and capital leases
used to finance equipment purchases.
TAXES. We have incurred significant operating losses for all periods from
inception (February 1990) through March 31, 1999. We have recorded a valuation
allowance for 100% of our net deferred tax assets because our historical
operating results indicate it is more likely than not that the net deferred tax
assets will not be realized because of uncertainties regarding utilization of
net operating loss carryforwards during the carryforward period.
27
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
REVENUES. Total revenues for fiscal 1998 increased 38% to $5.5 million from
$4.0 million in fiscal 1997.
Our online information sales provided the most growth, increasing 126% to $2.7
million from $1.2 million. Revenues from individual subscribers increased due to
an increase in the number of subscribers and an increase in our subscription
prices. The growth in the number of new subscribers was a result of increased
traffic to Hoover's Online. Our number of individual subscribers and our number
of enterprise accounts increased significantly during fiscal 1998. Revenues from
enterprise subscriptions for fiscal 1998 increased significantly from fiscal
1997 as we formally organized an enterprise sales force and established our
product pricing strategy for enterprise sales. Licensing revenues for fiscal
1998 increased from fiscal 1997 due to increased royalty payments from existing
licensees.
Advertising revenues for fiscal 1998 increased 130% to $1.2 million from
$514,000 in fiscal 1997. In 1998, we had an agreement with Infoseek which gave
them exclusive rights to sell advertising on our Web site and required Infoseek
to pay us minimum monthly payments. During fiscal 1998, Infoseek paid us
$678,000 under the minimum payment provision of the agreement.
Revenues from CD-ROM and print products for fiscal 1998 decreased 27% to $1.6
million from $2.2 million in fiscal 1997. This decrease was a direct result of
our decrease in trade books sold in bookstores. Beginning in September 1997, we
discontinued producing new books suitable for distribution through bookstores,
and our trade sales dropped dramatically. Our decision to cease this line of
business was the result of a high product return rate and low margin on the sale
of these products. The discontinuation of new trade titles led to a decrease in
our provision for returns of print products in absolute terms as well as a
percentage of CD-ROM and print revenue.
COST OF REVENUES. Cost of revenues for fiscal 1998 increased 43% to $3.0
million from $2.1 million in fiscal 1997. This increase was due primarily to a
$1.0 million, or 118%, increase in compensation for editorial personnel from
fiscal 1997 due to the addition of over 50 full-time editorial personnel, which
was partially offset by a $220,000, or 28%, decrease in costs associated with
print products.
PRODUCT DEVELOPMENT. Product development expenses for fiscal 1998 increased 95%
to $391,000 from $201,000 in fiscal 1997. This increase was due to increased
headcount as well as design and programming fees for Hoover's Online
enhancements.
SALES AND MARKETING. Sales and marketing expenses for fiscal 1998 increased 74%
to $1.5 million from $865,000 in fiscal 1997. The increase in sales and
marketing expenses was due primarily to an increase in the number of enterprise
sales representatives and an increase in the number of marketing and business
development personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for fiscal 1998
increased 105% to $2.1 million from $1.0 million in fiscal 1997. Compensation
for administrative and executive staff increased $346,000, or 77%, due primarily
to the hiring of our Chief Operating Officer, Director of Human Resources and
other administrative positions as well as salary increases. Fees for
professional services and travel increased $178,000, or 60%, due to increased
travel and increased use of outside professionals. Depreciation increased
$183,000, or 203%, due to an increase in our depreciable assets, primarily due
to the purchase of new computers and software. General office expenses increased
$380,000, or 189%, due to facility expansion, higher overall headcount as well
as increases in credit card processing fees on individual subscription payments.
INTEREST INCOME AND EXPENSE. Interest income for fiscal 1998 was $129,000
compared to interest income in fiscal 1997 of $5,000. Interest income was
attributable to the net proceeds we received from the issuance of equity
securities in 1997. Interest expense of $46,000 arose primarily from our bank
debt and capital leases used to finance equipment purchases. Interest expense in
fiscal 1998 was lower than fiscal 1997 due to lower amounts of short term debt
over the year.
28
<PAGE>
Quarterly Results of Operations
The following table sets forth certain unaudited statements of operations data
for the eight quarters ended March 31, 1999, as well as the percentage of net
revenues represented by each item. These data have been derived from unaudited
interim financial statements prepared on the same basis as the audited financial
statements contained in this prospectus and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation of such information when read in
conjunction with the financial statements and related notes appearing elsewhere
in this prospectus. These unaudited interim financial statements are not
necessarily indicative of future operating results.
<TABLE>
<CAPTION>
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Quarter Ended
---------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1997 1997 1997 1998 1998
----------- ----------- ----------- ----------- -----------
DOLLARS IN THOUSANDS
Statement of Operations Data:
Revenues:
Online information sales.............................. $ 378 $ 500 $ 713 $ 1,105 $ 1,228
Advertising, sponsorships, e-commerce................. 55 38 239 172 199
Advertising representation contract with related
party................................................ 186 275 150 67 --
CD-ROM and print...................................... 431 394 249 517 432
----------- ----------- ----------- ----------- -----------
Total revenues.......................................... 1,050 1,207 1,351 1,861 1,859
Provision for returns of print products............... (65) (114) (63) (46) (29)
----------- ----------- ----------- ----------- -----------
Net revenues............................................ 985 1,093 1,288 1,815 1,830
Cost of revenues...................................... 545 633 848 1,009 1,198
----------- ----------- ----------- ----------- -----------
Gross profit............................................ 440 460 440 806 632
Expenses:
Product development................................... 99 106 111 75 90
Sales & marketing..................................... 235 284 424 558 526
General and administrative............................ 353 447 580 745 769
Non-cash compensation................................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total expenses.......................................... 687 837 1,115 1,378 1,385
----------- ----------- ----------- ----------- -----------
Operating loss.......................................... (247) (377) (675) (572) (753)
Interest income....................................... 3 16 59 51 44
Interest expense...................................... (13) (13) (10) (10) (9)
----------- ----------- ----------- ----------- -----------
Net loss................................................ $ (257) $ (374) $ (626) $ (531) $ (718)
----------- ----------- ----------- ----------- -----------
Income (loss) before non-cash compensation.............. $ (257) $ (374) $ (626) $ (531) $ (718)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
As a Percentage of Total Revenues:
Revenues:
Online information sales.............................. 36% 41% 53% 59% 66%
Advertising, sponsorships, e-commerce................. 23 26 29 13 11
Advertising representation contract with related
party................................................ 17 23 11 3 --
CD-ROM and print...................................... 41 33 18 28 23
----------- ----------- ----------- ----------- -----------
Total revenues.......................................... 100 100 100 100 100
Provision for returns of print products............... (6) (9) (5) (2) (2)
----------- ----------- ----------- ----------- -----------
Net revenues............................................ 94 91 95 98 98
Cost of revenues...................................... 52 52 63 54 64
----------- ----------- ----------- ----------- -----------
Gross profit............................................ 42 38 33 43 34
Expenses:
Product development................................... 9 9 8 4 5
Sales and marketing................................... 22 24 31 30 28
General and administrative............................ 34 37 43 40 41
Non-cash compensation................................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total expenses.......................................... 65 69 83 74 75
----------- ----------- ----------- ----------- -----------
Operating loss.......................................... (24) (31) (50) (31) (41)
Interest income....................................... -- 1 4 3 2
Interest expense...................................... (1) (1) (1) (1) --
----------- ----------- ----------- ----------- -----------
Net loss................................................ (24 )% (31 )% (46 )% (29 )% (39)%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income (loss) before non-cash compensation.............. (24 )% (31 )% (46 )% (29 )% (39)%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C> <C> <C>
Sept. 30, Dec. 31, Mar. 31,
1998 1998 1999
----------- ----------- -----------
DOLLARS IN THOUSANDS
Statement of Operations Data:
Revenues:
Online information sales.............................. $ 1,586 $ 1,714 $ 2,236
Advertising, sponsorships, e-commerce................. 184 262 316
Advertising representation contract with related
party................................................ -- -- --
CD-ROM and print...................................... 290 332 583
----------- ----------- -----------
Total revenues.......................................... 2,060 2,308 3,135
Provision for returns of print products............... (45) (36) (23)
----------- ----------- -----------
Net revenues............................................ 2,015 2,272 3,112
Cost of revenues...................................... 1,368 1,159 1,277
----------- ----------- -----------
Gross profit............................................ 647 1,113 1,835
Expenses:
Product development................................... 124 141 211
Sales & marketing..................................... 526 554 578
General and administrative............................ 928 726 979
Non-cash compensation................................. -- -- 451
----------- ----------- -----------
Total expenses.......................................... 1,578 1,421 2,219
----------- ----------- -----------
Operating loss.......................................... (931) (308) (384)
Interest income....................................... 42 40 51
Interest expense...................................... (15) (18) (14)
----------- ----------- -----------
Net loss................................................ $ (904) $ (286) $ (347)
----------- ----------- -----------
Income (loss) before non-cash compensation.............. $ (904) $ (286) $ 104
----------- ----------- -----------
----------- ----------- -----------
As a Percentage of Total Revenues:
Revenues:
Online information sales.............................. 77% 75% 71%
Advertising, sponsorships, e-commerce................. 9 11 10
Advertising representation contract with related
party................................................ -- -- --
CD-ROM and print...................................... 14 14 19
----------- ----------- -----------
Total revenues.......................................... 100 100 100
Provision for returns of print products............... (2) (2) (1)
----------- ----------- -----------
Net revenues............................................ 98 98 99
Cost of revenues...................................... 66 50 41
----------- ----------- -----------
Gross profit............................................ 31 48 59
Expenses:
Product development................................... 6 6 7
Sales and marketing................................... 26 24 18
General and administrative............................ 45 32 31
Non-cash compensation................................. -- -- 14
----------- ----------- -----------
Total expenses.......................................... 77 62 71
----------- ----------- -----------
Operating loss.......................................... (45) (13) 12
Interest income....................................... 2 2 2
Interest expense...................................... (1) (1) (1)
----------- ----------- -----------
Net loss................................................ (44 )% (12 )% (11 )%
----------- ----------- -----------
----------- ----------- -----------
Income (loss) before non-cash compensation.............. (44 )% (12 )% 3 %
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
29
<PAGE>
Our total revenues have generally increased each quarter during the eight fiscal
quarters ending March 31, 1999. Online information sales increased to $2.2
million in the fourth quarter of fiscal 1999 from $378,000 in the quarter ended
June 30, 1997. Steady increases each quarter were due to growth in the number of
our individual and enterprise subscribers.
Advertising revenues are affected by the industry's seasonality, with the most
advertising sold in the second and fourth calendar quarters of the year. During
the quarters ended June 30, September 30, and December 31, 1997, we utilized a
third-party sales agent, Infoseek, for the sale of our advertising. Infoseek's
actual advertising sales were significantly lower than the contractually
mandated minimum payments which were received and recorded as revenue during
these quarters. Although the minimum requirements were terminated as of December
31, 1997, we recognized a final amount of $67,000 in the quarter ended March 31,
1998. In October 1997, we began our transition to build our in-house advertising
sales force. We have experienced growth in advertising in each of the four
quarters beginning with the quarter ended June 30, 1998.
CD-ROM and print product sales fluctuate due to the publication dates for our
products. Most titles are updated annually between December and March.
Back-orders and standing orders for new editions create back-logs and therefore
the largest shipments occur during the month the new editions are printed.
Provision for return of print products has gradually decreased over the eight
quarters as we reduced our level of sales to bookstores. After September 1997,
we no longer created new print products for sale into the bookstore industry.
Cost of revenues has grown steadily as we have expanded our editorial
operations. Due to the high number of December year-end companies in our company
and industry database, we employ additional temporary employees each year from
April through September to update the database. In addition, we increased the
number of companies and industries we covered by over 25% during this same
period in 1998. This resulted in a 14% increase in costs of revenues for the
quarter ended September 30, 1998 as compared to the previous quarter. Cost of
revenues in the quarter ended December of 1998 was lower than previous quarters
due to a lower number of temporary personnel. We expect to use temporary
personnel each year during this time period for updating, but do not expect to
see as much fluctuation.
Product development expenses have fluctuated due to consulting and professional
fees paid to outside consultants, designers and programmers. During October of
1997, we made significant changes to Hoover's Online, adding new designs,
features and content. These changes resulted in higher spending levels during
this time period. We also added new features and content in September 1998. We
hired our Vice President, Technology in October 1998 and began to increase our
internal staff of programmers and analysts. We utilized significant third party
systems analysis during the quarter ended March 31, 1999 to support new database
software and hardware systems.
Sales and marketing expenses have increased as we have added new personnel in
sales, marketing, and customer service. Promotional expenses, including
advertising and trade shows have gradually increased and are expected to
significantly increase as part of our new campaigns to increase brand awareness
and increase traffic to the Web site.
General and administrative expenses have generally increased each quarter from
the quarter ended June 30, 1998 through the quarter ended September 30, 1998.
This was due to increases in office and occupancy related to our temporary
growth in editorial staff. General and administrative personnel expenses have
increased, especially since the third quarter of 1998, as we increased our
executive and administrative personnel and invested in our financial, business
and operating infrastructure.
Our quarterly operating results may fluctuate significantly in the future as a
result of many factors, including:
- - the timing of marketing expenditures;
30
<PAGE>
- - the traffic on our Web site;
- - the demand for individual and enterprise subscriptions;
- - the demand for advertising and sponsorships on our Web site;
- - the demand for services or products that are sold on or through our Web site;
and
- - seasonality.
As a result, we believe that quarter-to-quarter comparisons of our operating
results cannot be relied upon as indicators of future performance.
Liquidity and Capital Resources
Since inception, we have financed our activities primarily through net cash
proceeds from private placements of equity securities as well as exercises of
options and warrants. Total cash invested since inception was $15.0 million
through March 31, 1999. Investments by Media General and other stockholders
during September 1997 significantly increased our cash resources. In February
and March of 1999, stockholders exercised warrants increasing our cash by $4.3
million.
We used $2,550 net cash in operating activities in fiscal 1999 compared to $1.0
million in fiscal 1998. Net cash used in operating activities resulted from net
operating losses and increases in accounts receivable, partially offset by
increases in deferred revenues, accrued expenses and accounts payable.
We used $789,000 net cash in investing activities in fiscal 1999 compared to
$585,000 in fiscal 1998. Net cash used in investing activities was primarily
related to purchases of computer and network equipment, as well as leasehold
improvements.
We obtained cash from financing activities of $4.7 million in fiscal 1999 and
$4.9 million in fiscal 1998, primarily through private placements of equity
securities. In addition, in 1997 and 1998, we utilized revolving credit lines
and loans from stockholders secured by accounts receivable and computer
equipment to fund operations.
In June 1999, we sold 200,110 shares of common stock to NBC for $1.5 million. We
also entered into a strategic agreement with NBC to license a portion of our
content and to co-produce editorial content. We plan to record deferred costs of
approximately $1 million dollars in connection with this transaction. This
amount will be amortized over the period covered by the strategic agreement.
Also in June 1999, we sold 993,272 shares of common stock to affiliates of
Knowledge Universe for $7.4 million. This transaction will be recorded as a $7.4
million addition to equity. An affiliate of Knowledge Universe has committed to
purchase $2.0 million of services from Hoover's in the future, beginning in
October 1999.
As of March 31, 1999, we had $7.8 million of cash and cash equivalents. Our
principal commitments at March 31, 1999 consisted of obligations under bank
obligations and capital leases. On a pro forma basis to reflect our receipt of
the gross proceeds from our sale of common stock in the June 1999 transactions,
we had cash and cash equivalents as of March 31, 1999 of $16.7 million.
At March 31, 1999, we had a $550,000 term loan, a $200,000 term loan and a
$150,000 revolving line of credit with a bank. The term loans bear interest at
prime plus 1.50% and the revolving line of credit bears interest at prime plus
1.25%. At March 31, 1999 and 1998, we had no borrowings outstanding under the
line of credit, and $447,628 and $237,500, respectively, outstanding under the
term loans.
We may in the future pursue additional acquisitions of businesses, products and
technologies, or enter into joint venture arrangements, that could complement or
expand our business. Any material acquisition or joint venture could result in a
decrease to our working capital, depending on the amount, timing and nature of
the consideration to be paid.
31
<PAGE>
We believe that the net proceeds of this offering, together with our existing
cash and cash equivalents, will be sufficient to meet our anticipated cash
requirements for working capital and capital expenditures for at least the next
12 months. In order to meet our long term liquidity needs, we may need to raise
additional funds, seek an additional credit facility or seek other financing
arrangements.
Year 2000 Readiness Disclosure
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year
2000. We are dependent on telecommunications vendors to maintain our network. In
addition, we are dependent on financial and other information provided
electronically by our vendors and partners, as well as general research
information obtained electronically. We are also dependent on financial
institutions involved in the processing of our customer's credit card payments
for subscriptions and other products and a third party that hosts our servers.
Over the last year we have planned and implemented a year 2000 compliance
project to assess the readiness of internally-developed and third-party
software, content, and business systems.
We have substantially completed a year 2000 compliance review of our internally
developed proprietary software. This review has included testing to determine
how our systems will function at and beyond the year 2000. We expect to complete
these tests during the summer of 1999. Since inception, we have internally
developed substantially all of the systems for the operation of our Web site.
These systems include the software used to provide our Web site's search,
customer interaction, and transaction-processing and distribution functions, as
well as monitoring and back up capabilities. Based on our assessment to date, we
believe that our internally developed proprietary software is year 2000
compliant.
We have completed a year 2000 compliance review of our content publishing system
and our significant content partners, such as Media General Financial Services.
Based on our assessment of their data and our publishing processes, we believe
that our internally-developed database and the data provided to us from third
parties is year 2000 compliant.
We are currently assessing the year 2000 readiness of our third-party supplied
software, hosting service, computer technology and other services, which include
software for use in our accounting, database and security systems. The failure
of such software or systems to be year 2000 compliant could have a material
impact on our corporate accounting functions and the operation of our Web site.
We are dependent on these third-party suppliers to correct any year 2000
compliance problems, which exposes us to certain risks. See "Risk Factors--We
are dependent on strategic relationships and our business would be materially
and adversely affected if we were to lose or fail to gain additional strategic
relationships." As part of the assessment of the year 2000 compliance of these
systems, we have sought assurances from these vendors that their software,
computer technology and other services are year 2000 compliant. We expect this
assessment process to be completed during the summer of 1999. Based on the
results of this assessment, we will develop and implement, if necessary, a
remediation plan with respect to third-party software, third-party vendors and
computer technology and services that may fail to be year 2000 compliant. We
expect to complete any required remediation during the summer of 1999. At this
time, the expenses associated with this assessment and potential remediation
plan that may be incurred in the future cannot be determined; therefore, we have
not developed a budget for these expenses. The failure of our software and
computer systems and of our third-party suppliers to be year 2000 compliant
would have a material adverse effect on us.
We have completed an initial assessment of our Web sites' hardware and software
to determine year 2000 compliance. All software and systems were categorized as
either compliant or non-compliant. We assessed each
32
<PAGE>
non-compliant issue to determine how to correct for year 2000 readiness.
Non-compliant software and systems have been or are expected to be corrected by
the installation of a patch or the purchase and implementation of new software
or equipment during the summer of 1999.
The year 2000 readiness of the general infrastructure necessary to support our
operations is difficult to assess. For instance, we depend on the integrity and
stability of the Internet to provide our services. We also depend on the year
2000 compliance of the computer systems and financial services used by consumers
and businesses. Thus, the infrastructure necessary to support our operations
consists of a network of computers and telecommunications systems located
throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the year 2000
issues that may impact the entire infrastructure. Our ability to assess the
reliability of this infrastructure is limited and relies solely on generally
available news reports, surveys, and comparable industry data. A significant
disruption in the ability of consumers to reliably access the Internet or
portions of it or to use their credit cards would have an adverse effect on
demand for our services and would have a material adverse effect on us.
We have funded our year 2000 assessment activities from available working
capital and have not separately accounted for these costs in the past. These
costs have not been material to date.
At this time, we have not yet developed a contingency plan to address situations
that may result if we or our vendors are unable to achieve year 2000 compliance
because we currently do not believe that such a plan is necessary. The cost of
developing and implementing such a plan, if necessary, could be material. Any
failure of our material systems, our vendor's material systems or the Internet
to be year 2000 compliant could have a material adverse consequence for us. Such
consequences could include difficulties in operating our Web site effectively or
conducting other fundamental parts of our business.
Market Risks Related to Financial Instruments
Hoover's has floating rate borrowings and capital lease obligations which result
in the risk that interest expense or the fair value of capital lease obligations
might be impacted by changes in market interest rates. However, because these
borrowings are not significant, market risks related to financial instruments
are not material.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information" which establishes standards for the way
public companies disclose information about operating segments, products and
services, geographic areas and major customers. We adopted SFAS No. 131
effective April 1, 1998. In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which is effective for
fiscal quarters ending after June 15, 1999. We do not expect the adoption of
SFAS No. 133 to have a material impact on our financial statements.
33
<PAGE>
Business
The following description of our business should be read in conjunction with the
information included elsewhere in this prospectus. This description contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ significantly from the results discussed in these
forward-looking statements as a result of certain of the factors set forth in
"Risk Factors" and elsewhere in this prospectus.
Overview
Hoover's is recognized as a leading Internet provider of company and industry
information designed to meet the diverse needs of business organizations,
businesspeople and investment professionals worldwide. Our Web site is Hoover's
Online located at WWW.HOOVERS.COM. We were one of the first to provide
high-quality, proprietary business information on the Internet to the
mission-oriented businessperson, who seeks answers to specific questions.
Visitors to our Web site use our information for their professional endeavors,
including financial and competitive research, as well as for their personal
activities, including career development and personal investment. We believe we
provide our advertisers with a large, demographically desirable audience, who as
a group, are affluent, highly educated and willing to conduct business over the
Internet.
Our core asset of proprietary editorial content is a recognized source of
authoritative, engagingly written and useful information on over 45 industries
and approximately 14,000 public and private enterprises worldwide. We believe
our staff of approximately 100 writers, editors, researchers and online
producers is one of the largest editorial staffs producing business information
primarily for the Internet. We have one of the largest online databases of
company-specific information measured in terms of breadth and depth of coverage,
and we continually expand and update our database. Hoover's Online also provides
information on initial public offerings through IPO Central, which is a widely
trafficked source for information on initial public stock offerings. We also
offer feature stories, news, career information, personal finance information,
SEC documents, management biographical information as well as brokerage research
and credit reports. Additionally, we offer our branded search and sort tools,
such as Lead Finder and StockScreener, to make our information more useful to
businesspeople.
We generate revenues from the following sources:
- - online information sales, consisting of individual and enterprise
subscriptions and licenses of our editorial content;
- - advertising, sponsorship and e-commerce; and
- - sales of our company information in CD-ROM and print.
Our online revenues have grown to $7.7 million in fiscal 1999 from $215,000 in
fiscal 1995, representing a compound annual growth rate of over 145%.
We were among the first Internet companies to deploy a tiered business model:
advertising-supported free information, paid subscription based in-depth
information and pay-per-view e-commerce for specialized information. Hoover's
Online attracted approximately two million unique visitors during the quarter
ended March 31, 1999, who accounted for over 30 million page views. We use our
high-quality free information to attract both potential paying subscribers and
customers for our pay-per-view information. As of March 31, 1999, our
subscription service had an estimated 100,000 paying seats. Of these 100,000
seats, over 29,000 were individual subscribers and the balance were attributable
to over 1,300 enterprise accounts, which we estimate represented over 70,000
seats.
Hoover's Online is designed to be a destination where mission-oriented
businesspeople can fulfill their business information needs on a daily basis. As
we expand Hoover's Online, we will add:
- - increased depth and breadth of company and industry information, particularly
private and non-U.S. enterprises, as well as increased news coverage;
34
<PAGE>
- - information and e-commerce resource centers sponsored by one or more of the
organizations with whom we have advertising or e-commerce relationships where
businesspeople can perform mission-oriented tasks in such areas as
professional development, business travel and company operations;
- - business-oriented tools, including sophisticated searching and sorting,
scheduling, personalization and targeted e-mail alert notification; and
- - personal features, including general news, sports scores, weather forecasts
and portfolio tracking and leisure travel information to address some of the
primary personal interests of our visitors.
Our goal in these enhancements is to increase the frequency and duration of
visits to Hoover's Online.
Industry Background
MARKET OPPORTUNITY
Providing information, products and services to businesspeople over the Internet
represents a large and growing market opportunity. Growth in this market is
being driven by several factors, including:
INCREASING INTERNET USAGE. The Internet has rapidly become a significant global
communications and commerce medium. The tremendous growth of Internet usage has
been spurred by the growing base of personal computers both in the home and
workplace, the continuously improving network infrastructure, the proliferation
of content and the affordability and ease of access. According to International
Data Corporation, the number of Internet users will grow worldwide from
approximately 159 million at the end of 1998 to approximately 410 million by the
end of 2002. Forrester Research estimates that in 1998, 48 million workers
worldwide had access to the Internet and that by 2004 businesses will be
providing Internet access to approximately 200 million workers worldwide.
IMPORTANCE OF ONLINE BUSINESS INFORMATION. Companies and businesspeople are
increasingly recognizing that productivity and competitiveness depend on access
to reliable online information about customers, competitors, executives,
industries, business trends, breaking news and market data. Because of its
affordability, convenience and ease of access, the Internet has emerged as an
effective medium for distributing business information. Business organizations
continue to invest heavily in Internet connectivity and networked computing
infrastructures to manage internal information. They now are seeking to leverage
these infrastructures to access, distribute and manage the large amounts of
external business information needed by their workforces. As enterprise
information requirements are reaching unprecedented levels, organizations are
willing to pay for business information that gives them a competitive edge.
Cowles-Simba, a research firm, predicts that online business information
revenues in the United States will rise from $27 billion in 1998 to $40 billion
in 2002.
EXPANDING ONLINE ADVERTISING AND E-COMMERCE. The Internet enables advertisers
to target their messages to audiences having specific demographic
characteristics and to track the effectiveness of their advertisements based on
impressions delivered and click through rates. Forrester Research estimates that
Internet advertising will grow from $1.5 billion in 1998 to $11 billion in 2002.
E-commerce is revolutionizing the way information and goods are bought and sold
by offering convenience and affordability to consumers and businesses. Forrester
Research estimates that e-commerce will grow from $55 billion in 1998 to $1.1
trillion in 2002, representing a compound annual growth rate of 111%.
INCREASING PERSONAL USE BY BUSINESSPEOPLE. Businesspeople use online business
information not only in connection with their daily work activities, but also
for personal uses, such as investing, professional development, job searching,
training and travel. Typically, businesspeople visit only a few
business-oriented Web sites a day. These businesspeople and their organizations
demand content from these Web sites that is easily accessible, up-to-date and
that provides value-added research and analysis.
35
<PAGE>
SHORTCOMINGS OF EXISTING INFORMATION PROVIDERS
Despite the magnitude of the market opportunity, existing providers have failed
to provide high-quality business information in a cost-effective manner. Today,
most businesspeople receive electronic business information either through
traditional business information providers or consumer-oriented Web sites.
TRADITIONAL PROVIDERS. Business information providers such as LEXIS-NEXIS and
Dun & Bradstreet fail to meet the needs of many businesspeople for affordable
business information. These information providers offer business information
that is expensive, making them unaffordable for individuals and many
organizations. In addition, some of these companies operate on a pay-per-view or
fee-per-terminal basis which causes budget conscious organizations of any size
to limit the number of people within their organization who have access to the
information. Traditional providers have difficulty changing their business
models, cost structures or distribution capabilities, preventing them from
offering their information enterprise-wide or to individual users.
CONSUMER-ORIENTED WEB SITES. Consumer-oriented Web sites and other financial
data Web sites offer a comparatively broad array of inexpensive, electronic
data. However, their data is typically not of the depth and quality required by
businesspeople. The data is not as reliable or timely as that of traditional
information providers. Consumer-oriented Web sites provide data in a format that
makes it difficult for businesspeople to research and complete mission-oriented
tasks in a timely manner. These Internet data providers typically act solely as
aggregators of information developed by other, primarily consumer-oriented,
sources.
The Hoover's Solution
We provide high-quality, cost-effective and useful business information,
products and services that are essential to businesspeople today and provide an
attractive environment for organizations with whom we have advertising or
e-commerce relationships.
Key elements to the Hoover's solution are:
- - PROPRIETARY, TRUSTED EDITORIAL CONTENT. Our staff of approximately 100
researchers, writers, editors and online producers create and compile
original, engaging and useful business information on approximately 14,000
public and private enterprises worldwide and 45 industries. We offer
easy-to-read content written in a distinctive style that extends far beyond
traditional aggregated content. Our editorial staff is constantly updating our
content, from changes in the financial markets to changes in an organization's
management. We uphold high standards of reliability, quality and timeliness
for the information we provide.
- - FOCUS ON THE NEEDS OF BUSINESSPEOPLE. We understand and focus on the
information needs of businesspeople. We leverage our unique content to offer
products and services that meet both the business and personal needs of
professionals. For example, a visitor may learn quickly about a prospect's
branding strategy, market share, competitive position, financial condition and
history as well as purchase our pay-per-view information and choose
editorially selected links to further information. To meet their personal
needs, a visitor may search for information on career development and personal
investing. Unlike Web sites targeting personal use, we believe Hoover's Online
is generally not excluded by corporate policies limiting access to
non-business Web sites, allowing businesspeople to attend to their personal as
well as business needs while at work.
- - TIERED LEVELS OF SERVICE. We offer our audience three levels of service to
meet their varied business needs.
1. FREE. For each of the approximately 14,000 enterprises that we cover,
visitors can access a brief enterprise overview, its financial
information, a list of up to seven of its top officers, a list and
links to its top three competitors and selected news, SEC documents
on a delayed basis, stock quotes and charts. Visitors can also access
industry information on 45 industry sectors as well as IPO Central,
Career Central and our Company of the Day.
2. PAID SUBSCRIPTION. In addition to our free services, individual and
enterprise subscribers can access over 3,500 detailed company
profiles, more in-depth information on over 8,000
36
<PAGE>
enterprises including financial information, strategies and history,
all of the officers of the enterprises covered, all key competitors,
segment data by industry and geography, lists of products and brands
and SEC documents delivered in real-time. In addition, subscribers
can utilize our Power Tool and Lead Finder search and sort tools as
well as access detailed sub-industry lists. Enterprise subscribers
have access to printable formatted reports in Adobe .pdf format.
3. PAY-PER-VIEW. All of our visitors may purchase individual products
and services, such as brokerage research reports from Multex.com as
well as both Dun & Bradstreet and Experian credit reports from
Winstar Telebase on a pay-per-view basis.
- - EFFICIENT INTERNET SALES CHANNEL. By deploying a tiered, Internet-based
distribution model, we are able to introduce our business information and
services at no cost to the visitor. We offer these individuals the opportunity
to subscribe to Hoover's Online at an affordable price, independent of their
enterprise affiliations. We create direct relationships with individuals
within enterprises, which facilitates future enterprise wide sales. Our mass
audience allows us to offer business information on a more cost-effective
basis than traditional providers.
Hoover's Online attracts a large, demographically desirable audience of
businesspeople that makes us attractive to advertisers, sponsors and businesses
with which we have e-commerce relationships. We offer banner and button
advertisements on Hoover's Online, sponsorships for organizations who want to
integrate their advertisements or products with selected content on our Web site
and e-commerce opportunities for organizations who want to sell their products
on our Web site. Moreover, we offer combined arrangements that can integrate
components of advertisement, sponsorship and e-commerce.
Business Strategy
Our goals are to be one of the Internet destinations that businesspeople depend
on daily to perform mission-oriented tasks and to facilitate their
business-related transactions as well as to offer advertisers, sponsors and
e-commerce relationships an attractive environment. The key elements of our
strategy include:
- - INCREASING BRAND AWARENESS. We will continue to build Hoover's brand awareness
and reputation. We intend to build our internal marketing capabilities through
marketing, public relations campaigns and image advertising. We will continue
to increase our name brand and audience through our co-branding relationships
with companies such as THE NEW YORK TIMES and THE WASHINGTON POST.
- - ENHANCING AND EXPANDING CORE CONTENT AND TOOLS. We will continue to build the
depth and breadth of our coverage of companies and industries by expanding our
proprietary database and licensing additional company and industry information
from third parties. We will seek to forge new and expanded distribution and
content relationships. In order to increase the frequency and duration of our
viewers' visits to Hoover's Online, we are developing additional services,
tools and online resource centers that businesspeople can use to perform
mission-oriented tasks in areas such as professional development, business
travel and corporate operations. We intend to enhance our personal offerings
in the areas of non-business news, career planning and personal finance. Our
viewers will be able to customize the news and information they receive by
industry, company, job function and other criteria. Moreover, we plan to offer
new and enhanced tools and media formats, including audio, video and wireless
delivery. By enhancing and expanding our core content and tools, we are making
Hoover's Online the destination where businesspeople improve their
professional skills and transact business multiple times a day.
- - INCREASING THE NUMBER OF VISITORS. We intend to attract more visitors to
Hoover's Online through our marketing relationships, increasing our direct
Internet marketing and advertising on television and radio. We plan to expand
our relationships with frequently visited and well-known Web sites and
establish new relationships that allow us to introduce our proprietary content
to a broader audience. We also intend to create sponsor areas on popular Web
sites frequented by businesspeople.
37
<PAGE>
- - EXPANDING MARKETS AND CHANNELS. To further meet the needs of businesspeople
worldwide, we intend to pursue acquisitions of, and strategic relationships
with, companies with complementary content, services and technologies and to
expand our information and services to cover more business organizations in
international markets. We recently established WWW.HOOVERS.CO.UK to leverage
our coverage of business organizations in the United Kingdom and to begin
establishing our presence in the European market. As businesspeople outside
the United States embrace Internet-based business information and e-commerce,
we will evaluate opening sales offices in Europe, Latin America and Asia.
We believe that this strategy will generate increased revenues from the
following sources:
- - INDIVIDUAL AND ENTERPRISE SUBSCRIPTIONS AND LICENSES. We plan to increase our
subscriber base by increasing the number of visitors to our Web site,
converting both current and new visitors to subscribers and adding new premium
content and services. We intend to create greater customer affinity through
our planned personalization and customization tools, thereby increasing the
frequency and amount of time subscribers spend on our Web site. To increase
the number of our enterprise subscriptions, we plan to significantly increase
the size of our internal sales force in order to sell more enterprise accounts
to organizations and to upgrade existing individual subscribers to enterprise
subscriptions.
- - ADVERTISING, SPONSORSHIP AND E-COMMERCE. We intend to increase our advertising
and e-commerce revenues by capitalizing on the attractive demographics of our
expanding audience. We believe our typical visitor is highly educated,
professional, affluent and comfortable transacting business over the Internet.
As traffic, visit frequency and average time spent at Hoover's Online
increase, our attractiveness to advertisers and e-commerce vendors will be
further enhanced. We also plan to increase the attractiveness of Hoover's
Online to advertisers by ascertaining preferences of our visitors and
targeting those visitors with advertisements, offers and information. We will
continue to seek sponsors for our online resource centers. For instance,
during the 1999 tax season, Intuit sponsored a tax-related resource center. We
will also continue to seek relationships with e-commerce organizations
offering products and services targeted to our audience.
The Hoover's Online Web Site
Hoover's Online provides business information, including detailed company and
industry information, to meet the diverse needs of the mission-oriented
businessperson. This information is created, collected, organized and presented
by an editorial staff of approximately 100 researchers, writers, editors and
Internet content producers.
PROPRIETARY DATABASE
Our proprietary editorial database contains information on approximately 14,000
public and private enterprises worldwide and 45 industries. Our editorial staff
selects companies for coverage using the following criteria:
- - PUBLIC U.S. COMPANIES. We cover every U.S. company traded on the New York
Stock Exchange, American Stock Exchange and Nasdaq National Market System. We
also follow more than 1,200 Nasdaq SmallCap Market companies, as well as a
number of companies that trade on less followed markets, such as Nasdaq's
over-the-counter market. We also add coverage as companies prepare to go
public.
- - PRIVATE U.S. COMPANIES AND OTHER ENTERPRISES. We seek to identify and cover
every private U.S. company with annual revenues greater than $500 million as
well as selected companies with high public profiles. We make a special effort
to cover these companies because we know it is difficult to obtain information
on many of them. We also seek to cover the largest universities, agricultural
co-ops, sports leagues and teams, government-owned enterprises, labor
organizations, mutual insurance companies, hospitals, law firms, charities,
joint ventures, foundations, associations and not-for-profit organizations.
- - NON-U.S. COMPANIES AND SUBSIDIARIES. We cover approximately 2,500 of the
companies judged by our editors to be the most influential international
companies, including substantially all non-U.S. companies known to have annual
sales of more than $5 billion as well as a number of foreign subsidiaries of
U.S. companies and
38
<PAGE>
U.S. subsidiaries of foreign companies. We are continually expanding our
coverage of non-U.S. companies. We follow all firms whose stocks trade in the
United States through American Depository Receipts. We also cover all
companies included on major global stock market indices, including the
Financial Times Stock Exchange 100 Index, Societe de Bourses Francaises 120,
Deutscher Aktienindex (DAX), Milano Indice Borsa (MIB 30), Nikkei 225 Stock
Average, Mexico Price and Quotation Index, Toronto Stock Exchange 100 Index
and Straits Times Industrial Share Price Index.
In addition to offering a broad amount of information, we provide search and
sort tools that make our information more accessible and valuable. Viewers can
search our database by company name, stock exchange ticker symbol, keyword or by
the name of an officer. Subscribers can search using more extensive criteria,
including geographic region, company size or company type. We have expanded
these tools over time, making our services easier to use. For example, our
branded search and sort tools can accommodate common misspellings of enterprise
names.
We allocate editorial resources to mining the Internet for useful information on
companies. For example, our editors choose and display links to news articles
for thousands of the companies we cover. Viewers can also use Hoover's Online to
search the Internet for more business information by employing our links to
search engines. We also provide links to view SEC documents, credit reports and
other information.
Our researchers and editors also review newswires, electronic information
services, major newspapers and business and industry publications to update our
company information daily as news events warrant. In addition to this rigorous
process of daily monitoring and updating, we give each company in our database
an annual comprehensive review. We use these documents, as well as news
articles, the company's annual report and interviews with company
representatives as the primary sources for our updates. Our company financial
information is updated as soon as a company releases its earnings and again when
it makes its filings with the SEC. Market and comparison data are updated daily.
We obtain our information from the following sources:
- - the covered company;
- - Media General Financial Services for financial data on public companies and
non-U.S. firms with sponsored American Depository Receipts;
- - electronic news services such as Bloomberg and Dow Jones;
- - an extensive collection of specialized trade sources; and
- - a variety of other Internet-based and print information resources.
ADVERTISING-SUPPORTED INFORMATION
The free portion of our Web site contains information on approximately 14,000
enterprises. For each company covered, visitors can access, free of charge, the
following: a brief company overview, financial information, a list of top
officers, a list and links to its top three competitors and selected news, SEC
documents, quotes and charts.
HOOVER'S COMPANY CAPSULES. Our company capsules contain information on
approximately 14,000 public and private enterprises in the United States and
internationally. The capsules consist of basic company and financial information
as well as selected Web links.
39
<PAGE>
[Full Page Screen Print of Annotated Company Capsule]
40
<PAGE>
IPO CENTRAL. IPO Central is our branded information source for U.S. companies
that have recently completed an initial public offering or have commenced the
initial public offering process. This service links the user to a subset of our
company capsules, to IPO-related filings from EDGAR Online and to news stories
about the company. Companies covered include those that initially filed with the
SEC on or after May 6, 1996, the first day that all U.S. companies were required
to submit their SEC filings electronically.
STOCKSCREENER. StockScreener allows visitors to use up to 22 criteria to search
for and sort lists of companies. Searchable criteria include: stock exchange,
industry, financial ratios, growth rate, company size, rate of return, profit
margins and volatility. We provide a link back to Hoover's Online capsule for
all companies listed in the Stockscreener results list.
INDUSTRY ZONE. Through Industry Zone, we offer information on selected industry
sectors. Industry Zone features analysis and definitions, as well as links to
industry news and topical books. We also offer 45 Industry Snapshots that
businesspeople can search to learn more about industry trends, jargon and major
companies.
INVESTOR RESOURCES. Investor Resources is a collection of tools that enable
customers to track their portfolios and search for companies' financial
statements, stock quotes, SEC filings and brokerage research reports. This area
also contains links to StockScreener and IPO Central as well as links to
featured investment research through organizations with whom we have strategic
relationships such as Individual Investor Online and Multex.
CAREER CENTER. Career Center enables job seekers and recruiters to research
employment information. For each company on the list of employers, we provide a
link to our company capsule, the company's Web site and company-specific job
openings. We also offer job hunting tips and links to a number of job search and
relocation assistance Web sites as well as Web sites where visitors can locate
industry-focused executive recruiters.
THE STORE. In September 1998, we launched The Store on Hoover's Online to sell
a number of business and consumer products through alliances with vendors and
third-party distributors. Currently, we sell books, compact discs, downloadable
mailing lists, research reports, annual reports, and other business and
consumer-oriented products. We intend to seek relationships with additional
organizations to broaden the scope of products offered through The Store.
HOOVER'S ONLINE PREMIUM CONTENT, SERVICES AND TOOLS
Our premium content, services and tools are only available to our paying
subscribers and include the following:
HOOVER'S COMPANY PROFILES. For approximately 3,500 of the largest,
fastest-growing and most influential companies as judged by our editors,
Hoover's company profiles provide a strategic overview, history, news links,
expanded list of officers and employees, products and operations information and
a comprehensive list of key competitors. Hoover's editors select profiled
companies using their own editorial discretion as well as objective criteria
such as financial significance, news events, market trends and subscriber
interest and demand.
In addition to profiles, our subscribers may access in-depth and historical
financial reports for nearly 8,000 companies. These reports include:
- - detailed financials: up to three years and five quarters of income statements,
balance sheets and cash flow statements;
- - historical financials: up to ten years of selected financial data including,
revenues, net income, number of employees and per share values for dividends
and book value as well as debt ratio, return on equity, current ratio and
other figures for the latest fiscal year end;
- - market data: current stock price, valuation measures and ratios such as
price-to-sales, price-to-cash flow and return on assets. We also include daily
updated information on revenue growth rates, earnings per share and dividends;
and
41
<PAGE>
- - comparison data: financial ratios, per share data and growth rates compared to
industry and market levels.
EXPANDED LISTS OF OFFICERS. Subscribers have access to an expanded list of a
company's officers, including ages, salaries and links to biographies, when
available.
MORE COMPLETE LIST OF COMPETITORS. For each of our profiled companies, we
include a more complete list of competitors. The comprehensive list includes
companies that are pursuing the same customers as the profiled company. Unlike
other business information providers that offer computer-generated and often
inaccurate lists of industry peers, our list of competitors is selected by our
editorial staff.
PRODUCTS/SERVICES/SEGMENT DATA. Our products/services/segment data section
lists a company's products, services, brand names, divisions, subsidiaries and
joint ventures. Information contained in this section varies by company and the
amount of information available. We have included sales and profit information
by business segment if the company publishes that information.
REAL-TIME SEC DOCUMENTS. Through EDGAR Online, our subscribers can access a
company's SEC filings as soon as they are filed. Non-subscribers must wait 24
hours to access the same data.
WATCHLIST. EDGAR Online Watchlist is an automated e-mail service that alerts
subscribers when U.S. public companies they have selected file documents with
the SEC. Subscribers can track all of the company's filings or choose only
selected filings. Individual subscribers can track up to five companies.
Hoover's business licensees can track up to 10 companies.
BUSINESS BONEYARD. Business Boneyard is a collection of historical profiles of
companies that have been absorbed or dissolved because of merger, acquisition,
market trends or weak management. Business Boneyard includes companies such as
Atari Corporation, Digital Equipment Corporation and Santa Fe Pacific
Corporation.
DETAILED INDUSTRY INFORMATION. We provide lists of companies in selected
industries and their sub-sectors.
SEARCH AND SORT TOOLS. Power Tool and Lead Finder are our branded search and
sort engines that allow our subscribers to compile lists of companies by the
following categories:
- - industry: searches may be made by industry, ranging from advertising,
marketing and banking to biomedics, machinery and textiles.
- - location: searches may be performed by metro area, state or country.
- - annual sales: searches may be limited to companies with a specified level of
sales.
- - company type: searches may be limited to public companies, private companies
or non-profit entities.
Subscribers can search for companies using any one search category or may
combine two or more categories. Lead Finder is targeted to sales people
interested in sales prospecting or finding leads. Search results show all the
information in our database that meet the listed criteria. In addition, we
provide links to company Web sites and company-specific job openings when they
are available.
Future Additions to Hoover's Online
As part of our business strategy, we are developing online resource centers
containing a broad array of business-oriented information, products and
services. We expect each of the resource centers to leverage our extensive
proprietary company and industry database. Each resource center will contain a
directory of business-related Web sites, news related to the activities covered
in that center, a targeted search engine, business tools and personalization
options. We anticipate that many of the resource centers will also contain
licensed third-party information.
Most of this information will be free, with discrete areas of high-value
information available only to subscribers or on a pay-per-view basis. The
resource centers are being designed not just to provide information, but also to
42
<PAGE>
provide targeted sponsorship or e-commerce opportunities. For example, in
conjunction with our business travel resource center we intend to sell the right
to book airline tickets to a major travel vendor. In addition to our business
travel resource center, we plan to develop a professional development resource
center that will enable customers to manage recruiting and professional
development more effectively. We also intend to establish a business operations
resource center targeting the needs of corporate managers, entrepreneurs and
others involved in the day-to-day oversight of small and large businesses.
Subscribers and Licensees
As of March 31, 1999, we had over 29,000 individual subscribers, over 1,300
enterprise subscribers and approximately 30 licensees.
INDIVIDUAL SUBSCRIBERS
Our individual subscribers are primarily businesspeople, personal investors and
academics. We believe that we attract a highly educated, professional audience.
Many of our subscribers use our information for sales and marketing activities
and competitive analysis. We attract individual subscribers primarily through
our online offerings of free company and industry information, including our
database of company capsules. Our historical data indicates that the number and
demographic characteristics of visitors to Hoover's Online is highly correlated
to the growth of individual subscriptions.
Individual subscriptions currently cost either $14.95 a month or $109.95
annually. Visitors subscribe by completing the online subscription form or by
sending their completed subscription form to our customer support staff either
by e-mail or facsimile. To better understand our customers and their business
information needs, we ask them to disclose their name, address, job title and
company name.
ENTERPRISE SUBSCRIBERS
Enterprise subscriptions are sold to organizations on a multiple seat basis and
include features not available to our individual subscribers. We offer
enterprise subscriptions and publish subscription prices for groups ranging from
10 to 1,000 people. Our enterprise subscribers consist primarily of sales and
marketing professionals, some of whom may have access to other paid information
sources. We also sell enterprise subscriptions to public and academic libraries.
Our inside sales force pursues enterprise subscriptions from leads generated
from visitors to Hoover's Online. We ask potential subscribers a series of
questions to help the visitor select between an individual subscription or an
enterprise subscription. Those who choose an enterprise subscription are
contacted by members of the inside sales force. The salesperson then assists the
subscriber in selecting the size of license most appropriate for the
subscriber's needs, and when appropriate, offers the option of an intranet feed.
LICENSEES
We license portions of our database to third parties for redistribution. Our
licensees range from traditional online service providers such as Dow Jones
Interactive and LEXIS-NEXIS, to other Web sites, such as Yahoo! Finance,
Dowjones.com and Go/Infoseek. In June 1999, we entered into an agreement to
license a portion of our content for distribution and marketing by NBC, CNBC and
CNBC.com. We provide our licensees with a customized data feed of our
proprietary company information. Data feeds vary depending upon the information
requested by the licensee, the number of licensed seats and the fee. License
fees are based upon variables, such as the number of seats, the number of
capsules viewed or the number of terminals.
INTRANET SUBSCRIBERS
We provide information from our proprietary database through intranet feeds when
a subscriber has technical or business constraints that prevent the subscriber's
employees from accessing Hoover's Online through the
43
<PAGE>
Internet. The information we provide through intranet feeds is advertising free.
Moreover, subscribers have control of the information, giving them greater
flexibility at to how to apply the information. In order to obtain an intranet
feed a subscriber must have at least 1,000 seats. Intranet subscriptions start
at $36,000 and are adjusted further depending upon the content licensed, the
number of individuals with access to the content and the frequency of the feed
itself. In fiscal 1999, we derived the largest percentage of our intranet
subscriber revenues from Andersen Worldwide. Andersen Worldwide integrates our
content into its Knowledgespace.com intranet for access by Andersen
professionals.
Advertising, Sponsorships and E-commerce
We are focused on providing our advertisers, sponsors and e-commerce
relationships with a large, demographically desirable audience. We believe
Hoover's Online attracts visitors who as a group are highly educated,
professional, affluent and comfortable transacting business over the Internet.
We display advertisements throughout Hoover's Online and sponsorship,
advertising and e-commerce revenues support the free portions of our Web site.
Our sales force is comprised of account executives and sales staff members. Our
account executives handle high-level relationships with clients and advertising
agencies as well as work closely with our sales staff. We will continue to build
our sales force over the next few months.
ADVERTISING
We offer a variety of advertising options that may be purchased individually or
in packages. We offer banners and button advertisements on our site that can be
rotated on a run of site basis or targeted to a particular audience. Run of site
advertisements appeal to advertisers seeking general brand recognition across
Hoover's audience. Banners and buttons are generally sold under short-term
contracts or insertion orders based on a price per thousand impressions. The
following is a representative list of the organizations that advertised on
Hoover's Online in fiscal 1999 based on their level of spending on Hoover's
Online as well as their representative industries:
Bell Atlantic
British Airways
Chase Manhattan
Cobra Golf
Delta Airlines
E*Trade
Fidelity
Gateway
Intel
Intuit
MasterCard
Nortel
PeopleSoft
PricewaterhouseCoopers
Staples
TCI
Volvo
THE WALL STREET JOURNAL
SPONSORSHIPS
Sponsorships are available to organizations who want fixed placement
advertisements as well as integration and association with our editorial
content. Sponsorships integrate an advertiser's message with Hoover's Online
content in a number of creative, contextual ways. For example, Intuit recently
sponsored a Tax Center designed by our editorial staff to help visitors with
filing their income taxes. Sponsorships are generally priced as a fixed monthly
fee depending on their location on our Web site.
E-COMMERCE
We generate e-commerce revenues from advertisers who pay either a fee per
transaction or a percentage of sales directly generated by their placement on
our Web site. These fees can originate from buttons, banners, or in-context text
links within Hoover's Online. For example, in February 1999, we entered into a
one-year e-commerce and sponsorship agreement with Multex.com. Under this
contract, we integrate opportunities to purchase Multex.com Research Reports
into Hoover's Online editorial and provide a variety of special promotions. We
work with Multex.com to effectively target and position Multex products on our
Web site.
44
<PAGE>
Under each of our e-commerce contracts, we share a percentage of any sale made
by that organization through our Web site. A number of our e-commerce contracts
contain advertising components whereby the organization pays us an advertising
fee in addition to revenue sharing. Our e-commerce contracts are generally one
year in length. A few of the contracts terminate after six months.
COMBINATION SALES
Many of our agreements combine advertising, sponsorship and e-commerce
component. For instance, current agreements have both advertising and e-commerce
components. Under these contracts, we may guarantee to an organization a fixed
number of impressions per year or a fixed number of customers. In return, the
organization may pay us a per quarter advertising fee and a commission for
sending new customers to their Web site. They also pay us a referral fee on
products that they sell through our Web site.
Marketing and Content Relationships
MARKETING RELATIONSHIPS
We have relationships with frequently visited and well-known Web sites in order
to expand our audience. For many of these relationships, we build customized
versions of our company capsules to be integrated into their Web site. A
customized company capsule may feature links to portions of the other Web site
as well as links back to Hoover's Online for additional information. By
incorporating links back to our Web site, we can introduce our premium
information to a broader audience while displaying our free
advertising-supported company information within the context of the other Web
site. Marketing relationships may provide us with additional content to
incorporate into our Web site. For instance, we integrate stock quotes from CBS
MarketWatch. Our marketing relationships are important for increasing our brand
awareness and attracting new visitors to our Web site. We will continue to
pursue relationships that increase our brand name and introduce new audiences to
our information.
Our key marketing relationships include:
GO/INFOSEEK NETWORK. Since September 1995, Infoseek has integrated our
proprietary company capsules, industry and initial public offering information
into the Go/Infoseek network. When a visitor searches for a company on the
Go/Infoseek Web site, the visitor is provided the opportunity to link to a
co-branded company capsule. This relationship delivers a high level of traffic
to Hoover's Online and provides increased branding for our content.
Additionally, we work with Go/Infoseek to promote Hoover's Online subscriptions
for Go/Infoseek visitors.
MICROSOFT NETWORK. Since October of 1995, Hoover's has had a business
relationship with Microsoft regarding a number of products including Microsoft
Network, Microsoft Investor, and MoneyCentral. Subscribers to Microsoft Investor
receive access to our company profiles of public companies as part of their
subscription.
The following table contains a representative list of our marketing
relationships:
<TABLE>
<S> <C>
America Online Microsoft Network
BigCharts THE NEW YORK TIMES
CBS MarketWatch THE WASHINGTON POST
Go/Infoseek Yahoo!
</TABLE>
We believe that marketing relationships of this type are important to our
continued growth and to increase our exposure to our target audience. We intend
to continue to aggressively pursue additional marketing relationships.
45
<PAGE>
CONTENT PROVIDERS
We have contracted with a number of key content providers to expand our product
offering and services. We require our content providers to maintain standards
for quality, timeliness and customer service similar to our own. When we find
complementary content from a qualified source, we enter into agreements that
allow us to integrate that content tightly into our products. Our goal is to
provide the best collection of information in context for our visitors and
subscribers. We currently have contracts with the following content providers:
BigCharts, CBS MarketWatch, Data Downlink, EDGAR Online and Media General
Financial Services.
For more than five years, we have contracted with Media General Financial
Services to publish and redistribute their company financial data as part of our
company information database. In July of 1996, we entered into a relationship
with EDGAR Online to provide our visitors with access to EDGAR Online's database
of electronic SEC documents. Since then, we have expanded the relationship to
include additional content and services for Hoover's Online subscribers.
CD-ROM and Print Sales
We continue to publish CD-ROMs and reference books containing information from
our database of company information and from third parties, although we have
discontinued producing books suitable for distribution through bookstores. We
produce these products annually and sell them directly to libraries and
individuals through traditional direct marketing techniques, including the
production and mailing of two catalogs per year, post-cards and other direct
mail pieces and promotion on Hoover's Online. We also sell books published by
other organizations. We expect to continue to produce and sell CD-ROMs and books
for at least the next two years. However, revenues from these products will
continue to decline as a percentage of our total revenues.
Customer Service and Support
We provide customer service and support in response to inquiries from customers
who contact us primarily by e-mail and phone. The customer support staff
generally responds to all e-mail inquiries within 24 hours. We provide a
toll-free telephone line for customer orders. We believe that providing a high
level of customer support free of charge is necessary to retain our current
customers and to acquire new ones.
Web Site Operations and Technology
We are currently transitioning our Web site from a Silicon Graphics server to
Sun enterprise class servers. Moreover, we are replacing our current database
engine with an Oracle 8 database engine. Oracle has contracted to provide us
with software and support to meet the changes expected in our Web environment.
They have also agreed to provide us with their Context search engine. We are
replacing our flat file content management systems with Vignette's StoryServer
4.2. We perform tape back-ups for all systems daily; however, we do not
currently have backup servers in place to continue service if we experience a
major hardware failure.
Hoover's Online is hosted by IXC Communications. IXC provides comprehensive
technical facilities management, including continuous monitoring services,
multiple high volume access lines to the Internet, uninterrupted power supply,
generator, security and protection from disaster. We are currently establishing
a backup system to be hosted by GTE. By establishing IXC as our primary hosting
facility and GTE as our backup hosting facility, we expect to reduce the risk of
service failure and expand our ability to handle increased traffic.
After our transition, Hoover's Online will maintain its same "look and feel."
The upgrades are intended to facilitate expanded service offerings on Hoover's
Online. The hardware upgrades should decrease processing time, and will enable
us to handle an increased number of visitors.
46
<PAGE>
Competition
Many Web sites compete for the attention and spending of businesspeople and
advertisers, particularly in the business information area. We expect this
competition to continue to increase. We compete for subscribers, visitors,
advertisers and content providers with many types of companies, such as:
- - tiered Web sites focused on business, such as The Wall Street Journal
Interactive Edition;
- - providers of company information, such as Dun & Bradstreet, MarketGuide and
Standard & Poor's;
- - providers of proprietary business information, such as Bloomberg Business
News, Dow Jones and Reuters News Service;
- - business information aggregators, such as Dialog, LEXIS-NEXIS and OneSource;
- - consumer-oriented Web sites, such as Excite and Lycos; and
- - other Web sites with a business orientation or a business channel.
We also compete with a number of organizations with whom we have strategic
relationships.
Our ability to compete depends on many factors, including:
- - the originality, timeliness, comprehensiveness and trustworthiness of our
content and that of our competitors;
- - the cost of our services compared to our competitors;
- - the ease of use of services developed either by us or our competitors;
- - the usefulness of our tools;
- - the attractiveness of the demographic characteristics of our audience; and
- - the effectiveness of our sales and marketing efforts.
Government Regulation
We are subject, both directly and indirectly, to various laws and governmental
regulations relating to our business. There are currently few laws or
regulations directly applicable to commercial online services or the Internet.
However, due to increasing popularity and use of commercial online services and
the Internet, it is possible that a number of laws and regulations may be
adopted with respect to commercial online services and the Internet. These laws
and regulations may cover issues including, for example, user privacy, pricing
and characteristics and quality of products and services. Moreover, the
applicability to commercial online services and the Internet of existing laws
governing issues including, for example, property ownership, libel and personal
privacy, is uncertain and could expose us to substantial liability. Any new
legislation or regulation or the application of existing laws and regulations to
the Internet could have a material and adverse effect on our business, results
or operations and financial condition. In Texas, sales of goods over the
Internet are taxed the same as sales of personal property through traditional
channels.
As our services are available over the Internet anywhere in the world, multiple
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each of those jurisdictions. Our failure to qualify as a
foreign corporation in a jurisdiction where we are required to do so could
subject us to taxes and penalties for the failure to qualify. It is possible
that state and foreign governments might also attempt to regulate our
transmissions of content on our Web site or on the Web sites of others or
prosecute us for violations of their laws. We cannot assure you that violations
of local laws will not be alleged or charged by state or foreign governments,
that we might not unintentionally violate these laws or that these laws will not
be modified, or new laws enacted, in the future.
47
<PAGE>
Intellectual Property
Our proprietary database of company information is copyrighted. To protect our
rights to intellectual property, we rely on a combination of copyright law,
trademark, trade secret protection, confidentiality agreements and other
contractual arrangements with our clients, strategic relationships and others.
The protective steps we have taken may be inadequate to deter misappropriation
of our proprietary information. We may be unable to detect the unauthorized use
of, or take appropriate steps to enforce, our intellectual property rights. We
have registered a number of our trademarks in the United States, and we have
pending U.S. applications for other trademarks. Effective trademark, copyright
and trade secret protection may not be available in every country in which we
offer or intend to offer our services. In addition, although we believe that our
proprietary rights do not infringe on the intellectual property rights of
others, other parties may assert infringement claims against us or claims that
we have violated a patent or infringed a copyright, trademark or other
proprietary rights belonging to them. These claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources on our part, which could materially and adversely affect our business,
results of operations and financial condition. We incorporate licensed third
party technology in some of our services. In these license agreements, the
licensors have generally agreed to defend, indemnify and hold us harmless with
respect to any claim by a third party that the licensed software infringes any
patent or other proprietary right. We cannot assure you that these provisions
will be adequate to protect us from infringement claims. The loss or inability
to obtain or maintain any of these technology licenses could result in delays in
the introduction of new services.
Human Resources
As of March 31, 1999, we employed 162 full-time employees, consisting of 31 in
sales and marketing and customer service, 98 in editorial, 10 in administration
and 23 in technology, operations and support. In addition, we employ free-lance
business writers and editors. As we continue to grow and introduce more
products, we expect to hire more personnel, particularly in the areas of product
development and technology. None of our current employees are represented by a
labor union. We believe that our relationship with our employees are good.
Competition for qualified personnel in our industry is intense.
Properties
We are headquartered in Austin, Texas. Our principal facility consists of
approximately 23,000 square feet and covers two floors at 1033 La Posada Drive.
The lease for this facility will expire on April 30, 2001. We currently
anticipate that we will require additional space in the next 12 months as we
hire more personnel. We believe that suitable additional space will be available
on commercially reasonable terms to accommodate expansion of our operations.
Legal Proceedings
We are not currently subject to any material legal proceedings.
48
<PAGE>
Management
Executive Officers and Directors
The following table sets forth certain information concerning the executive
officers and directors of Hoover's:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Name Age Position with the Company
- -------------------------------------------------------------------------------------------------------------------------
Patrick J. Spain+............. 47 Chairman of the Board, Chief Executive Officer and President
Carl G. Shepherd.............. 46 Executive Vice President and Chief Operating Officer
Elisabeth DeMarse............. 44 Executive Vice President, Content, Strategy and Acquisitions
Lynn Atchison................. 39 Senior Vice President, Finance and Chief Financial Officer
Gordon T. Anderson............ 34 Vice President, Editor-in-Chief
Thomas M. Ballard............. 40 Vice President, Technology and Chief Information Officer
William R. Cargill............ 32 Vice President, Marketing
George W. Howe................ 43 Vice President, Sales
Jani Farlow Spede............. 31 Vice President, Advertising and E-commerce
Leslie A. Wolke............... 32 Vice President, Web Operations
William S. Berkley*........... 42 Director
Alan Chai..................... 46 Director
Thomas J. Hillman+............ 43 Director
Gary E. Hoover*............... 48 Director
Laurence J. Kirshbaum*........ 54 Director
Stephen R. Zacharias+......... 49 Director
</TABLE>
- ------------------------
* Member of Compensation Committee.
+ Member of Audit Committee.
Patrick J. Spain has served as Hoover's Chairman of the Board since September
1994 and as Chief Executive Officer since 1993. Mr. Spain joined Hoover's within
weeks of its founding in 1990 by his long-time friend and business partner Gary
Hoover. Prior to joining Hoover's, Mr. Spain worked as an economic consultant,
an in-house counsel for a high technology company, a real-estate developer, and
as a mergers and acquisitions executive at a subsidiary of a FORTUNE 500
company. He holds a B.A. in Ancient History from the University of Chicago and a
J.D. from Boston University.
Carl G. Shepherd has served as Hoover's Executive Vice President and Chief
Operating Officer since June 1997. From August 1995 to June 1997, Mr. Shepherd
served as Vice President, Business Development of Human Code, a software
development company. From December 1992 to March 1995, Mr. Shepherd served as
Chief Financial Officer of Hanley-Wood, a trade magazine publisher. Mr. Shepherd
has held positions with both consumer and trade magazine publishers including
TEXAS MONTHLY, BUILDER AND REMODELING and the DALLAS MORNING NEWS. Previously,
Mr. Shepherd was a senior manager with Andersen Consulting's New York office.
Mr. Shepherd holds a B.A. in Business Administration from Texas Christian
University and a M.B.A. from the University of Texas.
Elisabeth DeMarse has served as Hoover's Executive Vice President, Content,
Strategy and Acquisitions since April 1999. From February 1999 to April 1999,
Ms. DeMarse was a consultant to Hoover's. From October 1998 to January 1999, Ms.
DeMarse was a consultant to GTCR Golden Rauner, a private equity investment
firm. From December 1988 to July 1998, Ms. DeMarse served as Vice President,
Marketing and Business Development of Bloomberg, a financial information
provider. From October 1985 to December 1988, Ms. DeMarse served as a Vice
President of Citicorp where she was responsible for business development. From
49
<PAGE>
June 1980 to June 1985, Ms. DeMarse served as Director of Marketing for Western
Union, a provider of communications services. Ms. DeMarse holds a B.A. from
Wellesley College and a M.B.A. from Harvard Business School.
Lynn Atchison has served as Hoover's Chief Financial Officer and Vice President,
Finance and Administration since May 1996. Ms. Atchison was promoted to Senior
Vice President, Finance in March 1999. From November 1993 to April 1996, Ms.
Atchison served as Chief Financial Officer of Travelogix, a provider of travel
ticketing systems software. Prior to that, Ms. Atchison worked for Trilogy
Development, a provider of sales automation software, and worked for eight years
as a certified public accountant with Ernst & Young. Ms. Atchison holds a B.B.A.
in Accounting from Stephen F. Austin State University.
Gordon T. Anderson has served as Hoover's Vice President, Editor-in-Chief since
May 1998. From August 1996 to May 1998, Mr. Anderson served as Vice President,
Content of Planet Direct, an Internet service company and wholly owned
subsidiary of CMG Information. From January 1989 to August 1996, Mr. Anderson
co-founded and served as Editorial Director of Individual Investor Group, a
media company. As editorial director there, he supervised the company's
editorial operations which grew to include a Web site and two magazines,
INDIVIDUAL INVESTOR and TICKER, an investment newsletter. Mr. Anderson holds a
B.A. in U.S. History from the University of Pennsylvania.
Thomas M. Ballard has served as Hoover's Vice President, Technology and Chief
Information Officer since October 1998. From March 1987 to July 1998, Mr.
Ballard served as Vice President of Medianet/TradeOne, a subsidiary of
Affiliated Computer Services, where he designed, developed and maintained
systems to track marketing, advertising, and financial data for companies in the
high tech industry. Mr. Ballard holds a B.A. in Computer Information Systems
with emphasis on Business Management from Southwest Texas State University.
William R. Cargill has served as Hoover's Vice President, Marketing since April
1999. From October 1998 to March 1999, Mr. Cargill served as Hoover's Director
of Subscriptions and from January 1998 to September 1998 he served as Director,
Strategic Planning and Analysis. From July 1995 to January 1998, Mr. Cargill
held positions as Senior Editor, Marketing Analyst and Writer at Hoover's. From
June 1994 to April 1995, Mr. Cargill was a foreign exchange broker for Compwell
Financial, a brokerage firm. Mr. Cargill holds a B.A. in Mathematics and English
from Vanderbilt University and a M.B.A. from the University of Texas.
George W. Howe has served as Hoover's Vice President, Sales since January 1999.
From March 1997 to December 1988, Mr. Howe served as Vice President, Products
for Standard & Poor's, a provider of business information. From January 1993 to
February 1997, Mr. Howe served as Vice President, Western Region for Standard &
Poor's. While employed by Standard & Poor's, Mr. Howe supervised sales of
client-based solutions in the Equity Security, Compustat and Debt Rating areas.
Mr. Howe also supervised the Investor Relations Products Group's successful
launch of new products, incorporating content from Nasdaq Bulletin Boards and
Canadian companies. Mr. Howe holds a B.A. in political science from Duke
University.
Jani Farlow Spede has served as Hoover's Vice President, Advertising and
E-commerce since March 1999. From December 1996 to March 1999, Ms. Spede served
as Hoover's Vice President, Marketing and Communications. From January 1996 to
December 1996, Ms. Spede served as Hoover's Director, Corporate Communications
and from September 1995 to January 1996, served as Hoover's Publicity Manager.
She directs strategic alliances and customer service for Hoover's. Prior to
joining Hoover's, Ms. Spede directed online strategic planning and coordinated
publicity and community affairs for Shands Hospital at the University of
Florida. Ms. Spede holds a B.S. in English from Ball State University.
Leslie A. Wolke has served as a Vice President since February 1998 and as Vice
President, Web Operations since May 1999. From November 1996 to January 1998,
Ms. Wolke served as Hoover's Director, Business Development. From August 1995 to
October 1996, she served as Hoover's Brand Manager, and from May 1995
50
<PAGE>
to July 1995, she served as Hoover's Online Production Manager. Prior to joining
Hoover's, Ms. Wolke served as Production Manager for Intelliquest, Inc., a
market research firm, and for The Technology Research Group, Inc., a management
consulting firm. Ms. Wolke received a B.A. in Art History from The University of
Chicago.
William S. Berkley has served as a director of Hoover's since 1991. Mr. Berkley
has served as President and Chief Executive Officer of Tension Envelope, a paper
products company, since 1981. Mr. Berkley holds a B.A. in History from Colorado
College and a M.B.A. from The Amos Tuck School of Business.
Alan Chai has served as a director of Hoover's since December 1990. Mr. Chai has
served as Senior Technology Analyst of Shott Capital Management, LLC, a private
equity firm, since May 1997 where he specializes in the analysis of Internet
companies. Mr. Chai joined Hoover's in 1990 and served in a number of officer
positions, including Vice President, until 1995 and served as a part-time Senior
Contributing Editor until December 1998. Until February 1999, Mr. Chai served as
a director of TravelFest Superstores, a travel-related superstore founded by
Gary Hoover in 1994. Mr. Chai holds a B.A. in Business from the University of
Chicago, a M.B.A. in Finance and Marketing from the University of Chicago and a
M.B.A. in International Business from Catholic University of Leuven, Belgium.
Thomas J. Hillman has served as a director of Hoover's since December 1992. Mr.
Hillman has served as President and Chief Executive Officer of Fresh Fish, a
seafood retailer, since January 1986. Since May 1998, Mr. Hillman has served as
a board member of Amerindia, a travel tour operator. From January 1991 to
January 1998, Mr. Hillman served as a director and vice president of Rainforest
Acqualoture Products, a seafood producer. From July 1990 to November 1997, Mr.
Hillman served as Chairman of the Board of National Equity, a mortgage
origination and finance company. Mr. Hillman holds a B.A. in Economics from
Washington University.
Gary E. Hoover is the founder of Hoover's and has been a member of the board of
directors since Hoover' inception in February 1990. From February 1990 to
September 1994, Mr. Hoover served as Hoover's Chairman of the Board of Directors
and from February 1990 to December 1992, served as Hoover's Chief Executive
Officer. Since January 1994, Mr. Hoover has served as Chairman of the board of
directors and Chief Executive Officer of TravelFest Superstores, a
travel-related superstore that he founded. In 1982, Mr. Hoover founded Bookstop,
a book superstore, and later sold the company to Barnes & Noble. Since 1995, Mr.
Hoover has also been a professional speaker on entrepreneurialism. Mr. Hoover
holds a B.A. in Economics from the University of Chicago.
Laurence J. Kirshbaum has served as a director of Hoover's since March 1994. Mr.
Kirshbaum has served as Chairman and Chief Executive Officer of Time Warner
Trade Publishing, a wholly-owned subsidiary of Time Warner, since June 1996.
From April 1984 to June 1996, Mr. Kirshbaum served as President and Chief
Executive Officer of Warner Books, a trade book publisher and wholly-owned
subsidiary of Time Warner Trade Publishing. Mr. Kirshbaum serves as a director
for Engineering Animation, a publicly-held provider of software tools for three
dimensional design and animation. Mr. Kirshbaum holds a B.A in English from the
University of Michigan.
Stephen R. Zacharias has served as a director of Hoover's since September 1997.
Mr. Zacharias has served as Treasurer of Media General, a publicly-held
communications company, since January 1993. Mr. Zacharias holds a B.S. in
Commerce from the University of Virginia.
Board of Directors and Committees
Our board of directors is currently composed of seven members. Each director
holds office until the next annual meeting of the stockholders or until his
successor is duly elected and qualified. Our certificate of incorporation and
bylaws provide that, beginning with the first annual meeting of stockholders
following the closing of this offering, the board of directors will be divided
into three classes, with each class serving staggered, three-year terms.
51
<PAGE>
The board of directors has created a compensation committee and an audit
committee. The compensation committee makes recommendations to the board of
directors concerning salaries and incentive compensation for our officers and
employees and administers our stock option plans. The members of the
compensation committee are Messrs. Berkley, Hoover and Kirshbaum. The audit
committee makes recommendations to the board of directors regarding the
selection of independent auditors, reviews the results and scope of audits and
other accounting-related services and reviews and evaluates Hoover's internal
control functions. The members of the audit committee are Messrs. Hillman, Spain
and Zacharias.
Director Compensation
In fiscal 1999, each member of our board of directors, except Mr. Spain,
received a warrant to purchase 7,284 shares of common stock at an exercise price
of $4.46 per share. These warrants expire in December 2007. Warrants entitled to
be received by Messrs. Kirshbaum and Zacharias were issued to Warner Books and
Media General respectively. In addition, each director was reimbursed for his
reasonable out-of-pocket expenses incurred in connection with attending meetings
of the board of directors.
We anticipate that, for an undetermined period following the offering, our
directors will not be paid any fees or cash compensation for service as members
of the board of directors or any committee thereof, but will be reimbursed for
any reasonable out-of-pocket expenses incurred in connection with attending
meetings of the board of directors and any committees thereof. In addition,
directors who are not employees of Hoover's will annually receive automatic
grants of non-qualified options to purchase 2,000 shares of common stock under
our 1999 Stock Incentive Plan. Non-employee directors will also receive an
option to purchase 6,900 shares of common stock upon consummation of this
offering and each non-employee who first joins our board of directors after this
offering will receive an option to purchase 6,900 shares of common stock upon
joining the board.
Limitation of Liability and Indemnification Matters
Our bylaws provide for mandatory indemnification of directors and officers to
the fullest extent permitted by Delaware law. Prior to consummation of this
offering, we intend to obtain additional directors' and officers' liability
insurance and expect to enter into indemnification agreements with all of our
directors and executive officers. In addition, our certificate of incorporation
limits the liability of our directors to us or our stockholders for breaches of
the directors' fiduciary duties to the fullest extent permitted by Delaware law.
Compensation Committee Interlocks and Insider Participation
Our board's compensation committee consists of Messrs. Berkley, Hoover and
Kirshbaum. No member of the compensation committee serves as an officer or
employee of Hoover's. No member of the compensation committee serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of our board of directors or its
compensation committee.
Employment Contracts
Our officers serve at the discretion of the board of directors. We do not
presently have an employment contract in effect with any of our officers.
Executive Compensation
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
earned by our Chairman of the Board, Chief Executive Officer and President and
our Executive Vice President and Chief Operating Officer, whom we refer to as
the named executive officers, for services rendered in all capacities to us
during the fiscal
52
<PAGE>
year ended March 31, 1999. No other employees received salary and bonus in
excess of $100,000 during the fiscal year ended March 31, 1999. The salaries of
Messrs. Spain and Shepherd exclude certain perquisites and other benefits which
did not exceed 10% of that individual's total salary and bonus.
<TABLE>
<CAPTION>
--------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term
Compensation
Annual Compensation Shares
--------------------- Underlying
Name and Principal Positions Fiscal Year Salary Bonus Options
------------- ---------- --------- ------------
Patrick J. Spain ............................................... 1999 $ 144,236 $ 25,000 72,840
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
Carl G. Shepherd ............................................... 1999 $ 97,694 $ 12,000 103,433
EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATING OFFICER
</TABLE>
OPTION GRANTS IN FISCAL 1999. The following table sets forth information
concerning stock options granted to each of the named executive officers during
the year ended March 31, 1999. No stock appreciation rights were granted to
these individuals.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Potential Realizable
Value
of Assumed Annual Rates
Number of of Stock Price
Securities % of Total Appreciation for
Underlying Options Granted Options Term
Options to Employees in Exercise Price Expiration -----------------------
Name Granted Fiscal Year Per Share Date 5% 10%
----------- ----------------- --------------- ----------- ----------- ----------
Patrick J. Spain................ 72,840 11.1% $ 4.46 6/24/08 $ 204,307 $ 517,753
Carl G. Shepherd................ 103,433 15.8 4.46 6/24/08 290,116 735,211
</TABLE>
During the year ended March 31, 1999, we granted employees, including Messrs.
Spain and Shepherd, options to purchase 654,977 shares of common stock under the
1996 Stock Option Plan. Shares underlying options generally vest ratably over a
three- to four-year period. Each option expires on the earlier of ten years from
the date of grant or six months from termination of the optionee's employment
with us.
The amount shown as potential realizable value represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission and
do not represent our estimate or projection of our future common stock prices.
These amounts represent certain assumed rates of appreciation in the value of
our common stock from the fair market value on the date of grant. Actual gains,
if any, on stock option exercises are dependent on the future performance of our
common stock and overall stock market conditions. The amounts reflected in the
table may not necessarily be achieved.
53
<PAGE>
YEAR-END OPTION EXERCISES IN FISCAL 1999 AND MARCH 31, 1999 OPTION VALUES. The
following table shows the number of shares covered by both exercisable and
unexercisable stock options held by the named executive officers as of the year
ended March 31, 1999, and the values for exercisable and unexercisable options.
Options are in-the-money if the market value of the shares covered thereby is
greater than the option exercise price. This calculation is based on the assumed
initial public offering price of $13.00 per share, less the exercise price.
Messrs. Spain and Shepherd did not acquire any shares of common stock through
exercise of stock options in fiscal 1999.
<TABLE>
<CAPTION>
-------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at March 31, In-the-Money Options at
1999 March 31, 1999
------------------------ -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Patrick J. Spain............................... 340,614 96,426 $2,492,150 $ 541,900
Carl G. Shepherd............................... 41,373 165,492 213,000 1,150,200
</TABLE>
Stock Option Plans
PREDECESSOR STOCK OPTION PLANS. Our board of directors has adopted and our
stockholders have approved the 1990 Stock Option Plan, the 1992 Stock Option
Plan, the 1995 Stock Option Plan and the 1996 Stock Option Plan. These stock
option plans provide for the awards of incentive stock option and non-qualified
stock options to our directors, officers and employees. Our board of directors
administers each of the option plans. Employee options generally vest ratably
over a three- to four-year period commencing with the date of grant and expire
ten years after the date of grant, unless terminated earlier.
1999 STOCK INCENTIVE PLAN. The 1999 Stock Incentive Plan is intended to serve
as the successor equity incentive plan to our existing stock option plans. The
1999 plan became effective on June 8, 1999 upon adoption by the board of
directors and approval by the stockholders. Certain amendments to the automatic
option grant program under the 1999 plan were adopted by the board of directors
on June , 1999 and approved by the stockholders on June , 1999. Common stock
has initially been authorized for issuance under the 1999 plan in the amount of
2,893,831. This initial share reserve is comprised of the 2,132,653 shares which
remained available for issuance under predecessor plans on the effective date of
the 1999 plan plus an additional increase of 761,178 shares. In addition, the
share reserve will automatically be increased on the last trading day of January
each calendar year, beginning in January 2000, by a number of shares equal to
two percent of the total number of shares of common stock outstanding on the
first trading day of the immediately preceding calendar year, but no such annual
increase shall exceed 364,200 shares. However, in no event may any one
participant in the 1999 plan receive option grants or direct stock issuances for
more than 364,200 shares in the aggregate per calendar year.
Outstanding options under our prior option plans have been incorporated into the
1999 plan, and no further option grants will be made under these plans. The
incorporated options will continue to be governed by their existing terms,
unless the plan administrator elects to extend one or more features of the 1999
plan to those options. However, except as otherwise noted below, the outstanding
options under the predecessor stock option plans contain substantially the same
terms and conditions summarized below for the discretionary option grant program
in effect under the 1999 plan.
The 1999 plan is divided into five separate components:
1. the discretionary option grant program under which eligible individuals in
our employ or service, including officers, non-employee board members and
consultants, may, at the discretion of the plan administrator, be granted
options to purchase shares of common stock at an exercise price determined
by the plan administrator;
54
<PAGE>
2. the stock issuance program under which such individuals may, in the plan
administrator's discretion, be issued shares of common stock directly,
though the purchase of such shares at a price determined by the plan
administrator or as a bonus tied to the performance of services;
3. the salary investment option grant program under which executive officers
and other highly compensated employees may elect to apply a portion of their
base salary to the acquisition of special below-market stock option grants;
4. the automatic option grant programs under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
5. the director fee option grant program pursuant to which the non-employee
board members may apply a portion of the annual retainer fee, if any,
otherwise payable to them in cash each year to the acquisition of special
below-market option grants.
The discretionary option grant program and the stock issuance program will be
administered by the compensation committee of the board. The compensation
committee, as plan administrator, will have complete discretion to determine
which eligible individuals are to receive option grants or stock issuances, the
time or times when such option grants or stock issuances are to be made, the
number of shares subject to each such grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the U.S. federal tax laws, the vesting schedule to be in effect for
the option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. The administration of the salary investment
option grant program, the automatic option grant program and the director fee
option grant program will be self-executing in accordance with the express
provisions of each program.
The exercise price for the shares of common stock subject to option grants made
under the 1999 plan may be paid in cash or in shares of common stock valued at
fair market value on the exercise date. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee. In addition,
the plan administrator may provide financial assistance to one or more
participants in the 1999 plan in connection with their acquisition of shares, by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the option exercise price and or direct issue
price plus any associated withholding taxes incurred in connection with such
acquisition.
In the event of an acquisition of Hoover's, whether by merger or asset sale or a
sale by the stockholders of more than 50% of the total combined voting power of
Hoover's stock recommended by the board, each outstanding option under the
discretionary option grant program which is not to be assumed by the successor
corporation or otherwise continued will automatically accelerate in full, and
all unvested shares under the discretionary option grant and stock issuance
programs will immediately vest, except to the extent our repurchase rights with
respect to those shares are to be assigned to the successor corporation or
otherwise continued in effect. The plan administrator will have the authority
under the discretionary option grant program to provide that the shares subject
to options granted under that program will automatically vest:
1. upon an acquisition of Hoover's, whether or not those options are assumed or
continued;
2. upon a hostile change in control of Hoover's effected through a successful
tender offer for more than 50% of our outstanding voting stock or by proxy
contest for the election of board members; or
3. in the event the individual's service is terminated, whether involuntarily
or through a resignation for good reason, within a designated period, not to
exceed 18 months, following an acquisition in which those options are
assumed or otherwise continued in effect or a hostile change in control.
55
<PAGE>
The vesting of outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions. Options currently outstanding
under the predecessor plans will accelerate either at the time of an acquisition
or a change in control.
In the event the plan administrator elects to activate the salary investment
option grant program for one or more calendar years, each executive officer and
other highly compensated employee of Hoovers selected for participation may
elect, prior to the start of the calendar year, to reduce his or her base salary
for that calendar year by a specified dollar amount not less than $10,000 nor
more than $50,000. In return, the individual will automatically be granted, on
the first trading day in the calendar year for which the salary reduction is to
be in effect, a non-statutory option to purchase that number of shares of our
common stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of the common stock on the grant date. The
option will be exercisable at a price per share equal to one-third of the fair
market value of the option shares on the grant date. As a result, the total
spread on the option shares at the time of grant will be equal to the salary
reduction amount. The option will become exercisable in a series of 12 equal
monthly installments over the calendar year for which the salary reduction is to
be in effect and will be subject to full and immediate vesting upon certain
changes in the ownership or control of Hoovers.
Stock appreciation rights are authorized for issuance under the discretionary
option grant program which provide the holders with the election to surrender
their outstanding options for an appreciation distribution from Hoover's equal
to the excess of (1) the fair market value of the vested shares of common stock
subject to the surrendered option over (2) the aggregate exercise price payable
for such shares. Such appreciation distribution may be made in cash or in shares
of common stock. There are currently no outstanding stock appreciation rights
under the predecessor plans.
The plan administrator has the authority to effect the cancellation of
outstanding options under the discretionary option grant program, including
options incorporated from the predecessor plans, in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the common stock on the new grant
date.
Under the automatic option grant program, each individual who is serving as a
non-employee member of the board on the date the underwriting agreement for this
offering is executed will receive at that time an option grant for 6,900 shares
of common stock with a exercise price equal to the price per share at which the
common stock is to be sold in the offering. Each individual who first joins the
board after the effective date of the offering as a non-employee board member
will also receive an option grant for 6,900 shares of common stock at the time
of his or her commencement of board service. In addition, at each annual
stockholders meeting, beginning with the 2000 annual meeting, each individual
who is to continue to serve as a non-employee board member will receive an
option grant to purchase 2,000 shares of common stock, whether or not such
individual has been in the prior employ of Hoover's.
Each automatic grant will have an exercise price equal to the fair market value
per share of common stock on the grant date and will have a maximum term of 10
years, subject to earlier termination following the optionee's cessation of
board service. Each automatic option will be immediately exercisable; however,
any shares purchased upon exercise of the option will be subject to repurchase,
at the option exercise price paid per share, should the optionee's service as a
non-employee board member cease prior to vesting in the shares. The 6,900 share
grant will vest in three equal and successive annual installments over the
optionee's period of board service. Each additional 2,000 share grant will vest
upon the optionee's completion of one year of board service measured from the
grant date. However, each outstanding option will immediately vest upon (1)
certain changes in the ownership or control of Hoover's or (2) the death or
disability of the optionee while serving as a board member.
Under the director fee option grant program, each non-employee board member may
elect to apply all or a portion of any annual retainer fee otherwise payable in
cash to the acquisition of a below-market option grant.
56
<PAGE>
The option grant will automatically be made on the first trading day in January
for the year for which the election is to be in effect. The option will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date, and the number of shares subject to the option
will be determined by dividing the amount of the retainer fee applied to the
program by two-thirds of the fair market value per share of our common stock on
the grant date. As a result, the total spread on the option, the fair market
value of the option shares on the grant date less the aggregate exercise price
payable for those shares, will be equal to the portion of the retainer fee
subject to the election. The option will become exercisable for the option
shares in a series of 12 successive equal monthly installments upon the
optionee's completion of each month of board service during the calendar year of
the option grant and will be subject to full and immediate vesting upon certain
changes in the ownership or control of Hoover's.
The board may amend or modify the 1999 plan at any time, subject to any required
stockholder approval. The 1999 plan will terminate no later than June 8, 2009.
Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan was adopted by the board of directors and
approved by the stockholders on June 8, 1999. The purchase plan is designed to
allow our eligible employees and employees of participating subsidiaries to
purchase shares of common stock, at semi-annual intervals, through their
periodic payroll deductions under the purchase plan. A reserve of 145,680 shares
of common stock has been established for this purpose.
The purchase plan will be implemented in a series of successive offering
periods, each with a maximum duration of 12 months. However, the initial
offering period will begin on the date the underwriting agreement is executed in
connection with this offering and will end on the last business day in July
2000. The next offering will commence on the first business day in August 2000,
and subsequent offering periods will commence as designated by the plan
administrator.
Individuals who are eligible employees on the start date of any offering period
may enter the purchase plan on that start date or on any subsequent semi-annual
entry date, February 1 or August 1 each year. Individuals who become eligible
employees after the start date of the offering period may join the purchase plan
on any subsequent semi-annual entry date within that period.
Payroll deductions may not exceed 15% of the participant's base salary for each
semi-annual period of participation, and the accumulated payroll deductions will
be applied to the purchase of shares on the participant's behalf on each
semi-annual purchase date, the last business day in January and July each year,
at a purchase price per share not less then 85% of the lower of (1) the fair
market value of the common stock on the participant's entry date into the
offering period or (2) the fair market value on the semi-annual purchase date.
In no event, however, may any participant purchase more than 582 shares on any
one semi-annual purchase date, nor may all participants in the aggregate
purchase more than 72,840 shares on any one semi-annual purchase date. Should
the fair market value of the common stock on any semi-annual purchase date be
less than the fair market value of the common stock on the first day of the
offering period, then the current offering period will automatically end and a
new offering period will begin, based on the lower fair market value.
The board may amend or modify the purchase plan following any semi-annual
purchase date. The purchase plan will terminate on the last business day in July
2009, unless sooner terminated by the board.
57
<PAGE>
Certain Transactions
Media General
In September 1997, Media General purchased 874,080 shares of common stock for
aggregate consideration of $3.3 million. As part of that transaction, we also
sold Media General two warrants for $600,000 per warrant. The first warrant was
exercisable for up to 728,400 shares of common stock at an exercise price of
$4.12 per share, expiring July 15, 1999. Media General exercised this warrant in
March 1999. The second warrant is exercisable for up to 728,400 shares of common
stock at an exercise price of $4.81 per share, expiring July 15, 2000. Media
General has agreed that it and its affiliates will not directly or indirectly
acquire beneficial ownership, or voting control over, more than 49% of our
common stock. Mr. Zacharias, Treasurer of Media General, is a member of our
board of directors. Mr. Zacharias serves on the board of directors pursuant to a
stock purchase agreement between Media General and us that requires us to elect
one person nominated by Media General to our board of directors. This
requirement will terminate upon consummation of this offering.
In June 1996, we entered into a distributor agreement with Media General
Financial Services, a wholly-owned subsidiary of Media General. Under this
agreement, Media General Financial Services has licensed their financial data to
us. We integrate that financial data into our products and services.
Under a contract with Media General Financial Services dated June 1, 1996, we
agreed to pay Media General and Data Downlink Corporation (1) a percentage of
the net advertising revenues, as defined, realized from our StockScreener
service and (2) a percentage of the net revenues generated by any
non-advertising based component of StockScreener. We paid Media General
Financial Services an aggregate of $274,000 under both this agreement and the
distributor agreement in fiscal 1999 and $134,000 in fiscal 1998.
Warner Books
In February 1999, Warner Books exercised warrants to purchase 859,512 shares of
our common stock at an exercise price of $1.54 per share, for an aggregate
consideration of $1,327,500. The warrants were originally issued in connection
with the purchase by Warner Books of shares of our common stock in February
1994. As part of the original issuance, as subsequently amended, Warner Books
has agreed that it and its affiliates will not directly or indirectly acquire
beneficial ownership of, or voting control over, more than 49% of our common
stock. Mr. Kirshbaum, Chairman and Chief Executive Officer of Time Warner Trade
Publishing, the parent company of Warner Books, is a member of our board of
directors. Mr. Kirshbaum serves on the board of directors pursuant to a stock
purchase agreement between Warner Books and us that requires us to elect one
person nominated by Warner Books to our board of directors. This requirement
will terminate upon the consummation of this offering. As of June 1, 1999,
Warner Books transferred all Hoover's common stock and warrants held by it to
its wholly owned subsidiary, Warner Books Multimedia Corp.
Knowledge Universe
In June 1999, we sold an aggregate of 993,272 shares of our common stock to
Knowledge Net Holdings, L.L.C. and Nextera Enterprises, Inc., affiliates of
Knowledge Universe, L.L.C., for an aggregate purchase price of $7.4 million.
Pursuant to the stock purchase agreement, Knowledge Net Holdings is entitled to
designate an additional member of our board of directors until the consummation
of this offering. Knowledge Net Holdings also has agreed that, until June 2002,
it and its affiliates will not directly or indirectly, unless approved by our
disinterested directors, acquire beneficial ownership of, or voting control
over, more than 49% of our common stock. We concurrently entered into an
agreement with Knowledge Net Holdings pursuant to which it will purchase from us
at fair value at least $2.0 million of various services, which may include
advertising on our Web site, sponsorship of feature or content areas of our Web
site, licensing of our company or industry information and/or enterprise
subscriptions.
58
<PAGE>
Registration Rights
We have granted registration rights to a number of our stockholders, including
Media General, Warner Books, Knowledge Net Holdings and Messrs. Berkley, Chai,
Hillman and Hoover. Stockholders with registration rights may require us to
register their shares of common stock if we register the common stock of any of
our stockholders in an underwritten public offering, unless shares are
registered on Form S-8. These registration rights are subject to conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares included in the registration. Stockholders must pay expenses
related to the registration and distribution of their shares of common stock.
Future Transactions
All future related-party transactions will be required to be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board, and will be on terms no less
favorable to us than we could obtain from unaffiliated third parties.
59
<PAGE>
Principal Stockholders
This table sets forth, on a pro forma basis as of March 31, 1999 to reflect our
sale of common stock in the June 1999 transactions, information regarding the
beneficial ownership of our outstanding common stock, both before this offering
and immediately following this offering by:
- - each person who is known by us to own beneficially more than five percent of
our outstanding common stock;
- - each director and each of our named executive officers; and
- - all directors and executive officers as a group.
The following calculations of the percentage of outstanding shares are based on
7,937,216 shares of common stock outstanding on a pro forma basis as of March
31, 1999 and assumes no exercise of the underwriters' over-allotment option.
Beneficial ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable. Shares of common stock
subject to options and warrants that are presently exercisable or exercisable
within 60 days of March 31, 1999 are deemed to be outstanding and beneficially
owned by the person holding such option or warrant for the purpose of computing
the percentage of ownership of that person, but they are not deemed outstanding
for the purpose of computing the percentage of any other person.
Unless otherwise noted, each of the persons listed below has sole voting and
investment power with respect to his, her or its shares.
<TABLE>
<CAPTION>
-----------------------------------------------------
<S> <C> <C> <C>
Percentage of Common Stock
Number of Shares Beneficially Owned
Beneficially ----------------------------------
Name and Address of Beneficial Owner Owned Before Offering After Offering
----------------- ----------------- ---------------
Warner Books, Inc. .............................................. 2,541,417(1) 30.6% 22.0%
Time & Life Building
1271 Avenue of the Americas
New York, New York 10020
Media General, Inc. ............................................. 2,345,448(2) 27.0 19.7
333 Grace Street
Richmond, Virginia 23219
Knowledge Universe, L.L.C. ...................................... 993,272(3) 12.5 8.8
844 Morago Drive
Los Angeles, California 94049
Patrick J. Spain................................................. 415,319(4) 5.0 3.6
Carl G. Shepherd................................................. 42,830(5) * *
William S. Berkley............................................... 323,160(6) 4.0 2.8
Alan Chai........................................................ 177,977(7) 2.2 1.6
Thomas Hillman................................................... 192,960(8) 2.4 1.7
Gary E. Hoover................................................... 77,152(9) * *
Laurence Kirshbaum .............................................. -- -- --
Stephen R. Zacharias ............................................ -- -- --
All directors and executive officers as a group (16 persons)..... 1,327,368(10) 15.2 11.1
</TABLE>
- ------------------------
* Less than one percent.
60
<PAGE>
(1) Includes 364,200 shares of common stock issuable upon exercise of currently
exercisable warrants. Subsequent to March 31, 1999, all such common stock and
warrants were transfered to such stockholder's wholly owned subsidiary, Warner
Books Multimedia Corp.
(2) Includes 742,968 shares of common stock issuable upon exercise of currently
exercisable warrants.
(3) The shares held by such stockholder are held of record by its indirect
subsidiaries, Knowledge Net Holdings L.L.C. and Nextera Enterprises Inc.
(4) Includes 340,614 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days.
(5) Includes 41,373 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days.
(6) Includes 14,568 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days and 47,419 shares of common stock
issuable upon exercise of currently exercisable warrants. This number also
includes 73,796 shares of common stock held by Tension Envelope, Corp. Mr.
Berkley is President and Chief Executive Officer of Tension Envelope.
(7) Includes 99,354 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days and 21,852 shares of common stock
issuable upon exercise of currently exercisable warrants.
(8) Includes 14,568 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days and 36,347 shares of common stock
issuable upon exercise of currently exercisable warrants. This number also
includes 56,179 shares of common stock held by JMT Fund, Inc. and 29,990 shares
held by the Hillman Family Partnership.
(9) Includes 15,442 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days and 58,272 shares of common stock
issuable upon exercise of currently exercisable warrants.
(10) See notes (4) through (9).
61
<PAGE>
Description of Capital Stock
Upon completion of this offering, our authorized capital stock will consist of
150,000,000 shares of common stock, $0.01 par value per share, and 10,000,000
shares of preferred stock, $0.01 par value per share, issuable in series. The
following summary is qualified in its entirety by reference to our certificate
of incorporation and bylaws, copies of which are filed as exhibits to the
registration statement of which this prospectus is a part.
Common Stock
Holders of our common stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. The holders of common stock are not entitled
to cumulate voting rights with respect to the election of directors, and as a
result, minority stockholders will not be able to elect directors on the basis
of their votes alone. Subject to preferences that may be applicable to any then
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably such dividends as may be declared by the board of directors out
of funds legally available therefor. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding preferred stock. Holders of common stock have
no preemptive, conversion or other rights to subscribe for additional securities
of Hoover's. There are no redemption or sinking fund provisions applicable to
the common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of the offering will be, validly
issued, fully paid and nonassessable.
On a pro forma basis as of March 31, 1999 to reflect our sale of common stock in
the June 1999 transactions, there were outstanding 8,082,896 shares of common
stock, options to purchase 2,064,431 shares of common stock and warrants to
purchase 1,588,903 shares of common stock. Upon completion of this offering,
11,187,216 shares of common stock will be outstanding on a pro forma basis,
assuming no exercise of the underwriters' over-allotment option and no exercise
of options or warrants after March 31, 1999.
Preferred Stock
Our board of directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of preferred stock could adversely
affect the voting power of holders of our common stock and the likelihood that
such holders will receive dividend payments and payments upon liquidation and
could have the effect of delaying, deferring or preventing a change in control
of Hoover's. Accordingly, the issuance of shares of preferred stock may
discourage bids for the common stock or may otherwise adversely affect the
market price of the common stock. We have no present plan to issue any shares of
preferred stock.
Warrants
We have warrants outstanding for the purchase of 1,588,903 shares of our common
stock with a weighted average exercise price of $4.02 per share. Warrants may be
partially exercised or exercised in full upon payment to us of the exercise
price stated on the face of the warrant. Warrants are adjusted for any stock
dividend, stock split or reverse stock split that we may effect. If we undertake
a reorganization, recapitalization, consolidation or merger, warrant holders
will have the right to purchase the number of securities that the warrant holder
would have been able to receive had the warrant holder been a common stock
holder immediately prior to the
62
<PAGE>
reorganization, recapitalization, consolidation or merger. Warrant holders have
also been granted registration rights, as described below, for all common stock
they own. We have agreed to indemnify our warrant holders for any liability they
may incur as a result of our breach of their warrant agreement.
Registration Rights
We have granted registration rights to a number of our stockholders holding
approximately shares of our common stock in the aggregate. Stockholders
with registration rights may require us to register their shares of common stock
if we register the common stock of any of our stockholders in an underwritten
public offering, unless shares are registered on Form S-8. All of these
registration rights are subject to conditions and limitations, including the
right of the underwriters of an offering to limit the number of shares included
in the registration. Stockholders must pay expenses related to the registration
and distribution of their shares of common stock.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
DELAWARE ANTI-TAKEOVER STATUTE. We are subject to the provisions of Section 203
of the Delaware General Corporation Law, an anti-takeover law. Subject to
certain exceptions, the statute prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
- - prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
- - upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (1) by persons who are directors and
also officers and (2) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
- - on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years prior to the date of
determination whether the person is an "interested stockholder," did own, 15% or
more of the corporation's voting stock.
CERTIFICATE OF INCORPORATION. On June 8, 1999, our stockholders approved
certain amendments to the certificate of incorporation to provide, effective
upon the consummation of this offering:
- - for the authorization of the board of directors to issue, without further
action by the stockholders, up to 10,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof;
- - that any action required or permitted to be taken by our stockholders must be
effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing;
- - for a classified board of directors; and
- - that vacancies on the board of directors, including newly created
directorships, may be filled by a majority of the directors then in office.
63
<PAGE>
BYLAWS. On May 4, 1999, our board of directors approved certain amendments to
our bylaws to provide that, effective upon the consummation of this offering:
- - special meetings of our stockholders may be called only by the Chairman of the
Board, the Chief Executive Officer or a majority of the members of the board
of directors; and
- - our directors may be removed only for cause.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board of directors and in the policies
formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of
Hoover's. These provisions are designed to reduce our vulnerability to an
unsolicited proposal for a takeover that does not contemplate the acquisition of
all of our outstanding shares, or an unsolicited proposal for the restructuring
or sale of all or part of Hoover's. These provisions, however, could discourage
potential acquisition proposals and could delay or prevent a change in control
of Hoover's. These provisions may also have the effect of preventing changes in
our management.
Transfer Agent and Registrar
We have applied for quotation of our common stock on the Nasdaq National Market
under the symbol "HOOV." The transfer agent and registrar for the common stock
is Continental Stock Transfer & Trust Company, and its address is 2 Broadway,
New York, New York 10004.
64
<PAGE>
Shares Eligible for Future Sale
Prior to the offering, there has been no public market for our common stock, and
no prediction can be made as to the effect, if any, that sales of shares of
common stock or the availability of shares of common stock for sale will have on
the market price of the common stock prevailing from time to time. Nevertheless,
sales of substantial amounts of common stock in the public market, or the
perception that these sales could occur, could adversely affect the market price
of our common stock and could impair our future ability to raise capital through
the sale of our equity securities.
Upon completion of the offering, after giving effect to our sale of 1,196,384
shares of common stock in the June 1999 transactions and assuming no exercise of
stock options after March 31, 1999, there will be an aggregate of 11,187,216
shares of our common stock outstanding. The 3,250,000 shares offered by this
prospectus, or 3,737,500 shares if the underwriters' option is exercised in
full, will be freely transferable without restriction or limitation under the
Securities Act of 1933, as amended, unless purchased by our "affiliates" as that
term is defined in Rule 144 under the Securities Act. The remaining 7,937,216
shares outstanding upon completion of the offering will be "restricted
securities" within the meaning of Rule 144 under the Securities Act, and are
subject to restrictions under the Securities Act.
Our directors, officers and security holders holding in the aggregate ,
of our shares have agreed not to sell, offer for sale, or otherwise dispose of
any of our common stock for a period of 150 days from the date of this
prospectus without the prior written consent of J.P. Morgan Securities Inc. In
addition, during the 150-day period, we have agreed not to file any registration
statement with respect to our common stock or any securities convertible into or
exercisable or exchangeable for common stock without the prior written consent
of J.P. Morgan Securities Inc. Beginning 150 days after the date of this
prospectus, of the restricted shares will become available for sale in the
public market, subject to the volume and other limitations of Rule 144.
In general, under Rule 144, as currently in effect, a person, or persons whose
shares are required to be aggregated, who owns shares that were purchased from
us or any of our affiliates at least one year previously, is entitled to sell in
brokers transactions or to market makers, within any three-month period
commencing 90 days after the date of this prospectus, the number of shares of
common stock that does not exceed the greater of (1) one percent of the number
of then outstanding shares, approximately 113,000 shares immediately after the
offering, or (2) the average weekly reported trading volume during the four
calendar weeks preceding the date on which the required notice of sale is filed
with the SEC. Sales under Rule 144 are generally subject to the availability of
current public information about Hoover's. Any person, or persons whose shares
are aggregated, who owns shares that were purchased from us or any of our
affiliates at least two years previously and who has not been an affiliate of
ours at any time during the 90 days preceding the sale, would be entitled to
sell shares under Rule 144(k) without regard to the volume limitations or manner
of sale, public information or notice requirements of Rule 144.
Any of our employees, officers, directors or consultants who have purchased or
were awarded shares or options to purchase shares pursuant to a written
compensatory plan or contract are entitled to rely on the resale provisions of
Rule 701 under the Securities Act, which permits affiliates and non-affiliates
to sell such shares without having to comply with the holding period
restrictions of Rule 144, in each case commencing 90 days after the date of this
prospectus. In addition, non-affiliates may sell such shares without complying
with the public information, volume and notice provisions of Rule 144. Rule 701
is available for our option holders as to all shares issued pursuant
to the exercise of options granted prior to this offering.
After the offering, Hoover's intends to file a registration statement on Form
S-8 to register all of the shares of common stock reserved for issuance under
our stock incentive plans and not eligible for sale under Rule 701. Accordingly,
shares issued upon exercise of such options will be freely tradeable by holders
who are not our affiliates and, subject to the volume and other limitations of
Rule 144, by holders who are our affiliates.
65
<PAGE>
Underwriting
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom J.P. Morgan Securities Inc., Lehman Brothers Inc., Volpe Brown Whelan &
Company, LLC and Wit Capital Corporation are acting as representatives, have
severally agreed to purchase, and Hoover's has agreed to sell to them, the
respective number of shares of common stock set forth opposite their names
below.
<TABLE>
<CAPTION>
-------------
Number of
Underwriters Shares
-------------
<S> <C>
J.P. Morgan Securities Inc..................................
Lehman Brothers Inc.........................................
Volpe Brown Whelan & Company, LLC...........................
Wit Capital Corporation.....................................
-------------
Total..................................................... 3,250,000
-------------
-------------
</TABLE>
The underwriters are offering the common stock subject to their acceptance of
the common stock and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to purchase shares of common
stock are subject to receipt of an opinion of their counsel and other
conditions. If any of the shares of common stock are purchased by the
underwriters under the underwriting agreement, all of the shares, other than the
shares covered by the over-allotment option described below, must be purchased.
The underwriters propose initially to offer the shares of common stock directly
to the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the common stock, the offering
price and other selling terms may be changed from time to time by the
underwriters.
The underwriters have informed us that they do not intend sales to discretionary
accounts to exceed five percent of the total number of shares offered.
We have granted to the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase up to 487,500 additional shares of common
stock, on the same terms and conditions as set forth on the cover page hereof.
The underwriters may exercise such option solely to cover over-allotments, if
any, made in connection with the sale of shares of common stock offered hereby.
If the underwriters' option is exercised in full, the total price to public
would be $ , the total underwriting discounts and commissions
would be $ , and the total proceeds to us would be $ ,
before deducting $750,000 in estimated expenses.
66
<PAGE>
Hoover's and its officers, directors and holders of an aggregate of
shares of its common stock have agreed that, without the prior written
consent of J.P. Morgan Securities, Inc., during the period beginning from the
date of this prospectus and continuing to and including the date 150 days after
the date of this prospectus they will not:
- - offer, pledge, announce the intention to sell, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities of Hoover's which are substantially similar to the common stock,
including but not limited to any securities that are convertible into or
exercisable or exchangeable for, or that represent the right to receive common
stock or any such substantially similar securities; or
- - enter into any swap, option, future, forward or other agreement that
transfers, in whole or in part, the economic consequences of ownership of
common stock or any securities substantially similar to the common stock.
The restrictions described in this paragraph shall not apply to (1) the issuance
of shares by Hoover's under its employee stock option or stock purchase plans,
(2) the grant by Hoover's of employee stock options, (3) the issuance of shares
by Hoover's upon exercise of warrants outstanding on the date of this prospectus
and (4) the issuance of common stock in connection with the transactions
described in this prospectus.
The underwriters have reserved for sale, at the initial public offering price,
shares of common stock for distribution by Wit Capital to its customers through
the Internet.
The underwriters have reserved for sale, at the initial public offering price,
shares of the common stock for some of our directors, officers, employees,
friends and family who have expressed an interest in purchasing such shares of
common stock in the offering. These persons are expected to purchase, in the
aggregate, not more than 5% of the common stock offered in the offering. The
number of shares available for sale to the general public in the offering will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered to the general public on the
same basis as other shares offered hereby.
We have agreed to indemnify the underwriters against certain liabilities, losses
and expenses, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect thereof.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with the offering,
creating a syndicate short position. In addition, the underwriters may bid for,
and purchase, shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the common stock in the offering, if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
Prior to the offering, there has been no public market for the common stock. The
initial public offering price for the shares of common stock offered hereby will
be determined by agreement between us and the underwriters. Among the factors
considered in making such determination were the history of and the prospects
for the industry in which we compete, an assessment of our management, our
present operations, our historical results of operations and the trend of our
revenues and earnings, the prospects for our future earnings, the general
condition of the securities markets at the time of the offering and the prices
of similar securities of generally comparable companies. We cannot assure you
that an active trading market will develop for our common stock or that our
common stock will trade in the public market at or above the initial public
offering price.
67
<PAGE>
Wit Capital, a member of the National Association of Securities Dealers, Inc.,
will participate in the offering as one of the managing underwriters. The
National Association of Securities Dealers, Inc. approved the membership of Wit
Capital on September 4, 1997. Since that time, Wit Capital has acted as an
underwriter, e-Manager or selected dealer in over 70 public offerings, including
55 initial public offerings. As an e-manager for an offering, Wit Capital had
primary responsibility for distribution of shares through the Internet for that
offering. Except for its participation as co-manager of this offering and as
described below, Wit Capital has no relationship with Hoover's or any of its
founders or significant stockholders.
From time to time, in the ordinary course of their respective businesses, some
of the underwriters and their affiliates have engaged in, and may in the future
engage in, commercial and/or investment banking transactions with Hoover's. Wit
Capital acted as financial advisor to Hoover's in connection with its June 1999
sale of common stock to NBC and the related execution of a content collaboration
agreement. Wit Capital was paid $67,500 in cash and was issued 3,002 shares of
Hoover's common stock as compensation for its services.
Legal Matters
The validity of the common stock offered hereby will be passed upon for us by
Brobeck, Phleger & Harrison LLP, Austin, Texas and for the underwriters by Davis
Polk & Wardwell, New York, New York.
Experts
Ernst & Young LLP, independent auditors, have audited our financial statements
and schedule as of March 31, 1998 and 1999, and for each of the three years in
the period ended March 31, 1999, as set forth in their report. We have included
our financial statements and schedule in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
Available Information
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits, schedules and amendments, under the
Securities Act with respect to the shares of common stock to be sold in this
offering. This prospectus does not contain all the information included in the
registration statement. For further information about us and the shares of our
common stock to be sold in this offering, please refer to this registration
statement.
You may read and copy any contract, agreement or other document filed as an
exhibit to our registration statement or any other information from our filings
at the Securities and Exchange Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the Securities and Exchange
Commission. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information about the public reference rooms. Our filings with the
Securities and Exchange Commission, including our registration statement, are
also available to you on the Securities and Exchange Commission's Web site,
http://www.sec.gov. As a result of this offering, we will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
and will file periodic reports, proxy statements and other information with the
Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing audited
financial statements, and make available to our stockholders quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
68
<PAGE>
Hoover's, Inc.
Financial Statements
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2
Audited Financial Statements
Balance Sheets as of March 31, 1998 and 1999.......................................... F-3
Statements of Operations for the years ended March 31, 1997, 1998 and 1999............ F-4
Statements of Stockholders' Equity for the years ended March 31, 1997, 1998 and
1999................................................................................ F-5
Statements of Cash Flows for the years ended March 31, 1997, 1998 and 1999............ F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Hoover's, Inc.
We have audited the accompanying balance sheets of Hoover's, Inc. as of March
31, 1998 and 1999, and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hoover's, Inc. at March 31,
1998 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1999 in conformity with generally
accepted accounting principles.
Austin, Texas
April 17, 1999,
except for the June 1999 stock split described in Note 2,
as to which the date is June 8, 1999 and the 1999
reverse stock split described in Note 2, as
to which the date is 1999
The foregoing report is in the form that will be signed upon stockholder
approval of the 1999 reverse stock split described in Note 2 to the
financial statements.
/s/ Ernst & Young LLP
F-2
<PAGE>
Hoover's, Inc.
Balance Sheets
<TABLE>
<CAPTION>
----------------------------
<S> <C> <C>
March 31,
----------------------------
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 3,860,150 $ 7,814,434
Accounts receivable, less allowance for doubtful accounts of $34,133 and $32,886
at March 31, 1998 and 1999, respectively........................................ 700,148 866,103
Receivable from stockholder...................................................... 234,465 --
Book inventory, less allowances for excess and obsolete inventory of $52,772 and
$78,025 at March 31, 1998 and 1999, respectively................................ 139,638 83,513
Prepaid expenses and other current assets........................................ 96,667 88,920
------------- -------------
Total current assets............................................................... 5,031,068 8,852,970
Property, plant and equipment:
Computer and office equipment.................................................... 795,332 1,493,124
Equipment under capital lease.................................................... 164,672 147,028
Furniture and fixtures........................................................... 253,620 344,723
------------- -------------
1,213,624 1,984,875
Less accumulated depreciation.................................................... (489,895) (888,296)
------------- -------------
723,729 1,096,579
Other assets....................................................................... 16,789 126,790
------------- -------------
Total assets....................................................................... $ 5,771,586 $ 10,076,339
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and commissions................................................. $ 209,028 $ 460,128
Accrued expenses................................................................. 551,849 693,554
Current portion of long-term debt and capital leases............................. 196,045 376,578
Deferred revenue................................................................. 647,567 1,618,000
------------- -------------
Total current liabilities.......................................................... 1,604,489 3,148,260
Bank term loan, less current portion............................................... 75,000 97,628
Obligations under capital leases, less current portion............................. 97,224 70,236
------------- -------------
Total liabilities.................................................................. 1,776,713 3,316,124
Stockholders' equity:
Common stock, $.01 par value, 150,000,000 shares authorized, 5,070,611 and
6,886,512 shares issued at March 31, 1998 and 1999, respectively................ 50,706 68,865
Additional paid-in capital....................................................... 10,302,898 18,068,896
Unearned stock compensation...................................................... -- (2,763,999)
Accumulated deficit.............................................................. (6,208,731) (8,463,547)
Treasury stock at cost--145,680 shares........................................... (150,000) (150,000)
------------- -------------
Total stockholders' equity......................................................... 3,994,873 6,760,215
------------- -------------
Total liabilities and stockholders' equity......................................... $ 5,771,586 $ 10,076,339
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Hoover's, Inc.
Statements of Operations
<TABLE>
<CAPTION>
------------------------------------------
<S> <C> <C> <C>
Year ended March 31,
------------------------------------------
<CAPTION>
1997 1998 1999
------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
Online information sales............................................ $ 1,192,193 $ 2,696,254 $ 6,764,024
Advertising, sponsorship, e-commerce................................ 514,124 504,019 960,938
Advertising representation contract with related party.............. -- 678,375 --
CD-ROM and print.................................................... 2,253,496 1,590,920 1,636,578
------------ ------------- -------------
Total revenues........................................................ 3,959,813 5,469,568 9,361,540
Provision for returns of print products............................. (600,286) (287,572) (132,354)
------------ ------------- -------------
Net revenues.......................................................... 3,359,527 5,181,996 9,229,186
Cost of revenues.................................................... 2,129,173 3,034,813 5,002,307
------------ ------------- -------------
Gross profit.......................................................... 1,230,354 2,147,183 4,226,879
Expenses:
Product development................................................. 200,623 390,638 565,936
Sales and marketing................................................. 865,177 1,501,235 2,184,530
General and administrative.......................................... 1,037,458 2,125,455 3,401,777
Non-cash compensation............................................... -- -- 450,603
------------ ------------- -------------
Total expenses........................................................ 2,103,258 4,017,328 6,602,846
------------ ------------- -------------
Operating loss........................................................ (872,904) (1,870,145) (2,375,967)
Interest income ...................................................... 4,888 129,397 177,149
Interest expense...................................................... (76,313) (46,763) (55,998)
------------ ------------- -------------
Net loss.............................................................. $ (944,329) $ (1,787,511) $ (2,254,816)
------------ ------------- -------------
------------ ------------- -------------
Basic and diluted net loss per share.................................. $ (0.26) $ (0.39) $ (0.42)
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Hoover's, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares of Common Additional Unearned Total
Common Stock Paid-In Stock Accumulated Treasury Stockholders'
Stock Par Value Capital Compensation Deficit Stock Equity
--------- ----------- ----------- ------------ ----------- --------- ------------
Balance at March 31, 1996........ 3,488,453 $ 34,885 $ 3,994,424 $ -- ($3,476,891) $(150,000) $ 402,418
Exercise of options............ 10,198 102 10,398 -- -- -- 10,500
Exercise of warrants........... 208,424 2,084 284,056 -- -- -- 286,140
Conversion of debt............. 41,257 413 155,347 -- -- -- 155,760
Issuances of common stock...... 198,649 1,986 693,429 -- -- -- 695,415
Net loss....................... -- -- -- -- (944,329) -- (944,329)
--------- ----------- ----------- ------------ ----------- --------- ------------
Balance at March 31, 1997........ 3,946,981 39,470 5,137,654 -- (4,421,220) (150,000) 605,904
Exercise of options............ 24,183 242 33,058 -- -- -- 33,300
Exercise of warrants........... 225,367 2,254 848,596 -- -- -- 850,850
Issuances of common stock...... 874,080 8,740 4,283,590 -- -- -- 4,292,330
Net loss....................... -- -- -- -- (1,787,511) -- (1,787,511)
--------- ----------- ----------- ------------ ----------- --------- ------------
Balance at March 31, 1998........ 5,070,611 50,706 10,302,898 -- (6,208,731) (150,000) 3,994,873
Exercise of options............ 187,927 1,879 261,121 -- -- -- 263,000
Exercise of warrants........... 1,627,974 16,280 4,290,275 -- -- -- 4,306,555
Unearned stock compensation.... -- -- 3,214,602 (3,214,602) -- -- --
Amortization of unearned stock
compensation.................. -- -- -- 450,603 -- -- 450,603
Net loss....................... -- -- -- -- (2,254,816) -- (2,254,816)
--------- ----------- ----------- ------------ ----------- --------- ------------
Balance at March 31, 1999........ 6,886,512 $ 68,865 $18,068,896 $(2,763,999) ($8,463,547) $(150,000) $6,760,215
--------- ----------- ----------- ------------ ----------- --------- ------------
--------- ----------- ----------- ------------ ----------- --------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Hoover's, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
------------------------------------------
<S> <C> <C> <C>
Year ended March 31,
------------------------------------------
<CAPTION>
1997 1998 1999
------------ ------------- -------------
<S> <C> <C> <C>
Operating activities
Net loss.............................................................. $ (944,329) $ (1,787,511) $ (2,254,816)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation........................................................ 89,993 272,722 414,633
Amortization of unearned stock compensation......................... -- -- 450,603
Loss on sale and disposal of equipment.............................. 4,409 360 1,411
Changes in operating assets and liabilities:
Accounts receivable............................................... 21,104 (557,358) 68,510
Inventories....................................................... (38,934) 91,443 56,125
Prepaid expenses and other current assets......................... (7,188) (46,510) 7,747
Other assets...................................................... 93,762 197,869 (110,001)
Accounts payable and commissions.................................. (146,121) (69,261) 251,100
Accrued expenses.................................................. 98,047 265,011 141,705
Deferred revenue.................................................. 50,125 588,556 970,433
------------ ------------- -------------
Net cash used in operating activities................................. (779,132) (1,044,679) (2,550)
Investing activities
Purchases of property, plant and equipment............................ (230,874) (584,564) (808,394)
Proceeds from sale of equipment....................................... 1,368 -- 19,500
------------ ------------- -------------
Net cash used in investing activities................................. (229,506) (584,564) (788,894)
Financing activities
Payments received on stock purchase receivables....................... 329,218 -- --
Payments on lines of credit from stockholders......................... (50,000) (350,000) --
Proceeds from bank term loans......................................... 131,250 200,000 496,838
Payments on bank term loans........................................... -- (93,750) (286,710)
Payments on capital leases............................................ (11,454) (22,449) (33,955)
Net proceeds from capital stock transactions.......................... 1,147,815 5,176,480 4,569,555
------------ ------------- -------------
Net cash provided by financing activities............................. 1,546,829 4,910,281 4,745,728
Increase in cash and cash equivalents................................. 538,191 3,281,038 3,954,284
Cash and cash equivalents at beginning of year........................ 40,921 579,112 3,860,150
------------ ------------- -------------
Cash and cash equivalents at end of year.............................. $ 579,112 $ 3,860,150 $ 7,814,434
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Hoover's, Inc.
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Hoover's, Inc. ("Hoover's") creates, publishes and distributes high quality
company and business information for business organizations, business people and
investment professionals. Hoover's publishes this information on the Internet
through its Hoover's Online and related sites, as well as through other third
party online and Internet services. The core product is an online database of
company and industry information on over 14,000 public and private enterprises
worldwide. Hoover's also has a line of print products. Additionally, Hoover's
sells advertising space on its various Internet sites.
CASH AND CASH EQUIVALENTS
Hoover's considers all highly liquid investments with a maturity of three months
or less when purchased and money market mutual fund shares to be cash
equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts.
Hoover's customers are concentrated in the United States. Hoover's performs
limited credit evaluations, generally does not require collateral and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of each customer, historical trends and other information.
Credit losses have not been significant to date.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Hoover's depreciates property,
plant and equipment using the straight line method over estimated useful lives
of three to five years. Depreciation expense includes depreciation of assets
acquired under capital leases.
REVENUE RECOGNITION
Online information sales are recognized as service is provided under the terms
of online subscription and license agreements. Payments received in advance of
providing services are recorded as deferred revenue and amortized into revenue
over the term of the agreement.
Advertising revenues are recognized as impressions are delivered or ratably over
the contract period based on the terms of the specific customer agreements,
provided that no significant remaining obligations exist and collection of the
resulting receivable is probable. If an agreement contains both a minimum
contract period and minimum impression guarantees and delivery of the
impressions is falling short compared to the contract period, the Company defers
recognition of the corresponding revenues and recognizes those revenues as
impressions are delivered, rather than ratably over the contract period.
Sponsorship revenues are generally recognized over the contract period and
e-commerce revenues are generally recognized as sales are made by e-commerce
partners, provided that no significant remaining obligations exist and
collection of the resulting receivable is probable.
F-7
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
1. Organization and Significant Accounting Policies (Continued)
CD-ROM and print product revenues are recognized when goods are shipped to
customers, when consignment inventory is sold by the consignee or upon shipment
by Hoover's agent. At the time of sale an allowance for returns is established.
ADVERTISING COSTS
Hoover's expenses advertising costs as incurred. These expenses were
approximately $174,000, $275,000 and $478,000 for the years ended March 31,
1997, 1998 and 1999, respectively.
COST OF REVENUES
Cost of revenues includes editorial costs, licensing of third-party content,
hosting and communication services and advertising agency discounts.
PRODUCT DEVELOPMENT
Product development expenses primarily include personnel and consulting costs
associated with the design, development and testing of Hoover's systems.
Hoover's generally expenses product development expenses as incurred. Software
development costs are required to be capitalized following establishment of
technological feasibility. To date, costs meeting this criterion have been
insignificant.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As allowed by the Financial Accounting Standards Board's Statement of Financial
Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
Hoover's accounts for its stock compensation arrangements with employees under
the provisions of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES ("APB 25"). Hoover's has provided the pro forma and
other disclosures required by SFAS No. 123.
SEGMENT INFORMATION
Effective April 1, 1998, Hoover's adopted SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which establishes standards
for reporting financial information about operating segments and related
disclosures about products and services, geographic areas and major customers in
annual financial statements and requires reporting selected information about
operating segments in interim financial reports. Hoover's does not believe it
operates in more than one segment because the chief operating decision maker
allocates resources and assesses the performance associated with business
information services and other activities as a single segment.
NET LOSS PER SHARE
Hoover's computes net loss per share in accordance with SFAS No. 128, EARNINGS
PER SHARE, and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under SFAS No.
128 and SAB 98, basic net loss per share is computed by dividing net loss by the
weighted average number of shares outstanding. Diluted net loss per share is
computed by dividing net loss by the weighted average number of common shares
and dilutive common share equivalents outstanding. Hoover's calculation of
diluted net loss per share excludes shares of common stock issuable upon
exercise of warrants and employee stock options because inclusion would be
antidilutive.
F-8
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
1. Organization and Significant Accounting Policies (Continued)
Under SAB 98, all options, warrants or other potentially dilutive instruments
issued for nominal consideration prior to the anticipated effective date of an
initial public offering are required to be included in the calculation of basic
and diluted net loss per share as if they were outstanding for all periods
presented. Hoover's has not issued any such securities for nominal
consideration.
Weighted average shares outstanding during the years ended March 31, 1997, 1998
and 1999 were 3,570,818, 4,583,130 and 5,306,726 respectively.
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 could differ from those estimates.
INCOME TAXES
Hoover's accounts for income taxes in accordance with SFAS No. 109, ACCOUNTING
FOR INCOME TAXES. SFAS No. 109 prescribes the use of the liability method
whereby deferred tax asset and liability account balances are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
RECLASSIFICATIONS
Reclassifications have been made to the 1997 and 1998 financial statements to
conform with the 1999 presentation.
2. Capital Stock and Warrants
During the year ended March 31, 1997, Hoover's obtained short-term financing
totaling $155,760 from certain stockholders which was converted later in the
year to 41,257 shares of common stock and warrants to purchase 41,257 shares of
common stock of Hoover's at an exercise price of $3.78 per share.
In March 1997, Hoover's completed a private placement of 198,649 shares of
common stock and warrants to purchase 198,649 shares of common stock of Hoover's
at an exercise price of $3.78 per share for net proceeds of approximately
$695,000. Additionally, Hoover's granted warrants to purchase 36,420 shares of
common stock with an exercise price of $2.06 per share and warrants to purchase
6,556 shares of common stock with an exercise price per share of $3.78 per share
to a financial advisor.
In September 1997, Hoover's completed a private placement of 874,080 shares of
common stock and warrants to purchase 1,456,800 shares of common stock of
Hoover's (one half at an exercise price of $4.12 per share and one half at
exercise price of $4.81 per share) for proceeds of $4,300,000 net of costs.
Hoover's also granted warrants to purchase 39,334 shares of common stock with an
exercise price of $3.78 per share to an investment advisor in conjunction with
this transaction. At the same time, various warrant holders exercised existing
warrants to purchase 225,367 shares of common stock for net proceeds of
$851,000.
F-9
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
2. Capital Stock and Warrants (Continued)
In conjunction with the September 1997 private placement, stockholders were
given additional limited rights of first refusal with respect to sales of
Hoover's stock. In addition, Hoover's is now required to obtain approval from
70% of the stockholders before increasing the number of directors, issuing new
stock, warrants or options (except for options already authorized under the
existing Employee Stock Option Plans), selling or disposing of assets (except in
the normal course of business) or merging into or consolidating with any other
corporation. Changes to the Stockholders Agreement also included new provisions
requiring board of directors consent for adopting capital and operating budgets,
incurrence of indebtedness over $500,000 and for certain executive compensation
arrangements or changes.
In December 1997, a stockholder waived certain first refusal and other rights,
previously granted in conjunction with a private placement offering in 1994, in
exchange for warrants to purchase 218,520 shares of common stock of Hoover's at
an exercise price of $3.43 per share. Also during 1997, certain warrant holders
exercised warrants previously issued to purchase 208,424 shares of common stock
of Hoover's at an exercise price of $1.37 per share and were issued new warrants
to purchase 322,943 shares of common stock of Hoover's at an exercise price of
$3.43 per share. Additionally, Hoover's granted warrants to purchase 101,976
shares of common stock with an exercise price of $3.43 per share to members of
the board of directors.
In December 1997, Hoover's effected a ten-for-one split of the common stock. All
share and per share amounts in the financial statements and accompanying notes
have been restated to reflect the ten-for-one stock split.
In February 1999, a warrant holder exercised warrants to purchase 859,512 shares
of common stock for proceeds of $1,327,500. In March 1999, a warrant holder
exercised warrants to purchase 728,400 shares of common stock for proceeds of
$3,000,000. Also, during the year ended March 31, 1999, Hoover's granted
warrants to purchase 80,124 shares of common stock with exercise prices of $4.46
per share to members of the board of directors.
In June 1999, the stockholders approved an increase in authorized common stock,
allowing Hoover's to effect a two-for-one split of the common stock which was
approved by the board of directors in May 1999. All share and per share amounts
in the financial statements and accompanying notes have been restated to reflect
this stock split.
Also in 1999, the stockholders approved a .7284-for-one reverse split of
the common stock. All share and per share amounts in the financial statements
and accompanying notes have been restated to reflect this reverse stock split.
F-10
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
2. Capital Stock and Warrants (Continued)
At March 31, 1998 and 1999, the following warrants to purchase shares of common
stock were outstanding and exercisable, primarily to existing stockholders:
<TABLE>
<CAPTION>
------------------------
<S> <C> <C>
Shares Issuable
Upon Exercise
------------------------
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Expire June, 2000, price $1.37 per share........................... 94,692 54,630
Expire March, 1999, price $1.54 per share.......................... 859,512 --
Expire December, 2001, price $2.06 per share....................... 36,420 36,420
Expire December, 2000, price $3.43 per share....................... 643,439 643,439
Expire March, 2002, price $3.78 per share.......................... 6,556 6,556
Expire September, 2002, price $3.78 per share...................... 39,334 39,334
Expire July, 1999, price $4.12 per share........................... 728,400 --
Expire December, 2007, price $4.46 per share....................... -- 80,124
Expire July, 2000, price $4.81 per share........................... 728,400 728,400
----------- -----------
3,136,753 1,588,903
----------- -----------
----------- -----------
</TABLE>
In general, the exercise prices of the warrants is to be adjusted only for
capital restructures and stock splits, and not for subsequent sales of Common
Stock. The weighted average exercise price of warrants outstanding at March 31,
1999 was $4.02. The weighted average fair value of warrants granted during the
year ended March 31, 1999, all to board of directors members, was $4.46.
F-11
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
3. Stock Options and Transactions
Hoover's has adopted several incentive and non-qualifying stock option plans to
grant options to key employees, board members and other individuals and has
reserved a total of 3,952,022 shares of Common Stock for issuance under those
plans and the outstanding warrants. Stock options generally vest over three to
four years and have terms up to ten years. Information on stock option activity
is as follows:
<TABLE>
<CAPTION>
------------------------------
<S> <C> <C>
Number of Weighted Average
Shares Exercise Price
----------- -----------------
Total options outstanding at March 31, 1996.................... 914,142 $ 1.03
Options granted.............................................. 334,045 2.06
Options forfeited............................................ (63,371) 1.51
Options exercised............................................ (10,198) 1.03
----------- -----
Total options outstanding at March 31, 1997.................... 1,174,618 1.30
Options granted.............................................. 517,164 3.84
Options forfeited............................................ (23,892) 2.06
Options exercised............................................ (24,183) 1.39
----------- -----
Total options outstanding at March 31, 1998.................... 1,643,707 2.09
Options granted.............................................. 654,977 4.79
Options forfeited............................................ (46,326) 3.71
Options exercised............................................ (187,927) 1.40
----------- -----
Total options outstanding at March 31, 1999.................... 2,064,431 $ 2.97
----------- -----
----------- -----
</TABLE>
The following is a summary of options outstanding and exercisable as of March
31, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Outstanding Exercisable
------------------------------------------- -------------------------------------------
Number of Weighted- Number of Weighted-
Shares Average Weighted- Shares Average Weighted-
Subject to Remaining Average Subject to Remaining Average
Range of Options Contractual Life Exercise Options Contractual Life Exercise
Exercise Prices Outstanding (in years) Price Exercisable (in years) Price
----------- ----------------- --------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$1.03....................... 699,992 3.6 $1.03 699,992 3.6 $1.03
$2.06....................... 254,212 9.0 2.06 177,948 9.0 2.06
$3.78-4.46.................. 901,904 9.2 4.13 203,661 9.2 3.87
$4.81-5.83.................. 208,322 9.2 5.56 -- -- --
----------- --- --------- ----------- --- ---------
2,064,430 7.3 $2.97 1,081,601 5.6 $1.74
----------- --- --------- ----------- --- ---------
----------- --- --------- ----------- --- ---------
</TABLE>
Of the stock options granted to employees during the year ended March 31, 1999
for 654,977 shares of common stock, 208,322 had exercise prices below the deemed
fair market value of the underlying shares of common stock on the date of grant.
As a result, Hoover's recorded unearned stock compensation of $3,214,602
F-12
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
3. Stock Options and Transactions (Continued)
of which $450,603 was amortized to non-cash compensation during the year ended
March 31, 1999. The remaining unearned compensation will be recognized as
non-cash compensation over the remaining vesting period of the options of
approximately 4 years.
Pro forma information regarding net loss is required by SFAS No. 123, and has
been determined as if Hoover's had accounted for its employee stock options
under the fair value method of SFAS No. 123. The fair value for these options
was estimated at the date of grant using a minimum value option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
Year ended March 31,
<CAPTION>
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate........................................ 6.5% 6.5% 6%
Weighted-average expected life of the options.................. 4 years 4 years 4 years
Dividend rate.................................................. 0% 0% 0%
Assumed volatility............................................. 0% 0% 0%
Weighted average fair value of options granted:
Exercise price equal to fair value of stock on date of
grant....................................................... $.67 $.89 $ .95
Exercise price less than fair value of stock on date of
grant....................................................... -- -- $16.63
</TABLE>
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. Hoover's pro forma
information follows:
<TABLE>
<CAPTION>
-------------------------------------------
<S> <C> <C> <C>
Year ended March 31,
<CAPTION>
-------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Pro forma stock-based compensation expense...... $ 73,000 $ 205,000 $ 487,000
Pro forma net loss.............................. (1,017,329) (1,992,511) (2,291,213)
Pro forma basic and diluted net loss per share.. (.29) (.44) (.49)
</TABLE>
Option valuation models incorporate highly subjective assumptions. Because
changes in the subjective assumptions can materially affect the fair value
estimate, the existing models do not necessarily provide a reliable single
measure of the fair value of Hoover's employee stock options. Because the
determination of fair value of all employee stock options granted after such
time as Hoover's becomes a public entity will include an expected volatility
factor and because, for pro forma disclosure purposes, the estimated fair value
of Hoover's employee stock options is treated as if amortized to expense over
the options' vesting period, the effects of applying SFAS No. 123 for pro forma
disclosures are not necessarily indicative of future amounts.
4. Income Taxes
At March 31, 1999, Hoover's had federal net operating loss carryforwards of
approximately $7,400,000. The net operating loss carryforwards will expire at
various dates beginning in 2005, if not utilized. Utilization of the
F-13
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
4. Income Taxes (Continued)
net operating losses may be subject to a substantial annual limitation due to
the "change in ownership" provisions of the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of net operating losses before
utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Hoover's deferred taxes at March 31, are as follows:
<TABLE>
<CAPTION>
----------------------------
<S> <C> <C>
1998 1999
------------- -------------
Deferred tax assets:
Capitalized costs............................................ 49,592 4,514
Tax loss carryforwards....................................... 2,045,035 2,752,588
Reserves for sales and inventory............................. 90,647 62,321
Accrued expenses and other................................... 50,447 69,676
------------- -------------
Net deferred tax asset......................................... 2,235,721 2,889,099
Valuation allowance for net deferred tax asset................. (2,235,721) (2,889,099)
------------- -------------
Net deferred taxes............................................. $ -- $ --
------------- -------------
------------- -------------
</TABLE>
Hoover's has established a valuation allowance to offset its deferred tax assets
because Hoover's historical operating results indicate it is more likely than
not that the net deferred tax asset will not be realized because of
uncertainties regarding the utilization of net operating loss carryforwards
during the carryforward period. The valuation allowance increased by
approximately $654,000 during the year ended March 31, 1999.
Hoover's provision for income taxes differs from the expected tax benefit amount
computed by applying the statutory federal income tax rate of 34% to loss before
income taxes as a result of the following:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
Year ended March 31,
-------------------------------
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate............................................ (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit............................... (3.0) (3.0) (2.4)
Non-cash compensation expense..................................... -- -- 6.8
Other............................................................. 0.6 0.7 0.6
Change in valuation allowance..................................... 36.4 36.3 29.0
--------- --------- ---------
0.0% 0.0% 0.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
5. Lease Commitments
Hoover's has entered into a noncancelable operating lease for office space.
Future minimum payments due under this lease and subsequent amendments are as
follows for each of the years ending March 31:
<TABLE>
<S> <C>
2000............................................................. $ 349,320
2001............................................................. 352,379
2002............................................................. 29,386
---------
$ 731,085
---------
---------
</TABLE>
Rent expense for the years ended March 31, 1997, 1998 and 1999 totaled $121,935,
$253,507 and $354,129, respectively.
Hoover's leases certain telephone and computer equipment under long term capital
leases and has the option to purchase the assets at the end of the lease term.
The telephone and computer equipment are included in property, plant and
equipment in the balance sheet and related amortization is included in
depreciation expense. At March 31, 1999, future minimum lease payments under
these capital leases are as follows:
<TABLE>
<S> <C>
2000............................................................. $ 33,696
2001............................................................. 32,368
2002............................................................. 31,872
2003............................................................. 19,595
---------
117,531
Less amount representing interest................................ (20,717)
---------
Net present value................................................ 96,814
Less current portion............................................. 26,578
---------
Long-term capital lease obligations.............................. $ 70,236
---------
---------
</TABLE>
6. Short-Term Borrowings--Stockholders
Until March 31, 1999, Hoover's had a $300,000 line of credit agreement with a
stockholder. There were no amounts outstanding under this line of credit at
March 31, 1998 or 1999. Borrowings accrued interest at prime plus 2% and were
collateralized by any trade accounts receivable due from that stockholder.
During the years ended March 31, 1997 and 1998, Hoover's incurred approximately
$31,000 and $9,000, respectively, of interest expense under this line of credit.
Hoover's also maintained a $100,000 line of credit agreement with a group of
stockholders. There were no amounts outstanding under this line of credit at
March 31, 1998 or 1999. All stockholder lines of credit were terminated
effective March 31, 1999.
7. Bank Obligations
At March 31, 1999, Hoover's has a $550,000 term loan, a $200,000 term loan and a
$150,000 revolving line of credit with a bank. The term loans bear interest at
prime plus 1.50% and the revolving line of credit bears interest at prime plus
1.25%. At March 31, 1998 and 1999, there were no borrowings outstanding under
the line of credit, and $237,500 and $447,628, respectively, outstanding under
the term loans. The term loans
F-15
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
7. Bank Obligations (Continued)
require monthly payments of $29,167 principal, plus interest and mature in 2000.
The bank obligations are collateralized by Hoover's receivables, inventory and
property, plant and equipment. The carrying value of the bank obligations
approximates fair value as the interest rates are variable.
8. Related Party Transactions
In March 1997, Hoover's entered into an Advertising Representation/Strategic
Alliance Agreement with a stockholder. The agreement provided that the
stockholder would be the exclusive agent for sales of advertising on Hoover's
Online and related sites. Under the agreement, Hoover's would receive a
percentage of revenue sold, subject to certain minimums. This agreement was
amended effective October 1, 1997 to release the stockholder as Hoover's agent,
but continued to require minimum payments through December 31, 1997. Hoover's
recognized revenue of approximately $678,000 under this agreement during the
year ended March 31, 1998. At March 31, 1998, approximately $235,000 of Hoover's
accounts receivable were due from this stockholder, which was received during
the year ended March 31, 1999.
Hoover's purchases certain information included in its databases from a
subsidiary of a stockholder. Hoover's paid approximately $134,000 and $274,000
during the years ended March 31, 1998 and 1999 respectively, for this
information.
During 1999, Hoover's invested $50,000 in a company from which Hoover's
purchases information. Hoover's has reported this investment in other assets on
the cost basis. Hoover's paid $64,000 during the year ended March 31, 1999 for
information purchased from that company.
Hoover's had outstanding amounts payable of approximately $28,000, $7,000 and
$33,000 at March 31, 1997, 1998 and 1999, respectively, to a vendor who is also
a stockholder.
In 1995, Hoover's entered into an exclusive five-year trade book distribution
agreement in the United States and Canada with a stockholder. Hoover's ceased
producing new trade books during the year ended March 31, 1998. Effective
December 31, 1998, Hoover's ceased distributing trade books under this
agreement. There were no amounts due from the stockholder under the terms of
this agreement at March 31, 1998 or 1999.
9. Defined Contribution Plan
Hoover's sponsors a 401(k) defined contribution plan covering substantially all
employees meeting service and eligibility requirements. Hoover's matches
employee contributions, limited to the lesser of 50% of the employee
contribution or $500. Participants vest immediately in employee contributions
and over 4 years in Hoover's contributions. Hoover's matching contribution was
$16,000 and $52,000 during the years ended March 31, 1998 and 1999. Hoover's
also pays the expenses of the plan which are insignificant.
F-16
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
10. Geographic Information and Significant Customers
Revenues for the year ended March 31 were as follows:
<TABLE>
<CAPTION>
----------------------------------------
<S> <C> <C> <C>
1997 1998 1999
------------ ------------ ------------
United States..................................... $ 3,882,702 $ 5,348,362 $ 8,736,905
Foreign countries................................. 77,111 121,206 624,635
------------ ------------ ------------
Total............................................. $ 3,959,813 $ 5,469,568 $ 9,361,540
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Hoover's considers online subscriber revenues as domestic revenues because these
products are delivered from property located and information gathered within the
United States. Revenues from foreign countries above represent online license
agreements with customers located outside the United States and shipments of
print products, primarily the United Kingdom. Hoover's has no property, plant or
equipment located outside the United States. No customer accounted for more than
10% of Hoover's revenues during the years ended March 31, 1997, 1998 or 1999.
11. Subsequent Events
On April 1, 1999, Hoover's granted options to purchase 50,988 shares of common
stock with an exercise price of $5.83 per share to an employee. The deemed fair
value of the underlying shares of common stock on the date of grant was $15.00
per share. Hoover's recorded unearned compensation not reflected in these
financial statements of $468,000 in connection with the grant which will be
recognized as non-cash compensation over the 4 year vesting period.
F-17
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 14,547
NASD filing fee.................................................. 5,733
Nasdaq National Market listing fee............................... 90,000
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 150,000
Blue sky fees and expenses....................................... 5,000
Transfer agent fees.............................................. 7,000
Miscellaneous.................................................... 27,720
---------
Total.......................................................... $ 750,000
---------
---------
</TABLE>
- ------------------------
* To be included by amendment.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides, in
effect, that any person made a party to any action by reason of the fact that he
is or was a director, officer, employee or agent of Hoover's may and, in certain
cases, must be indemnified by Hoover's against, in the case of a non-derivative
action, judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees) incurred by him as a result of such action, and in
the case of a derivative action, against expenses (including attorneys' fees),
if in either type of action he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of Hoover's. This
indemnification does not apply, in a derivative action, to matters as to which
it is adjudged that the director, officer, employee or agent is liable to
Hoover's, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case, he
is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Section 14 of Hoover's certificate of incorporation, as amended, provides that
no director of Hoover's shall be liable to Hoover's or its stockholders for
monetary damages for breach of fiduciary duty as a director to the fullest
extent permitted by the DGCL.
Section 14 of Hoover's certificate of incorporation, as amended, also provides
that Hoover's shall indemnify to the fullest extent permitted by Delaware law
any and all of its directors and officers, or former directors and officers, or
any person who may have served at Hoover's request as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise.
Reference is made to Section 7 of the underwriting agreement filed as Exhibit
1.1 hereto, pursuant to which the Underwriters have agreed to indemnify officers
and directors of Hoover's against certain liabilities under the Securities Act.
Hoover's has entered into Indemnification Agreements with each director of
Hoover's, a form of which is filed as Exhibit 10.6 to this Registration
Statement. Pursuant to such agreements, Hoover's will be obligated, to the
II-1
<PAGE>
extent permitted by applicable law, to indemnify such directors against all
expenses, judgments, fines and penalties incurred in connection with the defense
or settlement of any actions brought against them by reason of the fact that
they were directors of Hoover's or assumed certain responsibilities at the
direction of Hoover's. Hoover's also intends to purchase directors and officers
liability insurance in order to limit its exposure to liability for
indemnification of directors and officers.
Item 15. Recent Sales of Unregistered Securities.
Since April 1, 1996, we have issued unregistered securities to a limited number
of people as described below. These issuances were deemed exempt from
registration under the Securities Act in reliance of Rule 701 promulgated under
the Securities Act or Section 4(2) of the Securities Act. The following share
and dollar amounts are adjusted to reflect a 10-for-1 split in December 1997, a
2-for-1 split in May 1999 and a 0.7284-for-1 split of our common stock to be
effective prior to the closing of this offering.
1. In October 1996, we issued and sold 10,198 shares of common stock to a
former director for an aggregate purchase price of $10,500 pursuant to his
exercise of stock options granted by us. Hoover's issued the stock under a
written compensatory stock option plan and in reliance on Rule 701
promulgated under the Securities Act.
2. In December 1996, we issued and sold 87,408 shares of common stock to Warner
Books, Inc., 9,659 shares to Thomas J. Hillman, 17,044 shares to William S.
Berkley and 94,313 shares of common stock to non-affilate stockholders for
an aggregate purchase price of $286,140 pursuant to his exercise of warrants
issued by us. We relied upon Section 4(2) of the Securities Act in
connection with the issuance of these shares.
3. In December 1996, we issued warrants exercisable for 131,112 shares of
common stock to Warner Books, Inc., 14,488 shares to Thomas J. Hillman,
25,567 shares to William S. Berkley and 472,272 shares of common stock to
non-affiliate stockholders at an exercise price of $3.43 per share. We
relied upon Section 4(2) of the Securities Act in connection with the
issuance of these warrants.
4. In December 1996, we issued a warrant exercisable for 36,420 shares of
common stock to Patricof & Co. at an exercise price of $2.06 per share. We
relied upon Section 4(2) of the Securities Act in connection with the
issuance of this warrant.
5. In February 1997, we issued and sold 13,869 shares of common stock to Warner
Books, Inc., 21,837 to William S. Berkley, 2,782 to Patrick J. Spain, 1,384
to Thomas Hillman and 1,384 shares of common stock to an existing
non-affiliate stockholder pursuant to their conversion of $155,760 of
convertible debt. We relied upon Section 4(2) of the Securities Act in
connection with the issuance of these shares.
6. In February 1997, we issued warrants exercisable for 13,869 shares of common
stock to Warner Books, Inc., 21,837 to William S. Berkley, 3,820 to Patrick
J. Spain, 1,384 to Thomas Hillman and 1,384 shares of common stock to an
existing non-affiliate stockholder at an exercise price of $3.78 per share.
We relied upon Section 4(2) of the Securities Act in connection with the
issuance of these warrants.
7. In March 1997, we issued and sold 198,649 shares of common stock to Infoseek
Corporation for an aggregate purchase price of $749,980 and issued and sold
it a warrant exercisable for 198,649 shares of common stock at an exercise
price of $3.78 per share. We relied upon Section 4(2) of the Securities Act
in connection with the issuance of these securities.
8. In March 1997, we issued a warrant exercisable for 6,556 shares of common
stock to Patricof & Co. at an exercise price of $3.78 per share. We relied
upon Section 4(2) of the Securities Act in connection with the issuance of
this warrant.
II-2
<PAGE>
9. In July 1997, we issued and sold 12,383 shares of common stock to employees
for an aggregate purchase price of $12,750 pursuant to their exercise of
options issued by us. Hoover's issued the stock under a written compensatory
stock option plan and in reliance on Rule 701 promulgated under the
Securities Act.
10. In September 1997, we issued and sold 53,887 shares of common stock to
William S. Berkley, 33,463 shares to Thomas J. Hillman, 2,782 to Patrick J.
Spain, 1,457 shares to Carl G. Shepherd, 728 shares to Lynn Atchison and
133,050 shares to other non-affiliate stockholders for an aggregate purchase
price of $850,850 pursuant to their exercise of warrants issued by us. We
relied upon Section 4(2) of the Securities Act in connection with the
issuance of these shares.
11. In September 1997, we issued and sold 874,080 shares of common stock to
Media General for an aggregate purchase price of $3.3 million and issued it
a warrant exercisable for 728,400 shares of common stock at an exercise
price of $4.12 per share and a warrant exercisable for 728,400 shares of
common stock at an exercise price of $4.81 per share. We relied upon Section
4(2) of the Securities Act in connection with the issuance of these
securities.
12. In September 1997, we issued a warrant exercisable for 39,334 shares of
common stock to Patricof & Co. at an exercise price of $3.78. We relied upon
Section 4(2) of the Securities Act in connection with the issuance of these
shares.
13. In October 1997, we issued and sold 2,331 shares or common stock to an
employee for an aggregate purchase price of $4,800 pursuant to the exercise
of options issued by us. Hoover's issued the stock under a written
compensatory stock option plan and in reliance on Rule 701 promulgated under
the Securities Act.
14. In March 1998, we issued and sold 9,469 shares or common stock to employees
for an aggregate purchase price of $15,750 share pursuant to their exercise
of options issued by us. Hoover's issued the stock under a written
compensatory stock option plan and in reliance on Rule 701 promulgated under
the Securities Act.
15. In April 1998, we issued and sold 5,827 shares of stock to employees for an
aggregate purchase price of $6,000 pursuant to their exercise of options
issued by us. Hoover's issued the stock under a written compensatory stock
option plan and in reliance on Rule 701 promulgated under the Securities
Act.
16. In July 1998, we issued and sold 11,654 shares of common stock to Gary
Hoover and 47,055 shares of common stock to employees for an aggregate
purchase price of $87,650 pursuant to their exercise of options issued by
us. Hoover's issued the stock under a written compensatory stock option plan
and in reliance on Rule 701 promulgated under the Securities Act.
17. In September 1998, we issued and sold 66,284 shares of common stock to
employees for an aggregate purchase price of $88,250 pursuant to their
exercise of options issued by us. Hoover's issued the stock under a written
compensatory stock option plan and in reliance on Rule 701 promulgated under
the Securities Act.
18. In October 1998, we issued and sold 5,827 shares of common stock to Gary
Hoover and 30,593 shares of common stock to employees for an aggregate
purchase price of $53,500 pursuant to their exercise of options issued by
us. Hoover's issued the stock under a written compensatory stock option plan
and in reliance on Rule 701 promulgated under the Securities Act.
19. In December 1998, we issued and sold 14,568 shares of common stock to Alan
Chai for an aggregate purchase price of $15,000 pursuant to his exercise of
options issued by us. Hoover's issued the stock under a written compensatory
stock option plan and in reliance on Rule 701 promulgated under the
Securities Act.
II-3
<PAGE>
20. During January 1999, we issued and sold 18,210 shares of common stock to
Gary Hoover for an aggregate purchase price of $25,000 pursuant to his
exercise of warrants issued by us. We relied upon Section 4(2) of the
Securities Act in connection with the issuance of these shares.
21. During February 1999, we issued and sold 859,512 shares of common stock to
Warner Books, Inc. for an aggregate purchase price of $1,327,500 pursuant to
its exercise of warrants issued by us. We relied upon Section 4(2) of the
Securities Act in connection with the issuance of these shares.
22. In March 1999, we issued and sold 6,119 shares of common stock to an
employee for an aggregate purchase price of $12,600 pursuant to their
exercise of options issued by us. Hoover's issued the stock under a written
compensatory stock option plan and in reliance on Rule 701 promulgated under
the Securities Act.
23. During March 1999, we issued and sold 728,400 shares of common stock to
Media General, Inc. for an aggregate purchase price of $3,000,000 pursuant
to its exercise of warrants issued by us. We relied upon Section 4(2) of the
Securities Act in connection with the issuance of these shares.
24. In June 1999, we issued and sold 200,110 shares of common stock to National
Broadcasting Company, Inc. for an aggregate purchase price of $1,500,003.96,
or $7.50 per share. We relied upon Section 4(2) of the Securities Act in
connection with the issuance of these shares.
25. In June 1999, we issued and sold 943,609 shares of common stock to Knowledge
Net Holdings, L.L.C. for an aggregate purchase price of $7,077,065, or $7.50
per share. We relied upon Section 4(2) of the Securities Act in connection
with the issuance of these shares.
26. In June 1999, we issued and sold 3,002 shares of common stock to Wit Capital
Corporation for services rendered as financial advisor. We relied upon
Section 4(2) of the Securities Act in connection with the issuance of these
shares.
27. In June 1999, we issued and sold 49,663 shares of common stock to Nextera
Enterprises, Inc. for an aggregate purchase price of $370,637, or $7.50 per
share. We relied upon Section 4(2) of the Securities Act in connection with
the issuance of these shares.
28 In April and May, 1999 we issued and sold shares to employees and
stockholders for an aggregate purchase price of pursuant to their
exercise of options and warrants issued by us.
29. We have from time to time granted stock options to employees. The following
table sets forth information regarding these grants.
<TABLE>
<CAPTION>
Number Exercise Price
of Shares Per Share
--------- ---------------
<S> <C> <C>
April 1, 1996 through March 31, 1997.................................................... 334,044 2.06
April 1, 1997 through November 31, 1997................................................. 423,929 3.78
December 1, 1997 through March 31, 1998................................................. 144,223 4.12
June 1998............................................................................... 395,667 4.46
December 1998........................................................................... 55,358 4.81
January 1999............................................................................ 152,964 5.83
April 1999.............................................................................. 50,988 5.83
June 1999............................................................................... 231,631 *
</TABLE>
- ------------------------
* Price equal to initial public offering price in this offering.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
<C> <S> <C>
1.1 Form of Underwriting Agreement by and among Hoover's, Inc. and the Underwriters.
3.1 Form of Amended and Restated Certificate of Incorporation of Hoover's, Inc.
3.3* Form of Amended and Restated Bylaws of Hoover's, Inc., as amended.
4.1 Specimen certificate for shares of common stock.
4.3** Form of Warrant
5.1* Opinion of Brobeck, Phleger & Harrison LLP
10.1* Stock Purchase Agreement dated as of September 4, 1997 by and between Hoovers, Inc. and Media
General, Inc.
10.2* Stock Purchase Agreement dated February 15, 1994, as amended, by and between The Reference
Press, Inc. and Warner Books, Inc.
10.3+ Distributor Agreement dated June 1, 1999 by and between Hoover's, Inc. and Media General
Financial Services, Inc.
10.4 La Costa Green Office Building Lease Agreement, as amended, dated March 12, 1996 by and between
The Reference Press, Inc. and KP/Miller Realty Growth
10.5 Imperial Bank Security and Loan Agreements dated June 17, 1997 and April 2, 1998
10.6** Form of Indemnification Agreement between Hoover's, Inc. and each of its directors and executive
officers.
10.7 Form of Hoover's, Inc. 1999 Stock Incentive Plan, as amended.
10.8* Stock Purchase Agreement dated as of June 11, 1999 by and between Hoover's, Inc. and Knowledge
Net Holdings, L.L.C.
10.9* Strategic Relationship Agreement dated as of June 11, 1999 by and between Hoover's, Inc. and
Knowledge Net Holdings, L.L.C.
10.10* Amendment No. 1 to Stock Purchase Agreement dated as of June 11, 1999 by and among Hoover's,
Inc., Knowledge Net Holdings, Inc. and Nextera Enterprises, Inc.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Brobeck, Phleger & Harrison LLP. Reference is made to Exhibit 5.1.
24.1** Power of Attorney (see page II-5).
27.1** Financial Data Schedule
</TABLE>
- ------------------------
* To be included by amendment.
** Previously filed.
+ Confidential treatment requested.
(b) Financial Statement Schedules.
The following financial statement schedule of Hoover's is included in Part II of
this registration statement:
<TABLE>
<CAPTION>
Page
---
<S> <C>
Report of Independent Auditors on Financial Statement Schedule......................... S-1
Schedule II B Valuation and Qualifying Accounts........................................ S-2
</TABLE>
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the Financial Statements
or the related Notes.
II-5
<PAGE>
Item 17. Undertakings.
The undersigned hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreements, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the registrant
will unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and this offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austin,
State of Texas, on June 14, 1999.
<TABLE>
<S> <C> <C>
HOOVER'S, INC.
By: /s/ LYNN ATCHISON
-----------------------------------------
Lynn Atchison
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<C> <S> <C>
Name Title Date
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
PATRICK J. SPAIN* Chief Executive Officer
- ------------------------------ and President (principal June 14, 1999
Patrick J. Spain executive officer)
Senior Vice President and
/s/ LYNN ATCHISON Chief Financial Officer
- ------------------------------ (principal financial and June 14, 1999
Lynn Atchison accounting officer)
WILLIAM S. BERKLEY*
- ------------------------------ Director June 14, 1999
William S. Berkley
ALAN CHAI*
- ------------------------------ Director June 14, 1999
Alan Chai
THOMAS J. HILLMAN*
- ------------------------------ Director June 14, 1999
Thomas J. Hillman
GARY E. HOOVER*
- ------------------------------ Director June 14, 1999
Gary E. Hoover
LAURENCE J. KIRSHBAUM*
- ------------------------------ Director June 14, 1999
Laurence J. Kirshbaum
STEPHEN R. ZACHARIAS*
- ------------------------------ Director June 14, 1999
Stephen R. Zacharias
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ LYNN ATCHISON
-------------------------
Lynn Atchison
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
Report of Independent Auditors on Schedule II -
Valuation and Qualifying Accounts
We have audited the financial statements of Hoover's, Inc. as of March 31, 1998
and 1999, and for each of the three years in the period ended March 31, 1999,
and have issued our report thereon dated April 17, 1999, except for the June
1999 stock split described in Note 2, as to which the date is June 8, 1999 and
the 1999 reverse stock split described in Note 2, as to which the date
is 1999 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Austin, Texas
April 17, 1999
The foregoing report is in the form that will be signed upon stockholder
approval of the 1999 reverse stock split described in Note 2 to the
financial statements.
/s/ Ernst & Young LLP
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
HOOVER'S, INC.
<TABLE>
<CAPTION>
--------------------------------------------------
<S> <C> <C> <C> <C>
Balance At Provisions Deductions Balance At
Beginning Charged To From End Of
Of Period Expense Reserves Period
----------- ----------- ----------- -----------
Year ended March 31, 1997:
Allowance for doubtful accounts............................... -- 13,970 -- 13,970
Inventory obsolescence reserve................................ 33,785 39,803 24,392 49,196
Return reserves............................................... 95,930 312,117 231,260 176,787
Year ended March 31, 1998:
Allowance for doubtful accounts............................... 13,970 20,163 -- 34,133
Inventory obsolescence reserve................................ 49,196 24,767 21,191 52,772
Return reserves............................................... 176,787 280,011 298,718 158,080
Year ended March 31, 1999:
Allowance for doubtful accounts............................... 34,133 -- 1,267 32,866
Inventory obsolescence reserve................................ 52,772 40,253 15,000 78,025
Return reserves............................................... 158,080 59,326 159,880 57,526
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<C> <S>
Exhibit
Number Description
- --------- ---------------------------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement by and among Hoover's, Inc. and the Underwriters.
3.1 Form of Amended and Restated Certificate of Incorporation of Hoover's, Inc.
3.3* Form of Amended and Restated Bylaws of Hoover's, Inc., as amended.
4.1 Specimen certificate for shares of common stock.
4.3** Form of Warrant
5.1* Opinion of Brobeck, Phleger & Harrison LLP
10.1* Stock Purchase Agreement dated as of September 4, 1997 by and between Hoovers, Inc. and Media General,
Inc.
10.2* Stock Purchase Agreement dated February 15, 1994, as amended, by and between The Reference Press, Inc.
and Warner Books, Inc.
10.3+ Distributor Agreement dated June 1, 1999 by and between Hoover's, Inc. and Media General Financial
Services, Inc.
10.4 La Costa Green Office Building Lease Agreement, as amended, dated March 12, 1996 by and between The
Reference Press, Inc. and KP/Miller Realty Growth
10.5 Imperial Bank Security and Loan Agreements dated June 17, 1997 and April 2, 1998
10.6** Form of Indemnification Agreement between Hoover's, Inc. and each of its directors and executive
officers.
10.7 Form of Hoover's, Inc. 1999 Stock Incentive Plan, as amended.
10.8* Stock Purchase Agreement dated as of June 11, 1999 by and between Hoover's, Inc. and Knowledge Net
Holdings, L.L.C.
10.9* Strategic Relationship Agreement dated as of June 11, 1999 by and between Hoover's, Inc. and Knowledge
Net Holdings, L.L.C.
10.10* Amendment No. 1 to Stock Purchase Agreement dated as of June 11, 1999 by and among Hoover's, Inc.,
Knowledge Net Holdings, Inc. and Nextera Enterprises, Inc.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Brobeck, Phleger & Harrison LLP. Reference is made to Exhibit 5.1.
24.1** Power of Attorney (see page II-5).
27.1** Financial Data Schedule
</TABLE>
- ------------------------
* To be included by amendment.
** Previously filed.
+ Confidential treatment requested.
<PAGE>
HOOVER'S INC.
_______ SHARES
COMMON STOCK
UNDERWRITING AGREEMENT
_______________, 1999
J.P. Morgan Securities Inc.
[Co-Manager ]
As Representatives of the several
underwriters listed in Schedule I
hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
Hoover's Inc., a Delaware corporation (the "COMPANY"), proposes to issue
and sell to the several Underwriters listed in Schedule I hereto (the
"UNDERWRITERS"), for whom you are acting as representatives (the
"REPRESENTATIVES") an aggregate of __________ shares of Common Stock, par
value $____ per share, of the Company (the "UNDERWRITTEN SHARES") and, for
the sole purpose of covering over-allotments in connection with the sale of
the Underwritten Shares, at the option of the Underwriters, up to an
additional _________ shares of Common Stock of the Company (the "OPTION
SHARES"). The Underwritten Shares and the Option Shares are herein referred
to as the "SHARES". The shares of Common Stock of the Company to be
outstanding after giving effect to the sale of the Shares are herein referred
to as the "STOCK".
The Company has prepared and filed with the Securities and Exchange
Commission (the "COMMISSION") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "SECURITIES ACT"), a registration
statement, including a prospectus, relating to the Shares. The registration
statement as amended at the time when it shall become effective including
information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act, is
referred to in this
<PAGE>
Agreement as the "REGISTRATION STATEMENT", and the prospectus in the form
first used to confirm sales of Shares is referred to in this Agreement as the
"PROSPECTUS". If the Company has filed an abbreviated registration statement
pursuant to Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION
STATEMENT"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
The Company hereby agrees with the Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten Shares to the
several Underwriters as hereinafter provided, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees to purchase, severally and not
jointly, from the Company the respective number of Underwritten Shares set
forth opposite such Underwriter's name in Schedule I hereto at a purchase
price per share (the "PURCHASE PRICE" of $______.
In addition, the Company agrees to issue and sell the Option Shares to
the several Underwriters as hereinafter provided, and the Underwriters on the
basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, shall have the option to purchase,
severally and not jointly, from the Company up to an aggregate of _______
Option Shares at the Purchase Price, for the sole purpose of covering
over-allotments (if any) in the sale of Underwritten Shares by the several
Underwriters.
If any Option Shares are to be purchased, the number of Option Shares to
be purchased by each Underwriter shall be the number of Option Shares which
bears the same ratio to the aggregate number of Option Shares being purchased
as the number of Underwritten Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number increased as set forth in
Section 9 hereof) bears to the aggregate number of Underwritten Shares being
purchased from the Company by the several Underwriters, subject, however, to
such adjustments to eliminate any fractional Shares as the Representatives in
their sole discretion shall make.
The Underwriters may exercise the option to purchase the Option Shares
at any time (but not more than once) on or before the thirtieth day following
the date of this Agreement, by written notice from the Representatives to the
Company. Such notice shall set forth the aggregate number of Option Shares
as to which the option is being exercised and the date and time when the
Option Shares are to be delivered and paid for which may be the same date and
time as the Closing Date (as hereinafter defined) but shall not be earlier
than the Closing Date nor later than the tenth full Business Day (as
hereinafter defined) after the date of such notice
2
<PAGE>
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Any such notice shall be given at least two Business Days
prior to the date and time of delivery specified therein.
2. The Company understands that the Underwriters intend (i) to make a
public offering of the Shares as soon after (A) the Registration Statement
has become effective and (B) the parties hereto have executed and delivered
this Agreement, as in the judgment of the Representatives is advisable and
(ii) initially to offer the Shares upon the terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in
immediately available funds to the account specified by the Company to the
Representatives in the case of the Underwritten Shares, on ___________, 1999,
or at such other time on the same or such other date, not later than the
fifth Business Day thereafter, as the Representatives and the Company may
agree upon in writing or, in the case of the Option Shares, on the date and
time specified by the Representatives in the written notice of the
Underwriters' election to purchase such Option Shares. The time and date of
such payment for the Underwritten Shares is referred to herein as the
"CLOSING DATE" and the time and date for such payment for the Option Shares,
if other than the Closing Date, are herein referred to as the "ADDITIONAL
CLOSING DATE". As used herein, the term "BUSINESS DAY" means any day other
than a day on which banks are permitted or required to be closed in New York
City.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery
to the Representatives for the respective accounts of the several
Underwriters of the Shares to be purchased on such date registered in such
names and in such denominations as the Representatives shall request in
writing not later than two full Business Days prior to the Closing Date or
the Additional Closing Date, as the case may be, with any transfer taxes
payable in connection with the transfer to the Underwriters of the Shares
duly paid by the Company. The certificates for the Shares will be made
available for inspection and packaging by the Representatives at the office
of J.P. Morgan Securities Inc. set forth above not later than 1:00 P.M., New
York City time, on the Business Day prior to the Closing Date or the
Additional Closing Date, as the case may be.
4. The Company represents and warrants to each Underwriter that:
(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and each preliminary
prospectus filed as part of the Registration Statement as originally filed
or as part of any amendment thereto, or filed pursuant to Rule 424 under
the
3
<PAGE>
Securities Act, complied when so filed in all material respects with the
Securities Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED that
this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through the Representatives expressly for use therein;
(b) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of the Company, threatened by the
Commission; and the Registration Statement and Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) comply, or will comply, as the case may be, in all
material respects with the Securities Act and do not and will not, as of
the applicable effective date as to the Registration Statement and any
amendment thereto and as of the date of the Prospectus and any amendment or
supplement thereto, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectus, as amended
or supplemented, if applicable, at the Closing Date or Additional Closing
Date, as the case may be, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; except that the foregoing representations and
warranties shall not apply to statements or omissions in the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through the Representatives expressly for use therein;
(c) the financial statements, and the related notes thereto, included
in the Registration Statement and the Prospectus present fairly the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates indicated and the results of their operations
and changes in their consolidated cash flows for the periods specified; and
said financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis, and the
supporting schedules included in the Registration Statement present fairly
the information required to be stated therein; [and the pro forma financial
information, and the related notes thereto, included in the Registration
4
<PAGE>
Statement and the Prospectus has been prepared in accordance with the
applicable requirements of the Securities Act and is based upon good faith
estimates and assumptions believed by the Company to be reasonable];
(d) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries, or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general affairs,
business, prospects, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries, taken as a
whole, otherwise than as set forth or contemplated in the Prospectus; and
except as set forth or contemplated in the Prospectus neither the Company
nor any of its subsidiaries has entered into any transaction or agreement
(whether or not in the ordinary course of business) material to the Company
and its subsidiaries taken as a whole;
(e) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole;
(f) each of the Company's subsidiaries has been duly incorporated and
is validly existing as a corporation under the laws of its jurisdiction of
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each jurisdiction in
which it owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect on the Company
and its subsidiaries taken as a whole; and all the outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized
and validly issued, are fully-paid and non-assessable, and (except, in the
case of foreign subsidiaries, for directors' qualifying shares [and except
as described in the Prospectus]) are owned
5
<PAGE>
by the Company, directly or indirectly, free and clear of all liens,
encumbrances, security interests and claims;
(g) this Agreement has been duly authorized, executed and delivered
by the Company;
(h) the Company has an authorized capitalization as set forth in the
Prospectus and such authorized capital stock conforms as to legal matters
to the description thereof set forth in the Prospectus, and all of the
outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully-paid and non-assessable and are
not subject to any pre-emptive or similar rights; and, except as described
in or expressly contemplated by the Prospectus, there are no outstanding
rights (including, without limitation, pre-emptive rights), warrants or
options to acquire, or instruments convertible into or exchangeable for,
any shares of capital stock or other equity interest in the Company or any
of its subsidiaries, or any contract, commitment, agreement, understanding
or arrangement of any kind relating to the issuance of any capital stock of
the Company or any such subsidiary, any such convertible or exchangeable
securities or any such rights, warrants or options;
(i) the Shares have been duly authorized, and, when issued and
delivered to and paid for by the Underwriters in accordance with the terms
of this Agreement, will be duly issued and will be fully paid and non-
assessable and will conform to the descriptions thereof in the Prospectus;
and the issuance of the Shares is not subject to any preemptive or similar
rights;
(j) neither the Company nor any of its subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation of or in
default under, its Certificate of Incorporation or By-Laws or any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them or any of their respective properties is bound,
except for violations and defaults which individually and in the aggregate
are not material to the Company and its subsidiaries taken as a whole; the
issue and sale of the Shares and the performance by the Company of its
obligations under this Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of
6
<PAGE>
the property or assets of the Company or any of its subsidiaries is
subject, nor will any such action result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the
Company or any applicable law or statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company, its subsidiaries or any of their respective properties; and no
consent, approval, authorization, order, license, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except such
consents, approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act and as may
be required under state securities or Blue Sky Laws in connection with
the purchase and distribution of the Shares by the Underwriters;
(k) other than as set forth or contemplated in the Prospectus, there
are no legal or governmental investigations, actions, suits or proceedings
pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries or any of their respective
properties or to which the Company or any of its subsidiaries is or may be
a party or to which any property of the Company or any of its subsidiaries
is or may be the subject which, if determined adversely to the Company or
any of its subsidiaries, could individually or in the aggregate have, or
reasonably be expected to have, a material adverse effect on the general
affairs, business, prospects, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries, taken
as a whole, and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others; and there are no statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(l) the Company and its subsidiaries have good and marketable title
in fee simple to all items of real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described or
referred to in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made or proposed
to be made of such property by the Company and its subsidiaries; and any
real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, existing and enforceable
leases with such exceptions as are not material and do not interfere with
the use made
7
<PAGE>
or proposed to be made of such property and buildings by the Company or its
subsidiaries;
(m) no relationship, direct or indirect, exists between or among the
Company or any or its subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries on the other hand, which is required by the Securities Act to
be described in the Registration Statement and the Prospectus which is not
so described;
(n) no person has the right to require the Company to register any
securities for offering and sale under the Securities Act by reason of the
filing of the Registration Statement with the Commission or the issue and
sale of the Shares;
(o) the Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT");
(p) [Name of Accountants] who have certified certain financial
statements of the Company and its subsidiaries [and [list names of other
accountants whose reports appear in the Registration Statement] who have
certified certain financial statements of [names of other applicable
corporations],] are [each] independent public accountants as required by
the Securities Act;
(q) the Company and its subsidiaries have filed all federal, state,
local and foreign tax returns which have been required to be filed and have
paid all taxes shown thereon and all assessments received by them or any of
them to the extent that such taxes have become due and are not being
contested in good faith; and, except as disclosed in the Registration
Statement and the Prospectus, there is no tax deficiency which has been or
might reasonably be expected to be asserted or threatened against the
Company or any subsidiary;
(r) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock;
8
<PAGE>
(s) the Company has reviewed its operations and any third parties
with which the Company has a material relationship to evaluate the extent
to which the business or operations of the Company will be affected by the
Year 2000 Problem. As a result of such review, the Company has no reason
to believe, and does not believe, that the Year 2000 Problem will have a
material adverse effect on the general affairs, business, prospects,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole or result
in any material loss or interference with the Company's business or
operations. The "Year 2000 Problem" as used herein means any significant
risk that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems
of any kind will not, in the case of dates or time periods occurring after
December 31, 1999, function at least as effectively as in the case of dates
or time periods occurring prior to January 1, 2000;
(t) each of the Company and its subsidiaries owns, possesses or has
obtained all licenses, permits, certificates, consents, orders, approvals
and other authorizations from, and has made all declarations and filings
with, all federal, state, local and other governmental authorities
(including foreign regulatory agencies), all self-regulatory organizations
and all courts and other tribunals, domestic or foreign, necessary to own
or lease, as the case may be, and to operate its properties and to carry on
its business as conducted as of the date hereof, and neither the Company
nor any such subsidiary has received any actual notice of any proceeding
relating to revocation or modification of any such license, permit,
certificate, consent, order, approval or other authorization, except as
described in the Registration Statement and the Prospectus; and each of the
Company and its subsidiaries is in compliance with all laws and regulations
relating to the conduct of its business as conducted as of the date hereof;
(u) there are no existing or, to the best knowledge of the Company,
threatened labor disputes with the employees of the Company or any of its
subsidiaries which are likely to have a material adverse effect on the
Company and its subsidiaries taken as a whole;
(v) the Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other
9
<PAGE>
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(w) in the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or
in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and
(x) the Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole.
5. The Company covenants and agrees with each of the several Underwriters
as follows:
(a) to use its best efforts to cause the Registration Statement to
become effective at the earliest possible time and, if required, to file
the final Prospectus with the Commission within the time periods specified
by Rule 424(b) and Rule 430A under the Securities Act and to furnish copies
10
<PAGE>
of the Prospectus to the Underwriters in New York City prior to 10:00 a.m.,
New York City time, on the Business Day next succeeding the date of this
Agreement in such quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the Representatives
____ signed copies of the Registration Statement (as originally filed) and
each amendment thereto, in each case including exhibits, and to each other
Underwriter a conformed copy of the Registration Statement (as originally
filed) and each amendment thereto, in each case without exhibits and,
during the period mentioned in Section 5(e) below, to each of the
Underwriters as many copies of the Prospectus (including all amendments and
supplements thereto) as the Representatives may reasonably request;
(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the
Registration Statement becomes effective, to furnish to the Representatives
a copy of the proposed amendment or supplement for review and not to file
any such proposed amendment or supplement to which the Representatives
reasonably object;
(d) to advise the Representatives promptly, and to confirm such
advice in writing (i) when the Registration Statement has become
effective,(ii) when any amendment to the Registration Statement has been
filed or becomes effective,(iii) when any supplement to the Prospectus or
any amended Prospectus has been filed and to furnish the Representatives
with copies thereof,(iv) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the
Prospectus or for any additional information,(v) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus or the Prospectus or the initiation or
threatening of any proceeding for that purpose,(vi) of the occurrence of
any event, within the period referenced in Section 5(e) below, as a result
of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, and (vii) of the receipt by the Company of any notification
with respect to any suspension of the qualification of the Shares for offer
and sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and to use its best efforts to prevent
11
<PAGE>
the issuance of any such stop order, or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or of
any order suspending any such qualification of the shares, or
notification of any such order thereof and, if issued, to obtain as soon
as possible the withdrawal thereof;
(e) if, during such period of time after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters a
prospectus relating to the Shares is required by law to be delivered in
connection with sales by the Underwriters or any dealer, any event shall
occur as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus to
comply with law, forthwith to prepare and furnish, at the expense of the
Company, to the Underwriters and to the dealers (whose names and addresses
the Representatives will furnish to the Company) to which Shares may have
been sold by the Representatives on behalf of the Underwriters and to any
other dealers upon request, such amendments or supplements to the
Prospectus as may be necessary so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply with law;
(f) to endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Representatives
shall reasonably request and to continue such qualification in effect so
long as reasonably required for distribution of the Shares; PROVIDED that
the Company shall not be required to file a general consent to service of
process in any jurisdiction;
(g) to make generally available to its security holders and to the
Representatives as soon as practicable an earnings statement covering a
period of at least twelve months beginning with the first fiscal quarter of
the Company occurring after the effective date of the Registration
Statement, which shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 of the Commission promulgated thereunder;
(h) so long as the Shares are outstanding, to furnish to the
Representatives copies of all reports or other communications (financial or
other) furnished to holders of the Shares, and copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange;
12
<PAGE>
(i) for a period of 180 days after the date of the initial public
offering of the Shares not to (i) offer, pledge, announce the intention to
sell, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Stock or any securities convertible into or exercisable or
exchangeable for Stock or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences of
ownership of the Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Stock or such other
securities, in cash or otherwise without the prior written consent of the
Representatives, other than the Shares to be sold hereunder and any shares
of Stock of the Company issued upon the exercise of options granted under
existing employee stock option plans;
(j) to use the net proceeds received by the Company from the sale of
the Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(k) to use its best efforts to list for quotation the Shares on the
Nasdaq National Market;
(l) to file with the Commission such reports on Form SR as may be
required by Rule 463 under the Securities Act; and
(m) whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all costs and expenses incident to the performance of its obligations
hereunder, including without limiting the generality of the foregoing, all
costs and expenses (i) incident to the preparation, issuance, execution and
delivery of the Shares,(ii) incident to the preparation, printing and
filing under the Securities Act of the Registration Statement, the
Prospectus and any preliminary prospectus (including in each case all
exhibits, amendments and supplements thereto), (iii)incurred in connection
with the registration or qualification of the Shares under the laws of such
jurisdictions as the Representatives may designate (including fees of
counsel for the Underwriters and its disbursements),(iv) in connection with
the listing of the Shares on the Nasdaq National Market,(v) related to the
filing with, and clearance of the offering by, the National Association of
Securities Dealers, Inc.; (vi)in connection with the printing (including
word processing and duplication costs) and delivery of this Agreement, the
Preliminary and Supplemental Blue Sky Memoranda and
13
<PAGE>
the furnishing to the Underwriters and dealers of copies of the
Registration Statement and the Prospectus, including mailing and
shipping, as herein provided,(vii) any expenses incurred by the Company
in connection with a "road show" presentation to potential
investors,(viii) the cost of preparing stock certificates and (ix) the
cost and charges of any transfer agent and any registrar.
6. The several obligations of the Underwriters hereunder to
purchase the Shares on the Closing Date or the Additional Closing Date,
as the case may be, are subject to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) the Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed under the Securities Act,
such post-effective amendment shall have become effective) not later than
5:00 P.M., New York City time, on the date hereof; and no stop order
suspending the effectiveness of the Registration Statement or any post-
effective amendment shall be in effect, and no proceedings for such purpose
shall be pending before or threatened by the Commission; the Prospectus
shall have been filed with the Commission pursuant to Rule 424(b) within
the applicable time period prescribed for such filing by the rules and
regulations under the Securities Act and in accordance with Section 5(a)
hereof; and all requests for additional information shall have been
complied with to the satisfaction of the Representatives;
(b) the representations and warranties of the Company contained
herein are true and correct on and as of the Closing Date or the Additional
Closing Date, as the case may be, as if made on and as of the Closing Date
[or the Additional Closing Date, as the case may be, and the Company shall
have complied with all agreements and all conditions on its part to be
performed or satisfied hereunder at or prior to the Closing Date or the
Additional Closing Date, as the case may be;
(c) subsequent to the execution and delivery of this Agreement and
prior to the Closing Date or the Additional Closing Date, as the case may
be, there shall not have occurred any downgrading, nor shall any notice
have been given of (i) any downgrading,(ii) any intended or potential
downgrading or (iii) any review or possible change that does not indicate
an improvement, in the rating accorded any securities of or guaranteed by
the Company by any "nationally recognized statistical rating organization",
as such term is defined for purposes of Rule 436(g)(2) under the Securities
Act;
14
<PAGE>
(d) since the respective dates as of which information is given in
the Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the general affairs, business, prospects,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole, otherwise
than as set forth or contemplated in the Prospectus, the effect of which in
the judgment of the Representatives makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares on the
Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus; and neither the
Company nor any of its subsidiaries has sustained since the date of the
latest audited financial statements included in the Prospectus any material
loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus;
(e) the Representatives shall have received on and as of the Closing
Date or the Additional Closing Date, as the case may be, a certificate of
an executive officer of the Company, with specific knowledge about the
Company's financial matters, satisfactory to the Representatives to the
effect set forth in Sections 6(a), 6(b), 6(c) and 6(d) (with respect to the
respective representations, warranties, agreements and conditions of the
Company) and to the further effect that there has not occurred any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the general affairs, business, prospects,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole from that
set forth or contemplated in the Registration Statement;
(f) Brobeck, Phleger & Harrison LLP, counsel for the Company, shall
have furnished to the Representatives their written opinion, dated the
Closing Date or the Additional Closing Date, as the case may be, in form
and substance satisfactory to the Representatives, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in
the Prospectus;
15
<PAGE>
(ii) the Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified or in
good standing would not have a material adverse effect on the Company
and its subsidiaries taken as a whole;
(iii) each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation under the laws
of its jurisdiction of incorporation with power and authority
(corporate and other) to own its properties and conduct its business
as described in the Prospectus and has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified and in
good standing would not have a material adverse effect on the Company
and its subsidiaries taken as a whole; and all of the outstanding
shares of capital stock of each subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and (except,
in the case of foreign subsidiaries, for directors' qualifying shares
and except as otherwise set forth in the Prospectus) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(iv) other than as set forth or contemplated in the Prospectus,
there are no legal or governmental investigations, actions, suits or
proceedings pending or, to the best of such counsel's knowledge,
threatened against or affecting the Company or any of its subsidiaries
or any of their respective properties or to which the Company or any
of its subsidiaries is or may be a party or to which any property of
the Company or its subsidiaries is or may be the subject which, if
determined adversely to the Company or any of its subsidiaries, could
individually or in the aggregate have, or reasonably be expected to
have, a material adverse effect on the general affairs, business,
prospects, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries taken as a
whole; to the best of such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others; and such counsel does not know of any statutes,
regulations, contracts or other documents that are required to be
described in
16
<PAGE>
the Registration Statement or Prospectus or to be filed as exhibits
to the Registration Statement that are not described or filed as
required;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(vii) the shares of capital stock of the Company outstanding
prior to the issuance of the Shares to be sold by the Company have
been duly authorized and are validly issued, fully paid and non-
assessable;
(viii) the Shares to be issued and sold by the Company
hereunder have been duly authorized, and when delivered to and paid
for the Underwriters in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable and the issuance
of the Shares is not subject to any preemptive or similar rights;
(ix) the statements in the Prospectus under "__________",
"Description of Capital Stock" and "Underwriting", and in the
Registration Statement in Items 14 and 15, insofar as such statements
constitute a summary of the terms of the Stock, legal matters,
documents or proceedings referred to therein, fairly present the
information called for with respect to such terms, legal matters,
documents or proceedings;
(x) such counsel is of the opinion that the Registration
Statement and the Prospectus and any amendments and supplements
thereto (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the
Securities Act and believes that (other than the financial statements
and related schedules therein, as to which such counsel need express
no belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and that
17
<PAGE>
the Prospectus, as amended or supplemented, if applicable, does not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
(xi) neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both would be, in
violation of or in default under, its Certificate of Incorporation or
By-Laws or any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which it or any of
them or any of their respective properties is bound, except for
violations and defaults which individually and in the aggregate are
not material to the Company and its subsidiaries taken as a whole; the
issue and sale of the Shares being delivered on the Closing Date or
the Additional Closing Date, as the case may be, and the performance
by the Company of its obligations under this Agreement and the
consummation of the transactions contemplated herein will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is
subject, nor will any such action result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the
Company or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company, its subsidiaries or any of their
respective properties;
(xii) no consent, approval, authorization, order, license,
registration or qualification of or with any court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation of the other transactions contemplated by this Agreement,
except such consents, approvals, authorizations, orders, licenses,
registrations or qualifications as have been obtained under the
Securities Act and as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
18
<PAGE>
(xiii) the Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company"
or entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act;
(xiv) each of the Company and its subsidiaries owns, possesses
or has obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations
and filings with, all federal, state, local and other governmental
authorities (including foreign regulatory agencies), all self-
regulatory organizations and all courts and other tribunals, domestic
or foreign, necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as conducted as of
the date hereof, and neither the Company nor any such subsidiary has
received any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization, except as described in the
Registration Statement and the Prospectus; and each of the Company and
its subsidiaries is in compliance with all laws and regulations
relating to the conduct of its business as conducted as of the date of
the Prospectus;
(xv) each of the Company and its subsidiaries owns, possesses
or has the right to use the intellectual property employed by it in
connection with the business conducted by it as of the date hereof;
and
(xvi) each of the Company and its subsidiaries is in compliance
with all Environmental Laws, except, in each case, where
noncompliance, individually or in the aggregate, would not have a
material adverse effect on the Company and its subsidiaries taken as a
whole; there are no legal or governmental proceedings pending or, to
the knowledge of such counsel, threatened against or affecting the
Company or any of its subsidiaries under any Environmental Law which,
individually or in the aggregate, could reasonably be expected to have
a material adverse effect on the Company and its subsidiaries taken as
a whole.
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and the States of ____________ and ___________, to the
extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and
substance reasonably satisfactory to Underwriters' counsel)
19
<PAGE>
of other counsel reasonably acceptable to the Underwriters' counsel,
familiar with the applicable laws and (B) as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible
officers of the Company and certificates or other written statements
of officials of jurisdictions having custody of documents respecting
the corporate existence or good standing of the Company. The
opinion of such counsel for the Company shall state that the opinion
of any such other counsel upon which they relied is in form
satisfactory to such counsel and, in such counsel's opinion, the
Underwriters and they are justified in relying thereon. With
respect to the matters to be covered in Section 6(f)(x) above
counsel may state their opinion and belief is based upon their
participation in the preparation of the Registration Statement and
the Prospectus and any amendment or supplement thereto and review
and discussion of the contents thereof but is without independent
check or verification except as specified.
The opinion of Brobeck, Phleger & Harrison described above shall be
rendered to the Underwriters at the request of the Company and shall so state
therein.
(g) on the effective date of the Registration Statement and the
effective date of the most recently filed post-effective amendment to the
Registration Statement and also on the Closing Date or Additional Closing
Date, as the case may be, [Accountant] shall have furnished to you letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, containing statements and information of the type
customarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus;
(h) the Representatives shall have received on and as of the Closing
Date or Additional Closing Date, as the case may be, an opinion of Davis
Polk & Wardwell, counsel to the Underwriters, with respect to the due
authorization and valid issuance of the Shares, the Registration Statement,
the Prospectus and other related matters as the Representatives may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(i) the Shares to be delivered on the Closing Date or Additional
Closing Date, as the case may be, shall have been approved for listing on
the Nasdaq National Market, subject to official notice of issuance;
(j) on or prior to the Closing Date or Additional Closing Date, as
the case may be, the Company shall have furnished to the Representatives
20
<PAGE>
such further certificates and documents as the Representatives shall
reasonably request; and
(k) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Stock or certain other securities, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing
Date or Additional Closing Date, as the case may be.
7. The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages and liabilities
(including, without limitation, the legal fees and other expenses incurred in
connection with any suit, action or proceeding or any claim asserted) caused
by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use therein.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person who controls the Company within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any preliminary
prospectus.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "INDEMNIFIED PERSON") shall promptly
notify the person against whom such indemnity may be sought (the "INDEMNIFYING
PERSON") in writing, and the Indemnifying Person, upon request of the
21
<PAGE>
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees
and expenses of such counsel related to such proceeding. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the
Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Person has failed within a reasonable time to retain counsel
reasonably satisfactory to the Indemnified Person or (iii) the named parties
in any such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying
Person shall not, in connection with any proceeding or related proceeding in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Indemnified Persons,
and that all such fees and expenses shall be reimbursed as they are incurred.
Any such separate firm for the Underwriters and such control persons of
Underwriters shall be designated in writing by J.P. Morgan Securities Inc.
and any such separate firm for the Company, its directors, its officers who
sign the Registration Statement and such control persons of the Company shall
be designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
Indemnified Person shall have requested an Indemnifying Person to reimburse
the Indemnified Person for fees and expenses of counsel as contemplated by
the second and third sentences of this paragraph, the Indemnifying Person
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
30 days after receipt by such Indemnifying Person of the aforesaid request
and (ii) such Indemnifying Person shall not have reimbursed the Indemnified
Person in accordance with such request prior to the date of such settlement.
No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified
Person, unless such settlement includes an unconditional release of such
Indemnified Person from all liability on claims that are the subject matter
of such proceeding.
22
<PAGE>
If the indemnification provided for in the first and second paragraphs
of this Section 7 is unavailable to an Indemnified Person or insufficient in
respect of any losses, claims, damages or liabilities referred to therein,
then each Indemnifying Person under such paragraph, in lieu of indemnifying
such Indemnified Person thereunder, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriters on the other hand in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
respective proportions as the net proceeds from the offering (before
deducting expenses) received by the Company and the total underwriting
discounts and the commissions received by the Underwriters, in each case as
set forth in the table on the cover of the Prospectus, bear to the aggregate
public offering price of the Shares. The relative fault of the Company on the
one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by PRO
RATA allocation (even if the Underwriters were treated as one entity for such
purposes) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses incurred by such Indemnified
Person in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages
that such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section
23
<PAGE>
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7 are
several in proportion to the respective number of Shares set forth opposite
their names in Schedule I hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or
on behalf of the Company, its officers or directors or any other person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.
8. Notwithstanding anything herein contained, this Agreement [](or the
obligations of the several Underwriters with respect to the Option Shares)[5]]
may be terminated in the absolute discretion of the Representatives, by
notice given to the Company, if after the execution and delivery of this
Agreement and prior to the Closing Date (or, in the case of the Option
Shares, prior to the Additional Closing Date) (i) trading generally shall
have been suspended or materially limited on or by, as the case may be, any
of the New York Stock Exchange or the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board Options Exchange,
the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading
of any securities of or guaranteed by the Company shall have been suspended
on any exchange or in any over-the-counter market, (iii) a general moratorium
on commercial banking activities in New York shall have been declared by
either Federal or New York State authorities, or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in the judgment of the
Representatives, is material and adverse and which, in the judgment of the
Representatives, makes it impracticable to market the Shares being delivered
at the Closing Date or the Additional Closing Date, as the case may be, on
the terms and in the manner contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.
24
<PAGE>
If on the Closing Date or the Additional Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they have agreed to purchase hereunder on such date, and
the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of Shares to be purchased on such date, the
other Underwriters shall be obligated severally in the proportions that the
number of Shares set forth opposite their respective names in Schedule I
bears to the aggregate number of Underwritten Shares set forth opposite the
names of all such non-defaulting Underwriters, or in such other proportions
as the Representatives may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date; PROVIDED that in no event shall the number of Shares
that any Underwriter has agreed to purchase pursuant to Section 1 be
increased pursuant to this Section 9 by an amount in excess of one-tenth of
such number of Shares without the written consent of such Underwriter. If on
the Closing Date or the Additional Closing Date, as the case may be, any
Underwriter or Underwriters shall fail or refuse to purchase Shares which it
or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Shares to be purchased on such date, and
arrangements satisfactory to the Representatives and the Company for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement (or the obligations of the several Underwriters to purchase the
Option Shares, as the case may be) shall terminate without liability on the
part of any non-defaulting Underwriter or the Company. In any such case
either you or the Company shall have the right to postpone the Closing Date
(or, in the case of the Option Shares, the Additional Closing Date), but in
no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement,
or if for any reason the Company shall be unable to perform its obligations
under this Agreement or any condition of the Underwriters' obligations cannot
be fulfilled, the Company agrees to reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and expenses of
its counsel) reasonably incurred by the Underwriter in connection with this
Agreement or the offering contemplated hereunder.
25
<PAGE>
11. This Agreement shall inure to the benefit of and be binding upon
the Company, the Underwriters, any controlling persons referred to herein and
their respective successors and assigns. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person,
firm or corporation any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. No purchaser of
Shares from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by [the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax:______); Attention: Syndicate Department. Notices to the
Company shall be given to it at ____________, _____________, ____________,
(telefax:________); Attention:____________.
13. This Agreement may be signed in counterparts, each of which shall
be an original and all of which together shall constitute one and the same
instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
If the foregoing is in accordance with your understanding, please sign
and return four counterparts hereof.
Very truly yours,
HOOVER'S INC.
By:
---------------------------------------
Title:
Accepted:_________, 1999
26
<PAGE>
J.P. Morgan Securities Inc.
[Co-Manager]
Acting severally on behalf of themselves
and the several Underwriters listed
in Schedule I hereto.
By: J.P. Morgan Securities Inc.
Acting on behalf of itself and the several
Underwriters listed in Schedule I
hereto.
By:
----------------------------------------
Title:
27
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares
Underwriter To Be Purchased
----------- ----------------
<S> <C>
J.P. Morgan Securities Inc. . . . . . . . . . . .
[CO-MANAGER] . . . . . . . . . . . . . . . . . .
Total
</TABLE>
I-1
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HOOVER'S, INC.
It is hereby certified that:
I. The name of the corporation (hereinafter called the "CORPORATION")
is Hoover's, Inc. The Corporation's original Certificate of Incorporation
was filed with the Secretary of State of Delaware on February 8, 1990 and the
Corporation was originally incorporated under the name "The Reference Press,
Inc."
II. This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
III. As amended by this Amended and Restated Certificate of
Incorporation, and effective upon filing with the Secretary of State of the
State of Delaware, the certificate of incorporation of the Corporation reads
in its entirety as follows:
1. The name of the corporation is:
Hoover's, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The
Corporation Trust Corporation.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations
may be organized under the Delaware General Corporation Law.
4. (a) Authorized Shares. The total number of shares of stock
which the corporation shall have authority to issue is one hundred sixty
million (160,000,000), (i) 150,000,000 shares of which shall be Common
Stock, par value $0.01 per share, and (ii) 10,000,000 shares of which shall
be Preferred Stock, par value $0.01 per share.
(b) Common Stock. Each shared of Common Stock shall have one
vote on each matter submitted to a vote of the stockholders of the
Corporation. Subject to the provisions of applicable law and the rights of
the holders of the outstanding shares of Preferred Stock, if any, the
holders of shares of Common Stock shall be entitled to receive, in
proportion to the number of shares of Common Stock held, when and as
declared by the Board of Directors of the Corporation, out of the assets of
the Corporation legally available therefor, dividends or other
distributions, whether payable in cash, property or securities of the
Corporation. The holders of shares of Common Stock shall be entitled to
receive, in proportion to the number of shares of Common Stock held, the
net assets of the Corporation upon dissolution after any preferential
amounts
<PAGE>
required to be paid or distributed to holders of outstanding shares
of Preferred Stock, if any, are so paid or distributed.
(c) Preferred Stock. The Preferred Stock may be issued from
time to time by the Board of Directors as shares of one or more series.
The description of shares of each additional series of Preferred Stock,
including any designations, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications,
and terms and conditions of redemption shall be as set forth in resolutions
adopted by the Board of Directors.
The Board of Directors is expressly authorized, at any time, by
adopting resolutions providing for the issuance of, or providing for a
change in the number of, shares of any particular series of Preferred Stock
and, if and to the extent from time to time required by law, by filing
certificates of amendment or designation which are effective without
stockholder action, to increase or decrease the number of shares included
in each series of Preferred Stock, but not below the number of shares then
issued, and to set in any one or more respects the designations,
preferences conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms and conditions of
redemption relating to the shares of each such series. The authority of
the Board of Directors with respect to each series of Preferred Stock shall
include, but not be limited to, setting or changing the following:
a. the dividend rate, if any, on shares of such series,
the times of payment and the date from which dividends shall
be accumulated, if dividends are to be cumulative;
b. whether the shares of such series shall be redeemable and,
if so, the redemption price and the terms and conditions of
such redemption;
c. the obligation, if any, of the Corporation to redeem shares
of such series pursuant to a sinking fund;
d. whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class of
classes and, if so, the terms and conditions of such
conversion or exchange, including the price or prices or the
rate of rates of conversion or exchange and the terms of
adjustment, if any;
e. whether the shares of such series shall have voting rights,
in addition to the voting rights provided by law, and, if
so, the extent of such voting rights;
f. the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation; and
2
<PAGE>
g. any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof relating
to such series.
5. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter,
amend or repeal the Bylaws of the corporation.
6. The corporation reserves the right to amend and repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware. All rights herein
conferred are granted subject to this reservation.
7. Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the Bylaws of the corporation.
8. The corporation is to have perpetual existence.
9. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws of the Corporation.
10. Election of directors at an annual or special meeting of
stockholders need not be by written ballot unless the Bylaws of the
Corporation shall so provide.
11. (a) At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the
term for which they are elected, and until their successors have been duly
elected and qualified; except that if any such election shall not be held,
such election shall take place at a stockholders' meeting called and held
in accordance with the Delaware General Corporation Law. At the first
annual meeting of stockholders (the "FIRST PUBLIC CORPORATION ANNUAL
MEETING") following the closing of the initial public offering of the
Corporation's capital stock pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended (the "INITIAL PUBLIC
OFFERING"), the directors of the Corporation shall be divided into three
classes as nearly equal in size as is practicable, hereby designated as
Class I, Class II and Class III. The term of office of the initial Class I
directors shall expire at the next succeeding annual meeting of
stockholders, the term of office of the initial Class II directors shall
expire at the second succeeding annual meeting of stockholders and the term
of office of the initial Class III directors shall expire at the third
succeeding annual meeting of stockholders. For the purposes hereof, the
initial Class I, Class II and Class III directors shall be those directors
designated and elected at the First Public Corporation Annual Meeting. At
each annual meeting after the First Public Corporation Annual Meeting,
directors to replace those of a Class whose terms expire at such annual
meeting shall be elected to hold office until the third succeeding annual
meeting and until
3
<PAGE>
their respective successors shall have been duly elected and qualified.
If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among
the classes as to make all classes as nearly equal in number as is
practicable.
(b) Vacancies occurring on the Board of Directors for any reason
may be filled by vote of a majority of the remaining members of the Board
of Directors, although less than a quorum, at a meeting of the Board of
Directors. A person so elected by the Board of Directors to fill a vacancy
shall hold office until the next succeeding annual meeting of stockholders
of the Corporation and until his or her successor shall have been duly
elected and qualified.
12. Effective upon the closing of the Initial Public Offering,
stockholders of the Corporation may not take action by written consent in
lieu of a meeting but must take any actions at a duly called annual or
special meeting.
13. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the hold of the
capital stock required by law or this Certificate of Incorporation, the
affirmative vote of the holders of at least two-thirds (2/3) of the
combined voting power of all of the then-outstanding shares of the
Corporation entitled to vote shall be required to alter, amend or repeal
Articles 11, 12 or 13 hereof or any provisions thereof.
14. A director of this corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the stockholders of this
Article to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law as so amended.
4
<PAGE>
IN WITNESS WHEREOF, Hoover's Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed and attested to this 10 day of
June, 1999.
/s/ Patrick J. Spain
--------------------------------------
Patrick J. Spain, Chairman of the Board,
Chief Executive Officer and President
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
COMMON STOCK [HOOVERS] COMMON STOCK
NUMBER [ONLINE] SHARES
HOOVER'S, INC.
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NEW YORK CUSIP
AND JERSEY CITY, NEW JERSEY
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE OF,
HOOVER'S, INC. (the "Corporation"), a Delaware corporation. The shares represented by this certificate are transferable only
on the stock transfer books of the Corporation by the holder of record hereof, or by his duly authorized attorney or legal
representative, upon the surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and
registered by the Corporation's transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by the facsimile signatures of its duly
authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
Lynn Atchison Patrick J. Spain
Chairman of the Board,
Secretary President and Chief Executive Officer AUTHORIZED OFFICER
<PAGE>
[HOOVERS]
[ONLINE]
HOOVER'S, INC.
The shares represented by this certificate are issued subject to all the provisions of the Certificate of Incorporation and
Bylaws of the Corporation as from time to time amended (copies of which are on file at the principal executive office of the
Corporation), to all of which the holder by acceptance hereof assents.
The Corporation will furnish without charge to each stockholder who so requests, the powers, designations, preferences and
relative participating, optional or other special rights of each class of stock or series thereof, and the qualifications,
limitations or restrictions of such preferences and/or rights. Such request shall be made in writing to the Secretary of the
Corporation.
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though
they were written out in full according to applicable laws or regulations:
TEN COM -as tenants in common UNIF TRANSFERS MIN ACT-__________Custodian__________
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Transfers to Minors Act
survivorship and not as tenants _____________________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,________________________hereby sell, assign and transfer unto
--------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------Shares
of the Common Stock evidenced by this certificate, and do hereby irrevocably constitute and appoint
---------------------------------------------------------------------------------------------, Attorney
to transfer the said shares on the books of the Corporation, with full power of substitution.
Dated-------------------------
X-----------------------------------------------------------
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
X-----------------------------------------------------------
(SIGNATURE)
-----------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-18.
-----------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
-----------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
DISTRIBUTOR AGREEMENT
Agreement between MEDIA GENERAL FINANCIAL SERVICES, INC., a Virginia
Corporation with its principal place of business at 333 East Franklin Street,
Richmond, Virginia, 23219 ("Media"), and HOOVER'S, INC, a Delaware
Corporation, with its principal place of business at 1033 La Posada Drive,
Ste. 250, Austin, Texas 78752 ("HOOVERS").
1. Subject to the terms and conditions of this Agreement, Media
hereby grants to HOOVERS a non-exclusive license to install, market and
distribute certain elements of Media's US common stock database specifically
and only through HOOVER'S products and services described in EXHIBIT I
attached hereto and incorporated herein by reference. The data elements
licensed, hereinafter referred to as "Media data", are shown in EXHIBIT II,
attached hereto and made a part hereof. The licensed Media data shown in
EXHIBIT II of this Agreement may be utilized, in part, or in whole, in the
HOOVER'S products and services as described in EXHIBIT I under the terms and
conditions shown in EXHIBIT III. In addition to the license granted
hereunder for use of the Media data through HOOVER's products and services
set forth in EXHIBIT I, HOOVERS may develop and market other products
utilizing the Media data as the parties mutually agree to add to this
Agreement by additional specific Amendments, subject to the provisions of
Paragraph 14 hereof.
Media reserves the right to modify its data files from time to time in
its sole discretion. Media shall give HOOVERS sixty (60) days prior written
notice if any such change will affect the Media data and/or delivery format.
The Media data will be available to HOOVERS via File Transfer Protocal
(FTP) and in such format as shall be mutually agreed upon. Media will
prepare the Media data on a mutually agreeable production schedule and
deliver the Media data to HOOVERS on a daily frequency.
Media shall have no liability for delays or non-performance occasioned
by causes beyond its control, including but not limited to acts of God,
fires, inability to obtain materials, strikes or other labor actions,
breakdown of equipment, delays or shutdowns of carriers or suppliers, and
government acts or regulations.
2 (a). Media represents and warrants to HOOVERS that the Media data
as delivered to HOOVERS or its production agent does not and will not
infringe upon or violate any patent, copyright, trade secret or any other
proprietary rights of any third party. In the event of any claim, suit or
action by any third party against HOOVERS arising out of Media's breach of
the foregoing representation and
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
warranty, HOOVERS shall promptly notify Media, and Media shall defend such
claim, suit or action in HOOVERS's name but at Media's expense under Media's
control. Media shall indemnify and hold harmless HOOVERS against any loss,
cost or damage, expense or liability arising out of such claim, suit or
action (including litigation costs and reasonable attorneys fees) whether or
not such claim, suit or action is successful. Should any material and/or
information constituting the Media data become, or in Media's opinion be
likely to become, the subject of a claim for infringement, Media may
authorize the continued use of, replace, remove, or modify such material
and/or information to render it non-infringing, provided that Media will
attempt to acquire rights for HOOVERS to continue using the Media data or
substantially similar data.
(b) HOOVERS represents and warrants to Media that neither the
reformatting, the means of presentation, nor any errors in the presentation
of the Media data on or through the HOOVERS products and services will cause
the Media data to infringe upon or violate any patent, copyright, trade
secret or any other proprietary rights of any third party, or otherwise
subject Media to liability. In the event of any claim, suit or action by any
third party against Media arising out of HOOVERS's breach of the foregoing
representation and warranty, Media shall promptly notify HOOVERS, and HOOVERS
shall defend such claim, suit or action in Media's name but at HOOVERS's
expense under HOOVERS's control. HOOVERS shall indemnify and hold harmless
Media against any loss, cost or damage, expense or liability arising out of
such claim, suit or action (including litigation costs and reasonable
attorneys fees) whether or not such claim, suit or action is successful.
(c) Media bases its data on sources believed by it to be reliable and
will endeavor to ensure that the data contained in the licensed Media data
are complete, accurate and timely. However, Media does not represent,
warrant, or guarantee such completeness, accuracy and timeliness, and it
shall have no liability of any kind whatsoever to HOOVERS, to any of
HOOVERS's customers, or to any other party, on account of any incompleteness
of, inaccuracies in or untimeliness of the Media data provided hereunder, or
for any delay in reporting such data. THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES OF ANY KIND WITH RESPECT TO THE DATA PROVIDED UNDER THIS
AGREEMENT. Nothing herein is intended to create an indemnity by HOOVERS in
favor of Media for claims by third parties arising out of or in connection
with HOOVERS's use of the Media data.
(d) HOOVERS shall insure that the Media data displayed shall be clearly
identified as provided by Media. For Media data displayed in a hard copy
format, Media will require the following attribution: "Source: Media General
Financial Services, Inc. For Media data displayed on web site or
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
terminal screen, Media will require the same source attribution as above as
well as the presentation of the Media corporate logo. In addition, Media
will require a hypertext link to its web site at www.mgfs.com from the
electronic sourcing attribution. In addition, in materials that describe the
sources of data in HOOVERS products and services, HOOVERS must provide an
appropriate disclaimer approved by Media and containing a paraphrase of the
language contained in subparagraph 2(c) above.
3. The purpose of providing the Media data to HOOVERS is to develop
further use of the Media data in the markets served by HOOVERS. Any use of
the Media data by HOOVERS or its agents not expressly authorized herein must
be mutually agreed upon via additional amendments, subject to paragraph 14
hereof.
4 (a). HOOVERS will perform all necessary accounting, billing and
collection for use of Media data. For the license granted to HOOVERS by
Media to offer Media data through the products and services set forth in
EXHIBIT I, HOOVERS shall pay to Media a monthly royalty based on HOOVERS "net
revenue" (where "net revenue" shall mean HOOVERS gross monthly revenue net of
advertising agency commissions).
The royalty fee to Media is based on the following:
- - For months [*] of contract term, Media shall be paid [*] of HOOVERS "net
revenue" each month.
- - For months [*] of contract term, Media shall be paid [*] of HOOVERS "net
revenue" each month.
(b) HOOVERS shall pay such royalties to Media on or before the
thirtieth (30th) day after the end of the month in which the royalties shall
accrue, and if any payment due hereunder is not received by Media within that
period, Media shall have the option to discontinue providing the Media data
and of terminating this Agreement should such payment not be received within
thirty (30) days after written notice to HOOVERS. Each monthly royalty
payment by HOOVERS for use of the Media data shall be accompanied by a
royalty statement showing the confidential detailed computation of the
royalty then due. Where the HOOVERS product is offered on a third party
service, HOOVERS will furnish to Media only a summary of such usage
information as it receives from the third party provider.
(c) At Media's option and no more than once per year, an independent
auditor selected by Media may inspect and audit during regular business hours
and with advance notice of at least thirty (30) days, no more than once
annually, those records of HOOVERS that specifically relate to the computation
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
of the royalty due Media hereunder, for the purpose of verifying the accuracy
of the royalty payments made to Media and the accuracy of HOOVERS's reports
specified in Paragraph 4(b). Such right of inspection shall exist during the
term of this Agreement and for one (1) year after any termination hereof.
All information gained by Media or its authorized representatives from such
inspections will be used solely for the purpose of verifying the accuracy of
the computation of the royalties and enforcement of this Agreement and
otherwise will be kept in strict confidence. Media shall pay the fees of any
accountant selected pursuant to this subparagraph, unless the results of
audit show a deficiency of more than five percent (5%) in royalty payments
made to Media hereunder, in which case, in addition to the deficiency, which
shall be due immediately in any event, HOOVERS shall pay the reasonable costs
of such audit, not to exceed the amount of the deficiency.
5. HOOVERS agrees that its client/customer agreements contain
provisions prohibiting the resale or redistribution of the data obtained from
the HOOVERS service (which include the Media data). HOOVERS represents and
warrants to Media that it assumes all responsibility for the accuracy,
integrity and support of its software that utilizes the Media data.
6. HOOVERS will provide Media [*] access to all the licensed Media
data in the products and services, as described in EXHIBIT I, for purposes of
monitoring use of the Media data. HOOVERS shall have [*] for Media access to
third party services and products containing Media data as part of HOOVERS,
but does have an obligation to disclose the names of these third party
services and products upon request by Media, under the provisions of
Paragraph (1) of this Agreement. Media will allow HOOVERS reasonable access
[*] to the Media data for applications development, sales demonstrations,
sales promotion (including sampling) and for other requirements in connection
with HOOVERS's effort to market approved products and services which contain
the Media data. Media acknowledges that third-party on-line systems who
carry HOOVERS' products and services may allow certain parties [*] access to
such information without the consent of or [*] HOOVERS. HOOVERS will have no
responsibility to account for or [*] on such access.
7. HOOVERS represents and warrants that the Media data supplied
hereunder shall be used and released by HOOVERS, its employees, and its
agents only in accordance with the terms of this Agreement and in furtherance
thereof. Bulk sales or distribution of the Media data by itself in any form
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
to any other person or institution for any purpose are not permitted.
8. Any use of the names or marks of either party in connection with
promotional activities, advertising, or other use shall be subject to the prior
written approval of the other party. Notwithstanding anything contained herein
to the contrary, both parties have the right to disclose that is has entered
into this Agreement.
9. HOOVERS acknowledges that the Media data in the form delivered
represent proprietary business information and that its utilization of the
Media data is strictly limited in accordance with this Agreement. Specific
references by HOOVERS that the Media data has any predictive value for the
purpose of enhancing investment returns are strictly prohibited.
10. HOOVERS acknowledges that the Media data consist of factual
information gathered, selected and arranged by Media by special methods and
at considerable expense; that the Media data, and all titles, formats and
other descriptive headings associated herewith, are and at all times shall
be, the sole property of Media, and that neither HOOVERS nor any of its
agents in any capacity shall sell or otherwise dispose of or distribute the
Media data, or any portion thereof, to others at any time, either during or
after the expiration of this Agreement, except as permitted by the terms
hereof. Upon notice thereof, HOOVERS will act promptly to prevent any breach
or continuation of a breach by a subscriber or any of its agents of the
provisions of this Agreement, or its subscriber agreements, such action to
include termination of services if required by Media.
11. HOOVERS expressly recognizes and acknowledges that its covenants
set forth in Paragraphs 5, 6, 7, 8, 9, and 10 are reasonable requirements of
Media in the protection of substantial business interests. HOOVERS further
acknowledges that the remedy at law for breach of any of its undertaking in
said paragraphs would be inadequate and that, in addition to all other
remedies provided by law, Media shall be entitled to injunctive relief
restraining any breach or threatened breach. HOOVERS's liability for breach
of this Agreement and for sums due to Media hereunder shall survive any
termination hereof.
12. (a) Subject to the terms and conditions described below, the
term of this Agreement shall be for a period of [*] from the effective date
of this Agreement, specified in Paragraph 19. At the end of the initial [*]
period, this Agreement will be automatically renewed [*], unless either party
gives to the
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
other written notice of termination at least [*] days prior to the expiration
of the initial term, or any renewal term, as the case may be. Upon
termination of this agreement for any reason other than non-payment, HOOVERS
may, upon request and notification to Media, continue to use the Media data
only in its existing non-electronic hard copy, physical products and those
non-electronic hard copy, physical products under preparation for a period of
[*] from the date of termination. During this [*] period, all royalties due
Media will continue to accrue and will be payable to Media as set forth in
this Agreement. Following the expiration of this [*] period, HOOVERS shall
purge all Media data from its systems and the systems of its third parties
and make no further use of the Media data in any form, except that HOOVERS
may continue to hold the Media data only in its archive of hard copy and
physical products. Notwithstanding the termination or expiration of this
Agreement, the rights and obligations under Paragraphs 2, 4, 5, 6, 7, 8, 9,
10, 11 and 12 shall survive and continue and bind the parties and their legal
representatives and permitted assigns.
(b) Either Media or HOOVERS may terminate this Agreement and the
license conferred hereunder as follows:
(i) Media may terminate as specified in Paragraph 4(b).
(ii) Either party may terminate if the other breaches any other
term or covenant of this Agreement, and such breach continues unremedied for
sixty (60) days after written notice to the party in breach by the other
party.
13. All marketing and promotional references to Media or the Media
data to be used by HOOVERS in its efforts to market HOOVERS's approved
products and services involving use of the Media data shall be subject to the
prior written approval of Media, which shall not be unreasonably withheld,
within five (5) days of HOOVERS's submission to Media of such materials. If
Media does not respond within five (5) days, HOOVERS may consider the
materials approved by Media.
14. All notices, payments and other communications permitted or
required by this Agreement shall be in writing addressed as follows:
(a) MEDIA GENERAL FINANCIAL SERVICES, INC.
333 EAST FRANKLIN STREET
RICHMOND, VIRGINIA 23219
ATTN: Dennis H. Cartwright, President & CEO
(b) HOOVERS INC.
1033 LA POSADA DRIVE, STE 250
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
AUSTIN, TEXAS 78752
ATTN: Elisabeth DeMarse, EVP
Either party may change its address for such matters by notice given in the
manner prescribed above. If sent by certified or registered mail, notices
shall be effective three business days after posting; otherwise, notices
shall be effective upon receipt by the other party.
15. This Agreement represents the entire understanding between
HOOVERS and Media as to the subject matter hereof. Any amendments or
additions hereto shall be only in writing executed by the parties.
16. This Agreement is made in, and shall be governed by and construed
in accordance with the laws of the State of Virginia.
17. No rights or duties hereunder may be transferred or assigned by
either party in any manner without the written approval of the other party in
its sole discretion, other than to a subsidiary, parent or other affiliate of
the transferring or assigning party.
18. No waiver of any breach of any term or condition herein shall
be deemed to be a waiver of any subsequent breach of any term or condition.
Failure or delay by either party in exercising any right or authority
hereunder shall not be construed as a waiver of such right or authority.
19. This Agreement shall become effective on June 1, 1999.
20. The existing agreement, and all Amendments thereto, between
HOOVERS and Media dated June 1, 1996 is terminated effective May 31, 1999.
MEDIA GENERAL FINANCIAL SERVICES, INC. HOOVER'S, INC.
333 EAST FRANKLIN STREET 1033 LA POSADA DRIVE, STE 250
RICHMOND, VIRGINIA 23219 AUSTIN, TEXAS 78752
By: /s/ Dennis Cartwright By: /s/ Elisabeth DeMarse
---------------------------------- ------------------------------
Name: Dennis Cartwright Name: Elisabeth DeMarse
Title: President and CEO Title: Executive Vice President
---------------------------------- ------------------------------
Date: May 13, 1999 Date: April 12, 1999
---------------------------------- ------------------------------
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
EXHIBIT I
PRODUCTS & SERVICES EXHIBIT
I. HOOVER'S COMPANY CAPSULES - contain information on more than 13,500
public and private enterprises in the United States and around the world. The
capsules, which consist of basic company and financial information and
selected web links, are the core component of the free, advertising-supported
portion of Hoover's Company information. Key components include full legal
company name, address, overview, top 3 competitors, related links, key
numbers and key people.
II. HOOVER'S COMPANY PROFILES - contain information on over 3,500 of the
largest, fastest growing, and most influential companies. The profiles
provide a strategic overview, history, news links, officers and directors,
products and operations information, a comprehensive list of key competitors
and financial history.
III. HOOVER'S ONLINE (WWW.HOOVERS.COM) - flagship web site that provides
business information through links to news, lists, stock quotes, and other
products such as Hoover's Industry Snapshots. Hoover's offers more than
13,500 company capsules for free, and more than 3,500 company profiles
available via online subscription. The profiles cover US and foreign public
and nonpublic companies and are written to executives, investors, job
seekers, sales people, consumers and scholars.
IV. STOCKSCREENER - an Internet-based service that allows users to select
and screen US equities based on financial criteria. The service consists of
two parts: (1) the Search Page, and (2) the Results Page. The service will
be a stand-alone web site accessible through at www.stockscreen.com.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
EXHIBIT II
DATA EXHIBIT
On all companies in the "then current" Media database, 3 digit MG industry
group and major market level, Media will provide, where available, data from
its US Common Stock database as described below.
Media does not guarantee that all data are available for all companies over
all historical periods requested and shall have no responsibility to HOOVERS
under this Agreement to provide any missing and/or incomplete data on any
companies.
This EXHIBIT II contains breakdown of licensed data to be used specifically
and only in the products and services set forth in EXHIBIT I.
I. HOOVER'S COMPANY CAPSULES -
1. Current [*]
2. Current [*] -Total Operations
3. Annual [*]*
4. Annual [*] -Total Operations - [*]
*Hoovers calculates a 1 year growth rate for each of these figures for
inclusion in Capsule.
Hoover's and Media agree to expand the data elements offered under the
Capsule to include an additional group of 25 Media data elements available
from current data feed. The specific group of 25 data elements to be
selected and made part of this Agreement under an Appendix at some future
date.
II. HOOVER'S COMPANY PROFILES -
1. Last 10 Years of [*]
2. Last 10 Years of [*]
3. Last 10 Years of [*]
4. Last 10 Years of [*]
5. Last 10 Years of [*]
6. Last 10 Years of [*]
7. Last 10 Years of [*]
8. Latest [*]
9. Latest [*]
10. Latest [*]
11. Last 10 Years of [*]
12. Last 10 Years of [*]
13. Last 10 Years of [*]
14. Last 10 Years of [*]
15. Latest [*]
16. Latest [*]
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
17. Latest [*]
18. Latest [*]
19. Latest [*]
20. Latest [*]
*For any "Asset-based" Profile, Hoovers may substitute indicated fields
with the following:
21. Last 10 Years of [*] for II.#1 above
22. Last 10 Years of [*] for II.#11 above
23. Latest [*] for II#8 above
24. Latest [*] for II.#17 above
25. Latest [*] - additional field.
ADDITIONAL ITEMS MAY BE ADDED TO PROFILE UNDER THIS AGREEMENT:
1. Latest [*]
2. Latest [*]
3. Latest [*]
4. Latest [*]
III. HOOVER'S ON-LINE-
A. Data as described above under Capsule and Profile sections.
B. Media data as included in "Named" or similarly named sections of web
site in the future:
i) [*] Financial Information-SUMMARY ANNUAL & QUARTERLY FINANCIALS
1. Last [*]
2. Last [*]
3. Last [*]
4. Last [*]
5. Last [*]
6. Last [*]
7. Last [*]
8. Last [*]
9. Last [*]
10. Last [*]
11. Last [*]
12. Last [*]
13. Last [*]
14. Last [*]
15. Last [*]
16. Last [*]
17. Last [*]
18. Last [*]
19. Last [*]
20. Last [*]
21. Last [*]
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
ADDITIONAL ITEMS MAY BE ADDED TO THIS SECTION UNDER THIS AGREEMENT:
1. Last [*]
ii) Subscription-based Financial Information - CURRENT INFORMATION ON
COMPANIES
1. Last [*]
2. [*] Price
3. [*] Price
4. [*]
5. Current [*]
6. Latest Indicated [*]
7. Latest [*]
8. # of [*]
9. Latest [*]
10. Latest [*]
11. Latest [*]
12. Latest [*]
13. Latest [*]
14. Latest [*]
15. Latest [*]
16. Latest [*]
17. Latest [*]
18. % Shares [*]
19. Latest [*]
20. 1 Year, 3 Year and 5 Year [*]
21. 1 Year, 3 Year and 5 Year [*]
22. 1 Year, 3 Year and 5 Year [*]
23. Latest [*]
24. [*]
25. Avg [*]
26. [*]
ADDITIONAL COMPANY ITEMS MAY BE ADDED TO THIS SECTION UNDER THIS AGREEMENT:
1. 3 and 4 digit [*]
2. [*] Indicator
3. Latest [*]
4. Latest [*]
5. Latest [*]
6. [*] Avg
7. [*] Avg
8. [*] Avg
9. [*] Avg
10. [*] Avg
11. [*] Avg
12. Latest [*]
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
13. Latest [*]
14. [*] Avg [*]
15. [*] Rate
16. [*] Shares -[*]
17. [*]
18. [*]
19. # [*]
20. # [*]
21. # [*]
22. # [*]
23. [*] Price % change
24. [*] change v. [*]
25. Latest [*]
*This data will be added to Hoover's feed at some future time once MGFS has
these items integrated within its database.
Under this Agreement, Hoover's may offer the Current Information section on
company level for [*] on web site only.
COMPARISON DATA (Company, Industry and Market level)
1. Latest [*]
2. Latest [*]
3. Latest [*]
4. Latest [*]
5. Latest [*]
6. Latest [*]
7. Latest [*]
8. Latest [*]
9. Latest [*]
10. Latest [*]
11. Latest [*]
12. Latest [*]
13. Latest [*]
14. Latest [*]
15. Latest [*]
16. Latest [*]
17. Latest [*]
18. Latest [*]
19. Latest [*]
20. Latest [*]
21. Latest [*]
22. Latest [*]
23. Latest [*] -Total Operations
24. Latest [*]
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
25. Latest [*]
26. Latest [*]
27. Latest [*]
28. Latest [*]
29. Latest Total [*]
30. [*] Growth Rate
31. [*] Growth Rate
ADDITIONAL COMPANY, INDUSTRY AND MARKET LEVEL ITEMS MAY BE ADDED TO THIS
SECTION UNDER THIS AGREEMENT:
1. Latest [*]
2. Latest [*]
3. Latest [*]
4. [*] Avg
5. [*] Avg
6. [*] Avg
7. [*] Avg
8. [*] Avg
9. [*] Avg
10. Price to [*]
11. [*] Growth Rate
DETAILED FINANCIALS
1. Last [*]
2. Last [*]
3. Last [*]
4. Last [*]
5. Last [*]
6. Last [*]
7. Last [*]
8. Last [*]
9. Last [*]
10. Last [*]
11. Last [*]
12. Last [*]
13. Last [*]
14. Last [*]
15. Last [*]
16. Last [*]
17. Last [*]
18. Last [*]
19. Last [*]
20. Last [*]
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
21. Last [*]
22. Last [*]
23. Last [*]
24. Last [*]
25. Last [*]
26. Last [*]
27. Last [*]
28. Last [*]
29. Last [*]
30. Last [*]
31. Last [*]
32. Last [*]
33. Last [*]
34. Last [*]
35. Last [*]
36. Last [*]
37. Last [*]
38. Last [*]
39. Last [*]
40. Last [*]
41. Last [*]
42. Last [*]
43. Last [*]
44. Last [*]
45. Last [*]
46. Last [*]
47. Last [*]
48. Last [*]
49. Last [*]
50. Last [*]
ADDITIONAL COMPANY, MAY BE ADDED TO THIS SECTION UNDER THIS AGREEMENT:
1. Last [*]
2. Last [*]
3. Last [*]
4. Last [*]
5. Last [*]
6. Last [*]
IV. STOCKSCREENER-
1. Company Name
2. Exchange Indicator
3. Ticker
4. MG [*]
5. MG [*]
6. Latest [*]
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
7. [*] Price
8. [*] Price
9. % [*]
10. Current [*]
11. [*] Ratio
12. [*] MG Ind Grp
13. [*] Ratio
14. [*] Ratio
15. [*] Beta
16. [*] Value
17. Last [*]
18. Latest [*]
19. % Chg [*]
20. % Chg [*]
21. [*] Grw Rate
22. Latest [*]
23. Latest [*]
24. Cur Qtr [*]
25. Last Reported [*]
26. % Chg [*]
27. % Chg [*]
28. [*] Grw Rate
29. Indicated [*]
30. [*] Tot Ops
31. [*] Grw Rate [*]
32. [*]
33. [*]
34. [*] Ratio
35. [*]
36. 2 digit [*]
37. 3 digit [*]
38. 2 digit MG [*]
39. 3 digit MG [*]
40. 2 digit MG [*]
41. 3 digit MG [*]
42. 2 digit MG [*]
43. 3 digit MG [*]
44. [*] Yield
45. % Shares [*]
46. [*] Coverage
47. [*] Total Return
48. %Chg [*]
49. % Chg [*]
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
50. [*] Margin
51. [*] Grw Rate
52. [*] Ratio
53. Late [*]
54. Late [*]
55. [*]
56. [*]
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
EXHIBIT III
TERMS AND CONDITIONS
OF THE USE OF MEDIA DATA IN HOOVER'S PRODUCTS AND SERVICES
I. COMPANY CAPSULE- As defined in EXHIBIT I and EXHIBIT II, HOOVERS Capsules
may be made available on Hoover's Online at www.hoovers.com, through
third-party license agreements with other web sites, on-line and intranet
systems, and in CD-Rom products and hard copy publications.
- Hoovers can display Media in tabular or graphical format only. No
other uses or presentation of data are permitted under this Agreement.
II. COMPANY PROFILE - As defined in EXHIBIT I and EXHIBIT II, HOOVERS Profiles
may be made available on Hoover's On-Line at www.hoovers.com, through
third-party license agreements with other web sites, on-line and intranet
systems, and in CD-Rom products and hard copy publications.
- Hoovers may display Media in tabular or graphical format only. No
other uses or presentation of data are permitted under this Agreement.
III. HOOVERS ONLINE - As defined in EXHIBIT I and EXHIBIT II, HOOVERS may
utilize Media data within its own web site on a [*] basis, as set forth
below. Hoover's Online is offered on individual subscription basis as
well as through enterprise license arrangements. Private-labeling or
co-branding of site is also allowed under this Agreement.
a) [*] SECTION: Media data that may be offered [*] includes (1) data in
Company Capsule described in EXHIBIT II and (2) data described under
EXHIBIT II, Section III, B, i) offered under section -SUMMARY ANNUAL
AND QUARTERLY FINANCIALS.
b) [*] SECTION: Media data that may be displayed specifically and only
behind subscription wall includes (1) data in Company Profile
described in EXHIBIT II and (2) data described under EXHIBIT II,
Section III, B, ii) offered under sections - CURRENT INFORMATION,
COMPARISON DATA
- -------------------
* Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
and DETAILED FINANCIALS.
Note: As described in EXHBITI I, under this new Agreement, Hoover's may
offer the CURRENT INFORMATION section in [*] section of site.
- HOOVERS may display Media in tabular or graphical format only. No
other uses or presentation of data are permitted under this Agreement.
- HOOVERS is permitted to display the "for-pay" information for up to 5
companies, outside the subscription wall, for demo purposes.
- HOOVERS is permitted to use the Media data for "30-day free trails"
for individual customers, but is not permitted to otherwise use or
display the Media data within the "free" area of HOOVERS service.
- All web pages displaying Media data will be co-branded with both
HOOVERS and Medias' logo.
- HOOVERS shall have the right to enter into Agreements with third-party
firms to license the Media data, only in combination with HOOVERS
data, as described under Product EXHIBIT I and Data EXHIBIT II with
the HOOVERS Capsule and HOOVERS Profile, as explicitly defined herein,
Any other such contractual arrangements ARE NOT part of this Agreement
and shall be separate written arrangements, as the parties may
mutually agree at their sole discretion.
IV. STOCKSCREENER- As defined in EXHIBIT I and EXHIBIT II, Media data can be
utilized within StockScreener service at www.stockscreener.com web site as
well as through third-party licensing or co-branding arrangements of this
web site service.
- As part of operation of this service, Media will transmit the Media
data to a third party, Data Downlink Corporation, who will maintain a
portion of service from their office.
- The Search Page is basic interface for users to input their selection
criteria. It will reside on HOOVER'S web server. The search page
will contain advertising as well as service description, links to
explanations of financial criteria involved, logos attributing
information in service to HOOVERS, Media and Data Downlink, each logo
with link to each party's web site.
- The Results Page shows results of the user's search in table form,
which resides on Data Downlink's server. The results page will
contain advertising and names of stocks meeting
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED UNDER
17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.496.
search criteria, along with numbers involved in search. Users may
re-sort the page according to any of the numbers shown on it, thus
generating a new page and a new ad impression. The results list will
be broken into groups of 20 stocks.
<PAGE>
BASIC LEASE INFORMATION
Date: March 12, 1996
Landlord: KP/Miller Realty Growth Fund II, L.P.
Tenant: The Reference Press, Inc.
Article 1 Premises: Suites 165 and 250 of the La Costa Green Office
Building, 1033 La Posada Drive, Austin, Texas 78752.
Article 1 Square Footage of the Premises: Approximately 12,238 Rentable
Square Feet (Approximately 11,123 Rentable Square Feet on the
second floor and approximately 1,115 Rentable Square Feet on the
first floor).
Article 2 Lease Commencement Date: May 1, 1996.
Article 2 Lease Expiration Date: April 30, 2001.
Article 4 Monthly Rental: See Exhibit "E" attached hereto and made a part
hereof for all purposes.
Article 5 Expense Stop: $5.80/sq. ft.
Article 5 Tenant's Percentage Share of the Building: 17.09%
Article 34 Security Deposit: $10,000.00
Article 36 Tenant's Address for notices: Suite 250, 1033 La Posada Drive,
Austin, Texas 78752
Article 46 Parking
Rules and Regulations
Exhibit A - Floor Plan
Exhibit B - Space Plan
Exhibit C - Leasehold Improvements Agreement
Exhibit D - Legal Description
Exhibit E - Rental Schedule
Exhibit F - Tenant's Option to Renew
Exhibit G - Option to Expand
Exhibit H - Right of First Refusal
Exhibit I - Acceptance of Premises Memorandum
The provisions of the Lease identified above in the margin are those
provisions where reference to particular Basic Lease Information appear.
Each such reference shall incorporate the applicable Basic Lease Information.
In the event of any conflict between any Basic Lease Information and the
Lease, the Lease shall control.
TENANT LANDLORD
THE REFERENCE PRESS, INC. KP/MILLER REALTY GROWTH FUND 33, L.P.,
a Texas limited partnership
By: /s/ Patrick J. Spain By: Miller Real Estate Services Corporation,
a general partner
By: /s/ Andrew B. Qualls
Name: Andrew B. Qualls
Title: Vice President
<PAGE>
STATE OF TEXAS
STANDARD OFFICE LEASE
La Costa Green Office Building
1033 La Posada Drive
Austin, Texas 78752
THIS LEASE (this "Lease"), dated March 12, 1996 is entered into by and
between KP/MILLER REALTY GROWTH FUND II, L.P. ("Landlord"), as landlord, and
THE REFERENCE PRESS, INC. ("Tenant"), as tenant.
1. PREMISES
(a) Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the agreements, conditions and
provisions hereinafter set forth, to each and all of which Landlord and
Tenant hereby mutually agree, those certain premises (the "Premises") shown
cross-hatched on Exhibit "A", attached hereto and made a part hereof for all
purposes, and situated on the first and second floor, at the La Costa Green
Office Building, 1033 La Posada Drive, located in Austin, Texas, specified in
the Basic Lease Information entered into by Landlord and Tenant concurrently
herewith and attached hereto as the cover page of this Lease (the "Basic
Lease Information"), and consisting of approximately 11,123 square feet of
rentable area on the second floor and approximately 1,115 square feet of
rentable area on the first floor. The Premises are situated in a building
(the "Building") being located at the above mentioned address and being
situated on the real Property more fully described on Exhibit "D", attached
hereto and made a part hereof for all purposes (the Building, the real
property, other buildings and improvements thereon, and any parking
facilities or structures appurtenant thereto, are hereinafter referred to
collectively as the "Property").
(b) As long as this Lease remains in effect and Tenant is not in
default hereunder, Tenant shall have the nonexclusive right to use, in common
with Landlord, other tenants, subtenants, employees and invitees, the
lobbies, entrances, stairs, elevators, restrooms and other public portions of
the Building (the "Common Area"); provided, however, that Landlord shall have
the right at any time to exclude from the Common Area such areas as Landlord
may determine so long as access to the Premises is not unreasonably denied.
All of the outside walls and windows of the Premises and any space in the
Premises used for shafts, stacks, pipes, conduits, ducts, and electric or
other utilities, sinks, or other Building facilities, and the use thereof and
access thereto through the Premises for the purpose of operation,
replacement, maintenance and repair, are reserved to Landlord.
2. TERM, COMPLETION OF IMPROVEMENTS
(a) The term of this Lease shall commence and unless sooner
terminated as hereinafter provided shall end on the dates respectively
specified in the Basic Lease Information. Prior to the commencement of the
term of this Lease, Landlord shall complete, construct or install in the
Premises the improvements to be constructed or installed by Landlord as shown
on the space plan attached hereto as Exhibit "B" and made a part hereof for
all purposes, if any, upon the terms and conditions set forth in the
Leasehold Improvements Agreement (the "Agreement"), attached hereto as
Exhibit "C" and made a part hereof for all purposes. The Premises shall be
deemed complete and possession delivered to Tenant and accepted by Tenant
upon the date Tenant commences occupancy of any portion of the Premises or
when Landlord has substantially completed such improvements, if any,
whichever occurs first. As used in this Section 2 and the Agreement, the
phrase "substantial completion" shall mean when (i) installation of leasehold
improvements (as described in Exhibit "C") is sufficiently complete,
substantially in accordance with the Approved Working Drawings (defined as
Exhibit "C") so Tenant can occupy the Premises for its intended use, (ii)
Tenant has direct access from street to the elevator lobby on the floor where
the Premises are located, and (iii) building services are ready to be
furnished to the Premises. Substantial completion shall be deemed to have
occurred notwithstanding a requirement to complete "punchlist" or similar
corrective work. Landlord shall use its best efforts to advise Tenant of the
anticipated date of substantial completion at least thirty (30) days prior to
such date, but the failure to give such notice shall not constitute a default
by Landlord under this Lease.
(b) If Landlord, for any reason whatsoever other than Tenant's Delay
(as defined in the Agreement), cannot deliver possession of the Premises to
Tenant at the commencement of the term of this Lease, as above specified, (i)
this Lease shall not be void or voidable and such failure shall not affect
the validity of this Lease or the obligations of Tenant hereunder, and (ii)
Landlord shall not be liable to Tenant for any loss or damage resulting
therefrom; provided, however, (i) monthly rental shall be waived for the
period between the commencement of the term of this Lease and the time when
Landlord can deliver possession (in addition to the three-month period during
which rental is otherwise abated pursuant to Section 4 below), and (ii) if
Landlord, for any reason whatsoever other than Tenant's Delay, cannot deliver
possession of the Premises to Tenant on or before August 1, 1996, then Tenant
shall have the right to terminate this Lease by delivering written notice of
termination to Landlord on or before August 8, 1996, and Tenant's failure to
deliver such notice by such date shall tender such termination right null and
void and of no further force and effect. No delay in delivery of possession
shall operate to extend the term hereof. In the event that Landlord shall
permit Tenant to occupy the Premises prior to the commencement date of this
Lease, such occupancy shall be subject to all of the provisions of this Lease
and shall not affect the expiration date of this Lease. Upon Landlord's
request, Landlord and Tenant shall execute an acceptance of premises Rider
establishing the commencement date of this Lease and confirming the
expiration date of this Lease, but this Lease shall not be affected in any
manner if either party fails or refuses to execute such Rider. Any abatement
of monthly rental pursuant to this Article 2 shall constitute full settlement
of all claims that Tenant might otherwise have against Landlord by reason of
the Premises not being delivered to Tenant on the commencement date of this
Lease.
(c) Subject to the terms and provisions of the Agreement attached
hereto as Exhibit "C", Tenant acknowledges that it has fully inspected the
Premises, and by moving into the Premises or taking possession thereof,
Tenant accepts the Premises "AS IS, WHERE IS", as suitable for the purposes
for which the same are leased and in their present condition. Tenant further
acknowledges that Landlord has made no warranties or representations with
respect to the Property, the Building, the Premises or otherwise or as to
either the condition or the suitability of the Property, the Building or the
Premises for the use described in Section 6 below, and Tenant hereby waives
any and all defects with respect thereto. This Lease is, and shall be
considered as, the only agreement between the parties hereto and their
representatives and agents. All negotiations and oral agreements have been
merged into and are included herein. There are no other representations or
warranties between the parties and any reliance with respect to
representations is solely upon the representations and agreements contained
in this Lease, if any.
2
<PAGE>
3. NONOCCUPANCY OF IMPROVED PREMISES/CONCESSION RECAPTURE
(a) In the event Tenant does not occupy the Premises, all interior
finishing costs, among other amounts owed by Tenant hereunder (less the
amortized portion of such finishing costs), shall become due and payable by
Tenant upon billing by Landlord, together with interest thereon at the rate
of ten percent (10%) per annum.
(b) In the event Landlord provides Tenant any concessions including,
without limitation, rent abated occupancy, and/or tenant improvements, Tenant
acknowledges, understands and agrees that (i) any concessions are personal to
Tenant and shall not be assigned or sublet, in whole or in part, to any
assignee or subtenant without the prior written approval of Landlord, and
(ii) Landlord has provided any such concessions to Tenant in reliance upon
Tenant's warranty that Tenant shall faithfully and timely perform all terms,
provisions and conditions contained in this Lease. Accordingly, in the even
Tenant fails, after written notice to Tenant as required by this Lease, to
timely perform any term, provision or condition of this Lease, including,
without limitation, the timely payment of rent (beyond the expiration of any
applicable cure periods), any concessions herein provided Tenant shall be
immediately due and payable as additional rent without further notice or
demand to Tenant.
4. RENTAL
Tenant shall pay, and hereby promises and agrees to pay, to Landlord monthly
rental for the Premises as provided in Exhibit E (subject to adjustment as
provided in Article 5 below) on or before the first day of the first full
calendar month of the term hereof and on or before the first day of each and
every successive calendar month thereafter during the term hereof. In the
event the term of this Lease commences on a day other than the first day of a
calendar month, then the monthly rental for the first and fractional months
of the term hereof shall be appropriately prorated. Rental shall be paid to
Landlord, without deduction, abatement, counterclaim, offset, or demand, in
lawful money of the United States of America, at 1600 Two Lincoln Centre,
5420 LBJ Freeway, Dallas, Texas 75240, Attention: Andrew B. Qualls, or to
such other person or at such other place as Landlord may from time to time
designate in writing. If any such rental payment is not received by Landlord
within ten (10) days of the date such rental payment is due, an additional
amount equal to five percent (5%) of such delinquent rental payment shall
become due and payable. Tenant recognizes that such additional amount is
necessary to reimburse Landlord for its loss of use of rental fees as well as
to compensate Landlord for the added administrative, legal and bookkeeping
expenses resulting from such delinquent rental payment. So long as Tenant is
not in default under this Lease and no event which with notice or lapse of
time or both would constitute an event of default exists under this Lease,
the monthly rental for months 1 through 3 of the lease term shall be abated.
5. RECAPTURE
(a) The monthly rental payable under Article 4 hereof may be
increased during the term of this Lease if Operating Expenses (hereinafter
defined) for the Building exceed, during any one year, the Base Expense Rate
(hereinafter defined). For the purpose of rental escalations under the term
of this Lease, the phrase "Operating Expenses" shall mean all costs of
management, operation and maintenance of the property, the Building, the
Common Area and the Premises, including, without limitation, the following:
(i) ad valorem taxes and assessments, for which Landlord is liable, assessed
against the Property, the Building, the improvements, the Common Area and the
appurtenances in and upon the Property, together with any special assessments
and other real estate costs in the nature of taxes, assessments or
governmental impositions of any type for which Landlord is responsible (in
the event there is a change in the general system of real estate taxation
such that any alternative taxes, of whatever nature, are imposed upon
Landlord in lieu of, in whole or in part, general ad valorem taxes on the
Building of the Property, then such alternative taxes shall be deemed "ad
valorem taxes" or "real estate costs" for purposes of this Lease); (ii)
expense of management, operation, maintenance and repair of the Property, the
Building, the Premises, the Common Area, sidewalks, parking areas and curbs
adjacent thereto in a manner deemed reasonable and appropriate and for the
best interest of the occupants; (iii) ordinary and customary management fees
and actual expenses incurred for employees, such as wages, fringe benefits,
taxes, unemployment and disability insurance, workmen's compensation
insurance, social security benefits and any other expenses incurred in
connection with such employees (as used in this Article 5, the term
"employees" includes employees such as superintendents, engineers,
electricians, clerks, mechanics, helpers, security officers, porters,
cleaners and window washers as well as contract laborers performing services
for the benefit of the Property and the Building and other persons, firms, or
corporations providing contract services for the benefit of the Property, the
Building or the occupants); (iv) actual costs of materials and supplies used
and consumed for the benefit of the property, the Building and the occupants;
(v) full contract cost of third-party contractors for all of the foregoing,
including rubbish removal, exterminating and pest control, elevator
maintenance, maintenance of air conditioning, heating control and security
service; (vi) all utility services; and (vii) actual costs of insurance,
including fire and extended coverage and general liability insurance, but
excluding any charges reflecting increased premiums due to any act or
omission of any tenant of the Building for which Landlord would be entitled
to reimbursement from such tenant.
(b) Operating Expenses shall not include state or federal income
taxes (unless such taxes are in lieu of general ad valorem taxes as provided
above), or periodic alterations or improvements to the construction of the
Building (except its specifically provided for herein), and in no case shall
Tenant be charged additional rent for painting, repainting, decorating,
redecorating, special cleaning service or special security service to the
extent any of the foregoing are directly related to the sole advantage of any
particular occupant of the Building other than Tenant. Operating Expenses
shall not include the cost of any repair or replacement which is or should be
capitalized on Landlord's books under generally accepted accounting
principles, except for capital improvements which are made for the purpose of
increasing the energy efficiency of the Building or the Property or which are
made pursuant to a requirement imposed by a governmental entity having
jurisdiction thereof or which are fully amortized over a ten (10) year
period. In the event of the enactment, adoption or enforcement by any
governmental authority of any assessment, levy, of, tax, whether sales, use
or otherwise, on or with respect to the rentals and charges set forth in this
Lease, on or with respect to the right to lease or occupy the property, the
Building, or the Premises, Tenant shall pay such assessment, levy or tax to
Landlord or, at Landlord's option, Tenant shall pay such assessment, levy or
tax directly to the governmental authority. If such assessment, levy of tax
is imposed on or with respect to all of the Tenant's derived from the
Building or the Property, or is imposed on or with respect to the Property as
a whole, Tenant shall pay to Landlord Tenant's Proportionate Share of such
assessment, levy or tax. Notwithstanding the foregoing, this shall not impose
upon Tenant the obligation to reimburse Landlord for any income, gift,
inheritance or estate tax as such taxes are now structured.
(c) In the event that during the term of this Lease Operating
Expenses for 1996 or any succeeding calendar year exceed $5.80 per square
foot per year (the "Base Expense Rate"), Tenant, within thirty (30) days
after written notification of the foregoing by Landlord, shall:
(i) Pay to the Landlord Tenant's proportionate share of such
excess for the year in question. Tenant's proportionate share of such excess
shall be based on the ratio which the Tenant's rentable area of the Premises
bears to one hundred percent (100%) of the rentable area of the Property
(Tenant's proportionate share may be adjusted from time to time as the
rentable area of the Premises or the total rentable area of the Property
changes, for whatever reason, except if such change is
3
<PAGE>
solely due to remeasurement). The product resulting from the application
ratio to the excess shall constitute the amount of additional rent Tenant
shall pay. The Base Expense Rate for the calendar year in which the Building
is first occupied by any Tenant shall be adjusted in accordance with the
ratio that the number of clays of such occupancy during such calendar year
bears to 365. Tenant's additional rent resulting from the provisions hereof
shall be prorated during the first and final calendar years of the term of
this Lease based on the number of months during each such calendar year that
this Lease was actually in effect. Within thirty (30) days after Landlord
notifies Tenant of the amount thereof, Tenant shall also pay to Landlord an
amount equal to the product of (1) Tenant's proportionate share of the
Operating Expense increase for the previous calendar year divided by twelve
(12) multiplied by (2) the number of months that have elapsed from the end of
the previous calendar year through the month such notice is given, which
amount shall constitute a part of Tenant's escalation reserve. If during any
calendar year during the term hereof the Property is not fully occupied, then
the Operating Expenses incurred for such calendar year shall, for the purpose
of making the calculations to be made pursuant to this Article 5, be adjusted
to reflect the amount of Operating Expenses which would have been incurred
had the Property been fully occupied during such calendar year, For purposes
of this Article 5, the phrase "fully occupied" shall mean occupancy of 95% of
the rentable area of the Property.
(ii) Additionally, Tenant shall pay to Landlord (with the payment
of monthly rental) for the months following the month during which a notice
of escalated rent is given, a monthly escalation reserve on the first day of
each month for the remainder of the calendar year. The monthly escalation
reserve shall be equal to the total of Tenant's proportionate share of such
Operating Expense increase for the previous calendar year divided by twelve
(12). Landlord shall apply the total of the escalation reserves paid by
Tenant to any increase in Operating Expenses over the Base Expense Rate for
the calendar year in which the escalation reserves are paid. After the end of
every calendar year Landlord will deliver to Tenant a statement which sets
Forth (A) the previous year's Operating Expenses; (B) Tenant's proportionate
share of any increases, (C) the adjustment, if any, reflecting the monthly
escalation reserves paid, and (D) the net amount due Landlord or due to be
reimbursed to Tenant; provided, however, in no event shall the monthly rental
ever be less than the amounts specified in Article 4 of this Lease.
(d) Landlord may apply all or part of Tenant's Security Deposit (as
defined in Section 34 of this Lease) to satisfy the additional rent called
for under this Article 5, and following such application, Tenant shall on
demand pay to Landlord the amount so applied in order to restore the Security
Deposit to the original amount specified in Article 34 hereof.
(e) Notwithstanding any expiration or termination of this Lease
prior to the expiration date of this Lease, Tenant's obligation to pay any
and all additional rent under this Lease shall continue and shall cover all
periods up to the expiration date of this Lease. Tenant's obligation to pay
any and all additional rent under this Lease and Landlord's and Tenant's
obligation to make the adjustments referred to in this Article 5 shall
survive any expiration or termination of this Lease prior to the expiration
date of this Lease.
6. USE
(a) The Premises shall be used for general office purposes including
shipping and storage of products in accordance with all applicable laws,
rules and regulations, including zoning, and for no other purpose. Tenant
shall not do or permit to be done in or about the Premises, nor bring or keep
or permit to be brought or keep therein, anything which is prohibited by or
will in any way conflict with or violate any law, statute, ordinance or
governmental rule or regulation flow in force or which may hereafter be
enacted or promulgated or which is prohibited by the standard form of fire
insurance policy, or will in any way increase the existing rate of or affect
any fire or other insurance upon the Property, the Building or any of its
contents, of cause a cancellation of any insurance policy covering the
Property, the Building or any part thereof or any of its contents. Tenants
shall not do or Permit anything to be done in or about the Premises which
will in any way obstruct or interfere with the rights of other tenants of the
Building, or injure or annoy them, or use or allow the Building, the Property
or the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Building, the Property or the Premises or commit
or suffer to be committed any waste in, on or about the Building, the
Property or the Premises.
(b) Tenant shall not be allowed to use the name of the Building in
which the Premises are located, or words to that effect, in connection with
any business carried on in said Premises (except as Tenant's address) without
the prior written consent of Landlord.
7. SERVICES
(a) Landlord shall maintain the Common Areas of the Building in
reasonably good order and condition except for damage occasioned by the act
of Tenant, which damage shall be repaired by Landlord at Tenant's expense.
(b) Landlord shall furnish the Premises with (i) electricity
sufficient to provide power for typewriters and other office machines of
similar low electrical consumption; provided, however, Landlord shall not be
required to provide electricity required for special lighting in excess of
building standard improvements, and any other item of electrical equipment,
including any electronic data processing equipment, which (singly) consumes
more than .5 kilowatts per hour at rated capacity or requires a voltage other
than two hundred twenty (220) volts single phase and if the installation of
such electrical equipment requires additional air conditioning capacity above
that provided by the building standard improvements, the additional air
conditioning installation and operating costs shall be paid by Tenant, (ii)
heat and air conditioning to the extent reasonably required for the
comfortable occupation or the Premises during reasonable and usual business
hours, 7:00 a.m. to 8:00 p.m. weekdays and 7:00 a.m. to 1:00 p.m. on
Saturdays (exclusive of Sundays and State and National Holidays), or such
shorter period specified or prescribed by any applicable policies or
regulations adopted by any utility or government agency, (iii) elevator
service, (iv) lighting replacement (for building standard lights), (v)
restroom supplies, (vi) janitorial service on a five (5) day/week basis,
excluding holidays; provided, however, that if Tenant's improvements are not
consistent in quality and quantity with building standard improvements,
Tenant shall pay any cleaning and janitorial costs attributable thereto,
(vii) security for the Building consistent with security provided by
comparable buildings in the vicinity of the Building (but in no event less
security than is currently provided for the Building); provided, however,
that Landlord shall not be liable to Tenant for any losses, including
personal injury and property damage, that may result to Tenant from theft,
burglary or intentional conduct on the part of any person or entity, or for
damages directly or indirectly resulting therefrom, nor shall the rental
herein reserved be abated by reason of (1) the installation, use or
interruption of any services, (2) the failure to furnish or delay in
furnishing any such services when such failure or delay is caused by accident
or any condition beyond the reasonable control of Landlord or by the making
of necessary repairs or improvements to the Property, the Premises or to the
Building, or (3) the limitation, curtailment, rationing or restrictions on
use of water, electricity, gas or any other form of energy serving the
Property, the Premises or the Building. Landlord shall use reasonable
efforts to remedy any interruption in the furnishing of such services. For
purposes of this Lease, the phrase "National Holidays" shall mean only the
following: Labor Day, Memorial Day, Christmas Day, thanksgiving Day and the
day after, New Years Day and Fourth of July.
4
<PAGE>
(c) It is understood that Landlord does not represent, warrant or
covenant that any of the services referred to above, or any of the services
which Landlord may supply, will be free from interruption. Tenant
acknowledges that any one or more of such services may be suspended or
reduced by reason of accident or repairs, alterations or improvements, by
strikes or by any cause beyond the reasonable control of Landlord, or by
orders, rules, ordinances or regulations of any federal, state, county or
municipal authority or otherwise. Tenant agrees that any such interruption or
suspension of services shall never be deemed an eviction of Tenant or
disturbance to Tenant's use and possession of the Premises or any part
thereof, or render Landlord liable to Tenant for damages or abatement of rent
or relieve Tenant of performance of Tenant's obligations under this Lease.
Landlord will use its reasonable efforts in the event of a strike to secure
parties not involved in the labor dispute to provide minimum services for
cleaning restrooms, waste removal, and janitorial services.
(d) Tenant shall notify Landlord of any need for an increase in
power usage. In the event Tenant fails to give such notice and/or an increase
in usage of power by Tenant is recognized by Landlord, the increased amount
of usage shall be deemed to have been initiated the first day of occupancy of
the Premises by Tenant. In the event Tenant desires heating and air
conditioning after the normal operating hours of the Building, Tenant shall
provide Landlord with at least three (3) hours prior telephone notice on
business days and at least twenty-four (24) hours prior telephone notice on
weekends and National Holidays and Tenant shall be liable for and reimburse
Landlord immediately upon demand a charge of $18 per hour for such usage.
(e) Whenever heat generating machines or equipment or lighting other
than building standard lights are used in the Premises by Tenant which affect
the temperature otherwise maintained by the air conditioning system, Landlord
shall have the right to install supplementary air conditioning units in the
Premises, and the cost thereof, including the cost of installation and the
cost of operation and maintenance thereof, shall he paid by Tenant to
Landlord upon billing by Landlord. If Tenant installs lighting requiring
power in excess of that required for normal desk-top office equipment or
normal copying equipment as determined by Landlord, Tenant shall pay to
Landlord, upon billing, the cost of such excess power together with the cost
of installing any additional risers or other facilities that may be necessary
to furnish such excess power to the Premises, as additional rent hereunder.
In the event the water usage by Tenant exceeds the normal office use of
water, the cost of such excess water usage shall be paid by Tenant to
Landlord upon billing by Landlord. Landlord shall have the right to cause any
of the utilities servicing the Premises to be separately metered, in which
event the cost of any such utility shall be paid by Tenant to Landlord upon
billing by Landlord.
8. TAXES PAYABLE BY TENANT
In addition to the monthly rental and other charges to be paid by Tenant
hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes
payable by Landlord (other than net income taxes), whether or not now
customary or within the contemplation of the parties hereto, (a) upon
measured by or reasonably attributable to the cost or value of Tenant's
leasehold, equipment, furniture, goods or services, fixtures and other
personal property located in the Premises or by the cost or value of any
leasehold improvements made in or to the Premises by or for Tenant, other
than Landlord's work described in Exhibit "C", regardless of whether title to
such improvements shall be in the name of Tenant or Landlord; (b) upon or
measured by the monthly rental payable hereunder, including, without
limitation, any gross income tax or excise tax levied by the City of Austin,
the State of Texas, the Federal Government or any other governmental body
with respect to the receipt of such rental; (c) upon or with respect to the
possession, leasing, operation, management, maintenance, alternation, repair,
use or occupancy by Tenant of the Premises or any portion thereof; and (d)
upon this transaction of any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises. In the event that it
shall not be lawful for Tenant so to reimburse Landlord, the monthly rental
payable to Landlord under this Lease shall be revised to net Landlord the
same net rental after imposition of any such tax upon Landlord as would have
been payable to Landlord prior to the imposition of any such tax.
9. ALTERATIONS
(a) The Building, the Property and the Common Areas are at all times
subject to the exclusive control and management of Landlord. Without limiting
the generality of the foregoing, Landlord has the right to do and perform
such acts in and to the Building in the use of Landlord's good business
judgment that Landlord determines to be advisable for the more efficient and
proper operation of the Building, including, but not limited to, the
following: (i) obstruct or close off all or any part of the Property for the
purpose of maintenance, repair or construction; (ii) use any part of the
Common Area for merchandising, display, decorations, entertainment, and
structures designed for retail selling or special features or promotional
activities, (iii) change area, level, location, arrangement or use of
Property or any part thereof; (iv) construct other buildings, structures or
improvements on the Property and make alterations thereof, additions thereto,
subtractions therefrom, or rearrangements thereof, build additional stories
on any building, and construct additional buildings or facilities adjoining
or proximate to the Property; and (v) construct multiple deck, elevated or
underground parking facilities, and expand, reduce or alter same in any
manner whatsoever.
(b) Tenant will not make or suffer to be made any alterations,
additions or improvements to or of the Premises or any part thereof, whether
structural, non-structural, mechanical, interior or otherwise, or attach any
fixtures or equipment thereto, without first obtaining Landlord's written
approval, which approval shall not be unreasonably withheld; such approval
shall not be required with respect to any immaterial, nonstructural
additions, alterations or changes to the interior of the Premises. Any
alterations, additions or improvements (except the initial improvements
covered by Exhibits "B" and "C") to the Premises consented to by Landlord
shall be made by Tenant at Tenant's sole cost and expense, and any contractor
or other person selected by Tenant to make the same shall be subject to
Landlord's prior written approval. All alterations, additions, fixtures and
improvements, including all improvements made pursuant to Exhibits "B" and
"C", whether temporary or permanent in character, in or upon the premises
either by Tenant or Landlord, shall immediately become Landlord's property
and, at the end of the term of this Lease, shall remain on the Premises
without compensation to Tenant.
(c) Any alteration, addition, or improvement shall, when completed,
be of such a character as not to lessen the value of the Premises or such
improvements as may be then located thereon. Any alternation, addition, or
improvement shall be made promptly and in a good workmanlike manner and in
compliance with all applicable permits and authorizations and building and
zoning laws and with all other laws, ordinances, orders, rules, regulations
and requirements of all federal, state and municipal governments,
departments, commissions, boards and offices. The costs of any such
alternations, additions or improvements shall be timely and promptly paid by
Tenant so that the Premises and any improvements at anytime located thereon
shall at all times be free of liens for services performed and labor and
material supplied or claimed to have been supplied. Before any alternation,
addition or improvement shall be commenced, Tenant shall pay the amount of
any increase in premiums on insurance policies (provided for under this
Lease) on account of endorsements to be made thereon covering the risk during
the course of such alteration, addition or improvement.
5
<PAGE>
10. LIENS
Tenant shall keep the Property, the Premises and the Building free from
any mechanics' and/or materialmen's liens or other liens arising out of any
work performed, materials furnished or obligations incurred by Tenant. Tenant
shall notify Landlord in writing at least five (5) business days before any
work or activity is to commence on the Premises which may give rise to such
liens and Landlord shall have the right to post and keep posted on the
Premises any notices that may be provided by law or which Landlord may deem
to be proper for the protection of Landlord, the Property. the Premises and
the Building front such liens.
11. REPAIRS
Tenant shall, at all times during the term hereof and at Tenant's sole
cost and expense, keep the Premises and every part thereof in good order,
condition and repair, ordinary wear and tear, damage thereto by fire,
earthquake, act of God or the elements excepted, including, without
limitation, all plumbing and sewer lines to the point where they intersect
with common lines, fixtures, interior walls and interior surfaces or exterior
walls, ceilings and doors, and windows and plate glass (but only to the
extent damage is caused by Tenant or its employees, invitees or contractors),
located within or upon the Premises. Landlord shall be responsible for the
repair of any damages to the Premises caused by the negligence or willful
misconduct of Lessor or its agents. All repairs made by Tenant shall be at
least of the same quality, design and class as that of the original work.
Tenant hereby waives all rights to make repairs at the expense of Landlord
(in lieu of Landlord making such repairs) or to vacate the Premises or
terminate this Lease as provided by any law, statute or ordinance now or
hereafter in effect. Tenant shall at the end of the term hereof surrender to
Landlord the Premises and all alterations, additions and improvements thereto
in the same condition as when received, ordinary wear and tear and damage by
fire, earthquake, act of God or the elements excepted. Landlord has no
obligation and has made no promise to alter, remodel, improve, repair,
decorate or paint the Premises or any part (hereof, except as may be
specified in Exhibits "B" and "C". If Tenant refuses or neglects to make
repairs and/or to maintain the Premises or any part thereof in a manner
reasonably satisfactory to Landlord, Landlord shall have the right, but not
the obligation, upon giving Tenant five (5) days (or in the case of
emergency, twenty-four hours) written notice of its election to do so, to
make such repairs or perform such maintenance on behalf of and for the
account of Tenant. Such work shall be paid for by Tenant, as additional rent
under this Lease, promptly upon receipt of a bill for such work.
12. DESTRUCTION OR DAMAGE
(a) If the Property, the Premises or the Building are damaged by
fire, earthquake, act of God or the elements, Tenant shall immediately notify
Landlord of same. Landlord shall forthwith repair the same, subject to the
provisions of this section hereinafter set forth, and provided such repairs
can, in Landlord's opinion, be made within ninety (90) days after the date of
said fire or other casualty and this Lease shall remain in full force and
effect. If there shall be such damage to the Premises and such damage is not
the result of the negligence or willful misconduct of Tenant or Tenant's
employees or invites, then abatement of rental shall be allowed Tenant for
such part of the Premises as shall be rendered unusable by Tenant in the
conduct of its business during the time such part is so unusable.
(b) If such repairs cannot, in Landlord's opinion, be made within
ninety (90) days, Landlord may, at its option, upon written notice to Tenant
within thirty (30) days after the date of such fire or other casualty, repair
or restore such damage, this Lease continuing in full force and effect, but
the rent to be partially abated as hereinabove in this section provided.
(c) If such repairs cannot be made within ninety (90) days following
such casualty and Landlord elects not to make such repairs, then either
Landlord or Tenant (provided the damage affects the Premises or Common Areas
necessary to Tenant's occupancy) shall have the right, exercisable by written
notice to the other given not less than thirty-one (31) nor more than ninety
(90) days after the date of such fire or other casualty, to terminate this
Lease as of the date of such fire or other casualty.
(d) If the Premises are to be repaired under this Article 12,
Landlord shall repair at its cost any injury or damage to the Building itself
and building standard improvements in the Premises, and Tenant shall, at
Tenant's sole cost and expense, be responsible for repairing and restoring
any other tenant improvement and or replacing any equipment and fixtures
located in the Premises.
(e) A total destruction of the Building shall automatically
terminate this Lease.
13. SUBROGATION
(a) Each party hereto waives any and every claim which arises or may
arise in its favor and against the other hereto during the term of this Lease
for any and all loss of, or damage to, any of its property located within or
upon, constituting a part of, the Property, the Premises or the Building,
which loss or damage is covered by valid and collectible fire and extended
coverage insurance policies, to the extent that such loss or damage is
recoverable under said insurance policies.
(b) Landlord and Tenant shall each, prior to or immediately after
the execution of this Lease, procure from each of the insurers under all
policies of fire, theft, public liability, workmen's compensation and other
insurance now or hereafter existing during the term hereof and purchased by
either of them insuring or covering the Property, the Building, the Premises
or any portion thereof or operations therein, a waiver of all rights of
subrogation which the insurer might otherwise, if at all, have against the
other.
14. INDEMNIFICATION
Tenant hereby waives all claims against Landlord, its agents, employees
and contractors for damage to any property or injury to or death of any
person in, upon or about the Property, the Premises, the Building, the Common
Area or any part thereof, arising at any time and from any cause other than
solely by reason of the negligence of Landlord, its agents, employees or
contractors, and Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all claims, liabilities, damages and costs incurred
by Landlord (i) arising from the use of the Property, the Premises, the
Building, the Common Area or any part thereof by Tenant, or (ii) which may
arise from the conduct of Tenant's business or from any activity, work or
things which may be permitted or suffered by Tenant in, on or about the
Premises, or (iii) which may arise from any breach or default in the
performance of any obligation on Tenant's part under this Lease, or (iv)
which may arise from any negligence of Tenant or any of Tenant's agents,
representatives, customers, employees or invitees, or (v) which may arise
from any injury or loss incurred as a result of Landlord, Landlord's agents,
representatives or designees entering the Premises under an emergency
circumstance, such as fire or similar event, except to the extent caused by
the negligence or willful misconduct of Landlord. The foregoing indemnity
obligation of Tenant shall include reasonable attorneys' fees, investigation
costs and all other reasonable costs and expenses incurred by Landlord from
the first notice that any claim or demand is to be made or may be made. The
provisions of this Article 14 shall survive the termination or expiration of
the Lease with respect to any damage, injury or death occurring prior to such
termination or expiration.
6
<PAGE>
15. COMPLIANCE WITH LEGAL REQUIREMENTS
Tenant shall, at its sole cost and expense, promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, including,
without limitation, the Americans with Disabilities Act (the "ADA"), and
specifically "Title III: The Provisions Governing Public Accommodations and
Services Operated by Private Entities" of the ADA, and all amendments thereto
and any standards and regulations issued thereunder, but only to the extent
applicable to and affecting the Building, with respect to those portions of
the Premises for which Tenant is responsible to maintain and repair under the
terms and provisions of this Lease, with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted, with
any direction or occupancy certificate issued pursuant to any law by any
public officer or officers, as well as the provisions of all recorded
documents affecting fire Premises, insofar as any thereof relate to or affect
the condition, use or occupancy of the Premises, excluding requirements of
structural changes not related to or affected by improvements made by or for
Tenant. Any penalty or damage assessed against Landlord by reason of the
failure of Tenant to comply with this paragraph shall be paid by Tenant, and
any such failure shall be rectified by Tenant at its own expense. If Tenant
fails to undertake a diligent effort to comply with the provisions of this
Article 15 within the time period specified in any citation or other notice,
or within thirty (30) days after written notice by Landlord of the existence
of such failure to comply, whichever period of time is shorter, Landlord, at
its option, may remedy the same at Tenant's expense and may require Tenant to
pay the cost thereof upon demand; provided, however, that Landlord shall have
no obligation or responsibility to remedy such failure to comply.
16. INSURANCE
(a) Tenant, at its sole cost and expense, shall, during the term of
the Lease, cause all improvements at any time located in the Premises (other
than the building standard improvements) and all equipment, machinery,
personalty, trade fixtures, alterations and fixtures from time to time used
or intended to be used in connection with the operation and maintenance of
the Premises, to be insured for the mutual benefit of Landlord and Tenant
against loss or damage by fire, windstorm, explosion, aircraft, vehicles,
smoke, riot or vandalism and against loss or damage by other risks now or
hereafter included in the standard form of all-risk insurance policy, in an
amount equal to the full insurable value and replacement cost thereof. All
proceeds from such insurance shall be used for the repair or replacement of
such improvements, equipment, personalty and fixtures.
(b) Tenant, at Tenant's sole cost and expense, shall also obtain and
keep in force during the term of this Lease the following insurance coverages
naming Landlord as additional insured: Comprehensive general liability
insurance and personal injury liability insurance, insuring Tenant against
liability for injury to persons or damage to property occurring in or about
the Premises, the Building or the Property or arising out of the ownership,
maintenance, use or occupancy thereof, including all coverages normally
provided by the "Extended Liability Endorsement." Such policies shall
specifically name Landlord as additional insured and shall include a
cross-liability endorsement. Landlord may, at its discretion, request
evidence of products insurance. The minimum limits of liability acceptable
are: (A) $2,000,000 combined single limit per occurrence for bodily injury
and property damage, or (B) $2,000,000 bodily injury and $500,000 property
damage.
All such coverages shall be primary and non-contributory over any insurance
Landlord may elect to provide on Landlord's behalf. At the commencement of
the term of this Lease, and on or before ten (10) days prior to expiration or
renewal of such insurance coverage. Tenant shall deliver to Landlord an
original certificate of such insurance from the insurer providing Landlord a
minimum of thirty (30) days prior written notice of cancellation or other
material modifications or reduction. All policies of insurance required to
be carried by Tenant under this Article 16 shall be in form satisfactory to
Landlord and shall be issued by responsible insurance companies which are
licensed to do business in the State of Texas and have been approved in
writing by Landlord. If Tenant shall fail to procure and maintain the
insurance required under this Lease, Landlord may, but shall not shall not be
required to, procure and maintain such insurance, and any amounts paid by
Landlord for such insurance shall be additional rent hereunder, which shall
be due and payable by Tenant on the next succeeding date on which a monthly
rental installment is due hereunder.
17. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not voluntarily or by action of law sublet, assign,
mortgage or otherwise transfer or encumber all or any part of this Lease or
any interest therein or the Premises or any portion thereof, without the
prior written consent of Landlord which shall not be unreasonably withheld.
Any attempted assignment, subletting, mortgage, transfer or encumbrance by
Tenant in violation of the terms and covenants of this Article 17 shall be
void and shall constitute a breach of this Lease. In the event Tenant should
desire to assign this Lease in whole or in part or sublet the Premises or any
part thereof, Tenant shall give Landlord written notice of such desire at
least ninety (90) days in advance of the date or which Tenant desires to make
such assignment or sublease. Landlord shall then have a period of thirty
(30) days following receipt of such notice within which to notify Tenant in
writing that Landlord elects either (i) to withhold consent to such proposed
assignment, subletting or other transfer, (ii) to terminate this Lease as to
the space so affected as of the date so specified by Tenant, in which event
Tenant will be relieved of all further obligations hereunder as to such
space, or (iii) to permit Tenant to assign or sublet such space, subject,
however, to prior written approval of the proposed assignee or sub-tenant by
Landlord. In determining whether to consent to such assignment, subletting
or other transfer, Landlord may consider, among other things, the use of the
Premises by the proposed assignee or sub-tenant and the financial condition
of the proposed assignee or sub-tenant. If Landlord should fail to notify
Tenant in writing of such election within said thirty (30) day period,
Landlord shall have deemed to have waived option (ii) above, but written
approval by Landlord of the proposed assignee or sub-tenant shall
nevertheless be required.
(b) In no event shall Tenant or any other parties transfer the
capital stock of Tenant solely for purposes of avoiding the restrictions
contained in this Section 17.
(c) Failure by Landlord to approve a proposed assignee or sub-tenant
shall not cause a termination of this Lease. Any other rent or other
consideration realized by Tenant under any such sublease or assignment in
excess of the rental payable hereunder, after amortization of the reasonable
subletting and assignment costs, shall be divided and paid fifty percent
(50%) to Landlord and fifty percent (50%) to Tenant. Regardless of
Landlord's consent, no assignment, subletting or other transfer by Tenant
shall relieve or release Tenant of or from any of Tenant's obligations, or of
or from any of Tenant's obligations, or alter the primary liability of Tenant
to pay the rent and to perform all other obligations to be performed by
Tenant, under this Lease. In the event Landlord shall consent to a sublease,
assignment or other transfer, Tenant shall pay all costs and expenses of
Landlord incurred in connection with such consent, including, without
limitation, reasonable attorneys' fees and expenses. Consent by Landlord to
one assignment, sublease or other transfer shall not be deemed a waiver of
Landlord's right to reject future assignments, subleases or other transfers.
Any assignee, sublessee or transferee of Tenant's interest in this Lease
shall assume in writing all of Tenant's obligations hereunder pursuant to an
assumption agreement in form and substance satisfactory to Landlord.
7
<PAGE>
18. RULES & REGULATIONS
Tenant shall faithfully observe and comply with the Rules and
Regulations annexed to this Lease and, after notice thereof, all reasonable
amendments and modifications thereof and additions thereto from time to time
promulgated in writing by Landlord. Tenant's failure to keep and observe
such Rules and Regulations shall constitute a default of this Lease. Notice
of such amended or additional rules and regulations shall be given to Tenant,
and Tenant agrees thereupon to comply with and observe all rules and
regulations and amendments and additions thereto so long as Tenant has prior
written notice of such amendments and additions and same apply uniformly to
all Building tenants. Landlord shall not be responsible to Tenant for the
non-performance by any other tenant or occupant of the Building or the
Property of any of said Rules and Regulations.
19. ENTRY BY LANDLORD
Upon prior verbal or written notice to Tenant (except in event of an
emergency), Landlord or its agents, representatives and designees may enter
the Premises at reasonable hours to (a) examine and inspect the same, (b)
exhibit the same to prospective purchasers, lenders or tenants and perform
examinations and tests relating thereto, (c) determine whether Tenant is
complying with all of Tenant's obligations hereunder, (d) supply janitor
service and any other service to be provided by Landlord to Tenant hereunder,
(e) post notices of nonresponsibility, and (f) makes repairs, additions or
alterations required by Landlord under the terms hereof or which Landlord
deems are necessary and proper for the safety, improvement or preservation
thereof, or repairs to any adjoining space or utility portion of the
Building, provided, however, that all such work shall be done as promptly as
possible so as to cause as little interference to Tenant as reasonably
possible. Tenant hereby waives any claim for damages for any injury or
inconvenience or interference with Tenant'' business, any loss of occupancy
or quiet enjoyment of the Premises or any other loss occasioned by such
entry. Landlord shall at all times have and retain a key with which to
unlock all of the doors in, on or about the Premises (excluding Tenant's
vaults, safes and similar areas designated in writing by Tenant in advance);
and Landlord shall have the right to use any and all means which Landlord may
deem proper to open said doors in an emergency in order to obtain entry to
the Premises, and any entry to the Premises obtained by Landlord by any of
said means, or otherwise, shall not under any circumstances be construed or
deemed to be a breach of peace, a forcible or unlawful entry into or a
detainer of the Premises or an eviction, actual or constructive, of Tenant
from the Premises, or any portion thereof. During the ninety (90) days prior
to the expiration date of this Lease, Landlord may place upon the Premises
"For Lease" or similar signs which Tenant shall permit to be displayed in the
Premises.
20. EVENT OF DEFAULT
The occurrence of any one or more of the following events ("Events of
Default") shall constitute a breach of this Lease by Tenant: (a) if Tenant
shall fail to pay any rental as and when the same becomes due and payable and
such failure shall continue for more than ten (10) days after written notice
thereof from Landlord to Tenant, or (b) if Tenant shall fail to pay any other
sum when and as the same becomes due and payable and such failure shall
continue for more than ten (10) days; or (c) if Tenant shall fail to perform
or observe any other term, provision, covenant or condition of this Lease
other than the payment of monetary sums and such failure shall continue for
more than thirty (30) days after written notice thereof from Landlord; or (d)
if Tenant shall make a general assignment for the benefit of creditors, or
shall admit in writing its insolvency or inability to pay its debts as they
become due or shall file a petition in bankruptcy, or shall be adjudicated as
bankrupt or insolvent, o shall file a petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file
any answer admitting or shall fail timely to contest the material allegations
of a petition filed against it in any such proceeding, or shall seek or
consent to or acquiesce in the appointment or any trustee, receiver or
liquidator of Tenant or any material part of its properties; or (e) if within
thirty (30) days after the commencement of any proceeding against Tenant
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, such proceeding shall not have been dismissed, or
if, within thirty (30) days after the appointment of any trustee, receiver or
liquidator of Tenant or of any material part of Tenant's properties, such
appointment shall not have been vacated; or (f) vacation or abandonment of
the Premises by Tenant for a continuous period in excess of five (5) business
days or dispossession by process of law or otherwise; (g) if this Lease or
any estate of Tenant hereunder shall be levied upon under any attachment or
execution and such attachment or execution is not vacated with ten (10) days;
(h) if any mechanic's or materialmen's lien is filed against any portion of
the Building, the Property or the Premises and such lien is not removed
within thirty (30) days thereafter.
21. REMEDIES UPON DEFAULT
(a) Upon the occurrence of any Event of Default specified in Article
20 hereof, Landlord shall have the right and option at any time thereafter to
pursue any one or more of the following remedies without any notice or demand
whatsoever both of which are hereby waived by Tenant:
(i) Terminate this Lease in which event Tenant shall immediately
surrender to Landlord, and if Tenant fails to do so, Landlord may, without
prejudice to any other remedy which it may have for possession or rent in
arrears, enter upon and take possession and expel or remove Tenant and any
other person ho may be occupying the Premises or any part thereof, without
being liable for prosecution or any claim of damages thereof. Tenant agrees
to pay to Landlord on demand the amount of all loss and damage which Landlord
may suffer by reason of such termination, whether through inability to relet
the Premises on satisfactory terms or otherwise, including the loss of all
rental then remaining unpaid under the terms of this Lease, provided Tenant
shall in no event be liable for any amount in excess of Tenant's rental,
operating expense and other monetary obligations under this Lease;
(ii) Without terminating this Lease, enter upon and take
possession of the Premises and expel or remove Tenant and any other person
who may be occupying the Premises or any part thereof, without being liable
for prosecution or any claim for damages thereof, and if Landlord so elects,
relet the Premises on such terms as Landlord shall deem advisable and receive
the rent thereof. Tenant agrees to pay to Landlord on demand any deficiency
in rental that may arise by reason of such reletting;
(iii) Without terminating this Lease, enter upon the Premises
without being liable for prosecution or any claim for damages thereof, and do
whatever Tenant is obligated to do under the terms of this Lease, and Tenant
agrees to reimburse Landlord on demand for any expenses which Landlord may
incur in thus effecting compliance with Tenant's obligations under this
Lease, and Tenant further agrees that Landlord shall not be liable for any
damages resulting to the Tenant from such action;
(iv) At its option, declare all rents and other amounts due
hereunder for the entire remaining term of this Lease and any other
indebtedness immediately due and payable without regard to whether or not
possession shall have been surrendered to or taken by Landlord, and Landlord
may immediately commence action for the recovery of a judgment for such
amounts;
8
<PAGE>
(v) Demand that payments for any rents, whether past due or to
become due in the future, be made by certified check, cashier's check or
money order; and
(vi) Change or modify the lock(s) and other security devices at
or on the Premises, with or without terminating this Lease, and pursue, at
Landlord's option, one or more remedies pursuant to this Lease. Landlord
shall not be obligated to provide another key or other access to Tenant or
allow Tenant to regain entry to the Premises, regardless of hour, including
Tenant's regular business hours, unless and until Tenant pays in full to
Landlord all rent which is delinquent. Tenant agrees that Landlord shall not
be liable for any damages resulting to the Tenant form the lockout. At such
time that Landlord changes, alters or modifies the lock or other security
device, Landlord shall post a "Notice of Change of Locks" on the front of the
Premises. Such Notice shall state the following:
(A) That Tenant rentals are delinquent; and, therefore, under authority
of Article 21(a)(vi) of Tenant's Lease, the management has exercised
its contractual right to change, alter or modify Tenant's door lock(s)
or other security device(s);
(B) That the Notice has been posted on the Tenant's front door by a
representative of Landlord and that Tenant should make arrangements to
pay all delinquent rent and cure all other Events of Default under
Tenant's Lease when Tenant picks up the key; and
(C) That tampering with or changing the lock(s) or other security
device(s) without Landlord's written permission is a criminal offense.
(b) No re-entry or taking possession of the Premises by Landlord
shall be construed as an election on its part to terminate this Lease, unless
a written notice of such intention is given to Tenant. Notwithstanding any
such reletting or re-entry or taking possession, Landlord may at any time
thereafter elect to terminate this Lease for a previous Event of Default.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any of
the other remedies herein provided or provided by law, nor shall pursuit of
any of the foregoing remedies constitute a forfeiture or waiver of any rent
due to Landlord hereunder or of any damages accruing to Landlord by reason of
the violation of any of the terms, provisions, conditions and covenants
herein contained. Neither failure by Landlord to exercise, nor delay by
Landlord in exercising, any right, power or remedy upon any Event of Default,
nor Landlord's acceptance of rent or any portion thereof following an Event
of Default hereunder, shall be construed as of constitute Landlord's waiver
of such Event of Default or any other Event of Default or a waiver of the
right to exercise any right, power or remedy at a later date. No single or
partial exercise by Landlord of any right, power or remedy hereunder shall
exhaust the same or shall preclude any other or further exercise thereof, and
every such right, power or remedy hereunder may be exercised at any time and
from time to time. No waive by Landlord of any violation or breach of any of
the terms, provisions, conditions and covenants herein contained shall be
effective unless the same shall be in writing and signed by Landlord and then
such waiver shall be effective only in the specific instance, for the purpose
for which given and to the extent therein specified. The loss or damage that
Landlord may suffer by reason of termination of this Lease or the deficiency
from any reletting as provided for above shall include the expense of
repossession and any repairs or remodeling undertaken by Landlord following
possession. Should Landlord at any time terminate this Lease for any
default, in addition to any other remedy Landlord may have, Landlord may
recover from Tenant all damages Landlord may incur by reason of such default,
including the cost of recovering the Premises and the loss of the rental then
remaining unpaid.
22. CONTINUATION AFTER DEFAULT
Even though Tenant has breached this Lease and abandoned the Premises,
this Lease shall continue in effect as long as Landlord does not terminate
Tenant's right to possession, and Landlord may enforce all of Landlord's
rights and remedies under this Lease. Acts of maintenance or preservation or
efforts to relet the Premises or the appointment of a receiver upon
initiative of Landlord to protect Landlord's interest under this Lease shall
not constitute a termination of Tenant's right to possession. If any
fixture, equipment, improvement, installation, alteration or appurtenance
which, as herein provided, shall be required to be removed from the Building
by Tenant and shall not be removed by Tenant from the Building within the
time specified therefore, then Landlord (in addition to all other rights and
remedies to which Landlord may be entitled at any time) may, at Landlord's
election by written notice to Tenant, deem that such fixture, equipment,
improvement, installation, alteration or appurtenance has been abandoned by
Tenant to Landlord, or Landlord may remove the same and restore the Premises
to its original condition at the expense of Tenant and Tenant shall reimburse
Landlord for such expense as additional rent within ten (10) days after
written notice of Tenant of the amount of such expense.
23. OTHER RELIEF
The remedies provided for in this Lease are in addition to any other
remedies available to Landlord by law or in equity, by statue or otherwise.
24. LANDLORD'S RIGHT TO CURE DEFAULTS
All agreements and provisions to be performed by Tenant under any of the
terms of this Lease shall be at Tenant's sole cost and expense and without
any abatement of rental. If Tenant shall fail to pay any sum of money, other
then rental, required to be paid by Tenant hereunder or shall fail to perform
any other act on Tenant's part to be performed hereunder and such failure
shall continue for thirty (30) days after notice thereof by Landlord,
Landlord may, but shall not be obligated to do so, and without waiving or
releasing Tenant from any obligations of Tenant, make any such payment or
performance any such other act on Tenant's part to be made or performed as
provided in this Lease. All sums so paid by Landlord and all necessary
incidental costs, including, without limitation, reasonable attorneys' fees
and expenses, shall be deemed additional rent hereunder and shall be payable
by Tenant to Landlord on demand, and Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event
of the nonpayment thereof by Tenant as in the case of default by Tenant in
the payment of rental.
25. ATTORNEY'S FEES
In the event Landlord and/or Tenant places the enforcement of this
Lease, or any part thereof, or the collection of any rental due or to become
due hereunder, or recovery of the possession of the Premises in the hands of
any attorney, or brings any action under this Lease, Landlord and/or Tenant
shall be entitled to its reasonable attorneys' fees, expenses and court costs
incurred in connection therewith, and any such amounts hall constitute
additional rental under this Lease and shall be payable by Tenant to Landlord
and/or Landlord to Tenant upon demand.
9
<PAGE>
26. EMINENT DOMAIN
If all or any part of the premises shall be taken or conveyed as a
result of the exercise of the power of eminent domain, this Lease shall
terminate as to the part so taken as of the date of taking, and, in the case
of a partial taking, either Landlord or Tenant shall have the right to
terminate this Lease as to the balance of the Premises by written notice to
the other within thirty (30) days after such date; provided, however, a
condition to the exercise by Tenant of such right to terminate shall be that
the portion of the Premises taken or conveyed shall be of such extent and
nature as to substantially and materially handicap, impede or impair Tenant's
use of the balance of the Premises. In the event of any taking, Landlord
shall be entitled to any and all compensation, damages, income, rent awards
or any interest therein whatsoever which may be paid or made in connection
therewith, and Tenant shall have no claim against Landlord for the value of
any unexpired term of this Lease or otherwise; provided, however, Tenant
shall be entitled to any and all compensation, damages, income, rent or
awards paid for or on account of Tenant's moving expenses, trade fixture,
equipment and any leasehold improvements in the Premises, the cost of which
was borne by Tenant, to the extent of the then unamortized value of such
improvements for the remaining term of this Lease. In the event of a taking
of this Lease, the monthly rental herein shall be apportioned as of the date
of such taking or conveyance so that thereafter the rent to be paid by Tenant
shall be in the ratio that the area of the portion of the Premises not so
taken or conveyed bears to the total area of the Premises prior to such
taking.
27. SUBORDINATION
This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage deed of trust, or any other hypothecation for security now or
hereafter placed upon the Building or any portion thereof and to any and all
advances made on the security thereof and to all renewals, amendments,
modifications, consolidations, replacements and extensions thereof. The
aforesaid provision shall be self-operative and no further instrument shall
be required to evidence such subordination. Notwithstanding such
subordination, Tenant's right to quiet possession of the Premises shall not
be disturbed if Tenant is not in default under this Lease and so long as
Tenant shall pay the rent and observe and perform all of the terms,
covenants, obligations, conditions and provisions of this Lease, unless this
lease is otherwise terminated pursuant to its terms. If any mortgagee,
trustee or ground lessor shall elect to have this Lease prior to the lien (or
interest) of its mortgage, deed of trust or ground lease, this Lease shall be
deemed prior to such mortgage, deed or trust or ground lease, whether this
Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof, and Tenant agrees to
execute any documents required to effectuate such subordination or to make
this Lease prior to the lien (or interest) of any mortgage, deed of trust or
ground lease, as the case may be, and failing to do so within ten (10) days
after demand, Tenant does hereby make, constitute and irrevocably appoint
Landlord as Tenant's attorney in fact and in Tenant's name, place and stead,
to do so.
28. NO MERGER
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not constitute a merger, and shall, at the option
of Landlord, terminate all or any existing subleases or subtenancies, or may,
at the option of Landlord, operate as an assignment to Landlord of any or all
such subleases or subtenancies.
29. SALE
In the event the original Landlord hereunder, or any successor owner of
the Building and/or the Property, shall sell or convey the Building and/or
the Property, all liabilities and obligations on the part of the original
Landlord, or such successor owner, under this Lease accruing thereafter shall
terminate, and thereupon all such liabilities and obligations shall be
binding upon the new owner. Tenant agrees to attorn to such new owner and be
bound under all terms, covenants and conditions of this Lease for the balance
of the term of this Lease.
30. ESTOPPEL CERTIFICATE
At any time and from time to time, within ten (10) days after request
therefor by Landlord or any mortgagee, or in the event that upon any sale,
assignment or hypothecation of the Premises and/or the Property by Landlord
an estoppel certificate shall be required from Tenant, Tenant shall execute,
acknowledge and deliver in recordable form to Landlord a certificate (in form
and substance satisfactory to Landlord) certifying, among other things, (a)
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that this Lease is in full force and effect, as modified,
and stating the nature of each modification), (b) the date, if any, to which
rental and other sums payable hereunder have been paid, (c) that no notice
has been received by Tenant of any default which has been cured, except as to
defaults specified in said certificate, and (d) such other matters as may be
reasonably requested by Landlord, mortgagee or purchaser. Any such
certificate may be relied upon by any prospective purchaser, mortgagee or
beneficiary under any deed of trust of the Building or any part thereof. The
failure of Tenant so to deliver such certificate within the time specified
above shall be deemed to be a material breach of this Lease and shall entitle
Landlord without notice to terminate this Lease.
31. NO LIGHT, AIR OR VIEW EASEMENT
Any diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to the Building and/or the Property
shall in no way affect this Lease, create any rights, remedies or damages
with respect to Tenant or its employees, invitees or agents, or impose any
liability on Landlord whatsoever.
32. HOLDING OVER
At the expiration or earlier termination of this Lease, Tenant shall
surrender (i) the Premises to Landlord in the same condition as when tendered
by Landlord, reasonable wear and tear and insured casualty excepted, and in
broom clean condition, and (ii) all keys to the Premises, the Building and
the Property. Tenant shall promptly repair any damages to the Premises
caused by the removal of any furniture, trade fixtures or other personal
property placed in the Premises. If Tenant holds possession of the Premises
after expiration of the term of this Lease, at the election of Landlord,
Tenant shall become a tenant from month to month upon the terms herein
specified but at a monthly rental equivalent to 150% of the then prevailing
monthly rental and other charges paid by Tenant at the expiration of the
terms of this Lease, pursuant to all of the provisions of this Lease, said
rent shall be payable in advance on or before the first day of each month;
provided, that the exercise of Landlord's rights under this clause shall not
be interpreted as a grant of permission to Tenant to continue in possession.
In the event Landlord elects to treat Tenant as a tenant from month to month,
each party shall give the other notice at least one (1) month prior to the
date of termination of such monthly tenancy of its intention to terminate
such tenancy. Nothing herein contained shall be construed to grant Tenant
the right to hold over beyond the expiration of the term of this Lease.
10
<PAGE>
33. CONDUCT OF BUSINESS/ABANDONMENT
Tenant covenants and agrees that, continuously and uninterruptedly from
and after Tenant's initial opening for business, Tenant shall operate and
conduct within the Premises the business Tenant is permitted to operate and
conduct under the provisions of this Lease, except while the Premises are
untenable by reason of fire or other casualty. Tenant agrees to conduct
Tenant's business at all times in a first class manner consistent with
reputable business standards and practices. If Tenant shall abandon or
surrender the Premises, or be dispossessed by process of' law or otherwise,
any personal property belonging to Tenant and left on the Premises shall be
deemed to be abandoned, at the option of Landlord, except such property as
may be mortgaged to Landlord.
34. SECURITY DEPOSIT
Tenant has deposited with Landlord the sum of $10,000.00 specified in
the Basic Lease Information (the "Security Deposit"). The Security Deposit
shall be held by Landlord as security for the faithful performance by Tenant
of all of the terms, covenants, obligations and conditions and provisions of
this Lease to be performed or observed by Tenant. Tenant shall not be
entitled to interest on the Security Deposit even though Landlord may invest
the Security Deposit to earn interest thereon. In the event Tenant fails to
perform or observe any of the provision of this Lease to be performed or
observed by Tenant, then, at the option of Landlord and without notice to
Tenant, Landlord may (but shall not be obligated to do so) apply or retain
all of the Security Deposit, or so much thereof as may be necessary to remedy
such default or to repair damages to the Premises caused by Tenant,
including, without limitation, Landlord's reasonable attorneys' fees and
expenses. In the event Landlord applies all or any portion of the Security
Deposit to remedy such default or to repair damages to the Premises caused by
the Tenant, Tenant shall pay to Landlord, within thirty (30) days after
written demand for such payment by Landlord, in cash all monies necessary to
restore the Security Deposit up to the original amount. Provided Tenant is
not in default under the terms and provisions of this Lease, any portions of
the Security Deposit remaining upon termination of this lease shall be
returned to Tenant subject to offsets as provided above.
35. WAIVER
The written waiver by Landlord of any agreement, condition or provision
herein contained shall not be deemed to be a waiver of any subsequent breach
of the same or any other agreement, condition or provision herein contained,
nor shall any custom or practice which may grow or become established between
the parties in the administration of the terms of this Lease be construed to
waive or to lessen the right of Landlord to insist upon the performance by
Tenant in strict accordance with the terms of this Lease. The subsequent
acceptance of rental hereunder by Landlord shall not be deemed to be a waiver
of any preceding breach by Tenant of any agreement, condition or provision of
this Lease, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rental.
36. NOTICES
All notices and demands which may be or are required or permitted to be
given by either party to the other hereunder shall be in writing. All
notices and demands by the Landlord to the Tenant shall be deemed received
when personally delivered or upon deposit in the United States Mail, postage
prepaid, certified with return receipt requested, addressed to the Tenant at
the Premises, or to such other place as Tenant may from time to time
designate in a notice to the Landlord. All notices and demands by the Tenant
to the Landlord shall be personally delivered or sent by United States Mail,
postage prepaid, certified with return requested, addressed to the Landlord
at 1600 Two Lincoln Centre, 5420 LBJ Freeway, Dallas, Texas 75240, Attention:
Andrew B. Qualls, or to such other person or place as the Landlord may from
time to time designate in a notice to the Tenant. Tenant hereby appoints as
its agent to receive the service of all dispossessory or distraint
proceedings and notices thereunder the person in charge of or occupying the
Premises at the time, and, if no person shall be in charge of or occupying
the same, then such service may be made by attaching the same on the main
entrance of the Premises.
37. CORPORATE OR PARTNERSHIP AUTHORITY
If Tenant signs as a corporation or partnership, each of the persons
executing this Lease on behalf of Tenant does hereby covenant and warrant
that (a) Tenant is a duly authorized and validly existing corporation or
partnership, as the case may be, (b) Tenant has and is qualified to do
business in Texas, (c) the corporation or partnership, as the case may be,
has full right, power and authority to execute and deliver this Lease and to
carry out the obligations of Tenant under this Lease, and (d) each person
executing this Lease on behalf of the corporation or partnership is
authorized to do so.
38. GUARANTEE OF LEASE
Tenant guarantees, upon execution of this Lease, to occupy the Premises
specified herein. Any failure to occupy the Premises does not release the
Tenant from the obligation of paying rent or any other provisions set forth
herein.
39. BASIC LEASE INFORMATION/EXHIBITS/RIDERS
The definitions and basic provisions set forth in the Basic Lease
Information and the exhibits, riders and addenda, if any, specified in the
Basic Lease Information and attached to this Lease, are incorporated herein
by reference and made a part hereof for all purposes.
40. SEVERABILITY
If any term or provision of this Lease, or the application thereof to
any person or circumstance, shall to any extent be invalid or unenforceable,
the remainder of this Lease, or the application of such provisions to persons
or circumstances other than those as to which it is invalid or unenforceable,
shall not be affected thereby, and each provision of this Lease shall be
valid and shall be enforceable to the extent permitted by law.
41. BROKERS
Tenant represents and warrants that it has had no dealings with any real
estate broker or agents in connection with the negotiation of this lease
excepting only Office Leasing Advisors, Inc. and it knows of no other real
estate broker or agent who is entitled to a commission in connection with
this Lease. Tenant agrees to indemnify and hold harmless Landlord from and
against all liabilities, claims, demands or actions for or with respect to
any real estate commissions or fees asserted by any person, firm or
corporation in connection with this Lease or the transactions contemplated
hereby, and any court costs, reasonable attorneys' fees or other costs and
expenses arising therefrom, insofar as such liabilities, claims, demands or
actions that are adjudicated to be based upon a contract or commitment of
Tenant. Such indemnification shall survive the execution of this Lease and
the
11
<PAGE>
termination of this Lease as provided in this Lease. CB Commercial Real
Estate Group, Inc. has acted as agent for Landlord in connection with this
Lease.
42. FOURTH MONTH'S RENT AND SECURITY DEPOSIT DUE
Fourth month's rent and the Security Deposit are due upon execution of
this Lease.
43. LANDLORD'S LIEN
THE STATUTORY LIEN FOR RENT IS NOT HEREBY WAIVED.
44. FORCE MAJEURE
Whenever a period of time is herein prescribed for action to be taken by
either party (other than the payment of monetary obligations by Tenant under
this Lease), such party shall not be liable or responsible for, and there
shall be excluded from the computation of any such period tome time, any
delays due to strikes, riots, Acts of God, inclement weather, shortages of
labor or materials, loss of utility service, inability to procure materials,
lockouts, insurrection, war, governmental laws, regulations or restrictions
or any other causes of any kind whatsoever which are not the fault of or
beyond the control of such party.
45. HAZARDOUS SUBSTANCES
Tenant, at its sole cost and expense, shall fully, diligently and
promptly comply with all present and future laws, ordinances, requirements,
orders, directives, rules and regulations of all federal, state or local
authorities (collectively, "Applicable Laws") to ensure that the Premises are
not contaminated with any substance or material currently identified by any
Applicable Laws to be toxic or hazardous, including without limitation, any
asbestos, pcb, radioactive substance, methane, volatile hydrocarbons,
industrial solvents, or any other material or substance which has in the past
or could at any time in the future cause or constitute a health, safety, or
environmental hazard to any person or property (collectively, "Hazardous
Substance"). Tenant will not cause to occur any discharge, spillage,
uncontrolled loss, seepage or filtration of oil or petroleum or chemical
liquids or solids, liquid or gaseous products or Hazardous Substance (a
"Spill") at, under or within the Premises, the Building or the Property or
otherwise violate any Applicable Laws. Tenant will not be involved in
operations which could lead to the imposition of any liability or lien on any
person or any lessor of the Premises under any Applicable Laws. If Tenant
knows, or has reasonable cause to believe, that a Hazardous Substance, or a
condition involving or resulting from same, has come to be located in, on,
under or about the Premises, the Building or the Property, Tenant shall
immediately give written notice of such fact to Landlord. Tenant shall also
immediately give Landlord a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action or
proceeding given to, or received from, any governmental authority or private
party, or persons entering or occupying the Premises, concerning the
presence, spill, release, discharge of, or exposure to, any Hazardous
Substance or contamination in, on, or about the Premises, the Building or the
Property. Tenant shall pay all costs, expenses, liabilities, losses, damages,
fines, penalties, claims and demands that may in any manner arise from or be
imposed because of the failure of Tenant to comply with this Article 45 (the
"Costs") and Tenant shall indemnify, protect, hold harmless and defend
Landlord from and against the Costs.
46. PARKING
(a) The parking areas, or designated portions thereof, shall be
available for the use of tenants of the Building and the Property and, to the
extent designated by Landlord, the employees, agents, customers and invitees
of said tenants, all of whom shall be subject to the Rules and Regulations as
set forth by the Landlord from time to time. However, Landlord may restrict
to certain portions of the parking areas parking for the tenant and other
tenants of the Building and/or the Property and their employees and agents,
and may designate other areas to be used at large only by customers and
invites of the Building and/or the Property.
(b) Notwithstanding anything contained herein to the contrary,
Landlord reserves the right from time to time to make reasonable changes in,
additions to and deletions from the parking areas and the purposes to which
the same may be devoted, and the use of parking areas shall at all times be
subject to such reasonable rules and regulations as may be promulgated by
Landlord, provided that Landlord shall not reduce Tenant's parking rights as
described in subparagraph (a) above (although Landlord may change the
location thereof).
(c) Covered parking for Tenant and its employees or agents will be
provided, subject to availability, at a charge based upon the then fair
market value of such parking as reasonably determined by Landlord.
(d) Landlord, or its agents (if Landlord has delegated such
privileges), shall have the right to cause to be removed any cars of Tenant,
its employees or agents that are parked in violation hereof or in violation
of the Rules and Regulations of the Building and/or the Property, without
liability of any kind to Landlord, its agents or employees, and Tenant agrees
to indemnify, defend and hold Landlord harmless from and against any and all
claims, losses, or damages asserted or arising in respect to or in connection
with the removal of any such automobiles as aforesaid. Tenant shall from
time to time upon request of Landlord supply Landlord with a list of license
plate numbers of all automobiles operated by its employees and agents who are
to have parking privileges hereunder. Landlord may, as a part of the
regulations promulgated by Landlord, require that Tenant cause an
identification sticker issued by Landlord to be affixed to all automobiles of
Tenant and its employees or agents who are authorized to park in the parking
areas.
47. SATELLITE DISHES
Permission is granted, free of rental charge, for the Tenant to install
up to four (4) lightweight satellite dishes each not to exceed thirty-six
(36) inches in diameter (collectively the "Satellite Dishes") at the Premises
on the roof of the Building, at Tenant's sole cost and expense, subject to
the following restrictions:
(a) The location and means of securing the Satellite Dishes must be
approved by Landlord or its designated agent and such location shall be
selected with the goal of minimizing its visual impact. Tenant shall provide
complete details, as well as a sketch of the roof showing the proposed
location of the satellite dishes and all relevant distances and heights.
Roof penetration will not be accepted except if performed by Landlord or its
designated agent, all at Tenant's sole cost and expense. Landlord shall have
final approval with respect to, as well as the right to perform at Tenant's
cost and expense, all roof penetrations and repairs. Tenant shall be
responsible for any damage to the Building roof or any surrounding property
resulting from the installation or operation of the Satellite Dishes,
including, but not limited to, damage resulting from wind, ice or any other
causes. The Satellite Dishes shall not damage the Building or the system of
communication devised by any other user
12
<PAGE>
authorized by Landlord or users at neighboring properties or otherwise
interfere with or disturb any tenants in the Building or their quiet
enjoyment of their premises. If such damage or interference shall occur,
Tenant shall correct same promptly.
(b) Prior to installation, Tenant must provide Landlord with a copy
of all zoning or use approvals or licenses which may be required of Tenant in
connection with Tenant's use of the Satellite Dishes. Landlord agrees to
reasonably cooperate with Tenant in such regard, all without cost to Landlord.
(c) Tenant agrees to operate, maintain and repair the Satellite
Dishes in a proper and safe operating condition and shall procure liability
insurance naming Landlord as an additional insured.
(d) Tenant shall at its own expense comply with all applicable
codes, rules, regulations and conditions of the Federal Communications
Commission ("FCC"), Federal Aviation Agency, and local government agencies.
At the request of Landlord, Tenant shall produce evidence of such compliance.
(e) Installation of the Satellite Dishes shall be performed in a
responsible and workmanlike manner by a recognized professional satellite
dish installer at Tenant's sole cost and expense, through or under the
supervision of Landlord.
(f) Installation or substitutes shall be made using devices commonly
found in the industry, capable of the bearing of the stress and strain of the
installation without impairing use and occupancy of the Building.
(g) Tenant shall be responsible for any costs associated with
furnishing electricity for the Satellite Dishes.
(h) Tenant shall not sublet, license or otherwise permit any third
party use of the Satellite Dishes.
(i) Access to the Satellite Dishes for inspection, servicing or any
other reason will only be allowed with prior notice to Landlord.
(j) Tenant shall remove the Satellite Dishes and restore the roof to
its original condition, at the earlier of Tenant's cessation of use of the
Satellite Dishes or the expiration of the term of this Lease or any renewal
term hereof, at Tenant's sole cost and expense, notwithstanding any other
provision of the Lease. The Satellite Dishes shall, at all times, remain the
property of Tenant and Tenant shall have the right to remove it at any time,
subject to the terms and conditions herein.
(k) Tenant acknowledges that it has been advised by Landlord that a
new roof was installed at the Building which is still the subject of a
manufacturers/installers warranty/guarantee. Tenant must install, maintain
and remove the Satellite Dishes in such a manner as to be consistent with
said warranty/guarantee and not perform or fail to perform any act which
would void, or cause to be voidable, Landlord's warranty/guarantee.
(l) Tenant shall be responsible for implementing appropriate
screening as reasonably required by Landlord.
(m) Tenant agrees to indemnify, defend and hold Landlord harmless
from any claim resulting from property damage or personal injury arising in
connection with the installation, maintenance, existence or removal of the
Satellite Dishes.
In the event Tenant fails or refuses or otherwise breaches any of the terms
of this Section 47 [beyond the expiration of the notice and cure provisions
set forth in Section 20(c) above], Landlord shall have the right to require
Tenant to remove or otherwise remove the Satellite Dishes, at Tenant's sole
cost and expense.
48. SIGNAGE
Tenant shall not place any sign upon the Premises or the Building
without Landlord's prior written consent which shall not be unreasonably
withheld. Under no circumstances shall Tenant place a sign on any roof of the
Building.
49. TEMPORARY SPACE
Landlord shall provide Tenant with approximately 1,000 square feet of
temporary space on the first floor of the Building, the location of which
shall be determined in Landlord's sole discretion, to be used solely for
storage of Tenant's inventory and to be vacated, surrendered and relinquished
within ten (10) days of Landlord's written request, free of charge and
Tenant's occupancy and surrender shall be subject to all other terms and
conditions of this Lease.
50. NO PERSONAL LIABILITY OF LANDLORD
"Landlord", as used in this Lease insofar as covenants or obligations on
the part of Landlord are concerned, shall be limited to mean and include only
the owner or owners of the Premises at the time in question. In the event of
any transfer of title, the Landlord named herein shall automatically be
released and discharged from and after the date of such transfer or
conveyance of and from all personal liability with respect t the performance
of any covenants or obligations on the part of Landlord contained in this
Lease thereafter to be performed. Notwithstanding the foregoing, Tenant
shall look solely to the interest and estate of Landlord in the Property of
which the Premises are a part for the satisfaction of Tenant's remedies for
collection of a judgment or other judicial process requiring the payment of
money by Landlord in the event of any default or breach by Landlord of any of
the terms, covenants and conditions of this Lease to be observed and/or
performed by Landlord, and no other property or assets of Landlord, its
partners, shareholders or agents shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's damages or remedies.
51. MISCELLANEOUS
The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. If there be more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several. The
agreements, conditions and provisions herein contained shall, subject to
Article 17, apply to and bind the heirs, executors, administrator, successors
and permitted assigns of the parties hereto. Tenant shall not, without the
written consent of Landlord, use the name of the Building and/or the Property
for any purpose other than as the address of the business to be conducted by
Tenant in the Premises. All amounts of money payable to Tenant to Landlord
hereunder, if not paid when due, shall bear interest from the due date until
paid at the rate of 18% per annum, unless otherwise provided herein. This
Lease shall be governed by and construed in accordance with the laws of the
State of Texas. As a material part of the consideration for the agreements
on the part of the Landlord contained herein, Tenant agrees for itself and
its employees, agents, legal representatives, successors and assigns, that
the terms and conditions of Tenant's leasing of space in the Property shall
be maintained in confidence and not disclosed to any other current (or
prospective) tenants of the Property and real estate agents.
13
<PAGE>
52. COMPLETE AGREEMENT
THIS LEASE AND THE SCHEDULES, EXHIBITS AND RIDERS ATTACHED, IF ANY, FORM A
PART OF THIS LEASE TOGETHER WITH THE RULES AND REGULATIONS ADOPTED AND
PROMULGATED BY THE LANDLORD PURSUANT TO ARTICLE 18 [DETAILING SPECIFIC OPERATING
RULES AND REGULATIONS] HEREOF, AND SET FORTH ALL THE COVENANTS, PROMISES,
ASSURANCES, AGREEMENTS, REPRESENTATIONS, CONDITIONS, WARRANTIES, STATEMENTS, AND
UNDERSTANDING [COLLECTIVELY, "REPRESENTATIONS"] BETWEEN THE LANDLORD AND THE
TENANT CONCERNING THE PREMISES AND THERE ARE NO REPRESENTATIONS, EITHER ORAL OR
WRITTEN,, BETWEEN LANDLORD AND TENANT OTHER THAN THOSE IN THIS LEASE.
THIS LEASE SUPERSEDES AND REVOKES ALL PREVIOUS NEGOTIATIONS, ARRANGEMENTS,
LETTERS OF INTENT, OFFERS TO LEASE, LEASE PROPOSALS, BROCHURES, REPRESENTATIONS,
AND INFORMATION CONVEYED, WHETHER ORAL OR IN WRITING, BETWEEN THE PARTIES HERETO
OR THEIR RESPECTIVE REPRESENTATIVES OR ANY OTHER PERSON PURPORTING TO REPRESENT
THE LANDLORD OR THE TENANT. THE TENANT ACKNOWLEDGES THAT IT HAS NOT BEEN
INDUCED TO ENTER INTO THIS LEASE BY ANY REPRESENTATIONS NOT SET FORTH IN THIS
LEASE, IT HAS NOT RELIED ON ANY SUCH REPRESENTATIONS, NO SUCH REPRESENTATIONS
SHALL BE USED IN THE INTERPRETATION OR CONSTRUCTION OF THIS LEASE, AND THE
LANDLORD SHALL HAVE NO LIABILITY FOR ANY CONSEQUENCES ARISING AS A RESULT OF ANY
SUCH REPRESENTATIONS.
EXCEPT AS OTHERWISE PROVIDED HEREIN, NO SUBSEQUENT ALTERATION, AMENDMENT,
CHANGE, OR ADDITION TO THIS LEASE SHALL BE BINDING UPON THE LANDLORD OR THE
TENANT UNLESS IN WRITING AND SIGNED BY EACH OF THEM.
TIME IS OF THE ESSENCE OF THIS LEASE AND EACH AND ALL OF ITS PROVISIONS.
SUBMISSION OF THIS INSTRUMENT OR EXAMINATION OR SIGNATURE BY TENANT DOES NOT
CONSTITUTE A RESERVATION OF OR OPTION FOR LEASE OR AN OFFER TO LEASE BY
LANDLORD, RATHER A PROPOSAL FROM TENANT TO LEASE THE PREMISES, AND THIS
INSTRUMENT IS NOT EFFECTIVE AS A LEASE OR OTHERWISE UNTIL EXECUTION AND DELIVERY
BY BOTH LANDLORD AND TENANT HEREOF AND NO OTHER PERSONS, AGENTS OR ENTITIES HAVE
THE POWER OR AUTHORITY TO BIND LANDLORD.
TENANT LANDLORD
THE REFERENCE PRESS, INC. KP/MILLER REALTY GROWTH FUND II, L.P.,
a Texas limited partnership
By: /s/ Patrick J. Spain By: Miller Real Estate Services Corporation,
Name: Patrick J. Spain a general partner
Title: President and CEO
By: /s/ Andrew B. Qualls
Name: Andrew B. Qualls
Title: Vice President
DATE: March 8, 1996 DATE: March 12, 1996
14
<PAGE>
CORPORATE ACKNOWLEDGEMENT
STATE OF TEXAS )(
COUNTY OF TRAVIS )(
BEFORE ME, the undersigned authority, in and for said County and State,
on this day personally appeared Patrick J. Spain, President and CEO of THE
REFERENCE PRESS, INC., known to me to be the person and officer whose name is
subscribed to the foregoing instrument and acknowledged to me that the same
was the act of said corporation, and that he executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of March A.D. 1996.
/s/ William A. Anderson
----------------------------------------------
Notary Public in and for Said County and State
MY COMMISSION EXPIRES February 28, 1998
CORPORATE ACKNOWLEDGEMENT
STATE OF TEXAS )(
COUNTY OF DALLAS )(
BEFORE ME, the undersigned authority, in and for said County and State,
on this day personally appeared Andrew B. Qualls, Vice President of Miller
Real Estate Services Corporation, general partner of KP/MILLER REALTY GROWTH
FUND II, L.P., a Texas limited partnership, known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged
to me that the same was the act of said partnership, and that he executed the
same as the act of such partnership for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 12th day of March A.D. 1996.
/s/ Teri Sequera
Notary Public in and for Said County and State
MY COMMISSION EXPIRES October 16, 1997
15
<PAGE>
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the Buildings shall not be obstructed by any of the Tenants or
used by them for any purpose other than for ingress to and egress from their
respective premises. The halls, passages, exits, entrances, elevators and
stairways are not for the general public, and Landlord shall in all cases
retain the right to control and prevent access thereto of all persons whose
presence in the judgement of Landlord would be prejudicial to the safety,
character, reputation and interests of the Buildings and the Tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom any Tenant normally deals in the ordinary course
of its business, unless such persons are engaged in illegal activities. No
Tenant and no employee, agent or invitee of any Tenant shall go upon the roof
of the Buildings without the prior written consent of Landlord.
2. No sign, placard, picture, name, advertisement or notice, visible
from the exterior of any Tenant's premises shall be inscribed, painted,
affixed or otherwise displayed by any Tenant on any part of the buildings
without the prior written consent of Landlord. Landlord will adopt and
furnish to Tenant general guidelines relating to signs inside the Buildings
on the office floors. Tenant agrees to conform to such guidelines, but may
request approval of Landlord for modifications, which approval will not be
unreasonably withheld by Landlord. Material visible from outside of the
buildings will not be permitted.
3. Tenant shall not allow a fire or bankruptcy sale or any auction or
discounted sale to be held on the premises or allow the premises to be used
for the storage of merchandise held for sale to the general public, except as
provided in Section 6 of the Lease.
4. No Tenant shall allow the premises to be used for lodging, nor
shall cooking be done or permitted by any Tenant on the premises, except the
use by the Tenant of Underwriters' Laboratory approved microwave oven,
refrigerator, dishwasher and equipment for brewing coffee, tea, hot chocolate
and similar beverages shall be permitted, provided that such use is in
accordance with all applicable federal, state and city laws, codes,
ordinances, rules and regulations.
5. No Tenant shall employ any person or persons other than the janitor
of Landlord for the purpose of cleaning the premises, unless otherwise agreed
to by Landlord in writing. Except with the written consent of Landlord, no
person or persons other than those approved by Landlord shall be permitted to
enter the Buildings for the purpose of cleaning the same. No Tenant shall
cause any unnecessary labor by reason of such Tenant's carelessness or
indifference in the preservation of good order and cleanliness in the
premises and the Buildings. Janitor services will not be furnished on nights
when rooms are occupied after 9:30 P.M. unless, by agreement in writing,
service is extended to a later hour for specifically designated rooms.
6. Landlord will furnish each Tenant, free of charge, with two keys to
each door lock in the premises. Landlord may charge Tenant for the expense
of any additional keys. No Tenant shall have any keys made to the premises
or the Buildings. No Tenant shall alter any lock or install a new or
additional lock or any bolt on any door of its premises without the prior
written consent of Landlord. Tenant shall in each case furnish landlord with
a key for any such lock. Each Tenant, upon the termination of its tenancy,
shall deliver to Landlord all keys to doors in the Buildings which shall have
been furnished to Tenant.
7. Landlord shall designate how all office equipment, furniture,
appliances and other large objects or property ("Equipment") shall be moved
in and/or out of the Buildings. The persons employed to move such Equipment
in or out of the Buildings must be acceptable to Landlord. Landlord shall
have the right to prescribe the weight, size and position of all Equipment
brought into the Buildings. Heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or
damage to any such Equipment from any cause, and all damage done to the
Buildings by moving or maintaining such Equipment shall be repaired upon
demand and at the expense of Tenant.
8. No Tenant shall use or keep in the premises or the Buildings any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or
maintenance of office equipment. Without Landlord's prior written approval,
no Tenant shall use any method of heating or air conditioning other than that
supplied by Landlord. No Tenant shall use or keep or permit to be used or
kept any foul or obnoxious gas or substance in the premises, or permit or
suffer the premises to be occupied or used in a manner offensive or
objectionable to Landlord or to other occupants of the Buildings by reason of
noise, odors, or vibrations, or interfere in any way with other Tenants or
those having business therein.
9. Landlord shall have the right, exercisable without notice and
without liability to any Tenant, to change the name and street address of the
Buildings.
10. Landlord reserves the right to exclude from the Buildings, between
the hours of 6 P.M. and 7 A.M. and at all hours on Sundays, legal holidays
and on Saturdays any person who, in Landlord's sole opinion, has no
legitimate business in the
1
<PAGE>
Buildings. Landlord shall in no case by liable for damages for any error
with regard to the admission to or exclusion from the Buildings of any
person. In the case of invasion, mob, riot, public excitement or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Buildings during the continuance
of the same by such action as Landlord may deem appropriate, including
closing doors.
11. The directory of the buildings will be provided for the display of
the name and location of Tenants. Any additional name which Tenant shall
desire to place upon said directory must first be approved by Landlord in
writing, and, if so approved, a charge will be made to Tenant therefor,
except that there will be no charge to list both The Reference Press and
Hoover's.
12. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in ,
or used in connection with any window of the Buildings without the prior
written consent of Landlord, and such items shall be installed as instructed
by Landlord.
13. No Tenant shall obtain for use in the premises, ice, drinking
water, food, beverage, towel or other similar services, except in accordance
with such reasonable regulations as may be promulgated by Landlord; provided,
however, Tenant may obtain snack and soda vending machines for use on the
Premises.
14. Each Tenant shall see that the doors of its premises are closed and
locked and that all water faucets, water apparatus and utilities are shut off
before Tenant or Tenant's employees leave the premises, so as to prevent
waste or damage, and for any default or carelessness in this regard Tenant
shall make good all injuries sustained by other Tenants or occupants of the
Buildings or Landlord. All Tenants shall keep the doors to the Buildings'
corridors closed at all times except for ingress and egress.
15. The toilet rooms, toilets, urinals, wash basins and other apparatus
shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown
therein and the expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose
employees, agents or invitees, shall have caused it. Tenant shall be
responsible for all private sanitary sewer lines up to the point they connect
with a common sanitary sewer line, whether or not such lines or point are
located within the Premises.
16. Except with the prior written consent of Landlord, no Tenant shall
sell, or permit the sale at retail, of newspaper, magazines, periodicals,
theater tickets or any other goods or merchandise to the general public in or
on the premises, nor shall any Tenant carry on, or permit or allow any
employee or other person to carry on, the business of stenography,
typewriting or any similar business in or from the premises for the service
or accommodation of occupants of any other portion of the Buildings, nor
shall the premises of any Tenant be used for manufacturing of any kind, or
any business or activity other than that specifically provided for in such
Tenant's lease.
17. No Tenant shall install any radio or television antenna,
loudspeaker, or other device on the roof or exterior walls of the Buildings,
without Landlord's prior written consent.
18. Hand trucks shall not be used in any space or public halls of the
Buildings, either by any Tenant or others, except those equipped with rubber
tires and side guards or such other material-handling equipment as Landlord
may approve, and shall not be placed in any elevators servicing the Building
or the Property other than designated freight elevators. No other vehicles
of any kind shall be brought by any Tenant into the Buildings or kept in or
about the premises. Tenant shall coordinate and control the quantity of
deliveries and delivery trucks and other vehicles so as not to interfere with
other tenant's use and enjoyment of the Building.
19. Tenant agrees to coordinate all moving activities of office
equipment and furniture in and out of the buildings with Landlord or
Landlord's agent, and to use the services of an insured professional moving
company. Tenant acknowledges that any attempt to bring in or take out any
office equipment or furniture from the Buildings without prior written
approval of Landlord or Landlord's agent will be prevented by the on-site
security guard.
20. Each Tenant shall store all of its trash and garbage within its
premises. No material shall be placed in the trash boxes, receptacles or
common areas if such material is of such a nature that it may not be disposed
of in the ordinary and customary manner of removing and disposing of trash or
otherwise in accordance with any ordinance governing such disposal. All
garbage and refuse disposal shall be made only through entryways and
elevators provided for such purposes and at such times as Landlord shall
designate.
21. Canvassing, soliciting, distribution of handbills, or any other
written material peddling in the Buildings are prohibited, and each Tenant
shall cooperate to prevent the same.
2
<PAGE>
22. Tenant agrees not to allow or keep any animals or pets of any kind
on the premises, except those guide dogs which are for the direct purpose of
aiding and assisting the visually impaired.
23. Tenant agrees to park in only those parking stalls designated as
Tenant parking. Tenant shall hold Landlord harmless for the removal and
costs, expenses and charges related thereto when Tenant parks in space
designated as visitor, handicapped parking, red or yellow curb areas. Tenant
shall not park or allow to be kept any vehicle on the premises, either
company or personal, which is not being used on a daily basis.
24. The requirements of the Tenants will be attended to only upon
application by telephone or in person at the office of Landlord. Employees
of Landlord shall not perform any work or do anything outside of their
regular duties unless under special instructions from Landlord.
25. Landlord may waive any one or more of these rules and Regulations
for the benefit of any particular Tenant or Tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in
favor of any other Tenant or Tenants, nor prevent Landlord from thereafter
enforcing any such Rules and Regulations against any or all of the Tenants of
the Building.
26. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the
Buildings.
27. Landlord reserves the right to amend or supplement these Rules and
Regulations from time to time and to adopt and promulgate additional rules
and regulations as in its judgment may from time to time be needed for the
preservation of good order therein.
3
<PAGE>
FIRST AMENDMENT TO STANDARD OFFICE LEASE
This FIRST AMENDMENT TO STANDARD OFFICE LEASE ("FIRST AMENDMENT") is
made as of December 29, 1997 between CMD REALTY INVESTMENT FUND II, L.P., an
Illinois limited partnership ("LANDLORD"), and HOOVERS, INC., a Delaware
corporation (formerly known as The Reference Press, Inc.) ("TENANT").
A. KP/Miller Realty Growth Fund II, L.P. ("ORIGINAL LANDLORD"), and
Tenant entered into the Standard Office Lease, dated March 12, 1996
("LEASE"), regarding the lease of certain space in the office building
commonly known as "LaCosta Green" located at 1033 La Posada Drive, Austin,
Travis County, Texas 78752.
After the Lease was entered into by Original Landlord and Tenant,
Original Landlord assigned all of its rights under the Lease to Landlord.
Landlord and Tenant desire to make certain modifications to the terms
and conditions of the Lease, all pursuant to the terms and conditions hereof.
Landlord and Tenant agree as follows:
DEFINITIONS. All of the terms used in this First Amendment shall have
the same meanings as set forth in the Lease except to the extent expressly
set forth herein.
ADDITIONAL PREMISES. The term "Additional Premises" means those
certain premises designated on Exhibit A attached hereto and made a part
hereof as the "Additional Premises" located in the Building.
(a) ADDITIONAL PREMISES COMMENCEMENT DATE. The term "Additional
Premises Commencement Date" means June 1, 1997.
53. ADDITIONAL PREMISES. Landlord does hereby lease to Tenant and
Tenant does hereby take and rent from Landlord, as of the Additional Premises
Commencement Date, the Additional Premises in "As Is" condition (subject to
the terms of Section 6 hereof) and upon all of the terms and conditions of
this First Amendment and the Lease. From and after the Additional Premises
Commencement Date, the term "Premises" under the Lease shall be deemed to
include the Additional Premises, and Landlord and Tenant hereby stipulate
that the Square Footage of the Premises shall consist of 16,912 square feet
of rentable area.
54. BASE RENT. Commencing on the date hereof and ending on the last
day of the lease term, Tenant shall pay to Landlord in the manner described
in the Lease, rental as follows:
<TABLE>
<CAPTION>
PERIOD MONTHLY RENTAL INSTALLMENT
------ --------------------------
<S> <C>
June 1, 1997 - April 30, 1998: $19,512.88
May 1, 1998 - April 30, 1999: $20,022.80
May 1, 1998 - April 30, 2000 $20,277.76
May 1, 1998 - April 30, 2001 $20,532.71
</TABLE>
4
<PAGE>
55. TENANT'S PROPORTIONATE SHARE. Effective on the Additional
Premises Commencement Date, the term "Tenant's proportionate share" as used
in the Lease is hereby amended to be 23.61%.
56. RENTAL ADJUSTMENT. Effective June 1, 1997, the Base Expense Rate,
as it relates to the Additional Premises only, shall equal the Operating
Expenses for the calendar year 1997.
57. ADDITIONAL PREMISES LEASEHOLD IMPROVEMENTS. Landlord has
constructed certain improvements in the Additional Premises ("ADDITIONAL
PREMISES IMPROVEMENTS") for which Tenant received an improvements allowance
of $39,262, and Landlord has no further obligation to make improvements to
the Additional Premises. Possession by Tenant of the Additional Premises and
the Additional Premises Improvements shall be conclusive evidence that each
were in satisfactory condition when Tenant took possession of them and that
Landlord has fully complied with all of its obligations with respect to any
work to be performed in the Additional Premises.
58. RIGHT OF FIRST REFUSAL. Exhibit H of the Lease is amended to
delete therefrom Exhibit H-2 (depicting the space commonly known as Suite
170) and all references to Exhibit H-2.
59. BROKERAGE. Tenant represents and warrants to Landlord that, no
broker, agent, commission salesperson, or any other person has represented
Tenant in the negotiations for this First Amendment, other than Office
Leasing Advisors, Inc. Tenant agrees to indemnify and hold Landlord harmless
from all loss, cost, and damage suffered or incurred by Landlord as a result
of a breach by Tenant of the representation and warranty contained herein,
whether or not disclosed.
60. PAYMENTS BY TENANT. Notwithstanding anything to the contrary in
the Lease, all rent and other payments required to be made by Tenant to
Landlord under the Lease, as amended from time to time, shall be payable to
Landlord at CMD Realty Investment Fund II, L.P., c/o The First National Bank
of Chicago, P.O. Box 73313, Chicago, Illinois 60673-7313, or at such other
address as Landlord may specify from time to time by written notice delivered
in accordance herewith.
AMENDMENT. This First Amendment is an amendment to the Lease, and not a
lease for the Additional Premises separate and apart from the lease of the
premises under the Lease. Notwithstanding the foregoing, any default by
Tenant under this First Amendment shall be a default, and Landlord may
thereupon exercise any and all rights available for default, under the Lease.
FULL FORCE AND EFFECT. All of the terms and conditions set forth in the
Lease shall remain in full force and effect, except to the extent otherwise
expressly set forth in this First Amendment.
CONFLICTS. In the event that any of the provisions of the Lease
conflict with any of the terms and provisions of this First Amendment, the
terms and conditions of this First Amendment shall prevail.
5
<PAGE>
NOTICES. The address for notice or documents delivered to Landlord set
forth in the Lease is hereby deleted, and the following is substituted in its
place:
CMD Realty Investment Fund II, L.P.
c/o CMD Realty Investors, Inc.
6300 La Calma
Suite 100
Austin, Texas 78752
Attention: Property Manager
with a copy to:
CMD Realty Investment Fund II, L.P.
c/o CMD Realty Investors, Inc.
227 West Monroe Street, Suite 3900
Chicago, Illinois 60606
Attention: General Counsel
Attention: Asset Manager
61. NOTICES. The address for notice or documents delivered to Tenant
set forth in the Lease is hereby deleted, and the following is substituted in
its place:
Hoover's Inc.
1033 La Posada Drive, Suite 250
La Costa Green Office Building
Austin, Texas 78752
Attention: Lynn Atchison, Vice President
with a copy to:
Office Leasing Advisors, Inc.
620 Brazos Street, Suite 200
Austin, Texas 78701
Attention: Bill Wendlandt
62. TIME OF ESSENCE. Time is of the essence of each and every term of
this First Amendment.
6
<PAGE>
LANDLORD:
CMD REALTY INVESTMENT FUND II, L.P.,
an Illinois limited partnership
By: CMD REIM II, INC.,
an Illinois corporation, its general partner
By: /s/ Robert C. Gibbons
Robert C. Gibbons
Its: Vice President
TENANT:
HOOVER'S, INC.
a Delaware corporation
By: /s/ Lynn Atchison
Lynn Atchison
Its: Vice President
7
<PAGE>
EXHIBIT A
ADDITIONAL PREMISES
8
<PAGE>
SECOND AMENDMENT TO STANDARD OFFICE LEASE
This SECOND AMENDMENT TO STANDARD OFFICE LEASE ("SECOND AMENDMENT") is
made as of December 29, 1997 between CMD REALTY INVESTMENT FUND II, L.P., an
Illinois limited partnership ("LANDLORD"), and HOOVERS, INC., a Delaware
corporation (formerly known as The Reference Press, Inc.) ("TENANT").
A. KP/Miller Realty Growth Fund II, L.P. ("ORIGINAL LANDLORD"), and
Tenant entered into the Standard Office Lease, dated March 12, 1996
("LEASE"), and as amended by that certain First Amendment to Lease dated
December 29, 1997 ("FIRST AMENDMENT"), regarding the lease of certain space
in the office building commonly known as "LaCosta Green" located at 1033 La
Posada Drive, Austin, Travis County, Texas 78752. The Original Lease, as
amended by the First Amendment, is referred to herein as the "Lease."
After the Lease was entered into by Original Landlord and Tenant,
Original Landlord assigned all of its rights under the Lease to Landlord.
Landlord and Tenant desire to make certain modifications to the terms
and conditions of the Lease, all pursuant to the terms and conditions hereof.
Landlord and Tenant agree as follows:
1. DEFINITIONS. All of the terms used in this Second Amendment shall
have the same meanings as set forth in the Lease except to the extent
expressly set forth herein.
ADDITIONAL PREMISES. The term "Additional Premises" means those
certain premises designated on Exhibit A attached hereto and made a part
hereof as the "Additional Premises" located in the Building,
(a) ADDITIONAL PREMISES COMMENCEMENT DATE. The term "Additional
Premises Commencement Date" means February 1, 1998, or such earlier date on
which Landlord substantially completes the Additional Premises Improvements.
2. ADDITIONAL PREMISES. Landlord does hereby lease to Tenant and
Tenant does hereby take and rent from Landlord, as of the Additional Premises
Commencement Date, the Additional Premises in "As Is" condition (subject to
the terms of Section 6 hereof) and upon all of the terms and conditions of
the Lease and this Second Amendment. From and after the Additional Premises
Commencement Date, the term "Premises" under the Lease shall be deemed to
include the Additional Premises, and Landlord and Tenant hereby stipulate
that the Square Footage of the Premises shall consist of 18,659 square feet
of rentable area.
3. BASE RENT. Commencing on the date hereof and ending on the last
day of the lease term, Tenant shall pay to Landlord in the manner described
in the Lease, rental as follows:
<TABLE>
<CAPTION>
PERIOD MONTHLY RENTAL INSTALLMENT
------ --------------------------
<S> <C>
February 1, 1998 - April 30, 1998: $21,259.88
1
<PAGE>
May 1, 1998 - April 30, 1999: $22,277.89
May 1, 1998 - April 30, 2000 $22,532.85
May 1, 1998 - April 30, 2001 $22,787.80
</TABLE>
4. TENANT'S PROPORTIONATE SHARE. Effective on the Additional Premises
Commencement Date, the term "Tenant's proportionate share" as used in the
Lease is hereby amended to be 25.91%.
5. RENTAL ADJUSTMENT. Effective February 1, 1998, the Base Expense
Rate, as it relates to the Additional Premises only, shall equal the
Operating Expenses for the calendar year 1997.
6. ADDITIONAL PREMISES LEASEHOLD IMPROVEMENTS. Landlord has
constructed certain improvements in the Additional Premises ("ADDITIONAL
PREMISES IMPROVEMENTS") substantially in accordance with the Working Drawings
and Specifications (as hereinafter defined) and subject and according to the
terms and conditions set forth in this Second Amendment.
ADDITIONAL PREMISES WORKING DRAWINGS AND SPECIFICATIONS. Landlord
shall cause to be prepared and delivered to Tenant working drawings and
specifications for the Additional Premises Improvements ("WORKING DRAWINGS
AND SPECIFICATIONS"). Tenant shall have the right to approve or disapprove
the Working Drawings and Specifications by written notice to Landlord
within 10 days after receipt thereof, which approval may not be
unreasonably withheld. If Tenant fails to deliver a written notice of
approval or disapproval within such 10 day period, the Working Drawings and
Specifications shall be deemed approved. If Tenant delivers to Landlord
within such 10 day period a written notice of disapproval of the Working
Drawings and Specifications, then Landlord shall revise the Working
Drawings and Specifications to remove the reasons for Tenant's disapproval
within 10 days of Landlord's receipt of such disapproval notice.
ADDITIONAL PREMISES CONSTRUCTION DOCUMENTS. Promptly after Tenant's
approval or deemed approval of the Working Drawings and Specifications,
Landlord shall deliver to Tenant a copy of a written contract covering the
construction of the Additional Premises Improvements ("CONSTRUCTION
CONTRACT"), setting forth the total cost of completion of the Additional
Premises Improvements in accordance with the Working Drawings and
Specifications ("CONTRACT AMOUNT"). The Contract Amount, plus Landlord's
construction management fee (which shall equal five percent (5%) of the
Contract Amount) and the cost of preparing the Working Drawings and
Specifications are collectively referred to herein as the "CONSTRUCTION
COST." Furthermore, Landlord agrees to contribute without charge or offset
against the Improvements Allowable all construction materials currently
existing in the Additional Premises including but not limited to doors,
frames, hardware, ceiling tiles and light fixtures.
ADDITIONAL PREMISES IMPROVEMENTS ALLOWANCE.
ADDITIONAL PREMISES IMPROVEMENTS ALLOWANCE. The term "IMPROVEMENTS
ALLOWANCE" means for the purpose of this Second Amendment, an amount
equal to the lesser of (A) the Construction Cost, and (B) the Maximum
Improvements Allowance (as hereinafter defined).
2
<PAGE>
MAXIMUM IMPROVEMENTS ALLOWANCE. The term "MAXIMUM IMPROVEMENTS
ALLOWANCE" means, for the purpose of this Lease, $9,538.62.
CONSTRUCTION COST EXCEEDING MAXIMUM IMPROVEMENTS ALLOWANCE. If the
Construction Cost is greater than the Maximum Improvements Allowance, then
Tenant shall deposit with the Landlord within five (5) days after the
determination of the Construction Cost an amount ("TENANT DEPOSIT") equal
to the difference between (i) the Construction Cost and (ii) the Maximum
Improvements Allowance.
7. OPTION TO EXPAND. Exhibit G of the Lease is deleted in its
entirety.
8. RIGHT OF FIRST REFUSAL. Exhibit H of the Lease is amended to
delete therefrom Exhibit H-1 (depicting the space commonly known as Suite
240) and all references to Exhibit H-1.
9. BROKERAGE. Tenant represents and warrants to Landlord that, no
broker, agent, commission salesperson, or any other person has represented
Tenant in the negotiations for this Second Amendment, other than Office
Leasing Advisors, Inc. Tenant agrees to indemnify and hold Landlord harmless
from all loss, cost, and damage suffered or incurred by Landlord as a result
of a breach by Tenant of the representation and warranty contained herein,
whether or not disclosed.
AMENDMENT. This Second Amendment is an amendment to the Lease, and not
a lease for the Additional Premises separate and apart from the lease of the
premises under the Lease. Notwithstanding the foregoing, any default by
Tenant under this Second Amendment shall be a default, and Landlord may
thereupon exercise any and all rights available for default, under the Lease.
FULL FORCE AND EFFECT. All of the terms and conditions set forth in the
Lease shall remain in full force and effect, except to the extent otherwise
expressly set forth in this Second Amendment.
CONFLICTS. In the event that any of the provisions of the Lease
conflict with any of the terms and provisions of this Second Amendment, the
terms and conditions of this Second Amendment shall prevail.
10. TIME OF ESSENCE. Time is of the essence of each and every term of
this Second Amendment.
LANDLORD:
CMD REALTY INVESTMENT FUND II, L.P.,
an Illinois limited partnership
By: CMD REIM II, INC.,
an Illinois corporation, its general partner
3
<PAGE>
By: /s/ Robert C. Gibbons
Robert C. Gibbons
Its: Vice President
TENANT:
HOOVER'S, INC.
a Delaware corporation
By: /s/ Lynn Atchison
Lynn Atchison
Its: Vice President
4
<PAGE>
EXHIBIT A
ADDITIONAL PREMISES
5
<PAGE>
THIRD AMENDMENT TO STANDARD OFFICE LEASE
This THIRD AMENDMENT TO STANDARD OFFICE LEASE ("THIRD AMENDMENT") is
made as of April 16, 1998 between CMD REALTY INVESTMENT FUND II, L.P., an
Illinois limited partnership ("LANDLORD"), and HOOVERS, INC., a Delaware
corporation (formerly known as The Reference Press, Inc.) ("TENANT").
B. KP/Miller Realty Growth Fund II, L.P. ("ORIGINAL LANDLORD"), and
Tenant entered into the Standard Office Lease, dated March 12, 1996 ("LEASE")
and as amended by that certain First Amendment to Lease dated December 29,
1997 ("FIRST AMENDMENT"), and as further amended by that certain Second
Amendment to Lease dated December 29, 1997 ("SECOND AMENDMENT"), regarding
the lease of certain space in the office building commonly known as "LaCosta
Green" located at 1033 La Posada Drive, Austin, Travis County, Texas 78752.
The Original Lease, as amended by the First Amendment and Second Amendment,
is referred to herein as the "Lease."
After the Lease was entered into by Original Landlord and Tenant,
Original Landlord assigned all of its rights under the Lease to Landlord.
Landlord and Tenant desire to make certain modifications to the terms
and conditions of the Lease, all pursuant to the terms and conditions hereof.
Landlord and Tenant agree as follows:
11. DEFINITIONS. All of the terms used in this Third Amendment shall
have the same meanings as set forth in the Lease except to the extent
expressly set forth herein.
ADDITIONAL PREMISES. The term "Additional Premises" means those
certain premises designated on Exhibit A attached hereto and made a part
hereof as the "Additional Premises" located in the Building,
(a) ADDITIONAL PREMISES COMMENCEMENT DATE. The term "Additional
Premises Commencement Date" means May 1, 1998.
12. ADDITIONAL PREMISES. Landlord does hereby lease to Tenant and
Tenant does hereby take and rent from Landlord, as of the Additional Premises
Commencement Date, the Additional Premises in "As Is" condition (subject to
the terms of Section 5 hereof) and upon all of the terms and conditions of
the Lease and this Third Amendment. From and after the Additional Premises
Commencement Date, the term "Premises" under the Lease shall be deemed to
include the Additional Premises, and Landlord and Tenant hereby stipulate
that the Square Footage of the Premises shall consist of 21,393 square feet
of rentable area.
13. BASE RENT. Commencing on the date hereof and ending on the last
day of the lease term, Tenant shall pay to Landlord in the manner described
in the Lease, rental as follows:
1
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL PREMISES BASE
PERIOD MONTHLY RENTAL INSTALLMENT
------ --------------------------
<S> <C>
May 1, 1998 - April 30, 2001 $4,101.00
</TABLE>
14. TENANT'S PROPORTIONATE SHARE. Effective on the Additional
Premises Commencement Date, the term "Tenant's proportionate share" as used
in the Lease is hereby amended to be 29.50%.
15. ADDITIONAL PREMISES LEASEHOLD IMPROVEMENTS. Landlord will make or
construct certain improvements in the Additional Premises ("ADDITIONAL
PREMISES IMPROVEMENTS") substantially in accordance with the Working Drawings
and Specifications (as hereinafter defined) and subject and according to the
terms and conditions set forth in this Third Amendment.
ADDITIONAL PREMISES WORKING DRAWINGS AND SPECIFICATIONS. Landlord
shall cause to be prepared and delivered to Tenant working drawings and
specifications for the Additional Premises Improvements ("WORKING DRAWINGS
AND SPECIFICATIONS"). Tenant shall have the right to approve or disapprove
the Working Drawings and Specifications by written notice to Landlord
within 10 days after receipt thereof, which approval may not be
unreasonably withheld. If Tenant fails to deliver a written notice of
approval or disapproval within such 10 day period, the Working Drawings and
Specifications shall be deemed approved. If Tenant delivers to Landlord
within such 10 day period a written notice of disapproval of the Working
Drawings and Specifications, then Landlord shall revise the Working
Drawings and Specifications to remove the reasons for Tenant's disapproval
within 10 days of Landlord's receipt of such disapproval notice.
ADDITIONAL PREMISES CONSTRUCTION DOCUMENTS. Promptly after Tenant's
approval or deemed approval of the Working Drawings and Specifications,
Landlord shall deliver to Tenant a copy of a written contract covering the
construction of the Additional Premises Improvements ("CONSTRUCTION
CONTRACT"), setting forth the total cost of completion of the Additional
Premises Improvements in accordance with the Working Drawings and
Specifications ("CONTRACT AMOUNT"). The Contract Amount, plus Landlord's
construction management fee (which shall equal five percent (5%) of the
Contract Amount) and the cost of preparing the Working Drawings and
Specifications are collectively referred to herein as the "CONSTRUCTION
COST." Furthermore, Landlord agrees to contribute without charge or offset
against the Improvements Allowable all construction materials currently
existing in the Additional Premises including but not limited to doors,
frames, hardware, ceiling tiles and light fixtures.
ADDITIONAL PREMISES IMPROVEMENTS ALLOWANCE.
ADDITIONAL PREMISES IMPROVEMENTS ALLOWANCE. The term "IMPROVEMENTS
ALLOWANCE" means for the purpose of this Third Amendment, an amount
equal to the lesser of (A) the Construction Cost, and (B) the Maximum
Improvements Allowance (as hereinafter defined).
2
<PAGE>
MAXIMUM IMPROVEMENTS ALLOWANCE. The term "MAXIMUM IMPROVEMENTS
ALLOWANCE" means, for the purpose of this Lease, $13,123.20.
CONSTRUCTION COST EXCEEDING MAXIMUM IMPROVEMENTS ALLOWANCE. If the
Construction Cost is greater than the Maximum Improvements Allowance, then
Tenant shall deposit with the Landlord within five (5) days after the
determination of the Construction Cost an amount ("TENANT DEPOSIT") equal
to the difference between (i) the Construction Cost and (ii) the Maximum
Improvements Allowance.
16. BROKERAGE. Tenant represents and warrants to Landlord that, no
broker, agent, commission salesperson, or any other person has represented
Tenant in the negotiations for this Third Amendment, other than Office
Leasing Advisors, Inc. Tenant agrees to indemnify and hold Landlord harmless
from all loss, cost, and damage suffered or incurred by Landlord as a result
of a breach by Tenant of the representation and warranty contained herein,
whether or not disclosed.
AMENDMENT. This Third Amendment is an amendment to the Lease, and not a
lease for the Additional Premises separate and apart from the lease of the
premises under the Lease. Notwithstanding the foregoing, any default by
Tenant under this Third Amendment shall be a default, and Landlord may
thereupon exercise any and all rights available for default, under the Lease.
FULL FORCE AND EFFECT. All of the terms and conditions set forth in the
Lease shall remain in full force and effect, except to the extent otherwise
expressly set forth in this Third Amendment.
CONFLICTS. In the event that any of the provisions of the Lease
conflict with any of the terms and provisions of this Third Amendment, the
terms and conditions of this Third Amendment shall prevail.
17. TIME OF ESSENCE. Time is of the essence of each and every term of
this Third Amendment.
LANDLORD:
CMD REALTY INVESTMENT FUND II, L.P.,
an Illinois limited partnership
By: CMD REIM II, INC.,
an Illinois corporation, its general partner
By: /s/ Robert C. Gibbons
Robert C. Gibbons
Its: Vice President
3
<PAGE>
TENANT:
HOOVER'S, INC.
a Delaware corporation
By: /s/ Lynn Atchison
Lynn Atchison
Its: Vice President
4
<PAGE>
EXHIBIT A
ADDITIONAL PREMISES
5
<PAGE>
FOURTH AMENDMENT TO STANDARD OFFICE LEASE
This FOURTH AMENDMENT TO STANDARD OFFICE LEASE ("FOURTH AMENDMENT") is
made as of April 17, 1998 between CMD REALTY INVESTMENT FUND II, L.P., an
Illinois limited partnership ("LANDLORD"), and HOOVERS, INC., a Delaware
corporation (formerly known as The Reference Press, Inc.) ("TENANT").
C. KP/Miller Realty Growth Fund II, L.P. ("ORIGINAL LANDLORD"), and
Tenant entered into the Standard Office Lease, dated March 12, 1996 ("LEASE")
and as amended by that certain First Amendment to Lease dated December 29,
1997 ("FIRST AMENDMENT"), and as further amended by that certain Second
Amendment to Lease dated December 29, 1997 ("SECOND AMENDMENT") and as
further amended by that certain Third Amendment to Lease dated April 16, 1998
("THIRD AMENDMENT"), regarding the lease of certain space in the office
building commonly known as "LaCosta Green" located at 1033 La Posada Drive,
Austin, Travis County, Texas 78752. The Original Lease, as amended by the
First Amendment and Second Amendment, is referred to herein as the "Lease."
After the Lease was entered into by Original Landlord and Tenant,
Original Landlord assigned all of its rights under the Lease to Landlord.
Landlord and Tenant desire to make certain modifications to the terms
and conditions of the Lease, all pursuant to the terms and conditions hereof.
Landlord and Tenant agree as follows:
18. DEFINITIONS. All of the terms used in this Fourth Amendment shall
have the same meanings as set forth in the Lease except to the extent
expressly set forth herein.
ADDITIONAL PREMISES. The term "Additional Premises" means those
certain premises designated on Exhibit A attached hereto and made a part
hereof as the "Additional Premises" located in the Building,
(a) ADDITIONAL PREMISES COMMENCEMENT DATE. The term "Additional
Premises Commencement Date" means June 1, 1998.
19. ADDITIONAL PREMISES. Landlord does hereby lease to Tenant and
Tenant does hereby take and rent from Landlord, as of the Additional Premises
Commencement Date, the Additional Premises in "As Is" condition (subject to
the terms of Section 5 hereof) and upon all of the terms and conditions of
the Lease and this Fourth Amendment. From and after the Additional Premises
Commencement Date, the term "Premises" under the Lease shall be deemed to
include the Additional Premises, and Landlord and Tenant hereby stipulate
that the Square Footage of the Premises shall consist of 23,058 square feet
of rentable area.
20. BASE RENT. Commencing on the date hereof and ending on the last
day of the lease term, Tenant shall pay to Landlord in the manner described
in the Lease, rental as follows:
<TABLE>
<CAPTION>
ADDITIONAL PREMISES BASE
PERIOD MONTHLY RENTAL INSTALLMENT
------ --------------------------
<S> <C>
June 1, 1998 - April 30, 2001 $2,497.50
</TABLE>
21. TENANT'S PROPORTIONATE SHARE. Effective on the Additional
Premises Commencement Date, the term "Tenant's proportionate share" as used
in the Lease is hereby amended to be 31.69%.
22. ADDITIONAL PREMISES LEASEHOLD IMPROVEMENTS. Landlord will make or
construct certain improvements in the Additional Premises ("ADDITIONAL
PREMISES IMPROVEMENTS") substantially in accordance with the Working Drawings
and Specifications (as hereinafter defined) and subject and according to the
terms and conditions set forth in this Fourth Amendment.
6
<PAGE>
ADDITIONAL PREMISES WORKING DRAWINGS AND SPECIFICATIONS. Landlord
shall cause to be prepared and delivered to Tenant working drawings and
specifications for the Additional Premises Improvements ("WORKING DRAWINGS
AND SPECIFICATIONS"). Tenant shall have the right to approve or disapprove
the Working Drawings and Specifications by written notice to Landlord
within 10 days after receipt thereof, which approval may not be
unreasonably withheld. If Tenant fails to deliver a written notice of
approval or disapproval within such 10 day period, the Working Drawings and
Specifications shall be deemed approved. If Tenant delivers to Landlord
within such 10 day period a written notice of disapproval of the Working
Drawings and Specifications, then Landlord shall revise the Working
Drawings and Specifications to remove the reasons for Tenant's disapproval
within 10 days of Landlord's receipt of such disapproval notice.
ADDITIONAL PREMISES CONSTRUCTION DOCUMENTS. Promptly after Tenant's
approval or deemed approval of the Working Drawings and Specifications,
Landlord shall deliver to Tenant a copy of a written contract covering the
construction of the Additional Premises Improvements ("CONSTRUCTION
CONTRACT"), setting forth the total cost of completion of the Additional
Premises Improvements in accordance with the Working Drawings and
Specifications ("CONTRACT AMOUNT"). The Contract Amount, plus Landlord's
construction management fee (which shall equal five percent (5%) of the
Contract Amount) and the cost of preparing the Working Drawings and
Specifications are collectively referred to herein as the "CONSTRUCTION
COST." Furthermore, Landlord agrees to contribute without charge or offset
against the Improvements Allowable all construction materials currently
existing in the Additional Premises including but not limited to doors,
frames, hardware, ceiling tiles and light fixtures.
ADDITIONAL PREMISES IMPROVEMENTS ALLOWANCE.
ADDITIONAL PREMISES IMPROVEMENTS ALLOWANCE. The term "IMPROVEMENTS
ALLOWANCE" means for the purpose of this Fourth Amendment, an amount
equal to the lesser of (A) the Construction Cost, and (B) the Maximum
Improvements Allowance (as hereinafter defined).
MAXIMUM IMPROVEMENTS ALLOWANCE. The term "MAXIMUM IMPROVEMENTS
ALLOWANCE" means, for the purpose of this Lease, $7,775.55.
CONSTRUCTION COST EXCEEDING MAXIMUM IMPROVEMENTS ALLOWANCE. If the
Construction Cost is greater than the Maximum Improvements Allowance, then
Tenant shall deposit with the Landlord within five (5) days after the
determination of the Construction Cost an amount ("TENANT DEPOSIT") equal
to the difference between (i) the Construction Cost and (ii) the Maximum
Improvements Allowance.
23. BROKERAGE. Tenant represents and warrants to Landlord that, no
broker, agent, commission salesperson, or any other person has represented
Tenant in the negotiations for this Fourth Amendment, other than Office
Leasing Advisors, Inc. Tenant agrees to indemnify and hold Landlord harmless
from all loss, cost, and damage suffered or incurred by Landlord as a result
of a breach by Tenant of the representation and warranty contained herein,
whether or not disclosed.
AMENDMENT. This Fourth Amendment is an amendment to the Lease, and not
a lease for the Additional Premises separate and apart from the lease of the
premises under the Lease. Notwithstanding the foregoing, any default by
Tenant under this Fourth Amendment shall be a default, and Landlord may
thereupon exercise any and all rights available for default, under the Lease.
FULL FORCE AND EFFECT. All of the terms and conditions set forth in the
Lease shall remain in full force and effect, except to the extent otherwise
expressly set forth in this Fourth Amendment.
CONFLICTS. In the event that any of the provisions of the Lease
conflict with any of the terms and provisions of this Fourth Amendment, the
terms and conditions of this Fourth Amendment shall prevail.
7
<PAGE>
24. TIME OF ESSENCE. Time is of the essence of each and every term of
this Fourth Amendment.
LANDLORD:
CMD REALTY INVESTMENT FUND II, L.P.,
an Illinois limited partnership
By: CMD REIM II, INC.,
an Illinois corporation, its general partner
By: /s/ Robert C. Gibbons
Robert C. Gibbons
Its: Vice President
TENANT:
HOOVER'S, INC.
a Delaware corporation
By: /s/ Lynn Atchison
Lynn Atchison
Its: Vice President
8
<PAGE>
EXHIBIT A
ADDITIONAL PREMISES
9
<PAGE>
Exhibit 10.5
Imperial Bank
Member FDIC
April 2, 1998
226 Airport Parkway
San Jose, California Borrower: Hoovers, Inc.
Subject: Credit Terms and Conditions ("Agreement")
Gentlemen:
To induce you to make loans to the undersigned (herein called "Borrower"),
and in consideration of any loan or loans you, in your sole discretion, may
make to Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS. The Borrower is a corporation. Borrower is
duly organized and existing and in good standing under the laws of the State
of Delaware and is authorized and in good standing to do business in the
State of Delaware. Borrower has powers and adequate authority, rights and
franchises to own its property and to carry on its business as now conducted,
and is duly qualified and in good standing in each State in which the
character of the properties owned by it therein or the conduct of its
business makes such qualification necessary, and Borrower has the power and
adequate authority to make and carry out this Agreement Borrower has no
investment in any other business entity, except as previously disclosed to
Bank.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of
this Agreement are duly authorized and do not require the consent or approval
of any governmental body or other regulatory authority; are not in
contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, by-laws, or Articles of
Association, as the case may be, and this Agreement is the valid, binding and
legally enforceable obligation of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any
of its property may be bound or affected, and do not cause any lien, charge
or other encumbrance to be created or imposed upon any such property by
reason thereof.
4. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or
other governmental or regulatory authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of 2/28/98,
and the related profit and loss statement for the 2 month ended on that date,
a copy of which has heretofore been delivered to you by Borrower, and all
other statements and data submitted in writing by Borrower to you in
connection with this request for credit are true and correct, and said
balance sheet and profit and loss statement truly present the financial
condition of Borrower as of the date thereof and the results of the
operations of Borrower for the period covered thereby, and have been prepared
in accordance with generally accepted accounting principles on a basis
consistently maintained subject, however, to year-end audit adjustments.
Since such date there have been no materially adverse changes in the
financial condition or business of Borrower. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special commitments or
substantial contracts which are not reflected in said balance sheet, other
than in the ordinary and normal course of its business, which may have a
materially adverse effect upon its financial condition, operations or
business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the
same are not subject to any liens or encumbrances other than those permitted
by Section C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes, and if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses
all necessary trademarks, trade names, copyrights, patents, patent rights,
and licenses to conduct its business as now operated, without any known
conflict with the valid trademarks, trade names, copyrights, patents and
license rights of others.
9. REGULATION U. The proceeds of this loan shall not be used to
purchase or carry margin stock (as defined with Regulation U of the Board of
Governors of the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, it will, unless
you shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and Insurance
on all its insurable property against fire and other hazards with responsible
insurance carriers to the extent usually maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long
as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manners as not to cause any materially adverse effect
upon its financial condition or the loss of any right of redemption from any
sale thereunder, and
(b) it shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it adequate with
respect thereto.
4. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained subject, however, to year-end audit
adjustments; permit your representatives to have access to, and to examine
its properties, books and records at all reasonable times; and furnish you:
(a) As soon as available, and in any event within 30 days after the close of
each month of each fiscal year of Borrower, commencing with the month next
ending, a balance sheet, profit and loss statement and reconciliation of
Borrower's capital accounts as of the close of such period and covering
operations for the portion of Borrower's fiscal year ending on the last day
of such period, all in reasonable detail and stating in comparative form the
figures for the corresponding date and period in the previous fiscal year,
prepared in accordance with generally accepted accounting principles on a
basis consistently maintained by Borrower and certified by an appropriate
officer of Borrower, subject, however, to year-end audit adjustments;
(b) As Soon as available, and in any event within 90 days after the close of
each fiscal year of Borrower, a report of audit of Company as of the close of
and for such fiscal year, all in reasonable detail and stating in comparative
form the figures as of the close of and for the previous fiscal year, with
the unqualified opinion of certified public accountants of national
prominence.
(c) Within 30 days after the close of each month of each fiscal year of
Borrower, a certificate by chief financial officer or partner of Borrower,
stating that Borrower has performed and observed each and every covenant
contained in this letter of Inducement including that certain commitment
letter ("Commitment Letter") from Bank to Borrower, dated March 25, 1998, and
executed on behalf of Borrower on April 2, 1998 to be performed by it and
that no event has occurred and no condition then exists which constitutes an
event of default hereunder or would constitute such an event of default upon
the lapse of time or upon the giving of notice and die lapse of time
specified herein, or, if any such event has occurred or any such condition
exists, specifying the nature thereof,
(d) Promptly after the receipt thereof by Borrower, copies of any final
detailed audit reports submitted to Borrower by independent accountants in
connection with each annual or interim audit of the accounts of Borrower made
by such accountants;
<PAGE>
(e) Promptly after the same are available, Copies of all such proxy
statements, financial Statements and reports as Borrower shall send to its
stockholders, if any, and copies of all reports which Borrower may file with
the Securities and Exchange Commission or any governmental authority at any
time substituted therefor; and
(f) Such other information relating to the affairs of Borrower as you
reasonably may request from time to time.
(g) Notice of Default. Promptly notify the Bank in writing of the occurrence
of any event of default hereunder known to Borrower and remaining uncured or
any event known to Borrower and remaining uncured which upon notice and lapse
of time would be an event of default.
C. Borrower agrees that so long as it is indebted to you, it will not,
without your written consent:
1. TYPE OF BUSINESS; MANAGEMENT. Unless Bank is notified of such
changes and such changes shall not have a material adverse effect on the
financial condition or business of the Borrower, make any substantial change
in the character of its business; or make any change in its executive
management.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you except obligations
now existing as shown in financial statement dated 2/28/98, excluding those
being refinanced by your bank unless such indebtedness shall not materially
effect Borrower's compliance with the financial Covenants set forth in
Section 8 of the Commitment Letter; or sell or transfer, either with or
without recourse, any accounts or notes receivable or any moneys due to
become due.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage,
pledge encumbrance, lien or charge of any kind (including the charge upon
property at any time purchased or acquired under conditional sale or other
title retention agreement) upon any asset now owned or hereafter acquired by
it, other than liens for taxes not delinquent and liens in your favor.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or
advances to any person or other entity other than in the ordinary and normal
course of its business as now conducted or make any investment in the
securities of any person or other entity except in the ordinary and normal
course of business other than the United States Government; or guarantee or
otherwise become liable upon the obligation of tiny person or other entity,
except by endorsement of negotiable instruments for deposit or collection in
the ordinary and normal course of its business.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase
or otherwise acquire the assets or business of any person or other entity if
such purchase or acquisition would cause an event of default in the terms of
any other provision of this Agreement, or liquidate, dissolve, merge or
consolidate, or commence any proceedings therefor; or sell any assets except
in the ordinary and normal course of its business as now conducted; or sell,
lease, assign, or transfer any substantial part of its business or fixed
assets, or any property or other assets necessary for the continuance of its
business as now conducted including without limitation the selling of any
property or other asset accompanied by the leasing back of the same.
6. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any
dividend (other than dividends payable in common stock of Borrower) or make
any other distribution on any of its Capital stock now outstanding or
hereafter issued or purchase, redeem or retire any of such stock unless
distribution shall not affect Borrower's compliance with the financial
covenants set forth in Section 8 of the Commitment Letter.
D. The occurrence of any one of the following events of default shall, at
your option, terminate your commitment to lend and make all sums of principal
and interest then remaining unpaid on all Borrower's indebtedness to you
immediately due and payable, all without demand, presentment or notice, all
of which are hereby expressly waived;
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal or
of interest on any indebtedness of Borrower to you.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term
or condition of this Agreement binding upon Borrower.
3. BREECH OF WARRANTY. Any of Borrower's representations or
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or
misleading in any material respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent;
or admit its inability to pay its debts as they mature; or make an assignment
for the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
5. JUDGMENTS, ATTACHMENTS. Any money judgement, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or
any of its assets and shall remaIn unvacated unbonded or unstayed for a
period of 10 days or in any event later than five days prior to the date of
any proposed sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against Borrower and,
if instituted against it, shall be consented to by Borrower.
E. MISCELLANEOUS PROVISIONS.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of your Bank or any holder of Notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise of any such power, right or privilege
preclude other or other exercise thereof or of any other right, power or
privilege. All rights and remedies existing under this agreement or any note
issued in connection with akin that your Bank may make hereunder, are
cumulative to, and not exclusive of; any rights or remedies otherwise
available.
2. The Commitment Letter dated March 25, 1998 attached hereto as may be
amended or replaced, is incorporated herein by this reference for additional
terms and provisions. in the event of a conflict between this Agreement and
the Commitment Letter, the terms in the Commitment Letter shall prevail.
Hoover's, Inc.
By: /s/ Lynn Atchison
------------------------------------
Title: V.P.-Finance
By: /s/ Patrick J. Spain
------------------------------------
Title: Chairman & CEO
<PAGE>
IMPERIAL BANK
Member FDIC
NOTE
$ 550,000.00 San Jose California, April 2, 1998
On December 29, 2000 and as hereinafter provided, for value received,
the undersigned promises to pay to IMPERIAL BANK ("Bank") a California
banking corporation, or order, at its Santa Clara Valley Regional office, the
principal sum of $550,000.00 or such sums up to the maximum if so stated, as
the Bank may now or hereafter advance to or for the benefit of the
undersigned in accordance with the terms hereof, together with interest from
date of disbursement or N/A, whichever is later, on the unpaid principal
balance / / at the rate of __% per year [X] at the rate of 1.500% per year in
excess of the rate of interest which Bank has announced as its prime lending
rate (the "Prime Rate"), which shall vary concurrently with any change in
such Prime Rate, or $ N/A , whichever is greater. Interest shall be computed
at the above rate on the basis of the actual number of days during which the
principal balance is outstanding, divided by 360, which shall for interest
computation purposes, be considered one year.
Interest shall be payable /X/ monthly / / quarterly / / included with
principal /X/ in addition to principal / / beginning May 2, 1998, and if not
so paid shall become a part of the principal. All payments shall be applied
first to any late charges owing, then to interest and the remainder, if any,
to principal. /X/ (If checked), Principal shall be payable in installments of
$ * or more, each installment on the 2nd day of each month, beginning
advances not to exceed any unpaid balance owing at any one time equal to the
maximum amount specified above, may be made at the option of Bank.
Initial Here: LA PS
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (Including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or
demand, the entire balance of principal and accrued Interest then remaining
unpaid shall (a) become immediately due and payable, and (b) thereafter bear
interest, until paid in full, at the increased rate of 5% per year in excess
of the rate provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary or
involuntary petition under the provisions of the Federal Bankruptcy Act; the
issuance of any attachment or execution against any asset of any Obligor; the
death of any Obligor; or any deterioration of the financial condition of any
Obligor which results in the holder hereof considering itself, in good faith,
insecure.
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days,
Obligor agrees to pay Bank a late charge in the amount of 5% of the payment
so due and unpaid, in addition to the payment; but nothing in this paragraph
is to be construed as any obligation on the part of the holder of this note
to accept payment of any payment past due or less than the total unpaid
principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorneys fees incurred by
the holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity; consents to the acceptance, release or substitution of security for
this note; and waives demand and protest and the right to assert any statute
of limitations. Any married person who signs this note agrees that recourse
may be had against separate property for any obligations hereunder. The
indebtedness evidenced hereby shall be payable in lawful money of the United
States. In any action brought under or arising out of this note, each
Obligor, including successor(s) or assign(s) hereby consents to the
application of California law, to the jurisdiction of any competent court
within the State of California, and to service of process by any means
authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder
hereof in exercising any right hereunder, or under any deed of trust,
security agreement or other agreement, shall not operate as a waiver of such
right, or of any other right, under this note or any deed of trust, security
agreement or other agreement in connection herewith.
Initial Here: LA PS
* See attached Addendum. A default under any obligation of the undersigned to
Bank shall be a default hereunder, Subject to provisions in Credit Terms
and Conditions dated April 2, 1998, and all amendments thereto and
replacements therefor.
Notwithstanding anything to the
contrary, Borrower shall have ten days Hoover's Inc.
following notice to make any payment By: /s/ Lynn Atchison
prior to such failure being a default --------------------------
hereunder but shall nevertheless apply By: /s/ Patrick Spain
the late charge above to such late --------------------------
payments.
<PAGE>
ADDENDUM TO NOTE
DATED APRIL 2, 1998
Advances under the Note shall be available through December 31, 1998
("revolving draw period"). During the revolving draw period, interest only on
each advance shall be due monthly beginning May 2, 1998 until the end of each
fiscal quarter. At the end of each fiscal quarter commencing with the quarter
ending July 31, 1998) the outstanding principal balance of the advances made
during each quarter under the Note shall be payable monthly in 24 equal
payments of principal plus accrued interest based on an amortization of 24
months. All principal and accrued interest shall in any event be due and
payable on or before December 29, 2000.
If a dispute arises out of or relates to this contract, or the breach
thereof, and if said dispute cannot be settled through direct discussions,
the parties agree to first endeavor to settle the dispute in an amicable
manner by mediation administered by the American Arbitration Association
under its Commercial Mediation Rules, before resorting to arbitration.
Thereafter, any unresolved controversy or claim arising out of or relating to
this contract, or breach thereof, shall be settled and finally determined by
one arbitrator in DALLAS County, Texas, in accordance with the arbitration
rules of JAMS/Endispute and judgment by the arbitrator may be entered into
any court having jurisdiction thereof Any decision rendered by the arbitrator
will be binding. The parties hereto expressly reserve the right to contest or
appeal from the final judgment or any appealable order or appeal able
judgment entered AS A RESULT OF A DECISION by the arbitrator.
HOOVER'S, INC.
BY: /s/ Lynn Atchison
-------------------------------------
BY: /s/ Patrick Spain
-------------------------------------
<PAGE>
IMPERIAL BANK
Member FDIC
NOTE
$200,000.00 * San Jose, California, June 17, 1997
On January 12, 2000, and as hereinafter provided, for value received,
the undersigned promises to pay to IMPERIAL BANK ("Bank"), a California
banking corporation, or order, at its Santa Clara Valley Regional office the
principal sum of$200,000.00 * or such sums up to the maximum if so stated as
the Bank may now or hereafter advance to or for the benefit of the
undersigned in accordance with the terms hereof, together with interest from
date of disbursement or N/A, whichever is later, on the unpaid principal
balance / / at the rate of __% per year /X/ at the rate of 1.500% per year in
excess of the rate of interest which Bank has announced as its prime lending
rate (the "Prime Rate"), which shall vary concurrently with any change in
such Prime Rate, __________ whichever is greater. Interest shall be computed at
the above rate on the basis of the actual number of days during which the
principal balance is outstanding, divided by 360, which shall, for interest
computation purposes, be considered one year.
Initial Here: LA PS
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendment, or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or
demand, the entire balance of principal and accrued interest then remaining
unpaid shall (a) become immediately due and payable, and (b) thereafter bear
interest, until paid in full, at the increased rate of 5% per year in excess
of the rate provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary or
involuntary petition under the provisions of the Federal Bankruptcy Act; the
issuance of any attachment or execution against any asset of any Obligor; the
death of any Obligor; or any deterioration of the financial condition of any
Obligor which results in the holder hereof considering itself, in good faith,
insecure.
/XX/ If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the
amount of 5% of the payment so due and unpaid, in addition to the payment;
but nothing in this paragraph is to be construed as any obligation on the
part of the holder of this note to accept payment of any installment past due
or less than the total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorney's fees incurred by
the holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity; consents to the acceptance, release or substitution of security for
this note; and waves demand and protest and the right to assert any statute
of limitations. Any married person who signs this note agrees that recourse
may be had against separate property for any obligations hereunder. The
Indebtedness evidenced hereby shall be payable in lawful money of the United
States. In any action brought under or arising out of this note, each
Obligor, including successor(s) or assign(s) hereby consents to the
application of California law, to the jurisdiction of any competent Court
within the State of California, and to service of process by any means
authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, Security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder
hereof in exercising any right hereunder, or under any deed of trust,
security agreement or other agreement, shall not operate as a waiver of such
right, or of any other right, under this note or any deed of trust, security
agreement or other agreement in connection herewith.
Initial Here: LA PS
* See Addendum attached hereto and incorporated herein this reference.
Notwithstanding anything to the contrary, Borrower shall have ten
days following notice to make any payment prior to such failure
being a default hereunder but shall never-the-less apply to such
late payments.
Hoover's, Inc.
By: /s/ Lynn Atchison
-----------------------------
[ILLEGIBLE] By: /s/ Patrick Spain
- ----------------------------- -----------------------------
<PAGE>
ADDENDUM TO NOTE
DATED JUNE 17, 1997
Disbursements under the Note shall be available through December 12, 1997.
The undersigned shall make monthly payments of interest only to Bank, in
arrears, commencing on July 12, 1997 and thereafter on the twelfth (12th) day
of each calendar month through and including December 12, 1997 on which date
the outstanding balance of the Note shall be converted to an amortizing loan
payable in 24 equal monthly payments of principal, together with accrued
interest commencing January 12, 1998, and thereafter on the twelfth (12th)
day of each calendar month until January 12, 2000, on which date all
principal and accrued but unpaid interest under the Note shall be due and
payable in full.
As hereinafter set forth, in any action brought under, in connection with or
arising out of this Note, each Obligor, including successor(s) or assign(s)
consents, to the, application of California law (other than provisions on
conflicts of law), to the jurisdiction of any competent court within the
State of California and to service of process by any means authorized by
California law.
HOOVER'S, INC.
By: /s/ Lynn Atchison
---------------------------------
By: /s/ Patrick Spain
--------------------------------- Initial Here: LA PS
<PAGE>
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between Hoover's, Inc. a Delaware Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as
may be determined by Bank up to, but not exceeding in the aggregate
unpaid principal balance, the following Borrowing Base:
80.00% of Eligible Accounts
and in no event more than $ 150,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank
(herein called "Loan Account") and Bank shall credit the Loan Account
with all loan repayments made by Borrower. Borrower promises to pay Bank
(a) the unpaid balance of Borrower's Loan Account on demand and (b) on
or before the tenth day of each month, interest on the average daily
unpaid balance of the Loan Account during the immediately preceding month
at the rate of One & 250/100ths percent (1.250%) per annum in excess of
the rate of interest which Bank has announced as its prime lending rate
("Prime Rate") which shall vary concurrently with any change in such
Prime Rate. Interest shall be computed at the above rate on the basis
of the actual number of days during which the principal balance of the
loan account is outstanding divided by 360, which shall for interest
computation purposes be considered one year. Bank at its option may
demand payment of any or all of the amount due under the Loan Amount
including accrued but unpaid interest at any time. Such notice may be
given verbally or in writing and should be effective upon receipt by
Borrower. The amount of interest payable each month by Borrower shall not
be less than a minimum monthly charge of $0.00. Bank is hereby
authorized to charge Borrower's deposit account(s) with Bank for all
sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
in a form satisfactory to Bank and shall contain a certification setting
forth the matters referred to in Section 1, which shall disclose that
Borrower's entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered no
matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and
receivables.
B. "Collateral means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank
now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within
90 days from any invoice date, (2) all Accounts against which the
account debtor or any other person obligated to make payment thereon
asserts any defense, offset, counterclaim or other right to avoid or
reduce the liability represented by the Account and (3) any Accounts
if the account debtor or any other person liable in connection
therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or
whose credit standing is unacceptable to Bank and Bank has so notified
Borrower, Eligible Accounts shall only include such accounts as Bank
in its sole discretion shall determine are eligible from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security
therefor, and, hereby grants to Bank a continuing security interest in all
moneys in the Collateral Account referred to in Section 6 hereof, as
security for any and all obligations of Borrower to Bank, whether now owing
or hereafter incurred and whether direct, indirect, absolute or contingent.
So long as Borrower is indebted to Bank or Bank is committed to extend
credit to Borrower, Borrower will execute and deliver to Bank such
assignments, including Bank's standard forms of Specific or General
Assignment covering individual Accounts, notices, financing statements, and
other documents and papers as Bank may require in order to affirm,
effectuate or further assure the assignment to Bank of the Collateral or to
give any third party, including the account debtors obligated on the
Accounts, notice of Bank's interest in the Collateral.
Initial Here: LA PS
6. Unless Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's
Accounts. Any collection of Accounts by Borrower, whether in the
form of cash, checks, notes, or other instruments for the payment of
money (properly endorsed or assigned where required to enable Bank to
collect same), shall be in trust for Bank and Borrower shall deliver
said collections daily to Bank. The proceeds of such collections when
received by Bank may be applied by Bank directly to the payment of
Borrower's Loan Account or any other obligation secured hereby. Any
credit given by Bank upon receipt of said proceeds shall be conditional
credit subject to collection. Returned items at Bank's option may be
charged to Borrower's general account. All collections of the Accounts
shall be set forth on an itemized schedule, showing the name of the
account debtor, the amount of each payment and such other information as
Bank may request. * after default.
Initial Here: LA PS
7. Unless Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments.
8. Borrower represents and warrants to Bank: (i) If Borrower is a
corporation, that Borrower is duly organized and existing in the State
of its incorporation and the execution, delivery and performance hereof
are within Borrower's corporate powers, have been duly authorized and are
not in conflict with law or the terms of any charter, by-law or other
Incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected, (ii)
Borrower is, or at the time the collateral becomes subject to Bank's
security interest will be, the true and lawful owner of and has, or at
the time the Collateral becomes subject to Bank's security interest will
have, good and clear title to the Collateral, subject only to Bank's
rights therein, (iii) Each Account is, or at the time the Account comes
into existence will be, a true and correct statement of a bona fide
indebtedness incurred by the debtor named therein in the amount of the
Account for either merchandise sold or delivered (or being held subject
to Borrower's delivery instructions) to, or services rendered, performed
and accepted by, the account debtor, (iv) and (v) any and all financial
information, including information relating to the Collateral, submitted
by Borrower to Bank, whether previously or in the future, is or will
be true and correct.
Initial Here: LA PS
Page 1 of 2
<PAGE>
9. Borrower will: (i) furnish Bank from time to time such financial
statements and information Bank may reasonably request and inform Bank
immediately upon the occurrence of a material adverse change therein;
(ii) Furnish Bank periodically, in such form and detail and at such
times as Bank may require, statements showing aging and reconciliation
of the Accounts and collections thereon; (iii) Permit representatives of
Bank to inspect the Borrower's books and records relating to the
Collateral and make extracts therefrom at any reasonable time and to
arrange for verification of the Accounts, under reasonable procedures,
acceptable to Bank, directly with the account debtors or otherwise at
Borrower's expense; (iv) Promptly notify Bank of any attachment or other
legal process levied against any of the Collateral and any information
received by Borrower relative to the Collateral, including the Accounts,
the account debtors or other persons obligated in connection therewith,
which may in any way affect the value of the Collateral or the rights
and remedies of Bank in respect thereto; (v) Reimburse Bank upon demand
(or any and all legal costs, including reasonable attorneys' fees, and
other expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby,
enforcing any term or provision of this Security Agreement or otherwise
or in the checking, handling and collection of the Collateral and the
preparation and enforcement of any agreement relating thereto; (vi)
Notify Bank of each location and or each office of Borrower at which
records of Borrower relating to the Accounts are kept: (vii) Provide,
maintain and deliver to Bank policies insuring the Collateral against
loss or damage by such risks and in such amounts, forms and companies as
Bank may require and with loss payable to Bank, and, in the event Bank
takes possession of the Collateral, the Insurance policy or policies and
any unearned or returned premium thereon shall at the option of Bank,
become the sole property of Bank, such policies and the proceeds of any
other insurance covering or in any way relating to the Collateral,
whether now in existence or hereafter obtained, being hereby assigned to
Bank; (viii) In the event the unpaid balance of Borrower's Loan Account
shall exceed the maximum amount of outstanding loans to which Borrower
is entitled under Section 1 hereof, Borrower shall immediately pay to
Bank, from its own funds and not from the proceeds of Collateral, for
credit to Borrower's Loan Account the amount of such excess.
Initial Here: LA PS
10. Upon default Bank may at any time, without prior notice to Borrower,
collect the Accounts and may give notice of assignment to any and all
account debtors, and Borrower does hereby make, constitute appoint Bank
its irrevocable, true and lawful attorney with power to receive, open and
dispose of all mail addressed to Borrower, to endorse the name of Borrower
upon any checks or other evidences, of payment that may come into the
possession of Bank upon the Accounts to endorse the name of the
undersigned upon any document or instrument relating to the Collateral;
in its name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due upon the
Accounts; to compromise, prosecute or defend any action, claim or
proceeding with respect thereto; and to do any and all things necessary
and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank, or
execute any financing statements covering the Collateral in favor of any
secured party or person other than Bank.
Initial Here: LA PS
12. Should: (i) Default be made in the payment of any obligation, or breach be
made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false; (iv) Borrower become
insolvent or make an assignment for the benefit of creditors; or (v) Any
proceeding be commenced by or against Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt or moratorium law or
statute; then in any such event, Bank may, at its option and without demand
first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby due and
payable; (c) Immediately take possession of the Collateral wherever it may
be found, using all necessary force to do, or require Borrower to assemble
the Collateral and make it available to Bank at a place designated by Bank
which is reasonably convenient to Borrower and Bank, and Borrower waives
all claims for damages due to or arising from or connected with any such
taking; (d) Proceed in the foreclosure of Bank's security interest and sale
of the Collateral in any manner permitted by law, or provided for herein,
(e) Sell, lease or otherwise dispose of the Collateral at public or private
sale, with or without having the Collateral at the place of sale, and upon
terms and in such manner as Bank may determine, and Bank may purchase same
at any such sale; (f) Retain the Collateral in full satisfaction of the
obligations secured thereby; (g) Exercise any remedies of a secured party
under the Uniform Commercial Code. Prior to any such disposition, Bank may,
at as option, cause any of the Collateral to be repaired or reconditioned
in such manner and to such extent as Bank may deem advisable, and any sums
expended therefor by Bank shall be repaid by Borrower and secured hereby.
Bank shall have the right to enforce one or more remedies hereunder
successively or concurrently, and any such action shall not estop or
prevent Bank from pursuing any further remedy which it may have hereunder
or by law. If a sufficient sum is not realized from any such Disposition of
Collateral to pay all obligations secured by this Security Agreement,
Borrower hereby promises and to pay Bank deficiency.
Initial Here: LS PS
13. If any writ of attachment, garnishment, execution or other legal process
be issued against any property of Borrower, or any assessment for taxes
against Borrower, other than real property, is made by the Federal or
State government or any department thereof, the obligation of Bank to
make loans to Borrower as provided in Section 1 hereof shall immediately
terminate and the unpaid balance of the Loan Account, all other
obligations secured hereby and all other sums do hereunder shall
immediately become due and payable without demand, presentment at Bank's
option upon notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
16. Additional Provisions. (a) Subject to conditions and limitations contained
in the Credit Terms & Conditions dated April 2, 1998, (b) If any
installment payment, interest payment, principal payment or principal
balance, due hereunder is delinquent ten or more days, Obligor agrees to
pay Bank a late charge in the amount or 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph to be
construed as any obligation on the part of the holder of this note to
accept payment of any payment past due or less than the total unpaid
principal after maturity. All payments shall be applied first to any late
charges owing, then to interest and the remainder, if any, to principal.
Initial Here: LA PS
Executed this 2nd day of April, 1998
Hoover's, Inc.
----------------------------------
(Name of Borrower)
IMPERIAL BANK BY: /s/ Patrick J. Spain
------------------------------
(Authorized Signature and Title)
Patrick J. Spain,
Chairman/CEO/Secretary
BY: /s/ Mansoor A. Ghozl BY: /s/ Lynn Atchison
----------------------------- --------------------------------
Mansoor A. Ghozl, Title (Authorized Signature and Title)
SVP and Manager Lynn Atchison, V.P. Finance
Initial Here: LA PS
* If none, insert "None"
(c) Notwithstanding anything to the contrary, Borrower shall have ten days
following notice to make any payment prior to such failure being a default
hereunder, but (b) shall nevertheless apply to such late payments.
(d) A default under any obligation of the undersigned to Bank shall be a
default hereunder.
Initial Here: LA PS
Page 2 of 2
<PAGE>
IMPERIAL BANK
Member FDIC
GENERAL SECURITY AGREEMENT
(Tangible and Intangible Personal Property)
This Agreement is executed on July 12, 1996, by Hoover's Inc., formerly known
as THE REFERENCE PRESS, INC. (hereinafter called "Obligor"). In consideration
of financial accommodations given, to be given or continued, the Obligor
grants to IMPERIAL BANK (hereinafter called "Bank") a security interest in
(a) all property (i) delivered to Bank by Obligor, (ii) which shall be in
Bank's possession or control in any matter or for any purpose, (iii)
described below, (iv) now owned or hereafter acquired by Obligor of the type
or class described below and/or in any supplementary schedule hereto, or in
any financing statement filed by Bank and executed by or on behalf of
Obligor; (b) the proceeds, increase and products of such property all
accessions thereto, and all property which Obligor may receive on account of
such collateral which Obligor will immediately deliver to Bank (collectively
referred to as "Collateral") to secure payment and performance of all of
Obligor's present or future debts or obligations to Bank, whether absolute or
contingent (hereafter referred to as "Debt"). Unless otherwise defined,
words used herein have the meanings given them in the California Uniform
Commercial Code.
Collateral:
<TABLE>
<CAPTION>
A. VEHICLE, VESSEL, AIRCRAFT:
Identification License or
Year Make/Manufacturer Model and Serial No. Registration No. New or Used
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Engine or other equipment:
--------------------------------------------------------------------
(FOR AIRCRAFT - ORIGINAL INK SIGNATURE ON COPY TO FAA)
B. DEPOSIT ACCOUNTS:
Type Account Number Amount $
----------------------- -------------------- -------------------
In name of Depository
--------------------------------------- --------------------------------
AND ALL EXTENSIONS OR RENEWALS THEREOF.
</TABLE>
C. ACCOUNTS, INTANGIBLES AND OTHER: (DESCRIBE)
All personal property, whether presently existing or hereafter
created or acquired, including but not limited to: All accounts,
chattel paper, documents, instruments, money, deposit accounts and
general intangibles including returns, repossessions, books and
records relating thereto, and equipment containing said books and
records. All good including equipment and inventory. All proceeds
including, without limitation, insurance proceeds. All guarantees
and other security therefor.
The collateral not in Bank's possession will be located at: 1033
La Posada Dr., Ste. 250, Austin, TX 78752
/ / If checked, the Obligor is executing this Agreement as an Accommodation
Debtor only and the Obligor's liability is limited to the security interest
granted in the Collateral described herein. The party being accommodated is
("Borrower").
All the terms and provisions on the reverse side hereof are incorporated herein
as though set forth in full, and constitute a part of this Agreement.
<TABLE>
<CAPTION>
Signature
Name (indicate title, If applicable) Address
<S> <C> <C>
Hoover's, Inc. formerly known as BY /s/ Lynn Atchison 1033 La Posada Dr.
- -------------------------------- -------------------------------- -------------------
THE REFERENCE PRESS INC. BY /s/ Patrick J. Spain Ste. 250 Austin, TX
- -------------------------------- -------------------------------- -------------------
78752
- -------------------------------- -------------------------------- -------------------
</TABLE>
Page 1 of 2
<PAGE>
SECURITY AGREEMENT (CONTINUED)
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Banks costs of
collecting the Debt, of protecting, insuring or realizing on Collateral,
and any expenditure of Bank pursuant hereto, including attorneys' fees and
expenses, with interest at the rate of 24% per year, or the rate applicable
to the Debt, which ever is less, from the date of expenditure, and (c) any
deficiency after realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt hereunder
for the purpose indicated on the application therefore, and will promptly
contract to purchase and pay the purchase price of any property which becomes
Collateral hereunder from the proceeds of any loan made for that purpose.
3. As to all Collateral in Obligor's possession (unless specifically otherwise
agreed to by Bank in writing), Obligor will:
(a) Have, or has, possession of the Collateral at the location disclosed
to Bank and will not remove the Collateral from the location.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair it if
necessary, clean, feed, shelter, water, medicate, fertilize,
cultivate, irrigate, prune and otherwise deal with the Collateral in
all such ways as are considered good practice by owners of like
property, use it lawfully and only as permitted by Insurance policies,
and permit Bank to inspect the Collateral at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the Collateral
(other than Inventory Collateral) until the Debt has been paid, even
though Bank has a security interest in proceeds of such Collateral.
4. As to Collateral which is inventory and accounts, Obligor:
(a) May until notice from Bank, sell, lease or otherwise dispose of
inventory Collateral in the ordinary course of business only, and
collect the cash proceeds thereof.
(b) Will, upon notice from Bank, deposit all cash proceeds as received in
a demand deposit account with Bank, containing only such proceeds and
deliver statements identifying units of inventory disposed of,
accounts which gave rise to proceeds, and all acquisitions and returns
of inventory as required by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the Bank and
deliver to Bank all non-cash proceeds other than Inventory received in
trade.
(d) If not in default, may obtain release of Bank's interest in individual
units of inventory upon request, therefore, payment to Bank of the
release price of such units shown on any Collateral schedule
supplementary hereto, and compliance herewith as to proceeds thereof.
5. As to Collateral which are accounts, chattel paper, general intangibles and
proceeds described in 4(c) above, Obligor warrants, represents and agrees:
(a) All such Collateral is genuine, enforceable in accordance with its
terms, free from default, prepayment, defense and conditions precedent
(except as disclosed to Bank in writing), and is supported by invoices
to, or rights against, the debtors thereon. Obligor will supply Bank
with duplicate invoices or other evidence of Obligor's rights on
Bank's request;
Initial here: LA
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract;
(c) All chattel paper is in compliance with law as to form, content and
manner of preparation and execution and has been properly registered,
recorded, and/or filed to protect Obligor's interest thereunder;
(d) If an account debtor shall also be indebted to Obligor on another
obligation, any payment made by him not specifically designated to be
applied on any particular obligation shall be considered to be a
payment on the account in which Bank has a security interest. Should
any remittance include a payment not on an account, it shall be
delivered to Bank and, if no event of default has occurred, Bank shall
pay Obligor the amount of such payment;
(e) Obligor agrees not to compromise, settle or adjust any account or
renew or extend the time of payment thereof without appropriate
disclosure to Bank.
Initial here: LA
6. Obligor owns all Collateral absolutely, and no other person has or claims
any interest in any Collateral, except as disclosed to and accepted by Bank
in writing. Obligor will defend any proceeding which may affect title to or
Bank's security interest in any Collateral, and will indemnify and hold
Bank free and harmless from all costs and expenses of Bank's defense.
7. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on
or affecting the Collateral and, if the Collateral is in Obligor's
possession, the realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to
Bank, and hereby assigns such policies to Bank, agrees to deliver them to
Bank at Bank's request, and authorizes Bank to make any claim thereunder,
to cancel the insurance on Obligor's default, and to receive payment of and
endorse any instrument in payment of any loss or return premium. If Obligor
should fail to deliver the required policy or policies to the Bank, Bank
may, at Obligor's cost and expense, without any duty to do so, get and pay
for insurance naming as the insured, at Bank's option, either both Obligor
and Bank, or only Bank, and the cost thereof shall be secured by this
Security Agreement, and shall be repayable as provided in Paragraph 1
above.
Initial here: LA
9. Obligor will give Bank any information it reasonably requires. All
information at any time supplied to Bank by Obligor (including, but not
limited to, the value and condition of Collateral, financial statements,
financing statements, and statements made in documentary Collateral) is
correct and complete, and Obligor will notify Bank of any adverse change
in such information. Obligor will promptly notify Bank of any change of
Obligor's residence, chief executive office or mailing address.
Initial here: LA
10. Upon Default Bank is irrevocably appointed Obligor's attorney-in-fact to do
any act which Obligor is obligated hereby to do, to exercise such rights as
Obligor may exercise, to use such equipment as Obligor might use, to enter
Obligor's premises to give notice of Bank's security interest, and to
collect Collateral and proceeds and to execute and file in Obligor's name
any financing statements and amendments thereto required to perfect Bank's
security interest hereunder, all to protect and preserve the Collateral and
Bank's rights hereunder. Bank may:
(a) Endorse, collect and receive delivery or payment of instruments and
documents constituting Collateral;
(b) Make extension agreements with respect to or affecting Collateral,
exchange it for other Collateral, release persons liable thereon or
take security for the payment thereof, and compromise disputes in
connection therewith;
(c) Use or operate Collateral for the purpose of preserving Collateral or
its value and for preserving or liquidating Collateral.
11. If more than one Obligor signs this Agreement, their liability is joint and
several. Any Obligor who is married agrees that recourse may be had
against separate property for the Debt. Discharge of any Obligor except for
full payment, or any extension, forbearance, change of rate of interest, or
acceptance, release or substitution of Collateral or any impairment or
suspension of Bank's rights against an Obligor or any transfer of an
Obligor's interest to another shall not affect the liability of any other
Obligor. Until the Debt shall have been paid or performed in full, Bank's
rights shall continue even if the Debt is outlawed. All Obligors waive: (a)
any right to require Bank to proceed against any Obligor before any other,
or to pursue any other remedy; (b) presentment, protest and notice of
protest, demand and notice of nonpayment, demand or performance, notice of
sale, and advertisement of sale; (c) any right to the benefit of or to
direct the application of any Collateral until the Debt shall have been
paid; (d) and any right of subrogation to Bank until Debt shall have been
paid or performed in full.
12. Upon default, at Bank's option, without demand or notice, all or any part
of the Debt shall immediately become due. Bank shall have all rights given
by law, and may sell, in one or more sales, Collateral in any county where
Bank has an office, Bank may purchase at such sale. Sales for cash or on
credit to a wholesaler, retailer or user of the Collateral, or at public or
private auction, are all to be considered commercially reasonable. Bank may
require Obligor to assemble the Collateral and make it available to Bank at
the entrance to the location of the Collateral, or a place designated by
Bank.
Defaults subject to section 16(c) of the Capital Security and Loan
Agreement shall include.
Initial here: LA
(a) Obligor's failure to pay or perform this or any agreement with Bank or
breach of any warranty herein, or Borrower's failure to pay or perform
any agreement with Bank.
(b) Any change in Obligor's or Borrower's financial condition which in
Bank's judgement impairs the prospect Borrower's payment or
performance.
(c) Any actual or reasonably anticipated deterioration of the Collateral
or in the market price thereof which causes it, in Bank's judgement,
to become unsatisfactory as security.
(d) Any levy or seizure against Borrower or any of the Collateral.
(e) Termination of business, assignment for creditors, insolvency,
appointment of receiver, or the filing of any petition under
bankruptcy or debtor's relief laws of, by or against Obligor or
Borrower or any guarantor of the Debt.
(f) Any warranty or representation which is false.
13. Bank's acceptance of partial or delinquent payments or the failure of Bank
to exercise any right or remedy shall not waive any obligation of Obligor
or Borrower or right of Bank to modify this Agreement, or waive any other
similar default.
14. On transfer of all or any part of the Debt, Bank may transfer all or any
part of the Collateral. Bank may deliver all or any part of the Collateral
to any Obligor at any time. Any such transfer or delivery shall discharge
Bank from all liability and responsibility with respect to such Collateral
transferred or delivered. This Agreement benefits Bank's successors and
assigns and binds Obligor's heirs, legatees, personal representatives,
successors and assigns. Obligor agrees not to assert against any assignee
of Bank any claim or defense that may exist against Bank. Time is of the
essence. This Agreement and supplementary schedules hereto contain the
entire security agreement between Bank and Obligor. Obligor will execute
any additional agreements, assignments or documents reasonably required by
Bank to carry this Agreement into effect.
15. This Agreement shall be governed by and construed in accordance with the
laws of the State of California. All words used herein in the singular
shall be considered to have been used in the plural where the context and
construction so require.
Initial here: LA
Page 2 of 2
<PAGE>
HOOVER'S, INC.
1999 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests
of Hoover's, Inc., a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant Program under
which eligible employees may elect to have a portion of their base
salary invested each year in special options,
(iii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered the Corporation (or
any Parent or Subsidiary),
(iv) the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically receive
options at periodic intervals to purchase shares of Common Stock; and
(v) the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of
their annual retainer fee otherwise payable in cash applied to a
special option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The following provisions shall govern the administration of the
Plan:
(i) The Board shall have the authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders but may delegate such authority in whole or in
part to the Primary Committee.
<PAGE>
(ii) Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be
vested in the Primary Committee or a Secondary Committee, or the Board
may retain the power to administer those programs with respect to all
such persons.
(iii) The Primary Committee shall have the sole and
exclusive authority to determine which Section 16 Insiders and other
highly compensated Employees shall be eligible for participation in
the Salary Investment Option Grant Program for one or more calendar
years. However, all option grants under the Salary Investment Option
Grant Program shall be made in accordance with the express terms of
that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under
that program.
(iv) Administration of the Automatic Option Grant and
Director Fee Option Grant Programs shall be self-executing in
accordance with the terms of those programs.
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may deem appropriate
for proper administration of the Plan, to make all factual
determinations, to construe and interpret the provisions of the Plan
and the awards thereunder and to resolve any and all ambiguities
thereunder;
(ii) to determine, with respect to awards made under
the Discretionary Option Grant and Stock Issuance Programs, which
eligible persons are to receive such awards, the time or times when
such awards are to be made, the number of shares to be covered by each
such award, the vesting schedule (if any) applicable to the award, the
status of a granted option as either an Incentive Option or a Non-
Statutory Option and the maximum term for which the option is to
remain outstanding;
(iii) to amend, modify or cancel any outstanding award
with the consent of the holder or accelerate the vesting of such
award; and
(iv) to take such other discretionary actions as
permitted pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No
member of the Primary Committee or the Secondary Committee shall be liable
for any act or omission made in good faith with respect to the Plan or any
options or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the
board of directors of any Parent or Subsidiary, and
2
<PAGE>
(iii) consultants and other independent advisors
who provide services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Only non-employee Board members shall be eligible to
participate in the Automatic Option Grant and Director Fee Option Grant
Programs.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock initially reserved for issuance over the term of the
Plan shall not exceed Two Million, Eight Hundred ninety-three thousand, Eight
Hundred Thirty-One (2,893,831) shares. Such authorized share reserve
consists of (i) the number of shares which remain available for issuance, as
of the Plan Effective Date, under the Predecessor Plans, including the shares
subject to the outstanding options to be incorporated into the Plan and the
additional shares which would otherwise be available for future grant, plus
(ii) an increase of Seven Hundred Sixty-One, One Hundred Seventy-Eight
(761,178) shares authorized by the Board subject to stockholder approval prior
to the Section 12 Registration Date.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each
calendar year during the term of the Plan, beginning with the 2000 calendar
year, by an amount equal to two percent (2%) of the shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar
year, but in no event shall any such annual increase exceed Three Hundred
Sixty-Four Thousand, Two Hundred (364,200) shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than Three Hundred Sixty-Four Thousand, Two Hundred (364,200) shares
of Common Stock in the aggregate per calendar year, beginning with the 1999
calendar year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plans)
shall be available for subsequent issuance under the Plan to the extent those
options expire, terminate or are cancelled for any reason prior to exercise
in full. Unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the original exercise or issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent options or direct stock issuances under the Plan. However, should
the exercise price of an option under the Plan be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available
for issuance under the Plan shall be reduced by the gross number of shares
for which the option is exercised or which vest under the stock issuance, and
not by the net number of shares of Common Stock issued to the holder of such
option or stock issuance. Shares of Common Stock underlying one or more
stock appreciation rights exercised under the Plan shall NOT be available for
subsequent issuance.
E. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of
securities by which the share reserve is to increase each calendar year
pursuant to the automatic share increase provisions of the Plan, (iii) the
number and/or class of securities for which any one person may be granted
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year, (iv) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (v)
the number and/or class of securities and the exercise price per share in
effect under each outstanding option under the Plan and (vi) the number
and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plans.
Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
3
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document
evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section II of
Article Seven and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:
(i) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for
vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-approved brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
4
<PAGE>
C. Cessation of Service.
1. The following provisions shall govern the exercise of
any options outstanding at the time of the Optionee's cessation of Service or
death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or in part by
the Optionee at the time of death may be subsequently exercised by his
or her Beneficiary.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
(iv) Should the Optionee's Service be terminated
for Misconduct or should the Optionee engage in Misconduct while his
or her options are outstanding, then all such options shall terminate
immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding:
(i) to extend the period of time for which the
option is to remain exercisable following the Optionee's cessation of
Service to such period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) to permit the option to be exercised, during
the applicable post-Service exercise period, for one or more
additional installments in which the Optionee would have vested had
the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than to a Beneficiary following
the Optionee's death. Non-Statutory Options shall be subject to the same
restrictions, except that a Non-Statutory Option may, to the extent permitted
by the Plan Administrator, be assigned in whole or in part during the
Optionee's lifetime (i) as a gift to one or more members of the Optionee's
immediate family, to a trust in which Optionee and/or one or more such family
members hold more than fifty percent (50%) of the beneficial interest or to
an entity in which more than fifty percent (50%) of the voting interests are
owned by one or more such family members or (ii) pursuant to a domestic
relations order. The terms applicable to the assigned portion shall be
5
<PAGE>
the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section
II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not
be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
6
<PAGE>
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in Control but
not otherwise fully-vested shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all of the shares of Common Stock at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall
not so accelerate if and to the extent: (i) such option is, in connection
with the Change in Control, assumed or otherwise continued in full force and
effect by the successor corporation (or parent thereof) pursuant to the terms
of the Change in Control, (ii) such option is replaced with a cash incentive
program of the successor corporation which preserves the spread existing at
the time of the Change in Control on the shares of Common Stock for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option
grant. Each option outstanding at the time of the Change in Control shall
terminate as provided in Section III.C. of this Article Two.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Change in Control,
except to the extent: (i) those repurchase rights are assigned to the
successor corporation (or parent thereof) or otherwise continue in full force
and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof)
or otherwise expressly continued in full force and effect pursuant to the
terms of the Change in Control.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control.
Appropriate adjustments to reflect such Change in Control shall also be made
to (i) the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator may at any time provide that one or
more options will automatically accelerate in connection with a Change in
Control, whether or not those options are assumed or otherwise continued in
full force and effect pursuant to the terms of the Change in Control. Any
such option shall accordingly become exercisable, immediately prior to the
effective date of such Change in Control, for all of the shares of Common
Stock at the time subject to that option and may be exercised for any or all
of those shares as fully-vested shares of Common Stock. In addition, the
Plan Administrator may at any time provide that one or more of the
Corporation's repurchase rights shall not be assignable in connection with
such Change in Control and shall terminate upon the consummation of such
Change in Control.
F. The Plan Administrator may at any time provide that one or
more options will automatically accelerate upon an Involuntary Termination of
the Optionee's Service within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control in which
those options do not otherwise accelerate. Any options so accelerated shall
remain exercisable for fully-vested shares until the EARLIER of (i) the
expiration of the option term or (ii) the expiration of the one (1) year
period measured from the effective date of the Involuntary Termination. In
addition, the Plan Administrator may at any time provide that one or more of
the Corporation's repurchase rights shall immediately terminate upon such
Involuntary Termination.
G. The Plan Administrator may at any time provide that one or
more options will automatically accelerate in connection with a Hostile
Take-Over. Any such option shall become exercisable, immediately prior to the
effective date of such Hostile Take-Over, for all of the shares of Common
Stock at the time subject to that option and may be exercised for any or all
of those shares as fully-vested shares of Common Stock. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall terminate automatically upon the consummation of such
Hostile Take-Over. Alternatively, the Plan Administrator may condition such
automatic acceleration and termination upon an Involuntary Termination of the
Optionee's
7
<PAGE>
Service within a designated period (not to exceed eighteen (18) months)
following the effective date of such Hostile Take-Over. Each option so
accelerated shall remain exercisable for fully-vested shares until the
expiration or sooner termination of the option term.
H. The portion of any Incentive Option accelerated in connection
with a Change in Control or Hostile Take Over shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option
in exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which
the option is surrendered over (b) the aggregate exercise price payable for
such shares. The distribution may be made in shares of Common Stock valued
at Fair Market Value on the option surrender date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
8
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee may implement the Salary Investment Option
Grant Program for one or more calendar years beginning after the Underwriting
Date and select the Section 16 Insiders and other highly compensated
Employees eligible to participate in the Salary Investment Option Grant
Program for each such calendar year. Each selected individual who elects to
participate in the Salary Investment Option Grant Program must, prior to the
start of each calendar year of participation, file with the Plan
Administrator (or its designate) an irrevocable authorization directing the
Corporation to reduce his or her base salary for that calendar year by an
amount not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty
Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole
or in part. To the extent the Primary Committee approves the authorization,
the individual who filed that authorization shall be granted an option under
the Salary Investment Grant Program on the first trading day in January for
the calendar year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or
more documents in the form approved by the Plan Administrator; PROVIDED,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A DIVIDED BY (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the
calendar year for which the salary reduction is in effect. Each option shall
have a maximum term of ten (10) years measured from the option grant date.
D. CESSATION OF SERVICE. Each option outstanding at the time of
the Optionee's cessation of Service shall remain exercisable, for any or all
of the shares for which the option is exercisable at the time of such
cessation of Service, until the EARLIER of (i) the expiration of the option
term or (ii) the expiration of the three (3)-year period following the
Optionee's cessation of Service. To the extent the option is held by the
Optionee at the time of his or her death, the option may be exercised by his
or her Beneficiary. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to remain outstanding
with respect to any and all shares of Common Stock for which the option is
not otherwise at that time exercisable.
9
<PAGE>
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over
while the Optionee remains in Service, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Change in Control or Hostile Take-Over, become
fully exercisable with respect to the total number of shares of Common Stock
at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such option
accelerated in connection with a Change in Control shall terminate upon the
Change in Control, except to the extent assumed by the successor corporation
(or parent thereof) or otherwise continued in full force and effect pursuant
to the terms of the Change in Control. Each such option accelerated in
connection with a Hostile Take-Over shall remain exercisable until the
expiration or sooner termination of the option term.
B. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to
such Change in Control. Appropriate adjustments shall also be made to the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
of his or her outstanding options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess
of (i) the Option Surrender Value of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise
at the time vested in those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five
(5) days following the surrender of the option to the Corporation.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
options made under the Discretionary Option Grant Program.
10
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening
options. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to
receive those shares upon the attainment of designated performance goals or
Service requirements. Each such award shall be evidenced by one or more
documents which comply with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock subject to
direct issuance shall be fixed by the Plan Administrator.
2. Subject to the provisions of Section II of Article
Seven, shares of Common Stock may be issued under the Stock Issuance Program
for any of the following items of consideration which the Plan Administrator
may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
B. VESTING/ISSUANCE PROVISIONS.
1. The Plan Administrator may issue shares of Common Stock
which are fully and immediately vested upon issuance or which are to vest in
one or more installments over the Participant's period of Service or upon
attainment of specified performance objectives. Alternatively, the Plan
Administrator may issue share right awards which shall entitle the recipient
to receive a specified number of vested shares of Common Stock upon the
attainment of one or more performance goals or Service requirements
established by the Plan Administrator.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to his or her
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to the issued shares of Common Stock, whether or not the
Participant's interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any
regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock, or should the
performance objectives not be attained with respect to one or more such
unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall
have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant
the cash consideration paid for the surrendered shares and shall cancel the
unpaid principal balance of any outstanding purchase-money note of the
Participant attributable to the surrendered shares.
5. The Plan Administrator may waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant's Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to
which the waiver applies. Such waiver may be effected at any time,
11
<PAGE>
whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
6. Outstanding share right awards shall automatically
terminate, and no shares of Common Stock shall actually be issued in
satisfaction of those awards, if the performance goals or Service
requirements established for such awards are not attained. The Plan
Administrator, however, shall have the authority to issue shares of Common
Stock in satisfaction of one or more outstanding share right awards as to
which the designated performance goals or Service requirements are not
attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights shall
terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change
in Control, except to the extent (i) those repurchase rights are assigned to
the successor corporation (or parent thereof) or otherwise continue in full
force and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
B. The Plan Administrator may at any time provide for the
automatic termination of one or more of those outstanding repurchase rights
and the immediate vesting of the shares of Common Stock subject to those
terminated rights upon (i) a Change in Control or Hostile Take-Over or (ii)
an Involuntary Termination of the Participant's Service within a designated
period (not to exceed eighteen (18) months) following the effective date of
any Change in Control or Hostile Take-Over in which those repurchase rights
are assigned to the successor corporation (or parent thereof) or otherwise
continue in full force and effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
12
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Options shall be made on the dates specified
below:
1. Each individual who is serving as a non-employee Board
member on the Underwriting Date, shall automatically be granted on that date,
a Non-Statutory Option to purchase Six Thousand, Nine Hundred (6,900) shares of
Common Stock, whether or not that individual has previously been in the employ
of the Corporation (or any Parent or Subsidiary).
2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase Six Thousand, Nine Hundred
(6,900) shares of Common Stock, whether or not that individual has previously
been in the employ of the Corporation (or any Parent or Subsidiary).
3. On the date of each Annual Stockholders Meeting
beginning with the 2001 Annual Stockholder Meeting, each individual who has
served as a non-employee Board member since the date of the Annual
Stockholders Meeting in the immediately preceding year shall automatically be
granted a Non-Statutory Option to purchase Two Thousand (2,000) shares of
Common Stock, provided such individual has served as a non-employee Board
member for at least six (6) months.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased
shares must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the initial option shall be subject to repurchase by
the Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
9,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, in a series of three (3) successive equal annual installments over the
Optionee's period of continued service as a Board member, with the first such
installment to vest upon the Optionee's completion of one (1) year of Board
service measured from the option grant date. Each annual 2,000-share option
grant shall be fully vested.
E. CESSATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options outstanding at the time of the Optionee's
cessation of Board service:
(i) Any option outstanding at the time of the
Optionee's cessation of Board service for any reason shall remain
exercisable for a twelve (12)-month period following the date of such
cessation of Board service, but in no event shall such option be
exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by
the Optionee at the time of death may be subsequently exercised by his
or her Beneficiary.
(iii) Following the Optionee's cessation of Board
service, the option may not be exercised in the aggregate for more
than the number of shares for which the option was exercisable on the
date of such cessation of Board service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation
of Board
13
<PAGE>
service, terminate and cease to be outstanding for any and all shares
for which the option is not otherwise at that time exercisable.
(iv) However, should the Optionee cease to serve
as a Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so
that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common Stock.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over,
the shares of Common Stock at the time subject to each outstanding option but
not otherwise vested shall automatically vest in full so that each such
option may, immediately prior to the effective date of such Change in Control
or Hostile Take-Over, became fully exercisable for all of the shares of
Common Stock at the time subject to such option and maybe exercised for all
or any of those shares as fully-vested shares of Common Stock. Each such
option accelerated in connection with a Change in Control shall terminate
upon the Change in Control, except to the extent assumed by the successor
corporation (or parent thereof) or otherwise continued in full force and
effect pursuant to the terms of the Change in Control. Each such option
accelerated in connection with a Hostile Take-Over shall remain exercisable
until the expiration or sooner termination of the option term.
B. All outstanding repurchase rights shall automatically
terminate and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control or
Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
of his or her outstanding options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess
of (i) the Option Surrender Value of the shares of Common Stock at the time
subject to each surrendered option (whether or not the option is otherwise at
the time exercisable for those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five
(5) days following the surrender of the option to the Corporation.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to
such Change in Control. Appropriate adjustments shall also be made to the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options
made under the Discretionary Option Grant Program.
14
<PAGE>
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Board may implement the Director Fee Option Grant Program as of
the first day of any calendar year beginning after the Underwriting Date.
Upon such implementation of the Program, each non-employee Board member may
elect to apply all or any portion of the annual retainer fee otherwise
payable in cash for his or her service on the Board to the acquisition of a
special option grant under this Director Fee Option Grant Program. Such
election must be filed with the Corporation's Chief Financial Officer prior
to the first day of the calendar year for which the election is to be in
effect. Each non-employee Board member who files such a timely election with
respect to the annul retainer fee shall automatically be granted an option
under this Director Fee Option Grant Program on the first trading day in
January in the calendar year for which that fee would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A DIVIDED BY (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non-
employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the option
grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each month of Board service during the
calendar year in which the option is granted. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. CESSATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while
holding one or more options, then each such option shall remain exercisable,
for any or all of the shares for which the option is exercisable at the time
of such cessation of Board service, until the EARLIER of (i) the expiration
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of such cessation of Board service. However,
each option held by the Optionee at the time of such cessation of Board
service shall immediately terminate and cease to remain outstanding with
respect to any and all shares of Common Stock for which the option is not
otherwise at that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee shall immediately become exercisable for all the
shares of Common Stock at the time subject to that option, and the option may
be exercised for any or all of those shares as fully-vested shares until the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such
cessation of Board service.
15
<PAGE>
Should the Optionee die after cessation of Board service but while
holding one or more options, then each such option may be exercised, for any
or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Board service (less any shares subsequently purchased
by Optionee prior to death), by the Optionee's Beneficiary. Such right of
exercise shall lapse, and the option shall terminate, upon the EARLIER of (i)
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Board service.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over
while the Optionee remains in Board service, each outstanding option held by
such Optionee shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Change in Control or Hostile
Take-Over, become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such option accelerated in connection with a Change in Control
shall terminate upon the Change in Control, except to the extent assumed by
the successor corporation (or parent thereof) or otherwise expressly
continued in full force and effect pursuant to the terms of the Change in
Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.
B. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
of his or her outstanding options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess
of (i) the Option Surrender Value of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise
at the time vested in those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five
(5) days following the surrender of the option to the Corporation.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for options
made under the Discretionary Option Grant Program.
16
<PAGE>
ARTICLE SEVEN
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell
or transfer all or any part of its business or assets.
II. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one
or more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability
incurred by the Optionee or the Participant in connection with the option
exercise or share purchase.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under
the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan with the right to use shares of Common Stock in satisfaction of all
or part of the Withholding Taxes incurred by such holders in connection with
the exercise of their options or the vesting of their shares. Such right may
be provided to any such holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Withholding Taxes (not to exceed one hundred percent
(100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation,
at the time the Non-Statutory Option is exercised or the shares vest, one or
more shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the
Withholding Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated
by the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan
Effective Date. However, the Salary Investment Option Grant and Director Fee
Option Grant Programs shall not be implemented until such time as the Primary
Committee or the Board may deem appropriate. Options may be granted under
the Discretionary Option Grant Program at any time on or after the Plan
Effective Date. However, no options granted under the Plan may be exercised,
and no shares shall be issued under the Plan, until the Plan is approved by
the Corporation's stockholders. If such stockholder approval is not obtained
within twelve (12) months after the Plan Effective Date, then all options
previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor
Plans, and no further options or direct stock issuances shall be made under
the Predecessor Plans after the Plan Effective Date. All options
outstanding under the Predecessor Plans on the Plan Effective Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the
17
<PAGE>
Plan. However, each outstanding option so incorporated shall continue to be
governed solely by the terms of the documents evidencing such option, and no
provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with
respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two
relating to Changes in Control, may, in the Plan Administrator's discretion,
be extended to one or more options incorporated from the Predecessor Plan
which do not otherwise contain such provisions.
D. The Plan shall terminate upon the EARLIEST of (i) June 7,
2009, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such grants or issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect the rights and
obligations with respect to stock options or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification. In addition, certain amendments
may require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant
Programs and shares of Common Stock may be issued under the Stock Issuance
Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess
shares issued under the Plan and held in escrow, together with interest (at
the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and
cease to be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the stock options granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws,
including the filing and effectiveness of the Form S-8 registration statement
for the shares of Common Stock issuable under the Plan, and all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee or the Participant, which rights are hereby expressly
reserved by each, to terminate such person's Service at any time for any
reason, with or without cause.
18
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BENEFICIARY shall mean, in the event the Plan Administrator
implements a beneficiary designation procedure, the person designated by an
Optionee or Participant, pursuant to such procedure, to succeed to such
person's rights under any outstanding awards held by him or her at the time
of death. In the absence of such designation or procedure, the Beneficiary
shall be the personal representative of the estate of the Optionee or
Participant or the person or persons to whom the award is transferred by will
or the laws of descent and distribution.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved by
the Corporation's stockholders, UNLESS securities representing more
than fifty percent (50%) of the total combined voting power of the
voting securities of the successor corporation are immediately
thereafter beneficially owned, directly or indirectly and in
substantially the same proportion, by the persons who beneficially
owned the Corporation's outstanding voting securities immediately
prior to such transaction,
(ii) any stockholder-approved transfer or other
disposition of all or substantially all of the Corporation's assets,
or
(iii) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which
the Board recommends such stockholders accept.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATION shall mean Hoover's, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or
voting stock of Hoover's, Inc. which shall by appropriate action adopt the
Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the director fee
option grant program in effect under the Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
A-1
<PAGE>
K. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported on the Nasdaq National Market or
any successor system. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any options made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it deems
appropriate.
M. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
A-2
<PAGE>
(ii) such individual's voluntary resignation following (A)
a change in his or her position with the Corporation or Parent or
Subsidiary employing the individual which materially reduces his or
her duties and responsibilities or the level of management to which he
or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any intentional
wrongdoing by such person, whether by omission or commission, which adversely
affects the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. This shall not limit the grounds for the
dismissal or discharge of any person in the Service of the Corporation (or
any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTION SURRENDER VALUE shall mean the Fair Market Value per
share of Common Stock on the date the option is surrendered to the
Corporation or, in the event of a Hostile Take-Over, effected through a
tender offer, the highest reported price per share of Common Stock paid by
the tender offeror in effecting such Hostile Take-Over, if greater. However,
if the surrendered option is an Incentive Option, the Option Surrender Value
shall not exceed the Fair Market Value per share.
T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant,
Automatic Option Grant or Director Fee Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided
each corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for purposes of the Automatic
Option Grant and Director Fee Option Grant Programs, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board
member to perform his or her usual duties as a Board member by reason of any
medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1999 Stock Incentive Plan,
as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant, Salary Investment
Option Grant and Stock Issuance Programs with respect to one or more classes
of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons
under its jurisdiction. However, the Primary Committee shall have the
plenary authority to make all factual determinations
A-3
<PAGE>
and to construe and interpret any and all ambiguities under the Plan to the
extent such authority is not otherwise expressly delegated to any other Plan
Administrator.
Z. PLAN EFFECTIVE DATE shall mean June 8, 1999, the date on which
the Plan was adopted by the Board.
AA. PREDECESSOR PLANS shall mean the Corporation's pre-existing
1990 Stock Option Plan, 1992 Stock Option Plan, 1995 Stock Option Plan and
1996 Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders and to administer the Salary Investment Option Grant
Program with respect to all eligible individuals.
CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment grant program in effect under the Plan.
DD. SECONDARY COMMITTEE shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
EE. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12(g) of the 1934 Act.
FF. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.
GG. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
HH. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
JJ. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
KK. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).
LL. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
A-4
<PAGE>
NN. WITHHOLDING TAXES shall mean the Federal, state and local
income and employment withholding tax liabilities to which the holder of
Non-Statutory Options or unvested shares of Common Stock may become subject
in connection with the exercise of those options or the vesting of those
shares.
A-5
<PAGE>
Exhibit 23.1
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 17, 1999, except for the June 1999 stock
split described in Note 2, as to which the date is June 8, 1999 and the
__________ 1999 reverse stock split described in Note 2, as to which the date
is ______________________ 1999, in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-78109) and related Prospectus of Hoover's, Inc.
to be filed on or about June 11, 1999 for the registration of 3,737,500
shares of its common stock.
Austin, TX
June 11, 1999
