<PAGE>
As filed with the Securities and Exchange Commission on May 7, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 Aggregate
Title of Each Class of Securities to be Registered Offering Price(1) Amount of Registration Fee
<S> <C> <C>
Common Stock, $0.01 par value $48,875,000 $13,588
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
--------------------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, 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.
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<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 MAY 7, 1999
SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
Hoover's, Inc. is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our shares.
We will file 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 $ and $ per share.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN 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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS HOOVER'S
<S> <C> <C> <C>
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Per Share $ $ $
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Total $ $ $
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</TABLE>
We have granted the underwriters the right to purchase up to an additional
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
Forward-looking Statements...................... 18
Use of Proceeds................................. 19
Dividend Policy................................. 19
Capitalization.................................. 20
Dilution........................................ 21
Selected Financial Data......................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 23
<CAPTION>
Page
<S> <C>
Business........................................ 32
Management...................................... 47
Certain Transactions............................ 56
Principal Stockholders.......................... 57
Description of Capital Stock.................... 59
Shares Eligible for Future Sale................. 62
Underwriting.................................... 63
Legal Matters................................... 65
Experts......................................... 65
Available Information........................... 65
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 notes appearing elsewhere in this prospectus.
Our Business
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. Our Web site is Hoover's Online located at
WWW.HOOVERS.COM. We have been a pioneer in providing high-quality, proprietary
business information on the Internet to the mission-oriented businessperson. Our
customers 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 e-commerce partners with a large, demographically
desirable audience, who as a group, 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 generated over
30 million page views. Our core asset is our proprietary editorial content which
includes information on approximately 14,000 enterprises and 45 industry
sectors. We continually expand and update our database of company and industry
information as well as offer 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, subscription and pay-per-view; and
- - an efficient Internet sales channel.
We generate revenue from multiple sources, including enterprise and individual
subscriptions to Hoover's Online, advertising, sponsorship and e-commerce,
license fees for our proprietary information and CD-ROM and print versions of
our company information.
We have one of the largest subscription-based business information services on
the Internet, with over 100,000 paying seats as of the quarter ended March 31,
1999. Of these 100,000 seats, over 29,000 were individual subscribers and the
balance were attributable to over 1,300 enterprise accounts representing over
70,000 seats.
In addition to our Hoover's Online Web site, we distribute our content through
several online channels. We co-brand our information on leading Internet
portals, including America Online, Go/Infoseek, Microsoft Network and Yahoo!. We
license our information for distribution through leading business and financial
information services, including Bloomberg, Dialog, Dow Jones, LEXIS-NEXIS,
Microsoft Network, OneSource and Reuters. We also co-brand material with The New
York Times and The Washington Post. We generate e-commerce revenue from our
relationships with companies such as Amazon.com, Multex.com and Winstar
Telebase. Through our e-commerce relationships, we offer digital and physical
products, such as Dun & Bradstreet credit reports and brokerage research reports
distributed by Multex.com. Our e-commerce partners purchase a combination of
advertising banners and buttons and pay us placement fees, bounties for new
customers and a percentage of the total transaction revenue generated through
Hoover's Online.
The market for online business information is large and growing. Cowles-Simba, a
research firm, estimates that online business information revenues will grow
from $27 billion in 1998 to $40 billion in 2002. At the same time, because of
its affordability, convenience and ease of access, the Internet is growing as an
effective medium for businesses to distribute information. Forrester Research
estimates that 48 million workers worldwide had Internet access in 1998 and that
by 2004 this number will grow to 200 million workers worldwide.
3
<PAGE>
Many businesspeople currently receive electronic business information through
traditional business information providers or Internet portals, neither of which
provides high-quality information in a cost-effective manner. We believe there
is a significant need for Internet-based business information products and
services that empower business professionals and their organizations with
content that is easily accessible, up-to-date and useful.
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 e-commerce
partners an attractive environment. 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;
- - increasing the number of visitors; and
- - expanding markets and channels.
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.
4
<PAGE>
The Offering
The following information regarding shares outstanding is as of March 31, 1999.
<TABLE>
<S> <C>
Common stock offered by Hoover's....... shares
Common stock to be outstanding after
the offering......................... 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:
- - 2,834,200 shares issuable upon the exercise of stock options outstanding under
our stock option plans, with a weighted average exercise price of $2.16 per
share;
- - shares reserved for issuance under our 1999 Stock Incentive Plan;
- - 2,181,360 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $2.93 per share; and
- - shares reserved for issuance under our 1999 Employee Stock Purchase Plan.
All references to shares of common stock in this prospectus reflect a
two-for-one stock split of our common stock which will become effective prior to
the consummation of this offering.
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 "As Adjusted" column in the second table below reflects the issuance of
shares of common stock in this offering at an assumed initial public
offering price of $ 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..................................... $ (0.19) $ (0.28) $ (0.31)
Shares used in computing basic and diluted net loss per share............ 4,902,276 6,292,051 7,285,456
</TABLE>
<TABLE>
<CAPTION>
----------------------
<S> <C> <C>
As of March 31, 1999
----------------------
Actual As Adjusted
--------- -----------
DOLLARS IN THOUSANDS
Balance Sheet Data:
Cash and cash equivalents.................................................................. $ 7,814 $
Total assets............................................................................... 10,076
Working capital............................................................................ 5,705
Long-term debt and capital lease obligations, less current portion......................... 168
Total stockholders' equity................................................................. 6,760
</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.
Potential fluctuations in our quarterly financial results may cause volatility
in our stock price.
Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. We
believe that quarter to quarter comparisons of our operating results may not be
a good indication of our future performance, nor would our operating results for
any particular quarter be indicative of future operating results. In some future
quarters our operating results may be below the expectations of public market
analysts and investors. In that case, the price of our common stock may decrease
significantly.
To date, our growth has masked our ability to identify possible seasonal trends
in our advertising revenues or 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 each calendar year. Moreover, viewer traffic on
Hoover's Online and the Web sites of our partners 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 business operations, 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
7
<PAGE>
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 revenue.
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 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 mediums, 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. It is
difficult to predict which, 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.
8
<PAGE>
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 $10.0 million 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.
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 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;
and
- - Internet portal companies, such as Excite and Lycos, and other Web sites with
a business orientation or a business channel.
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.
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, strategic
partners 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.
9
<PAGE>
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. Competition for qualified editors and
writers 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 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 or fail to gain additional strategic
relationships.
We depend on the following strategic relationships:
- - CONTENT PROVIDERS. A number of organizations provide us complementary content
that we integrate into our products. 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. We license our proprietary information to a number of third
parties. 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 PARTNERS. 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.
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.
10
<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 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 may be unable to install our new systems 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 has experienced periodic system interruptions,
which we believe will continue to occur from time to time. Our systems and
operations also are vulnerable to damage or interruption from human error,
natural disasters, power loss, 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 our partners 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.
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
11
<PAGE>
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 keyman 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 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.
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
12
<PAGE>
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 PARTNERS. We have completed a year 2000
compliance review of our content publishing system and our significant content
partners. 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.
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.
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.
Consequences may include difficulties in operating our Web site effectively or
conducting other fundamental parts of our business.
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<PAGE>
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. 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.
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<PAGE>
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 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. Specifically, if a sale occurs
on a Web site which is hosted on a server in Texas, that sale may be subject to
Texas sales tax even if delivery of the goods is made outside of Texas. As a
result, we believe that Internet companies like us that are based in Texas may
be at a competitive disadvantage. 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
There has been no prior public market for our common stock.
Prior to this offering, there has been no public market for our common stock. We
cannot predict the extent to which investors' interest in our common stock will
lead to the development of an active trading market or how liquid that market
might become. The market price of the common stock may decline below the initial
public offering price. The initial public offering price for a share of our
common stock will be determined by negotiations between us and the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market following this offering.
The market price of our shares may experience extreme price and volume
fluctuations.
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.
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<PAGE>
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, shares of the common stock,
representing approximately % 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, 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 could be prevented from acquiring your shares of stock at a
premium to the market price 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. Please
see the "Description of Capital Stock" section of this prospectus for further
information.
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.
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
shares of common stock. Of these shares, the shares being
offered in this offering will be freely tradable. Our directors, executive
officers and security holders have agreed 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. See "Shares Eligible for Future
Sale" for additional information.
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<PAGE>
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 $ 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.
17
<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.
18
<PAGE>
Use of Proceeds
Assuming an initial public offering price of $ per share, we will receive
approximately $ million from our sale of shares of common stock,
net of estimated expenses and estimated underwriting discounts payable by us. If
the underwriters exercise their over-allotment option in full, we will receive
an additional $ 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 the net proceeds of this offering for increased
marketing activities, to extend our range of services in conjunction with our
expansion of Hoover's Online and for general corporate purposes, including
expansion of our sales and marketing activities and the acquisition of
complementary businesses and of content and distribution relationships. We may
also use a portion of the net proceeds to acquire complementary products and
technologies. 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.
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<PAGE>
Capitalization
The following table sets forth our capitalization as of March 31, 1999 on an
actual basis and as adjusted to reflect our receipt of the estimated net
proceeds from our sale of shares of common stock in this offering at
an assumed initial public offering price of $ per share, and after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
----------------------
<S> <C> <C>
As of March 31, 1999
----------------------
<CAPTION>
Actual As Adjusted
--------- -----------
<S> <C> <C>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Long-term debt and capital lease obligations, less current portion......................... $ 168 $
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; none outstanding actual
and as adjusted......................................................................... -- --
Common stock, $0.01 par value, 150,000,000 shares authorized; 9,454,300 shares issued and
outstanding actual; and shares issued and outstanding as adjusted.................. 95
Additional paid-in capital................................................................. 18,043
Unearned stock compensation................................................................ (2,764)
Accumulated deficit........................................................................ (8,464)
Treasury stock at cost--200,000 shares..................................................... (150)
--------- -----------
Total stockholders' equity............................................................. 6,760
--------- -----------
Total capitalization................................................................. $ 6,928 $
--------- -----------
--------- -----------
</TABLE>
The outstanding share information set forth above excludes:
- - 2,834,200 shares issuable upon the exercise of stock options outstanding under
our stock option plans, with a weighted average exercise price of $2.16 per
share;
- - shares reserved for issuance under our 1999 Stock Incentive Plan;
- - 2,181,360 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $2.93 per share; and
- - 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
notes to financial statements.
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<PAGE>
Dilution
Our net tangible book value at March 31, 1999 was approximately $6.8 million, or
$0.72 per share of common stock. 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. After
giving effect to our sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share and, after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us, and application of the net proceeds therefrom, our net tangible
book value at March 31, 1999 would have been approximately $ million, or
$ per share. This represents an immediate increase in net tangible
book value of $ per share to our existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares
of common stock in this offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
Net tangible book value per share at March 31, 1999............... $ 0.72
Increase per share attributable to new investors.................. $
---------
Net tangible book value per share after this offering............. $
---------
Dilution per share to new investors............................... $
---------
---------
</TABLE>
The following table sets forth, 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, before deducting
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............................... 9,454,300 % $ 15,821,128 % $ 1.87
New investors.......................................
---------- ----- ------------- -----
Total............................................. 100.0% $ 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing tables assume no exercise of stock options outstanding as of March
31, 1999. Options to purchase 2,834,200 shares of common stock were outstanding
as of March 31, 1999 with a weighted average exercise price of $2.16 per share.
Warrants to purchase 2,181,360 shares of common stock were outstanding as of
March 31, 1999 with a weighted average exercise price of $2.93 per share. To the
extent these options and warrants are exercised, investors in this offering will
experience further dilution.
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<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
Other............................................ 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............... $ (0.19) $ (0.07) $ (0.19) $ (0.28) $ (0.31)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Shares used in computing basic and diluted net loss
per share(1)..................................... 3,179,620 4,394,581 4,902,276 6,292,051 7,285,456
</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 notes to financial statements for the determination of
shares used in computing basic and diluted net loss per share.
22
<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
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 and generated over 30 million page
views. As of March 31, 1999, we had over 29,000 individual subscribers and over
1,300 enterprise accounts, representing 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 subscriptions, enterprise
subscriptions and licenses;
- - 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 are 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. The number
and frequency of visitors to Hoover's Online significantly influences the growth
of individual subscriptions. Additionally, our internal sales force obtains
leads for the sale of enterprise accounts from visitors to our Web site. We
recognize subscription revenues on a monthly basis, and we record annual
individual and enterprise subscriptions as deferred revenue, which are amortized
into revenue 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 and Reuters and
other Web sites such as Yahoo! Finance. 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.
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<PAGE>
Advertising, sponsorships & 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. 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 revenue 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 and industry 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. We expect to continue to produce and sell CD-ROMs and print products
for at least the next two years. However, we expect revenue 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. Other expenses include general and
administrative, personnel and other costs.
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
$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.
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.
24
<PAGE>
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
Other........................................................................... 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 152% 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 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. Infoseek was
required to pay us minimum payments to the extent that its sales of our
advertising did not exceed those minimums. During fiscal 1998, Infoseek paid us
$686,000 under the minimum payment provisions of the
25
<PAGE>
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 book
stores. The provision for returns declined in fiscal 1999 as a percentage of
CD-ROM and print revenues as a result of our decision to discontinue publishing
new trade books in September 1997.
COSTS 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 was due primarily
to the growth in editorial headcount related to expansion of the company and
industry database and to our enhancement of the features and content on our Web
site. Full-time editorial headcount increased by 10 employees, including the
hiring of our Vice President, Editor-in-Chief. During the year we used over 20
temporary writers, editors and support staff to add and enhance new company and
industry information. Hosting fees increased due to increased traffic to our Web
site.
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, including the addition of our Vice President, Sales in
January of 1999.
OTHER. Other expenses for fiscal 1999 increased 62% to $3.4 million from $2.1
million in fiscal 1998. These consist of compensation for administrative and
executive staff, fees for professional services, travel, and depreciation
expense and general office expenses. The increase in other expenses was due to
the increases in administrative and executive salaries due primarily to salary
increases, increased travel and use of professional services as well as
increases in credit card processing fees on individual subscription payments and
depreciation. Depreciation expense is recognized on a straight line basis over
three to five years and increased more than 50% during fiscal 1999 due to an
increase in capital expenditures. We expect general and administrative expenses
to increase in absolute dollars but decrease as a percentage of revenue as we
hire additional personnel and incur additional costs related to the growth of
our business and the costs associated with being a public company.
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 of uncertainty
regarding realization.
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 125% to $2.7
million from $1.2 million in fiscal 1998. 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
26
<PAGE>
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
$686,000 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. We did not publish any new trade
titles beginning in the fall of 1997 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.
COSTS 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 the
growth in editorial headcount related to expansion of the company and industry
database and Hoover's Online. Full-time editorial headcount increased by over 50
employees.
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, design and programming fees for Hoover's Online enhancements.
SALES AND MARKETING. Sales and marketing expenses for fiscal 1998 increased 73%
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.
OTHER. Other expenses for fiscal 1998 increased 105% to $2.1 million from $1.0
million in fiscal 1997. These consist of compensation for administrative and
executive staff, fees for professional services, travel, and depreciation
expense and general office expenses. The increase in other expenses was due to
increases in occupancy expenses related to overall growth in headcount.
Increases were also in administrative and executive personnel, travel,
professional fees paid, credit card processing fees and depreciation.
Depreciation doubled in fiscal 1998 as a result of an increase in our
depreciable assets, primarily due to our purchase of new computers and software.
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.
27
<PAGE>
Quarterly Results of Operations
The following tables 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> <C>
Quarter Ended
----------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1997 1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
DOLLARS IN THOUSANDS
Statement of Operations Data:
Revenues:
Online information sales................ $ 378 $ 500 $ 713 $ 1,105 $ 1,228 $ 1,586
Advertising, sponsorships, e-commerce... 241 313 389 239 199 184
CD-ROM and print........................ 431 394 249 517 432 290
----------- ----------- ----------- ----------- ----------- -----------
Total revenues............................ 1,050 1,207 1,351 1,861 1,859 2,060
Provision for returns of print
products............................... (65) (114) (63) (46) (29) (45)
----------- ----------- ----------- ----------- ----------- -----------
Net revenues.............................. 985 1,093 1,288 1,815 1,830 2,015
Cost of revenues........................ 545 633 848 1,009 1,198 1,368
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.............................. 440 460 440 806 632 647
Expenses:
Product development..................... 99 106 111 75 90 124
Sales & marketing....................... 235 284 424 558 526 526
Other................................... 353 447 580 745 769 928
Non-cash compensation...................
----------- ----------- ----------- ----------- ----------- -----------
Total expenses............................ 687 837 1,115 1,378 1,385 1,578
----------- ----------- ----------- ----------- ----------- -----------
Operating loss............................ (247) (377) (675) (572) (753) (931)
Interest income......................... 3 16 59 51 44 42
Interest expense........................ (13) (13) (10) (10) (9) (15)
----------- ----------- ----------- ----------- ----------- -----------
Net loss.................................. $ (257) $ (374) $ (626) $ (531) $ (718) $ (904)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
As a Percentage of Total Revenues:
Revenues:
Online information sales................ 36% 41% 53% 59% 66% 77%
Advertising, sponsorships, e-commerce... 23 26 29 13 11 9
CD-ROM and print........................ 41 33 18 28 23 14
----------- ----------- ----------- ----------- ----------- -----------
Total revenues............................ 100 100 100 100 100 100
Provision for returns of print
products............................... (6) (9) (5) (2) (2) (2)
----------- ----------- ----------- ----------- ----------- -----------
Net revenues.............................. 94 91 95 98 98 98
Cost of revenues........................ 52 52 63 54 64 66
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.............................. 42 38 33 43 34 31
Expenses:
Product development..................... 9 9 8 4 5 6
Sales and marketing..................... 22 24 31 30 28 26
Other................................... 34 37 43 40 41 45
Non-cash compensation...................
----------- ----------- ----------- ----------- ----------- -----------
Total expenses............................ 65 69 83 74 75 77
----------- ----------- ----------- ----------- ----------- -----------
Operating loss............................ (24) (31) (50) (31) (41) (45)
Interest income......................... 1 1 1 1 -- 1
Interest expense........................ -- (1) (4) (3) (2) (2)
----------- ----------- ----------- ----------- ----------- -----------
Net loss.................................. (24 )% (31 )% (46 )% (29 )% (39 )% (44)%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C> <C>
Dec. 31, Mar. 31,
1998 1999
----------- -----------
DOLLARS IN THOUSANDS
Statement of Operations Data:
Revenues:
Online information sales................ $ 1,714 $ 2,236
Advertising, sponsorships, e-commerce... 262 316
CD-ROM and print........................ 332 583
----------- -----------
Total revenues............................ 2,308 3,135
Provision for returns of print
products............................... (36) (23)
----------- -----------
Net revenues.............................. 2,272 3,112
Cost of revenues........................ 1,159 1,277
----------- -----------
Gross profit.............................. 1,113 1,835
Expenses:
Product development..................... 141 211
Sales & marketing....................... 554 578
Other................................... 726 979
Non-cash compensation................... 451
----------- -----------
Total expenses............................ 1,421 2,219
----------- -----------
Operating loss............................ (308) (384)
Interest income......................... 40 51
Interest expense........................ (18) (14)
----------- -----------
Net loss.................................. $ (286) $ (347)
----------- -----------
----------- -----------
As a Percentage of Total Revenues:
Revenues:
Online information sales................ 75% 71%
Advertising, sponsorships, e-commerce... 11 10
CD-ROM and print........................ 14 19
----------- -----------
Total revenues............................ 100 100
Provision for returns of print
products............................... (2) (1)
----------- -----------
Net revenues.............................. 98 99
Cost of revenues........................ 50 41
----------- -----------
Gross profit.............................. 48 59
Expenses:
Product development..................... 6 7
Sales and marketing..................... 24 18
Other................................... 32 31
Non-cash compensation................... 14
----------- -----------
Total expenses............................ 62 71
----------- -----------
Operating loss............................ (13) 12
Interest income......................... 1 --
Interest expense........................ (2) (2)
----------- -----------
Net loss.................................. (12 )% (11 )%
----------- -----------
----------- -----------
</TABLE>
28
<PAGE>
Our total revenues have generally increased in each consecutive 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 most
advertising sold in the first and third calendar quarters of the year. Our
advertising revenues were lower in the quarters ended March 31, June 30, and
September 30 of 1998 than during the previous three quarters. This was due to
our transition from the use of a third-party sales agent, Infoseek, to our
in-house advertising sales force. Infoseek paid us contractually mandated
minimum payments of $150,000, $300,000 and $236,000 which are reflected in the
quarters ended June 30, September 30 and December 31, 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 titles.
Costs of revenue have 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. Costs of
revenues in the quarter ended December of 1998 were 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. Much of this growth began in the quarter
ended March 31, 1999, including the hiring of our Vice President, Sales.
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.
Other expenses have increased in each consecutive 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;
- - 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.
29
<PAGE>
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 revenue, 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.
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.
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.
We believe that the net proceeds of this offering, together with its 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.
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
30
<PAGE>
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, 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. 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.
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.
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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 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 have been a pioneer in providing high-quality, proprietary
business information on the Internet to the mission-oriented businessperson. Our
customers 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
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. 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 one of the
most widely trafficked sources 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 search and sort
tools such as Lead Finder and StockScreener, to make our information more useful
to businesspeople.
We generate revenue from multiple sources, including enterprise and individual
subscriptions, license fees for our proprietary information, advertising,
sponsorship, e-commerce and sales of CD-ROM and print versions of our company
information. 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, subscription based in-depth information
and pay-per-view e-commerce for specialized information. Hoover's Online
currently attracts approximately two million unique visitors per quarter to its
Web site. These visitors accounted for over 30 million page views in the quarter
ended March 31, 1999. We use our high-quality free information to attract both
potential subscribers and customers for our pay-per-view information. As of
March 31, 1999, our subscription service had over 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 representing 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;
- - information and e-commerce resource centers sponsored by one or more of our
advertising and e-commerce partners where businesspeople can perform
mission-oriented tasks in such areas as professional development, travel and
company operations;
- - business-oriented tools, including sophisticated searching and sorting,
scheduling, personalization and targeted e-mail alert notification; and
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- - 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 businesspeople.
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 100 million at the end of 1998 to approximately 320 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 revenue
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 $51 billion in 1998 to $919
billion in 2002, representing a compound annual growth rate of 106%.
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.
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 Internet portals.
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
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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.
INTERNET PORTALS. Internet portals 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.
Internet portals 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 advertising and e-commerce partners.
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. 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 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
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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 e-commerce
partners. We offer banner and button advertisements on Hoover's Online,
sponsorships for partners who want to integrate their advertisements or products
with selected content on our Web site and e-commerce opportunities for our
partners 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 partners 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 leverage 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 by leveraging our marketing partnerships, 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 partnerships 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.
- - EXPANDING MARKETS AND CHANNELS. To further meet the needs of businesspeople
worldwide, we intend to pursue acquisitions of, and strategic partnerships
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.
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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. 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
e-commerce partners 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 over-the-counter or on the pink sheets. 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 most
influential international companies, including substantially all non-U.S.
companies known to have annual sales of more than $5 billion. 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
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.
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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.
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[Full Page Screen Print of Annotated Company Capsule]
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IPO CENTRAL. IPO Central is our branded information source for U.S. companies
that have recently completed an initial public offering or are currently in
registration. 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 search for, and sort lists of,
companies using up to 22 criteria. 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 partners 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 additional partners to broaden the
scope of products offered through The Store.
HOOVER'S ONLINE PREMIUM CONTENT, SERVICES AND TOOLS
Our premium content, services and tools include the following:
HOOVER'S COMPANY PROFILES. For approximately 3,500 of the largest,
fastest-growing and most influential companies, 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.
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
- - 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.
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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 filing 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 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 combine these searches with searches by location, annual sales
and company type. 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 designed not just to provide information, but also to
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
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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 24 licensees.
INDIVIDUAL SUBSCRIBERS
Our individual subscribers are primarily businesspeople, personal investors and
academics. 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.
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 licenses 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 Internet portals and services, such as Yahoo!
Finance, Dowjones.com and Go/Infoseek. 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 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. Our largest
intranet subscriber is Andersen Worldwide. Andersen Worldwide integrates our
content into its Knowledgespace.com intranet for access by Andersen
professionals.
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Advertising, Sponsorships and E-commerce
We are focused on providing our advertisers, sponsors and e-commerce partners
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.
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 based on a price per thousand impressions. Over our fiscal year ended
March 31, 1999, the following organizations have advertised on our Web site:
Bell Atlantic
British Airways
Chase Manhattan
Cobra Golf
Delta Airlines
E*Trade
Fidelity
Gateway
Intel
Intuit
MasterCard
Nortel
PeopleSoft
PricewaterhouseCoopers
Staples
TCI
Volvo
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.
We will continue to build our sponsorship team over the next few months. We are
hiring new outside sponsorship sales managers and internal sales account
coordinators who will work closely with the outside sales staff to respond to
requests for proposals, manage inventory, research and prospect, track and
report and implement sponsorships and e-commerce integration. The outside sales
group will be headquartered in New York, New York. The operations team and most
of the support staff will be based in Austin, Texas.
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 provided a variety of special promotions. We
work with Multex.com to effectively target and position Multex products on our
Web site.
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 a fixed number of
impressions per year or a fixed number of customers. In return, our partner may
pay us a per quarter advertising placement fee and a bounty per customer
obtained through our Web site. They also pay us a referral fee on products that
they sell through our site.
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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 partnered with Microsoft
on 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.
CONTENT PROVIDERS
We have selected 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. Our content providers currently include 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.
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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. 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, revenue 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 agreed 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.
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 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;
and
- - Internet portal companies, such as Excite and Lycos, and Web sites with a
business orientation or a business channel.
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;
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- - 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.
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, strategic
partners 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.
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. If a sale occurs on a Web site
which is hosted on a server in Texas, that sale is subject to Texas sales tax
even if delivery of the goods is made outside of Texas.
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.
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 employees, clients, strategic partners 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
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<PAGE>
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.
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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+............. 46 Chairman of the Board, Chief Executive Officer and President
Carl G. Shepherd.............. 45 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 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 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
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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 an 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 1998 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 1999. 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 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 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,
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including Vice President, until 1995 and served as a part-time Senior
Contributing Editor until December 1998. Mr. Chai also serves 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 1992, 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.
Lawrence 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. Kirshbaum 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 meeting of the board of directors
following this offering, the board of directors will be divided into three
classes, with each class serving staggered, three-year terms.
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 10,000 shares of common stock at an exercise
price of $3.25 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.
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We anticipate that, for an undetermined period following the offering, our
directors will not be paid any fees or 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 periodically receive automatic grants of
non-qualified options under our 1999 Stock Incentive Plan.
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, who we refer to as the
named executive officers, for services rendered in all capacities to us during
the fiscal 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 $ 25,000 100,000
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
Carl G. Shepherd ................................................ 1999 $ 97,694 $ 12,000 142,000
EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATING OFFICER
</TABLE>
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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................. 100,000 11.1% $ 3.25 6/24/08
Carl G. Shepherd................. 142,000 15.8 3.25 6/24/08
</TABLE>
During the year ended March 31, 1999, we granted employees, including Messrs.
Spain and Shepherd, options to purchase 899,200 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 amount 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.
51
<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 fair
market value at March 31, 1999 of $ 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................................ 467,620 132,380
Carl G. Shepherd................................ 56,800 227,200
</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 May 4, 1999 upon adoption by the board of
directors and was subsequently approved by the stockholders on May , 1999.
Common stock has initially been authorized for issuance under the 1999 plan in
the amount of . This initial share reserve is comprised of the
shares which remained available for issuance under predecessor plans
on the effective date of the 1999 plan plus an additional increase of
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 one 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
shares. However, in no event may any one participant in the 1999 plan receive
option grants or direct stock issuances for more than 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;
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; and
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<PAGE>
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.
5. the director fee option grant program pursuant to which the non-employee
board members may apply a portion of the annual retainer fee otherwise
payable to them in cash each year to the acquisition of special below-market
option grants.
Only employees were eligible to receive option grants under our predecessor
plan.
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 discretionary
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.
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
53
<PAGE>
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 shares 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 and who has not previously been in the employ of Hoover's
will receive at that time an option grant for 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 shares of common stock at the time of his or her
commencement of board service, provided such individual has not otherwise been
in the prior employ of Hoover's. 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 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
share grant will vest in three equal and successive annual installments over the
optionee's period of board service. Each additional 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. 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
54
<PAGE>
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 May , 2009.
Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan was adopted by the board of directors on
May 4, 1999 and approved by the stockholders on May , 1999. The purchase
plan is designed to allow our eligible employees and participating subsidiaries
to purchase shares of common stock, at semi-annual intervals, through their
periodic payroll deductions under the purchase plan. A reserve of
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 of 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 shares
on any one semi-annual purchase date, nor may all participants in the aggregate
purchase more than 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 May
2009, unless sooner terminated by the board.
55
<PAGE>
Certain Transactions
Media General
In September 1997, Media General purchased 1,200,000 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 1,000,000 shares of common stock at an exercise price of
$3.00 per share, expiring July 15, 1999. Media General exercised this warrant in
March 1999. The second warrant is exercisable for up to 1,000,000 shares of
common stock at an exercise price of $3.50 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.
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 revenue, as defined, realized from our Stockscreener service
and (2) a percentage of the net revenue generated by any non-advertising based
component of Stockscreener. During fiscal year 1999, we paid Media General
Financial Services an aggregate of $274,000 under both this agreement and the
distributor agreement. We did not derive any revenue from Media General
Financial Services under these agreements.
Warner Books
In February of 1999 Warner Books exercised warrants to purchase 1,180,000 shares
of our common stock at an exercise price of $1.125 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.
Registration Rights
We have granted registration rights to a number of our stockholders, including
Media General, Warner Books 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.
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<PAGE>
Principal Stockholders
This table sets forth, as of March 31, 1999, 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
9,454,300 shares of common stock outstanding 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 or her shares and the address for each of
the persons listed below as beneficially owning more than five percent of our
outstanding capital stock is: c/o Hoover's, Inc., 1033 La Posada Drive #250,
Austin, Texas 78752.
<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
----------------- ----------------- ---------------
Media General, Inc.(1) .......................................... 3,220,000 31.3%
333 Grace Street
Richmond, Virginia 23219
Warner Books, Inc.(2) ........................................... 3,489,040 35.8
Time & Life Building
1271 Avenue of the Americas
New York, New York 10020
Patrick J. Spain(3).............................................. 570,180 5.9
Carl G. Shepherd(4).............................................. 58,800 *
William S. Berkley(5)............................................ 443,658 4.8
Alan Chai(6)..................................................... 244,340 2.6
Thomas Hillman(7)................................................ 264,910 2.9
Gary E. Hoover(8) ............................................... 105,920 1.1
Laurence Kirshbaum .............................................. -- -- --
Stephen R. Zacharias ............................................ -- -- --
All executive officers and directors as a group (19 persons)..... 1,796,308 17.5
</TABLE>
- ------------------------
* Less than one percent.
(1) Includes 1,020,000 shares of common stock issuable upon exercise of
currently exercisable warrants.
(2) Includes 500,000 shares of common stock issuable upon exercise of currently
exercisable warrants.
57
<PAGE>
(3) Includes 467,620 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days.
(4) Includes 56,800 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days.
(5) Includes 20,000 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days and 65,100 shares of common stock
issuable upon exercise of currently exercisable warrants. This number also
includes 101,312 shares of common stock held by Tension Envelope, Corp. Mr.
Berkley is President and Chief Executive Officer of Tension Envelope.
(6) Includes 136,400 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days and 30,000 shares of common stock
issuable upon exercise of currently exercisable warrants.
(7) Includes 20,000 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days and 49,900 shares of common stock
issuable upon exercise of currently exercisable warrants. This number also
includes 77,126 shares of common stock held by JMT Fund, Inc. and 41,172 shares
held by the Hillman Family Partnership.
(8) Includes 21,200 shares of common stock issuable upon exercise of stock
options which are exercisable within 60 days and 80,000 shares of common stock
issuable upon exercise of currently exercisable warrants.
58
<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.
As of March 31, 1999, there were outstanding 9,454,300 shares of common stock,
options to purchase 2,834,200 shares of common stock and warrants to purchase
2,181,360 shares of common stock. Upon completion of this offering,
shares of common stock will be outstanding, 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 2,181,360 shares of our common
stock with a weighted average exercise price of $2.93 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 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.
59
<PAGE>
Registration Rights
We have granted registration rights to a number of our stockholders.
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 May , 1999, our stockholders approved certain
amendments to the certificate of incorporation, effective immediately prior to
the consummation of the offering, to provide:
- - 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
- - that 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
- - for a classified board of directors
- - that vacancies on the board of directors, including newly created
directorships, can be filled only by a majority of the directors then in
office
- - that our directors may be removed only for cause and only by the affirmative
vote of holders of at least 66 2/3% of the outstanding shares of voting stock,
voting together as a single class
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<PAGE>
BYLAWS. On May 4, 1999, our board of directors approved certain amendments to
our bylaws, effective immediately prior to the consummation of the offering,
including an amendment imposing advance notice requirements for stockholder
proposals and director nominations.
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 will apply 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 , and its address is .
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<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 and assuming no exercise of stock options after
March 31, 1999, there will be an aggregate of shares of our common
stock outstanding. The shares offered by this prospectus, or 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 9,454,300 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 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 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.
Prior to the offering, there has been no market for our common stock. No
predictions can be made of the effect, if any, that market sales of shares of
common stock or the availability of such shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of our common stock could adversely affect the prevailing market price of the
common stock, as well as impair our ability to raise capital through the
issuance of additional equity securities.
62
<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......................................................
------
------
</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 overallotment 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 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 $ in estimated expenses.
Hoover's and the officers, directors and security holders of Hoover's 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:
63
<PAGE>
- - 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 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.
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. Except for its participation as co-manager of this
offering Wit Capital has no relationship with Hoover's or any of its founders or
significant stockholders.
64
<PAGE>
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. Complete exhibits have been filed with our registration statement on
Form S-1.
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 year containing unaudited interim financial
information.
65
<PAGE>
Hoover's, Inc.
Financial Statements
Years ended March 31, 1997, 1998 and 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Audited Financial Statements
Balance Sheets......................................................................... F-3
Statements of Operations............................................................... F-4
Statements of Stockholders' Equity..................................................... F-5
Statements of Cash Flows............................................................... 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 1999 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 increased authorized shares necessary to effect the 1999
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, 6,961,300 and
9,454,300 shares issued and outstanding at March 31, 1998 and 1999,
respectively..................................................................... 69,613 94,543
Additional paid-in capital........................................................ 10,283,991 18,043,218
Unearned stock compensation....................................................... -- (2,763,999)
Accumulated deficit............................................................... (6,208,731) (8,463,547)
Treasury stock at cost--200,000 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................................. 514,124 556,824 960,938
Advertising representation contract with related party............... -- 625,570 --
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
Other................................................................ 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................................... $ (0.19) $ (0.28) $ (0.31)
----------- ------------ ------------
----------- ------------ ------------
</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........ 4,789,200 $ 47,892 $ 3,981,417 $ -- ($3,476,891) $(150,000) $ 402,418
Exercise of options............ 14,000 140 10,360 -- -- -- 10,500
Exercise of warrants........... 286,140 2,861 283,279 -- -- -- 286,140
Conversion of debt............. 56,640 567 155,193 -- -- -- 155,760
Issuances of common stock...... 272,720 2,727 692,688 -- -- -- 695,415
Net loss....................... -- -- -- -- (944,329) -- (944,329)
--------- ----------- ----------- ------------ ----------- --------- ------------
Balance at March 31, 1997........ 5,418,700 54,187 5,122,937 -- (4,421,220) (150,000) 605,904
Exercise of options............ 33,200 332 32,968 -- -- -- 33,300
Exercise of warrants........... 309,400 3,094 847,756 -- -- -- 850,850
Issuances of common stock...... 1,200,000 12,000 4,280,330 -- -- -- 4,292,330
Net loss....................... -- -- -- -- (1,787,511) -- (1,787,511)
--------- ----------- ----------- ------------ ----------- --------- ------------
Balance at March 31, 1998........ 6,961,300 69,613 10,283,991 -- (6,208,731) (150,000) 3,994,873
Exercise of options............ 258,000 2,580 260,420 -- -- -- 263,000
Exercise of warrants........... 2,235,000 22,350 4,284,205 -- -- -- 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........ 9,454,300 $ 94,543 $18,043,218 $(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.
Generally, advertising revenues are recognized as impressions are delivered,
sponsorship revenues are recognized over the contract period, and E-commerce
revenues are recognized as sales are made by E-commerce partners.
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.
F-7
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
1. Organization and Significant Accounting Policies (Continued)
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.
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 4,902,276, 6,292,051 and 7,285,456 respectively.
F-8
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
1. Organization and Significant Accounting Policies (Continued)
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 56,640 shares of common stock and warrants to purchase 56,640 shares of
common stock of Hoover's at an exercise price of $2.25 per share.
In March 1997, Hoover's completed a private placement of 272,720 shares of
common stock and warrants to purchase 272,720 shares of common stock of Hoover's
at an exercise price of $2.25 per share for net proceeds of approximately
$695,000. Additionally, Hoover's granted warrants to purchase 50,000 shares of
common stock with an exercise price of $1.50 per share and warrants to purchase
9,000 shares of common stock with an exercise price per share of $2.25 per share
to an investment advisor.
In September 1997, Hoover's completed a private placement of 1,200,000 shares of
common stock and warrants to purchase 2,000,000 shares of common stock of
Hoover's (one half at an exercise price of $3 per share and one half at exercise
price of $3.50 per share) for proceeds of $4,300,000 net of costs. Hoover's also
granted warrants to purchase 54,000 shares of common stock with an exercise
price of $2.75 per share to an investment advisor in conjunction with this
transaction. At the same time, various warrant holders exercised existing
warrants to purchase 309,400 shares of common stock for net proceeds of
$851,000.
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 300,000 shares of common stock of Hoover's at
an exercise price of $2.50 per share. Also during 1997, certain warrant holders
exercised warrants previously issued to purchase 286,140 shares of common stock
of Hoover's at an exercise price of $1 per share and
F-9
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
2. Capital Stock and Warrants (Continued)
were issued new warrants to purchase 443,360 shares of common stock of Hoover's
at an exercise price of $2.50 per share. Additionally, Hoover's granted warrants
to purchase 140,000 shares of common stock with an exercise price of $2.50 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 1,180,000
shares of common stock for proceeds of $1,327,500. In March 1999, a warrant
holder exercised warrants to purchase 1,000,000 shares of common stock for
proceeds of $3,000,000. Also, during the year ended March 31, 1999, Hoover's
granted warrants to purchase 110,000 shares of common stock with exercise prices
of $3.25 per share to members of the Board of Directors.
In 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.
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 $2.00 per share............................. 130,000 75,000
Expire March, 1999, price $2.25 per share............................ 1,180,000 --
Expire December, 2001, price $3.00 per share......................... 50,000 50,000
Expire December, 2000, price $5.00 per share......................... 883,360 883,360
Expire March, 2002, price $5.50 per share............................ 9,000 9,000
Expire September, 2002, price $5.50 per share........................ 54,000 54,000
Expire July, 1999, price $6.00 per share............................. 1,000,000 --
Expire December, 2007, price $6.50 per share......................... -- 110,000
Expire July, 2000, price $7.00 per share............................. 1,000,000 1,000,000
---------- ----------
4,306,360 2,181,360
---------- ----------
---------- ----------
</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 $2.93. The weighted average fair value of warrants granted during the
year ended March 31, 1999, all to Board of Directors members, was $3.25.
F-10
<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 5,425,620 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..................... 1,255,000 $ .75
Options granted............................................... 458,600 1.50
Options forfeited............................................. (87,000) 1.10
Options exercised............................................. (14,000) .75
---------- -----
Total options outstanding at March 31, 1997..................... 1,612,600 .95
Options granted............................................... 710,000 2.80
Options forfeited............................................. (32,800) 1.50
Options exercised............................................. (33,200) 1.01
---------- -----
Total options outstanding at March 31, 1998..................... 2,256,600 1.52
Options granted............................................... 899,200 3.49
Options forfeited............................................. (63,600) 2.70
Options exercised............................................. (258,000) 1.02
---------- -----
Total options outstanding at March 31, 1999..................... 2,834,200 $ 2.16
---------- -----
---------- -----
</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 Outstanding (in years) Price
----------- ----------------- --------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$.75........................ 961,000 3.6 $ .75 961,000 3.6 $ .75
$1.50....................... 349,000 9.0 1.50 244,300 9.0 1.50
$2.75-3.25.................. 1,238,200 9.2 3.01 279,600 9.2 2.82
$3.50-4.25.................. 286,000 9.2 4.05 -- -- --
----------- --- --------- ----------- --- ---------
2,834,200 7.3 $2.16 1,484,900 5.6 1.27
----------- --- --------- ----------- --- ---------
----------- --- --------- ----------- --- ---------
</TABLE>
Of the stock options granted to employees during the year ended March 31, 1999
for 899,200 shares of common stock, 286,000 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 of
which $450,603 was
F-11
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
3. Stock Options and Transactions (Continued)
amortized to non-cash compensation expense during the year ended March 31, 1999.
The remaining unearned compensation will be recognized as non-cash compensation
expense 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... $.49 $.65 $ .69
Exercise price less than fair value of stock on date of
grant......................................................... -- -- $12.11
</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..... .21 .32 .36
</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 net
F-12
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
4. Income Taxes (Continued)
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
due to uncertainties regarding the future realization of net operating loss
carryforwards and other deferred tax assets. 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-13
<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 require monthly
F-14
<PAGE>
Hoover's, Inc.
Notes to Financial Statements (Continued)
7. Bank Obligations (Continued)
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 $626,000 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-15
<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 70,000 shares of common
stock with an exercise price of $4.25 per share to an employee. Hoover's
recorded unearned compensation not reflected in these financial statements of
$958,000 in connection with the grant which will be recognized as non-cash
compensation expense over the 4 year vesting period.
F-16
<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 discount, 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............................................... $ 13,588
NASD fee........................................................... 5,388
Nasdaq National Market listing fee................................. *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Blue sky fees and expenses......................................... *
Transfer agent fees................................................ *
Miscellaneous...................................................... *
---------
Total............................................................ $
---------
---------
</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 of the underwriting agreement to be 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
extent permitted by applicable law, to indemnify such directors against all
expenses, judgments, fines and penalties incurred
II-1
<PAGE>
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,
and a 2-for-1 split in May 1999.
1. In October 1996, we issued and sold 14,000 shares of common stock to a
stockholder for an aggregate purchase price of $10,500 pursuant to his
exercise of stock options granted by us.
2. In December 1996, we issued and sold 286,140 shares of common stock to
stockholders for an aggregate purchase price of $286,140 pursuant to his
exercise of warrants issued by us.
3. In December 1996, we issued warrants exercisable for 883,360 shares of
common stock to stockholders at an exercise price of $2.50 per share.
4. In December 1996, we issued a warrant exercisable for 50,000 shares of
common stock to Patricof & Co. at an exercise price of $1.50 per share.
5. In February 1997, we issued and sold 56,640 shares of common stock to
existing stockholders pursuant to their conversion of $155,760 of
convertible debt.
6. In February 1997, we issued warrants exercisable for 56,640 shares of common
stock to existing stockholders at an exercise price of $2.75 per share.
7. In March 1997, we issued and sold 272,720 shares of common stock to Infoseek
Corporation for an aggregate purchase price of $749,980 and issued and sold
them a warrant exercisable for 272,720 shares of common stock at an exercise
price of $2.75 per share.
8. In March 1997, we issued a warrant exercisable for 9,000 shares of common
stock to Patricof & Co. at an exercise price of $2.75 per share.
9. In July, 1997, we issued and sold 17,000 shares of common stock to
stockholders for an aggregate purchase price of $12,750 pursuant to their
exercise of options issued by us.
10. In September 1997, we issued and sold 309,400 shares or common stock to
stockholders for an aggregate purchase price of $850,850 pursuant to their
exercise of warrants issued by us.
11. In September 1997, we issued and sold 1,200,000 shares of common stock to
Media General for an aggregate purchase price of $3.3 million and issued
them a warrant exercisable for 1,000,000 shares of common stock at an
exercise price of $3.00 per share and a warrant exercisable for 1,000,000
shares of common stock at an exercise price of $3.50 per share.
12. In September, 1997, we issued warrants exercisable for 54,000 shares at an
exercise price of $2.75.
13. In October 1997 we issued and sold 3,200 shares or common stock to a
stockholder for an aggregate purchase price of $4,800 pursuant to their
exercise of options issued by us.
14. In March 1998, we issued and sold 13,000 shares or common stock to
stockholders for an aggregate purchase price of $15,750 share pursuant to
their exercise of options issued by us.
15. In April, 1998, we issued and sold 8,000 shares of stock to stockholders for
an aggregate purchase price of $6,000 pursuant to their exercise of options
issued by us.
II-2
<PAGE>
16. In July 1998, we issued and sold 80,600 shares of common stock to
stockholders an aggregate purchase price of $87,650 pursuant to their
exercise of options issued by us.
17. In September 1998, we issued and sold 91,000 shares of common stock to
stockholders for an aggregate purchase price of $88,250 pursuant to their
exercise of options issued by us.
18. In October, 1998 we issued and sold 50,000 shares of common stock to
stockholders for an aggregate purchase price of $53,500 pursuant to their
exercise of options issued by us.
19. In December 1998, we issued and sold 20,000 shares of common stock to a
stockholder for an aggregate purchase price of $15,000 pursuant to their
exercise of options issued by us.
20. During January 1999, we issued and sold 25,000 shares of stock to a
stockholder for an aggregate purchase price of $25,000 pursuant to their
exercise of warrants issued by us.
21. During February 1999, we issued and sold 1,180,000 shares of common stock to
a stockholder for an aggregate purchase price of $1,327,500 pursuant to
their exercise of warrants issued by us.
22. In March 1999, we issued and sold 8,400 shares of common stock to a
stockholder for an aggregate purchase price of $12,600 pursuant to their
exercise of options issued by us.
23. During March 1999, we issued and sold 1,000,000 shares of common stock to a
stockholder for an aggregate purchase price of $3,000,000 pursuant to their
exercise of warrants issued by us.
24. 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..................................................... 458,600 1.50
April 1, 1997 through November 31, 1997.................................................. 582,000 2.75
December 1, 1997 through March 31, 1998.................................................. 198,000 3.00
June 1998................................................................................ 543,200 3.25
December 1998............................................................................ 76,000 3.50
January 1999............................................................................. 210,000 4.25
</TABLE>
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.
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* Distribution Agreement dated June 1, 1996 by and between The Reference Press, Inc. and Media
General Financial Services
10.4* La Costa Green Office Building Lease Agreement, as amended, dated March 17, 1996 by and between
The Reference Press, Inc. and KP/Miller Realty Growth
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
10.5* Imperial Bank Security and Loan Agreement dated June 17, 1997
<C> <S> <C>
10.6 Form of Indemnification Agreement between Hoover's, Inc. and each of its directors and executive
officers.
10.7* Hoover's, Inc. 1999 Stock Incentive Plan
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.
(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.
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-4
<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 May 7, 1999.
<TABLE>
<S> <C> <C>
HOOVER'S, INC.
By: /s/ PATRICK J. SPAIN
-----------------------------------------
Patrick J. Spain
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Patrick J. Spain and Lynn Atchison, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the
same offering covered by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<C> <S> <C>
Name Title Date
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ PATRICK J. SPAIN Chief Executive Officer
- ------------------------------ and President (principal May 7, 1999
Patrick J. Spain executive officer)
Senior Vice President and
/s/ LYNN ATCHISON Chief Financial Officer
- ------------------------------ (principal financial and May 7, 1999
Lynn Atchison accounting officer)
/s/ WILLIAM S. BERKLEY
- ------------------------------ Director May 7, 1999
William S. Berkley
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Name Title Date
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ALAN CHAI
- ------------------------------ Director May 7, 1999
Alan Chai
/s/ THOMAS J. HILLMAN
- ------------------------------ Director May 7, 1999
Thomas J. Hillman
/s/ GARY E. HOOVER
- ------------------------------ Director May 7, 1999
Gary E. Hoover
/s/ LAURENCE J. KIRSHBAUM
- ------------------------------ Director May 7, 1999
Laurence J. Kirshbaum
/s/ STEPHEN R. ZACHARIAS
- ------------------------------ Director May 7, 1999
Stephen R. Zacharias
</TABLE>
II-6
<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
1999 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 increased authorized shares necessary to effect the 1999
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>
Balance At Provisions Deductions Balance At
Beginning Charged To From End Of
Of Period Expense Reserves Period
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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.
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* Distribution Agreement dated June 1, 1996 by and between The Reference Press, Inc. and Media General
Financial Services
10.4* La Costa Green Office Building Lease Agreement, as amended, dated March 17, 1996 by and between The
Reference Press, Inc. and KP/Miller Realty Growth
10.5* Imperial Bank Security and Loan Agreement dated June 17, 1997
10.6 Form of Indemnification Agreement between Hoover's, Inc. and each of its directors and executive
officers.
10.7* Hoover's, Inc. 1999 Stock Incentive Plan
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.
<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 Officering,
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 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 ____ day of
_____________, 1999.
--------------------------------------
Patrick J. Spain, Chairman of the Board,
Chief Executive Officer and President
Attest:
- -------------------------------------------
R. Lynn Atchison, Senior Vice President,
Finance, Chief Financial Officer, Treasurer
and Secretary
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
HOOVER'S, INC.,
A DELAWARE CORPORATION
May ___, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Registered Office. . . . . . . . . . . . . . . . . 1
Section 1.2 Other Offices. . . . . . . . . . . . . . . . . . . 1
ARTICLE II CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . 1
Section 3.1 Place of Meetings. . . . . . . . . . . . . . . . . 1
Section 3.2 Annual Meeting.. . . . . . . . . . . . . . . . . . 2
Section 3.3 Special Meetings.. . . . . . . . . . . . . . . . . 3
Section 3.4 Notice of Meetings . . . . . . . . . . . . . . . . 3
Section 3.5 Quorum . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.6 Adjournment and Notice of Adjourned Meetings . . . 4
Section 3.7 Voting Rights. . . . . . . . . . . . . . . . . . . 4
Section 3.8 Joint Owners of Stock. . . . . . . . . . . . . . . 5
Section 3.9 List of Stockholders . . . . . . . . . . . . . . . 5
Section 3.10 No Action Without Meeting. . . . . . . . . . . . . 5
Section 3.11 Organization.. . . . . . . . . . . . . . . . . . . 5
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.1 Number and Term of Office; Classification. . . . . 6
Section 4.2 Powers . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.3 Vacancies. . . . . . . . . . . . . . . . . . . . . 7
Section 4.4 Resignation. . . . . . . . . . . . . . . . . . . . 7
Section 4.5 Removal. . . . . . . . . . . . . . . . . . . . . . 7
Section 4.6 Meetings.. . . . . . . . . . . . . . . . . . . . . 7
(a) ANNUAL MEETINGS.. . . . . . . . . . . . . . . 7
(b) REGULAR MEETINGS. . . . . . . . . . . . . . . 7
(c) SPECIAL MEETINGS. . . . . . . . . . . . . . . 8
(d) TELEPHONE MEETINGS. . . . . . . . . . . . . . 8
(e) NOTICE OF MEETINGS. . . . . . . . . . . . . . 8
(f) WAIVER OF NOTICE. . . . . . . . . . . . . . . 8
Section 4.7 Quorum and Voting. . . . . . . . . . . . . . . . . 8
Section 4.8 Action Without Meeting . . . . . . . . . . . . . . 9
Section 4.9 Fees and Compensation. . . . . . . . . . . . . . . 9
Section 4.10 Committees.. . . . . . . . . . . . . . . . . . . . 9
(a) EXECUTIVE COMMITTEE.. . . . . . . . . . . . . 9
(b) OTHER COMMITTEES. . . . . . . . . . . . . . . 9
(c) TERM. . . . . . . . . . . . . . . . . . . . . 9
i
<PAGE>
(d) MEETINGS. . . . . . . . . . . . . . . . . . .10
Section 4.11 Organization . . . . . . . . . . . . . . . . . . .10
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 5.1 Officers Designated. . . . . . . . . . . . . . . .10
Section 5.2 Tenure and Duties of Officers. . . . . . . . . . .11
(a) GENERAL.. . . . . . . . . . . . . . . . . . .11
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS.11
(c) POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE
BOARD.. . . . . . . . . . . . . . . . . . . .11
(d) DUTIES OF THE CHIEF EXECUTIVE AND CHIEF
OPERATING OFFICERS. . . . . . . . . . . . . .11
(e) DUTIES OF PRESIDENT.. . . . . . . . . . . . .12
(f) DUTIES OF VICE PRESIDENTS.. . . . . . . . . .12
(g) DUTIES OF SECRETARY.. . . . . . . . . . . . .12
(h) ASSISTANT SECRETARIES.. . . . . . . . . . . .12
(i) DUTIES OF TREASURER.. . . . . . . . . . . . .13
(j) ASSISTANT TREASURERS. . . . . . . . . . . . .13
Section 5.3 Delegation of Authority. . . . . . . . . . . . . .13
Section 5.4 Resignations . . . . . . . . . . . . . . . . . . .13
Section 5.5 Removal. . . . . . . . . . . . . . . . . . . . . .13
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY
THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.1 Execution of Corporate Instruments . . . . . . . .14
Section 6.2 Voting of Securities Owned by the Corporation. . .14
ARTICLE VII SHARES OF STOCK. . . . . . . . . . . . . . . . . . . . . . . . .14
Section 7.1 Form and Execution of Certificates . . . . . . . .14
Section 7.2 Lost Certificates. . . . . . . . . . . . . . . . .15
Section 7.3 Transfers. . . . . . . . . . . . . . . . . . . . .15
Section 7.4 Fixing Record Dates. . . . . . . . . . . . . . . .15
Section 7.5 Registered Stockholders. . . . . . . . . . . . . .16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . .16
Section 8.1 Execution of Other Securities. . . . . . . . . . .16
ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 9.1 Declaration of Dividends . . . . . . . . . . . . .17
Section 9.2 Dividend Reserve . . . . . . . . . . . . . . . . .17
ARTICLE X FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
ii
<PAGE>
ARTICLE XI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 11.1 Directors and Executive Officers . . . . . . . . .17
Section 11.2 Other Officers, Employees and Other Agents . . . .18
Section 11.3 Good Faith.. . . . . . . . . . . . . . . . . . . .18
Section 11.4 Expenses . . . . . . . . . . . . . . . . . . . . .18
Section 11.5 Enforcement. . . . . . . . . . . . . . . . . . . .19
Section 11.6 Non-Exclusivity of Rights. . . . . . . . . . . . .19
Section 11.7 Survival of Rights . . . . . . . . . . . . . . . .19
Section 11.8 Insurance. . . . . . . . . . . . . . . . . . . . .19
Section 11.9 Amendments . . . . . . . . . . . . . . . . . . . .20
Section 11.10 Savings Clause . . . . . . . . . . . . . . . . . .20
Section 11.11 Certain Definitions. . . . . . . . . . . . . . . .20
ARTICLE XII NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 12.1 Notice to Stockholders . . . . . . . . . . . . . .21
Section 12.2 Notice to Directors. . . . . . . . . . . . . . . .21
Section 12.3 Address Unknown. . . . . . . . . . . . . . . . . .21
Section 12.4 Affidavit of Mailing . . . . . . . . . . . . . . .21
Section 12.5 Time Notices Deemed Given. . . . . . . . . . . . .21
Section 12.6 Failure to Receive Notice. . . . . . . . . . . . .21
Section 12.7 Notice to Person with Whom Communication Is
Unlawful . . . . . . . . . . . . . . . . . . . . .22
Section 12.8 Notice to Person with Undeliverable Address. . . .22
ARTICLE XIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .22
Section 13.1 Amendments . . . . . . . . . . . . . . . . . . . .22
Section 13.2 Application of Bylaws. . . . . . . . . . . . . . .22
ARTICLE XIV LOANS TO OFFICERS. . . . . . . . . . . . . . . . . . . . . . . .23
ARTICLE XV ANNUAL REPORT . . . . . . . . . . . . . . . . . . . . . . . . . .23
</TABLE>
iii
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AMENDED AND RESTATED
BYLAWS
OF
HOOVER'S INC.,
A DELAWARE CORPORATION
- -------------------------------------------------------------------------------
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the
corporation shall be the registered office named in the certificate of
incorporation of the corporation, or such other office as may be designated
from time to time by the Board of Directors in the manner provided by law.
SECTION 1.2 OTHER OFFICES. The corporation may have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require. The books of the corporation may be kept (subject to any
provision contained in the Delaware General Corporation Law) 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 these Bylaws.
ARTICLE II
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
corporation. Said seal may be used by causing it, or a facsimile thereof, to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 3.1 PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of
Directors, or, if not so designated, then at the principal executive offices
of the corporation.
<PAGE>
SECTION 3.2 ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of Directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may
be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting.
To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors; (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors; or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, such stockholder's notice must be delivered
to or mailed and received by the secretary of the corporation not later than
the close of business on the one hundred twentieth (120th) day nor earlier
than the close of business on the one hundred fiftieth (150th) day prior to
the first anniversary of the date of the proxy statement delivered to
stockholders in connection with the preceding year's annual meeting;
provided, however, that if either (i) the date of the annual meeting is
advanced more than thirty (30) days or delayed (other than as a result of
adjournment) more than sixty (60) days from such anniversary date or (ii) no
proxy statement was delivered to stockholders in connection with the
preceding year's annual meeting, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the ninetieth
(90th) day prior to such annual meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such annual meeting
or the close of business on the tenth (10th) day following the date on which
public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting;
(ii) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder; (iv) any
material interest of the stockholder in such business; and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), in such stockholder's capacity as a proponent of a stockholder
proposal. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with
the procedures set forth in this paragraph. The chairman of the annual
meeting shall, if the facts warrant, determine and declare at the meeting
that business was not properly brought before the meeting and in accordance
with the provisions of this paragraph, and, if the chairman should so
determine, the chairman shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of Directors at the meeting who complies with the notice procedures set
forth in this paragraph. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the corporation in accordance with the provisions of
paragraph (b) of this Section 3.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes
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to nominate for election or re-election as a Director: (A) the name, age,
business address and residence address of such person; (B) the principal
occupation or employment of such person; (C) the class and number of shares
of the corporation which are beneficially owned by such person; (D) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder; and (E)
any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of Directors, or is
otherwise required in each case pursuant to Regulation 14A under the 1934 Act
(including without limitation such person's written consent to being named in
the proxy statement, if any, as a nominee and to serving as a Director if
elected); and (ii) as to such stockholder giving notice, the information
required to be provided pursuant to paragraph (b) of this Section 3.2. At
the request of the Board of Directors, any person nominated by a stockholder
for election as a Director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a Director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph. The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if the chairman should so determine, the chairman shall so
declare at the meeting, and the defective nomination shall be disregarded.
SECTION 3.3 SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
only be called, for any purpose or purposes, by (i) the Chairman of the Board
of Directors, (ii) the President, (iii) the Chief Executive Officer or (iv)
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption).
(b) If a special meeting is called pursuant to paragraph (a) above
by any person or persons other than the Board of Directors, the request shall
be in writing, specifying the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board
of Directors, the President, or the Secretary of the corporation. No
business may be transacted at such special meeting otherwise than specified
in such notice. The Board of Directors shall determine the time and place of
such special meeting, which shall be held not less than thirty-five (35) nor
more than one hundred twenty (120) days after the date of the receipt of the
request. Upon determination of the time and place of the meeting, the
officer receiving the request shall cause notice to be given to the
stockholders entitled to vote, in accordance with the provisions of Section
3.4 of these Bylaws. If the notice is not given within sixty (60) days after
the receipt of the request, the person or persons requesting the meeting may
set the time and place of the meeting and give the notice. Nothing contained
in this paragraph (b) shall be construed as limiting, fixing or affecting the
time when a meeting of stockholders called by action of the Board of
Directors may be held.
SECTION 3.4 NOTICE OF MEETINGS. Except as otherwise provided by law
or the certificate of incorporation of the corporation, as the same may be
amended or restated from time
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to time and including any certificates of designation thereunder
(hereinafter, the "CERTIFICATE OF INCORPORATION"), written notice of each
meeting of stockholders shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting to each stockholder entitled
to vote at such meeting, such notice to specify the place, date, time and
purpose or purposes of the meeting. Notice of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects
as if due notice thereof had been given.
SECTION 3.5 QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the votes
cast, excluding abstentions, at any meeting at which a quorum is present shall
be valid and binding upon the corporation; provided, however, that Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
Directors. Where a separate vote by a class or classes is required, a majority
of the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority
(plurality, in the case of the election of Directors) of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class.
SECTION 3.6 ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from
time to time either by the chairman of the meeting or by the vote of a
majority of the shares casting votes, excluding abstentions. When a meeting
is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, the corporation
may transact any business which might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days or if after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 3.7 VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section
3.9 of these Bylaws, shall be entitled to vote at any meeting of
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stockholders. Every person entitled to vote or execute consents shall have
the right to do so either in person or by an agent or agents authorized by a
written proxy executed by such person or his duly authorized agent, which
proxy shall be filed with the Secretary at or before the meeting at which it
is to be used. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the
proxy provides for a longer period. Elections of Directors need not be by
written ballot, unless otherwise provided in the Certificate of Incorporation.
SECTION 3.8 JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; or (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of clause (c)
shall be a majority or even-split in interest.
SECTION 3.9 LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 3.10 NO ACTION WITHOUT MEETING. The stockholders of the
corporation may not take action by written consent without a meeting and must
take any actions at a duly called annual or special meeting.
SECTION 3.11 ORGANIZATION.
(a) At every meeting of stockholders, unless another officer of
the corporation has been appointed by the Board of Directors, the Chairman of
the Board of Directors, or, if a Chairman has not been appointed, is absent,
or designates the next senior officer present to so act, the President, or,
if the President is absent, the most senior Vice President present, or, in
the absence of any such officer, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person
or by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
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(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules
and regulations of the Board of Directors, if any, the chairman of the
meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are necessary, appropriate or convenient for the proper
conduct of the meeting, including, without limitation, establishing an agenda
or order of business for the meeting, rules and procedures for maintaining
order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation
and their duly authorized and constituted proxies and such other persons as
the chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot. Unless and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 4.1 NUMBER AND TERM OF OFFICE; CLASSIFICATION.
(a) The number of directors which shall constitute the whole Board
of Directors shall be determined from time to time by the Board of Directors
(provided that no decrease in the number of directors which would have the
effect of shortening the term of an incumbent director may be made by the
Board of Directors), provided that the number of directors shall be not less
than one (1). 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 or until such Director's earlier death, resignation or due
removal; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance
with the Delaware General Corporation Law. Directors need not be
stockholders unless so required by the Certificate of Incorporation. If, for
any reason, the Directors shall not have been elected at an annual meeting,
they may be elected as soon thereafter as convenient at a special meeting of
the stockholders called for that purpose in the manner provided in these
Bylaws.
(b) Effective as of the date on which the corporation becomes
subject to the reporting requirements of Sections 12(b) and 15(d) of the
Securities Exchange Act of 1934, the Directors of the corporation shall be
divided into three classes as nearly equal in size as is practicable, hereby
designated Class I, Class II and Class III. The initial Class I, Class II
and Class III directors shall be those directors designated and elected by
the Board of Directors. The term of office of the initial Class I directors
shall expire at the 2000 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. At each annual meeting of stockholders, directors to replace
those of the Class whose terms expire at such annual meeting
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shall be elected to hold office until the third succeeding annual meeting and
until 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.
SECTION 4.2 POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the
Certificate of Incorporation.
SECTION 4.3 VACANCIES. 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 any meeting of the
Board of Directors, or by a sole remaining Director. Each Director so
elected shall hold office for the unexpired portion of the term of the
Director whose place shall be vacant and until his or her successor shall
have been duly elected and qualified or until such Director's earlier death,
resignation or due removal. A vacancy in the Board of Directors shall be
deemed to exist under this Section 4.3 in the case of the death, removal or
resignation of any Director, or if the stockholders fail at any meeting of
stockholders at which Directors are to be elected (including any meeting
referred to in Section 4.6 below) to elect the number of Directors then
constituting the whole Board of Directors.
SECTION 4.4 RESIGNATION. Any Director may resign at any time by
delivering his or her written resignation to the Secretary, such resignation
to specify whether it will be effective at a particular time, upon receipt by
the Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more Directors shall resign from the Board
of Directors, effective at a future date, a majority of the Directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each Director so chosen shall
hold office for the unexpired portion of the term of the Director whose place
shall be vacated and until his successor shall have been duly elected and
qualified.
SECTION 4.5 REMOVAL. At a special meeting of stockholders called for
such purpose and in the manner provided herein, subject to any limitations
imposed by law or the Certificate of Incorporation, the Board of Directors,
or any individual Director, may only be removed from office for cause, and a
new Director or Directors shall be elected by a vote of stockholders holding
a majority of the outstanding shares entitled to vote at an election of
Directors.
SECTION 4.6 MEETINGS.
(a) ANNUAL MEETINGS. Unless the Board shall determine otherwise,
the annual meeting of the Board of Directors shall be held immediately before
or after the annual meeting of stockholders and at the place where such
meeting is held. No notice of an annual meeting of the Board of Directors
shall be necessary and such meeting shall be held for the purpose of electing
officers and transacting such other business as may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the principal
executive offices of the
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corporation. Unless otherwise restricted by the Certificate of
Incorporation, regular meetings of the Board of Directors may also be held at
any place within or without the State of Delaware which has been designated
by resolution of the Board of Directors or the written consent of all
directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, and subject to the notice requirements
contained herein, special meetings of the Board of Directors may be held at
any time and place within or without the State of Delaware whenever called by
the Chairman of the Board, the President or any two of the Directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Written notice of the time and place of
all special meetings of the Board of Directors shall be given at least one
(1) day before the date of the meeting. Such notice need not state the
purpose or purposes of such meeting, except as may otherwise be required by
law or provided for in the Certificate of Incorporation or these Bylaws.
Notice of any meeting may be waived in writing at any time before or after
the meeting and will be deemed waived by any Director by attendance thereat,
except when the Director attends the meeting solely for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever held, shall be as valid as though had at a meeting
duly held after regular call and notice, if a quorum be present and if,
either before or after meeting, each of the Directors not present shall sign
a written waiver of notice, or a consent to holding such meeting, or an
approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
SECTION 4.7 QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Article XI hereof, for which a quorum shall be one-third of the exact number
of Directors fixed from time to time in accordance with Section 4.1 hereof,
but not less than one (1), a quorum of the Board of Directors shall consist
of a majority of the exact number of directors fixed from time to time in
accordance with Section 4.1 of these Bylaws, but not less than one (1);
provided, however, at any meeting whether a quorum be present or otherwise, a
majority of the Directors present may adjourn from time to time until the
time fixed for the next regular meeting of the Board of Directors, without
notice other than by announcement at the meeting.
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(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by a vote of the
majority of the Directors present, unless a different vote is required by law,
the Certificate of Incorporation or these Bylaws.
SECTION 4.8 ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 4.9 FEES AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, for attendance at
each regular or special meeting of the Board of Directors and at any meeting
of a committee of the Board of Directors. Nothing herein contained shall be
construed to preclude any Director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving
compensation therefor.
SECTION 4.10 COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
specifically granted by the Board of Directors, shall have, and may exercise
when the Board of Directors is not in session, all powers of the Board of
Directors in the management of the business and affairs of the corporation
except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or
consolidation, to recommend to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets, to
recommend to the stockholders of the corporation a dissolution of the
corporation or a revocation of a dissolution, or to amend these Bylaws.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
paragraphs (a) and (b) of this Section 4.10 may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date
of his or her death or voluntary resignation from the committee or from the
Board of Directors. The
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Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members
of the committee. The Board of Directors may designate one or more Directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 4.10 shall be held at such times and
places as are determined by the Board of Directors, or by any such committee,
and when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
Director who is a member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given
in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends such special
meeting solely for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A majority of the authorized number of members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 4.11 ORGANIZATION. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. In the case of any
meeting, if there is no Chairman of the Board or if the Chairman is not
present, the Vice Chairman (if there be one) shall preside, or if there be no
Vice Chairman or if the Vice Chairman is not present, a chairman chosen by a
majority of the directors present shall act as chairman of such meeting. The
Secretary of the corporation or, in the absence of the Secretary, any person
appointed by the Chairman shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 5.1 OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, a Chairman of the
Board of Directors, a President, one or more executive and non-executive Vice
Presidents (any one or more of which executive Vice Presidents may be designated
as Executive Vice President or Senior Vice President or a similar title), a
Secretary and a Treasurer. The Board of Directors may, at its discretion,
create additional officers and assign such duties to those offices as it may
deem appropriate from time
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to time, which offices may include a Vice Chairman of the Board of Directors,
a Chief Executive Officer, a Chief Operating Officer, a Chief Financial
Officer one or more Assistant Secretaries and Assistant Treasurers, and one
or more other officers which may be created at the discretion of the Board of
Directors. Any one person may hold any number of offices of the corporation
at any one time unless specifically prohibited therefrom by law. The
salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors.
SECTION 5.2 TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board of Directors. Except for the Chairman
of the Board and the Vice Chairman of the Board, no officer need be a
director.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
Board of Directors and, unless the Chairman has designated the next senior
officer to so preside, at all meetings of the stockholders. The Chairman of
the Board of Directors shall perform other duties commonly incident to such
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(c) POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE BOARD. The
Board of Directors may but is not required to assign areas of responsibility
to a Vice Chairman of the Board, and, in such event, and subject to the
overall direction of the Chairman of the Board and the Board of Directors,
the Vice Chairman of the Board shall be responsible for supervising the
management of the affairs of the corporation and its subsidiaries within the
area or areas assigned and shall monitor and review on behalf of the Board of
Directors all functions within such corresponding area or areas of the
corporation and each such subsidiary of the corporation. In the absence of
the President, or in the event of the President's inability or refusal to
act, the Vice Chairman of the Board shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to
all the restrictions upon the President. Further, the Vice Chairman of the
Board shall have such other powers and duties as designated in accordance
with these Bylaws and as from time to time may be assigned to the Vice
Chairman of the Board by the Board of Directors or the Chairman of the Board.
(d) DUTIES OF THE CHIEF EXECUTIVE AND CHIEF OPERATING OFFICERS.
Subject to the control of the Board of Directors, the chief executive officer
shall have general executive charge, management and control, of the
properties, business and operations of the corporation with all such powers
as may be reasonably incident to such responsibilities; and subject to the
control of the chief executive officer, the chief operating officer shall
have general operating charge, management and control, of the properties,
business and operations of the corporation with all such powers as may be
reasonably incident to such responsibilities. The chief executive officer
and, if and to the extent designated by the chief executive officer or the
Board, the chief operating officer, may agree upon and execute all leases,
contracts, evidences of indebtedness
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and other obligations in the name of the corporation and may sign all
certificates for shares of capital stock of the corporation, and each shall
have such other powers and duties as are designated in accordance with these
Bylaws and as from time to time may be assigned to each by the Board of
Directors.
(e) DUTIES OF PRESIDENT. Unless the Board of Directors otherwise
determines and subject to the provisions of paragraph (d) above, the
President shall be either the chief executive officer or chief operating
officer of the corporation. Unless the Board of Directors otherwise
determines, he shall, in the absence of the Chairman of the Board, or Vice
Chairman of the Board, or if there be no Chairman of the Board or Vice
Chairman of the Board, preside at all meetings of the stockholders and
(should he be a director) of the Board of Directors. The President shall
have such other powers and duties as designated in accordance with these
Bylaws and as from time to time may be assigned to him by the Board of
Directors.
(f) DUTIES OF VICE PRESIDENTS. Vice Presidents, by virtue of
their appointment as such, shall not necessarily be deemed to be executive
officers of the corporation, such status as an executive officer only being
conferred if and to the extent such Vice President is placed in charge of a
principal business unit, division or function (E.G., sales, administration or
finance) or performs a policy-making function for the corporation (within the
meaning of Section 16 of the 1934 Act and the rules and regulations
promulgated thereunder). Each executive or senior Vice President shall at
all times possess, and upon the authority of the President or the chief
executive officer any non-executive Vice President shall from time to time
possess, power to sign all certificates, contracts and other instruments of
the corporation, except as otherwise limited pursuant to Article VI hereof or
by the Chairman of the Board, the President, chief executive officer or the
Vice Chairman of the Board. The Vice Presidents shall perform other duties
commonly incident to their office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(g) DUTIES OF SECRETARY. The Secretary shall keep the minutes of
all meetings of the Board of Directors, committees of the Board of Directors
and the stockholders, in books provided for that purpose; shall attend to the
giving and serving of all notices; may in the name of the corporation affix
the seal of the corporation to all contracts and attest the affixation of the
seal of the corporation thereto; may sign with the other appointed officers
all certificates for shares of capital stock of the corporation; and shall
have charge of the certificate books, transfer books and stock ledgers, and
such other books and papers as the Board of Directors may direct, all of
which shall at all reasonable times be open to inspection of any director
upon application at the office of the corporation during business hours. The
Secretary shall perform all other duties given in these Bylaws and other
duties commonly incident to such office and shall also perform such other
duties and have such other powers as the Board of Directors shall designate
from time to time. The President may direct any Assistant Secretary to
assume and perform the duties of the Secretary in the absence or disability
of the Secretary, and each Assistant Secretary shall perform other duties
commonly incident to such office and shall also perform such other duties and
have such other powers as the Board of Directors or the President, shall
designate from time to time.
(h) ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to such offices, together with such
other powers and duties as
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designated in these Bylaws and as from time to time may be assigned to an
Assistant Secretary by the Board of Directors, the Chairman of the Board, the
President, the Vice Chairman of the Board, or the Secretary. The Assistant
Secretaries shall exercise the powers of the Secretary during that officer's
absence or inability or refusal to act.
(i) DUTIES OF TREASURER. The Treasurer shall keep or cause to be
kept the books of account of the corporation in a thorough and proper manner
and shall render statements of the financial affairs of the corporation in
such form and as often as required by the Board of Directors, the Chairman of
the Board, the Vice President of the Board or the President. The Treasurer,
subject to the order of the Board of Directors, shall have the custody of all
funds and securities of the corporation. The Treasurer shall perform other
duties commonly incident to such office and shall also perform such other
duties and have such other powers as the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board or the President shall designate
from time to time. The Chief Financial Officer of the corporation may, but
need not, serve as the Treasurer.
(j) ASSISTANT TREASURERS. Each Assistant Treasurer shall have the
usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may
be assigned to each Assistant Treasurer by the Board of Directors, the
Chairman of the Board, the President, the Vice Chairman of the Board, or the
Treasurer. The Assistant Treasurers shall exercise the powers of the
Treasurer during that officer's absence or inability or refusal to act.
SECTION 5.3 DELEGATION OF AUTHORITY. For any reason that the Board of
Directors may deem sufficient, the Board of Directors may, except where
otherwise provided by statute, delegate the powers or duties of any officer to
any other person, and may authorize any officer to delegate specified duties of
such office to any other person. Any such delegation or authorization by the
Board shall be effected from time to time by resolution of the Board of
Directors.
SECTION 5.4 RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is
specified therein, in which event the resignation shall become effective at
such later time. Unless otherwise specified in such notice, the acceptance
of any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the
corporation under any contract with the resigning officer.
SECTION 5.5 REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the vote or written consent of a
majority of the Directors in office at the time, or by any committee or
superior officers upon whom such power of removal may have been conferred by
the Board of Directors.
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ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 6.1 EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on
behalf of the corporation any corporate instrument or document, or to sign on
behalf of the corporation the corporate name without limitation, or to enter
into contracts on behalf of the corporation, except where otherwise provided
by law or these Bylaws, and such execution or signature shall be binding upon
the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or
endorsed by the Chairman of the Board of Directors, the President, Chief
Executive Officer or any executive Vice President, and upon the authority
conferred by the President, Chief Executive Officer, or any non-executive
Vice President, and by the Secretary or Chief Financial Officer, if any be
designated, or Treasurer or any Assistant Secretary or Assistant Treasurer.
All other instruments and documents requiring the corporate signature, but
not requiring the corporate seal, may be executed as aforesaid or in such
other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
SECTION 6.2 VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation
for itself, or for other parties in any capacity, shall be voted, and all
proxies with respect thereto shall be executed, by the person authorized so
to do by resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman or Vice Chairman of the Board of Directors,
Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 7.1 FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate
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signed by or in the name of the corporation by the Chairman or Vice Chairman
of the Board of Directors, the Chief Executive Officer, the President or any
Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, certifying the number of shares and the
class or series owned by him in the corporation. Where such certificate is
countersigned by a transfer agent other than the corporation or its employee,
or by a registrar other than the corporation or its employee, any other
signature on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued with
the same effect as if he were such officer, transfer agent, or registrar at
the date of issue.
SECTION 7.2 LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore
issued by the corporation alleged to have been lost, stolen, or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen, or destroyed. The corporation may
require, as a condition precedent to the issuance of a new certificate or
certificates, the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require or to give the corporation a surety bond in such
form and amount as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
SECTION 7.3 TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only on its books by the holders thereof, in person or by
attorney duly authorized and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. Upon surrender to
the corporation or a transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the corporation
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books. The Board of
Directors shall have the power and authority to make all such other rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock
of the corporation.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the Delaware General Corporation Law.
SECTION 7.4 FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining
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stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
fixed by the Board of Directors, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto.
SECTION 7.5 REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 8.1 EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 7.1), may be signed by the Chairman or Vice Chairman of
the Board of Directors, the Chief Executive Officer, the President or any
Vice President, or such other person as may be authorized by the Board of
Directors, and the corporate seal impressed thereon or a facsimile of such
seal imprinted thereon and attested by the signature of the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided,
however, that where any such bond, debenture or other corporate security
shall be authenticated by the manual signature of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or
an Assistant Treasurer of the corporation or such other person as may be
authorized by the Board of Directors, or bear imprinted thereon the facsimile
signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have
ceased to be such officer before any bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond,
debenture or other corporate security nevertheless may be adopted by the
corporation
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and issued and delivered as though the person who signed the same or whose
facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 9.1 DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
SECTION 9.2 DIVIDEND RESERVE. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Board of Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the Board of
Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE X
FISCAL YEAR
The fiscal year and of the corporation shall be March 31, unless
otherwise fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS
SECTION 11.1 DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its Directors and executive officers to the fullest extent not
prohibited by the Delaware General Corporation Law; PROVIDED, HOWEVER, that
the corporation may limit the extent of such indemnification by individual
contracts with its Directors and executive officers; and, PROVIDED, FURTHER,
that the corporation shall not be required to indemnify any Director or
executive officer in connection with any proceeding (or part thereof)
initiated by such person or any proceeding by such person against the
corporation or its Directors, officers, employees or other agents unless (i)
such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation, or
(iii) such indemnification is provided
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by the corporation, in its sole discretion, pursuant to the powers vested in
the corporation under the Delaware General Corporation Law.
SECTION 11.2 OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
SECTION 11.3 GOOD FAITH.
(a) For purposes of any determination under this Article XI, a
Director or executive officer shall be deemed to have acted in good faith and
in a manner such officer reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe that such officer's
conduct was unlawful, if such officer's action is based on information,
opinions, reports and statements, including financial statements and other
financial data, in each case prepared or presented by:
(i) one or more officers or employees of the corporation whom
the Director or executive officer believed to be reliable and competent in
the matters presented;
(ii) counsel, independent accountants or other persons as to
matters which the Director or executive officer believed to be within such
person's professional competence; and
(iii) with respect to a Director, a committee of the Board
upon which such Director does not serve, as to matters within such
committee's designated authority, which committee the Director believes to
merit confidence; so long as, in each case, the Director or executive
officer acts without knowledge that would cause such reliance to be
unwarranted.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which such person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to
any criminal proceeding, that such person had reasonable cause to believe
that his conduct was unlawful.
(c) The provisions of this Section 11.3 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the
Delaware General Corporation Law.
SECTION 11.4 EXPENSES. The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person
is not entitled to be indemnified under this Article XI or otherwise.
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Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 11.5 of this Article XI, no advance shall be made by the corporation
if a determination is reasonably and promptly made (i) by the Board of
Directors by a majority vote of a quorum consisting of Directors who were not
parties to the proceeding, or (ii) if such quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the best
interests of the corporation.
SECTION 11.5 ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
executive officers under this Article XI shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a
contract between the corporation and the Director or executive officer. Any
right to indemnification or advances granted by this Article XI to a Director
or executive officer shall be enforceable by or on behalf of the person
holding such right in any court of competent jurisdiction if (i) the claim
for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request
therefor. The claimant in such enforcement action, if successful in whole or
in part, shall also be entitled to be paid the expense of prosecuting his
claim. The corporation shall be entitled to raise as a defense to any such
action that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law for the corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because such person has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.
SECTION 11.6 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article XI shall not be exclusive of any other right which
such person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts
with any or all of its Directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
SECTION 11.7 SURVIVAL OF RIGHTS. The rights conferred on any person
by this Article XI shall continue as to a person who has ceased to be a
Director, officer, employee or other agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
SECTION 11.8 INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase
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insurance on behalf of any person required or permitted to be indemnified
pursuant to this Article XI.
SECTION 11.9 AMENDMENTS. Any repeal or modification of this Article
XI shall only be prospective and shall not affect the rights under this
Article XI in effect at the time of the alleged occurrence of any action or
omission to act that is the cause of any proceeding against any agent of the
corporation.
SECTION 11.10 SAVINGS CLAUSE. If this Article XI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the corporation shall nevertheless indemnify each Director and executive
officer to the full extent not prohibited by any applicable portion of this
Article XI that shall not have been invalidated, or by any other applicable
law.
SECTION 11.11 CERTAIN DEFINITIONS. For the purposes of this Article
XI, the following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Article XI with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(d) References to a "director," "officer," "employee," or "agent"
of the corporation shall include without limitation, situations where such
person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(e) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director, officer,
employee or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to an
employee
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benefit plan, its participants, or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Article XI.
ARTICLE XII
NOTICES
SECTION 12.1 NOTICE TO STOCKHOLDERS. Unless the Certificate of
Incorporation requires otherwise, whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given
in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to such stockholder's last known post office address
as shown by the stock record of the corporation or its transfer agent.
SECTION 12.2 NOTICE TO DIRECTORS. Any notice required to be given to
any Director may be given by the method stated in Section 12.1, or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such Director shall
have filed in writing with the Secretary, or, in the absence of such filing,
to the last known post office address of such Director. It shall not be
necessary that the same method of giving notice be employed in respect of all
Directors, but one permissible method may be employed in respect of any one
or more, and any other permissible method or methods may be employed in
respect of any other or others.
SECTION 12.3 ADDRESS UNKNOWN. If no address of a stockholder or
Director be known, notice may be sent to the principal executive officer of
the corporation.
SECTION 12.4 AFFIDAVIT OF MAILING. An affidavit of mailing, executed
by a duly authorized and competent employee of the corporation or its
transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, or Director or Directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall be
conclusive evidence of the statements therein contained.
SECTION 12.5 TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at the time of transmission.
SECTION 12.6 FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any Director
may exercise any power or right, or enjoy any privilege, pursuant to any
notice sent such person in the manner above provided, shall not be affected
or extended in any manner by the failure of such stockholder or such Director
to receive such notice.
21
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SECTION 12.7 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person
shall not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
SECTION 12.8 NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate
of Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings to
such person during the period between such two consecutive annual meetings,
or (ii) all, and at least two, payments (if sent by first class mail) of
dividends or interest on securities during a twelve-month period, have been
mailed addressed to such person at such person's address as shown on the
records of the corporation and have been returned undeliverable, the giving
of such notice to such person shall not be required. Any action or meeting
which shall be taken or held without notice to such person shall have the
same force and effect as if such notice had been duly given. If any such
person shall deliver to the corporation a written notice setting forth such
person's then current address, the requirement that notice be given to such
person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to
be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 13.1 AMENDMENTS. Except as otherwise set forth in Section
11.9 of these Bylaws, these Bylaws may be amended or repealed and new Bylaws
adopted by a majority of the Board of Directors or by the 66 2/3% of all
stockholders, voting together, entitled to vote.
SECTION 13.2 APPLICATION OF BYLAWS. In the event that any provisions
of these Bylaws is or may be in conflict with any law of the United States,
of the state of incorporation of the corporation or of any other governmental
body or power having jurisdiction over this corporation, or over the subject
matter to which such provision of these Bylaws applies, or may apply, such
provision of these Bylaws shall be inoperative to the extent only that the
operation thereof unavoidably conflicts with such law, and shall in all other
respects be in full force and effect.
22
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ARTICLE XIV
LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the
Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this Bylaw shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under statute.
ARTICLE XV
ANNUAL REPORT
At such time as the corporation becomes subject to the reporting
requirements of Rules 12(b) and 15(d) of the Securities Exchange Act of 1934,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include
a balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied
by any report thereon of independent accounts or, if there is no such report,
the certificate of an authorized officer of the corporation that such
statements were prepared without audit from the books and records of the
corporation. Such report shall be sent to stockholders at least fifteen (15)
days prior to the next annual meeting of stockholders after the end of the
fiscal year to which it relates. If and so long as there are fewer than 100
holders of record of the corporation's shares, the requirement of sending of
an annual report to the stockholders of the corporation is hereby expressly
waived.
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HOOVER'S, INC.
FORM OF WARRANT AGREEMENT
[Date]
To: The persons listed on Schedule I hereto
Hoover's, Inc., a Delaware corporation (the "Company"), hereby issues to
you stock purchase warrants entitling the holders to purchase the number of
units set forth opposite your name on Schedule I hereto, which aggregate ______
units, each of which is currently equal to one share of Common Stock of the
Company (a "Unit"), to be evidenced by an instrument in the form attached hereto
as Exhibit A (hereinafter referred to as the "Warrant", and the Warrant and all
instruments hereafter issued in replacement, substitution, combination, or
subdivision thereof being hereinafter collectively referred to as the
"Warrants"). The number and character of shares of Common Stock comprising a
Unit and purchasable upon exercise of the Warrants are subject to adjustment as
provided in Section 6 below. The Warrants will be exercisable as to all or any
lesser number of Units covered thereby, subject to the restrictions of Section 4
below, at the Purchase Price per Unit as defined below, at any time and from
time to time after the date hereof and ending at 5:00 p.m., Austin, Texas time,
on the Expiration Date (as defined below).
The issuance of the Warrants shall take place at such time and place as
you and the Company mutually agree.
1. DEFINITIONS.
As used herein, the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following respective meanings:
(a) The term "Act" refers to the Securities Act of 1933 and the
Securities Act of 1934, collectively, as amended from time to time.
(b) The term "Affiliate" refers (i) with respect to an individual, to
his parents, siblings, spouse, his or their lineal descendants, and any
corporation, partnership, trust, and other entity controlled by any such
affiliates, and (ii) with respect to a corporation, partnership, trust, or other
entity, to persons directly or indirectly controlling, controlled by, or under
common control therewith, including officers and directors.
(c) The term "Commission" refers to the Securities and Exchange
Commission.
(d) The term "Common Stock" refers to the Company's common stock
authorized in its Certificate of Incorporation as of the Effective Date, $0.01
par value.
(e) The term "Effective Date" shall mean the date first set forth
above.
(f) The term "Exercise Date" shall have the meaning set forth in
Section 5 below.
(g) The term "Expiration Date" shall mean ________________.
<PAGE>
(h) The term "Fair Market Value" on the day shall mean such amount
determined in good faith by the Board of Directors of the Company; provided,
however, that if the Underlying Securities are traded on the NASDAQ quotation
system or are listed on an established U.S. stock exchange or exchanges, such
Fair Market Value shall be deemed to be the closing price of the Underlying
Securities as reported for that day in The Wall Street Journal listing of
composite transactions for such quotation system or stock exchange or, if no
sale of Underlying Securities shall have been made on any quotation system or
stock exchange on that day, on the next preceding day on which there was a sale
of such security reported.
(i) The term "Other Securities" refers to any securities of the
Company or any other person (corporate or other-wise), any property (including
cash), and any right to receive any securities or property that the holders of
the Warrants at any time shall be entitled to receive, or shall have received,
upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock or Other Securities pursuant to Section 6 hereof
or otherwise; provided, however, that Other Securities does not include cash
dividends payable to holders of Common Stock or Other Securities, which cash
dividend was payable to holders of record prior to the Exercise Date.
(j) The term "Purchase Price" shall mean $_______ per Unit.
(k) The term "Stockholders Agreement" refers to that certain
Stockholders Agreement, dated August 10, 1990, between the Company and certain
of its stockholders (the "Stockholders"), which was amended by Amendment No 1 to
Stockholders Agreement, dated March 25, 1994, Amendment No. 2 to Stockholders
Agreement, dated May, 1995, Amendment No. 3 to Stockholders Agreement, dated
June 9, 1995, and Amendment No. 4 to Stockholders Agreement, dated November 11,
1996, among the Company and the Stockholders as amended from time to time
pursuant to the terms thereof.
(l) The term "Warrantholder" refers to the persons listed on Schedule
I hereto, and any transferee or transferees of permitted by Section 3(a) below.
(m) The term "Underlying Securities" refers to the shares of Common
Stock (and Other Securities) issuable under this Warrant Agreement and the
Warrants pursuant to the exercise, in whole or in part, of the Warrants.
2. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to you as follows:
(a) EXISTENCE. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation.
(n) CORPORATE AND OTHER ACTION. The Company has all requisite power
and authority (corporate and other), and has taken all necessary corporate
action, to authorize, execute, deliver, and perform this Warrant Agreement; to
execute, issue, sell, and deliver the Warrants and a certificate or certificates
evidencing the Warrants; to authorize and reserve for issuance and, upon payment
from time to time of the Purchase Price, to issue, sell, and deliver the shares
of the
HOOVER'S, INC.
WARRANT AGREEMENT - PAGE 2
<PAGE>
Underlying Securities issuable upon exercise of the Warrants; and to perform
all of its obligations under this Warrant Agreement and the Warrants. This
Warrant Agreement has been duly executed and delivered by the Company and is
a legal, valid, and binding agreement of the Company enforceable in
accordance with its terms. No authorization, approval, consent, or other
order of any regulatory authority is required for such authorization, issue,
or sale.
(o) SHARES AUTHORIZED. There are sufficient authorized and unissued
shares of Common Stock for issuance upon the exercise of all the Warrants issued
or issuable pursuant to this Warrant Agreement.
(p) NO VIOLATION. The execution and delivery of this Warrant
Agreement, the consummation of the transactions herein contemplated, and the
compliance with the terms and provisions of this Warrant Agreement and of the
Warrants will not conflict with, or result in a breach of, or constitute a
default or an event permitting acceleration under, any statute, the Certificate
of Incorporation or Bylaws of the Company, or any indenture, mortgage, deed of
trust, note, bank loan, credit agreement, franchise, license, lease, permit, or
any other agreement, understanding, instrument, judgment, decree, order, law,
statute, rule, or regulation to which the Company is a party or by which it is
bound.
(q) VALIDITY. The Warrant, when delivered to you, will be duly
authorized, executed, and delivered and will be a legal, valid, and binding
obligation of the Company enforceable in accordance with its terms. The shares
of Underlying Securities of the Company, when delivered to you upon payment of
the Purchase Price, will I be duly authorized and validly issued and
outstanding, fully paid and nonassessable, and free of preemptive rights.
3. COMPLIANCE WITH THE ACT.
(a) PURCHASE FOR INVESTMENT: TRANSFERABILITY. You represent and
warrant to the Company that the Warrants and the shares of Underlying Securities
are being acquired for investment and not with a view to the distribution or
resale thereof You agree not to make any sale, assignment, hypothecation, or
other disposition of the Warrant except pursuant to the Stockholders Agreement,
while you are a party thereto, as in effect on the date of such disposition, and
in compliance with the Act and the Company's Certificate of Incorporation and
Bylaws. The Warrant shall be transferred upon receipt by the Company of the
Warrant, with the Form of Assignment properly executed, and the assignee to whom
the Warrant has been transferred shall be treated for all purposes as the holder
of record of the Warrant. As soon as practicable, the Company, at
Warrantholder's expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of, and delivered to, such assignee,
a Warrant in the form attached hereto as Exhibit A.
(r) LEGEND. Each certificate representing Underlying Securities shall
be imprinted with any and all legends provided for in the Bylaws Of the Company
and the Stockholders Agreement, as in effect as of the date of issuance of such
certificate (if applicable), in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES
HOOVER'S, INC.
WARRANT AGREEMENT - PAGE 3
<PAGE>
LAWS OF ANY STATE, AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO HOOVER'S, INC. (THE
"COMPANY") TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION
THEREUNDER IS AVAILABLE.
4. EXERCISE OF WARRANTS: PARTIAL EXERCISE.
(a) EXERCISE IN FULL. Warrants may be exercised in full by the
Warrantholder by surrender of the Warrant, with the Form of Subscription at the
end thereof and the Stockholders Agreement, as in effect on the date of such
exercise, each duly executed by such Warrantholder, to the Company at its
principal executive offices, accompanied by certified or bank cashier's check
payable to the order of the Company in the amount obtained by multiplying the
number of Units represented by the respective Warrant or Warrants by the
Purchase Price per Unit.
(s) PARTIAL EXERCISE. Each Warrant may be exercised in part by the
Warrantholder by surrender of the Warrant, with the Form of Subscription at the
end thereof and the Stockholders Agreement, as in effect on the date of such
exercise, each duly executed by such Warrantholder, in the manner and at the
place provided in Subsection 4(a) hereof, accompanied by certified or bank
cashier's check payable to the order of the Company in the amount obtained by
multiplying the number of Units designated by the Warrantholder in the form of
subscription attached to the Warrant by the Purchase Price per Unit. Upon any
such partial exercise, the Company at its expense will forthwith issue and
deliver to the Warrantholder a new Warrant of like tenor, in the name of the
Warrantholder thereof, covering the number of Units not purchased pursuant to
this Subsection 4(b).
5. DELIVERY OF STOCK CERTIFICATES ETC., ON EXERCISE. Any exercise of the
Warrants pursuant to Section 4 hereof shall be deemed to have been effected
immediately prior to the close of business on the date on which the Warrants
with the completed Form of Subscription, a certified check for the aggregate
Purchase Price, and the executed Stockholders Agreement shall have been received
by the Company (the "Exercise Date"). At such time, the person or persons in
whose name or names any certificate or certificates for shares of Underlying
Securities shall be issuable upon such exercise shall be deemed to have become
and shall be treated for all purposes as the holder or holders of record of the
shares of Underlying Securities so purchased. As soon as practicable after any
Exercise Date, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of, and delivered
to, the purchasing Warrantholder, a certificate or certificates for the number
of fully paid and nonassessable shares of the Underlying Securities to which
such Warrantholder shall be entitled upon such exercise, plus in lieu of any
fractional share to which such Warrantholder would otherwise be entitled, cash
in an amount determined pursuant to Subsection 7(h) hereof. Such certificate
shall contain the legends required by Subsection 3(b) hereof.
6. ANTI-DILUTION PROVISIONS. The Warrants are subject to the following
terms and conditions:
(a) STOCK DISTRIBUTIONS, SPLITS, AND COMBINATIONS; ADJUSTMENTS. In
case (i) the outstanding shares of the Common Stock (or Other Securities) shall
be subdivided into a greater number of shares, (ii) a non-cash dividend or
distribution in Common Stock (or Other Securities) shall be paid in respect of
Common Stock (or Other Securities), or (iii) the outstanding shares of
HOOVER'S, INC.
WARRANT AGREEMENT - PAGE 4
<PAGE>
Common Stock (or Other Securities) shall be combined into a smaller number of
shares thereof, the number of shares of Underlying Securities per Unit
subsequent to such subdivision or combination or at the record date of such
dividend or distribution shall, simultaneously with the effectiveness of such
subdivision or combination or immediately after the record date of such
dividend or distribution, be equal to the number of shares of Common Stock
and Other Securities a holder would have owned and had a right to receive as
a result of such subdivision, combination, dividend, or distribution if such
holder had actually held of record immediately prior to the effectiveness of
such subdivision or combination or immediately prior to the record date of
such dividend or distribution the number of shares of Underlying Securities
purchasable per Unit immediately prior to the effectiveness of such
subdivision or combination or the record date of such dividend or
distribution.
(b) REORGANIZATIONS AND RECAPITALIZATIONS. In case the Company shall
be reorganized or recapitalized by reclassifying its outstanding Common Stock
(or Other Securities) into a stock with different par value or by changing its
outstanding Common Stock (or Other Securities) with par value to stock without
par value, then, as a condition of such reorganization or recapitalization, as
the case may be, immediately after the effective time of such reorganization or
recapitalization Warrantholder shall thereafter have the right to purchase, upon
the terms and conditions specified herein, the number of shares of Underlying
Securities per Unit that a holder would have owned and had the right to receive
as a result of such reorganization or recapitalization if such holder had
actually held of record immediately prior to the date of such reorganization or
recapitalization the number of shares of Underlying Securities purchasable per
Unit immediately prior to such reorganization or recapitalization. If any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to any other person, shall be effected in
such a way that holders of Common Stock and Other Securities shall be entitled
to receive stock, securities, or assets with respect to or in exchange for
Common Stock and Other Securities, then, as a condition of such consolidation,
merger, or sale, immediately after the effective time of such consolidation,
merger, or sale the Warrantholder shall have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this Warrant
Agreement the number of shares of Underlying Securities per Unit that a holder
would have owned and had a right to receive as a result of such consolidation,
merger, or sale if such holder had actually held immediately prior to the record
date of such consolidation, merger, or sale the number of shares of Underlying
Securities purchasable per Unit immediately prior to such consolidation, merger,
or sale.
(c) NOTICE OF CHANGE OF UNDERLYING SECURITIES. Whenever the number of
shares of Underlying Securities per Unit or the kind or amount of securities or
assets purchasable pursuant to the Warrants shall be adjusted pursuant to any of
the provisions of this Warrant Agreement, or the number of shares of Underlying
Securities or the kind or amount of securities or assets receivable upon
conversion of Underlying Securities shall be adjusted pursuant to the terms
thereof, the Company shall forthwith thereafter cause to be sent to
Warrantholder a notice setting forth such adjustment and also setting forth in
detail the facts requiring such adjustments.
(d) ADDITIONAL NOTICES. In case:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
HOOVER'S, INC.
WARRANT AGREEMENT - PAGE 5
<PAGE>
(ii) the Company shall authorize the granting to the holders of
its Common Stock of rights to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(iii) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation,
or winding up of the Company;
then the Company shall cause to be delivered to Warrantholder, at least twenty
(20) days prior to the applicable record date hereinafter specified, a notice
stating (A) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution or rights are to be determined, or (B) the date on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up.
7. FURTHER COVENANTS OF THE COMPANY.
(a) DILUTION OR IMPAIRMENTS. The Company will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the Warrants or of this Warrant Agreement, but win at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Warrantholder against dilution or other impairment. Without
limiting the generality of the foregoing, the Company:
(i) shall at all times have authorized, reserve and keep
available, solely for issuance and delivery upon the exercise of the Warrants,
free from preemptive rights, all shares of the Underlying Securities from time
to time issuable upon the exercise of the Warrants and shall ensure that the par
value per share, if any, of the Underlying Securities is at all times equal to
or less than the then effective Purchase Price per share of Underlying
Securities; and
(ii) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock and Other Securities upon the exercise
of the Warrants from time to time outstanding
(b) TITLE TO STOCK. All shares of the Underlying Securities delivered
upon the exercise of the Warrants shall be validly issued, fully paid, and
nonassessable; the Warrantholder shall receive good and marketable title to the
Underlying Securities, free and clear of all voting and
HOOVER'S, INC.
WARRANT AGREEMENT - PAGE 6
<PAGE>
other trust arrangements, liens, encumbrances, equities, and claims
whatsoever, except the restrictions on transfers set forth in the Bylaws of
the Company and the Stockholders Agreement; and the Company shall have paid
all taxes, if any, in respect of the issuance thereof.
(c) REGISTRATION OF UNDERLYING SECURITIES. If at any time the Company
proposes or determines to register any Common Stock held by a stockholder of the
Company (other than pursuant to registration on Form S-8 or any successor form)
in an underwritten offering to the public for cash, the Company will (a)
promptly give written notice thereof to the Warrantholder and (b) include in
such registration (and any related qualification under blue sky laws or other
state securities laws), and in the underwriting involved therein, all the Common
Stock specified by the Warrantholder in a written request, received by the
Company within thirty (30) days after the mailing of such written notice by the
Company; provided that if the managing underwriters advise the Company in
writing. that in their opinion marketing factors require a limitation in the
number of securities to be included, the Company will include in such
registration (i) first, any Common Stock offered by the Company, and (ii)
second, if all the Company's Common Stock is included in the registration, the
number of shares of Common Stock requested to be included that, in the opinion
of such underwriters, can be sold, pro rata among the respective stockholders of
the Company on the basis of the amount of Common Stock owned by each such
stockholder. The Company shall not grant any registration rights inconsistent
with the rights granted herein. The price at which the Warrantholder's Common
Stock being registered in such offering are offered to the public shall be equal
to the price at which the Company's Common Stock is offered to the public in
such registration. No securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
The Warrantholder shall be required to pay underwriting discounts and
commissions, pay expenses of the offering, provide indemnification to the
Company and the underwriters, provide a lockup agreement, and comply with such
other terms and conditions, in each case, only to the extent required of the
other stockholders selling Common Stock pursuant to such offering.
(d) LISTING ON SECURITIES EXCHANGE. If the Company at any time shall
list any Common Stock on any national securities exchange, the Company will, at
its expense, simultaneously list on such exchange, upon official notice of
issuance upon the exercise of the Warrants, and maintain such listing of, all
shares of Common Stock included in the Underlying Securities from time to time
issuable upon the exercise of the Warrants or upon conversion of Underlying
Securities, and the Company will so list on any national securities exchange and
will maintain such listing of, any Other Securities if and at the time that any
securities of such class shall be listed on such national securities exchange by
the Company.
(e) REMEDIES. The Company stipulates that the remedies at law of the
Warrantholder or any holder of Underlying Securities in the event of any default
or threatened default by the Company in the performance of or compliance with
any of the terms of this Warrant Agreement or the Warrants are not and will not
be adequate and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or in the Warrants or by
an injunction against a violation of any of the terms hereof or thereof or
otherwise.
(f) EXCHANGE OF WARRANTS. Subject to Subsection 3(a) and Section 4
hereof, upon surrender for exchange of the Warrant to the Company, the Company
at its expense will
HOOVER'S, INC.
WARRANT AGREEMENT - PAGE 7
<PAGE>
promptly issue and deliver to or upon the order of the holder thereof a new
Warrant of like tenor, in the name of such holder or as such holder (upon
payment by such Warrantholder of any applicable transfer expenses and taxes)
may direct, calling in the aggregate for the purchase of the number of shares
of the Underlying Securities called for on the face or faces of the Warrant
so surrendered.
(g) REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of such mutilation, upon surrender and cancellation
of such Warrant, the Company, at the expense of the Warrantholder, will execute
and deliver, in lieu thereof, a new Warrant of like tenor.
(h) REPORTING BY THE COMPANY. The Company agrees that during the term
of the Warrants and as long as you hold Underlying Securities, it will use
reasonable efforts to keep current in the filing of all forms and other
materials, if any, which it may be required to file with the appropriate
regulatory authority pursuant to the Act and all other forms and reports
required to be filed with any regulatory authority having jurisdiction over the
Company.
(i) FRACTIONAL SHARES. No fractional shares of Underlying Securities
are to be issued upon the exercise of any Warrant, but the Company shall pay a
cash adjustment in respect of any fraction of a share that would otherwise be
issuable in an amount equal to such fraction multiplied by the Fair Market Value
per share of Underlying Securities on the Exercise Date.
8. OTHER WARRANTHOLDERS. The Warrants are issued upon the following terms,
to all of which each holder or owner thereof by the taking thereof consents and
agrees: (a) any person who shall become a transferee, within the limitations on
transfer imposed by Subsection 3(a) hereof, shall take such Warrant subject to
the provisions of Subsection 3(a) hereof and the other provisions hereof and
thereupon shall be authorized to represent itself as absolute owner thereof and
subject to the restrictions contained in this Warrant Agreement, (b) the Company
may treat the registered holder thereof as the absolute owner thereof for all
purposes, notwithstanding any notice to the contrary, and (c) all references to
the words "you" and "your" in this Warrant Agreement shall be deemed to apply
with equal effect to any person to whom a Warrant has been transferred in
accordance', with the terms hereof, and where appropriate, to any person holding
shares of the Underlying Securities.
9. INDEMNIFICATION. The Company agrees to indemnify and to hold harmless
the Warrantholder from any liability incurred by any such Warrantholder as a
result of the Company's breach of this Agreement. Warrantholder agrees to
indemnify and to hold harmless the Company from any liability incurred by the
Company as a result of Warrantholder's breach of this Agreement.
10. MISCELLANEOUS. All notices, certificates, and other communications from
or at the request of the Company to any Warrantholder shall be deemed
effectively given upon (i) personal delivery or delivery by nationally
recognized overnight courier to the party to be notified, (ii) delivery by
facsimile transmission, or (iii) deposit with the United States Post Office by
registered, or certified mail, postage prepaid, to the facsimile phone number or
address, as the
HOOVER'S, INC.
WARRANT AGREEMENT - PAGE 8
<PAGE>
case may be, as may have been furnished to the Company in writing by such
Warrantholder. This Warrant Agreement and any of the terms hereof may be
changed, waived, discharged, or terminated by an instrument in writing signed
by the Company and the Warrantholder. This Warrant Agreement shall be
construed and enforced in accordance with and governed by the internal laws
of the State of Delaware. The headings in this Warrant Agreement are for
purpose of reference only and shall not limit or otherwise affect any of the
terms hereof. This Warrant Agreement, together with the forms of instruments
annexed hereto as Exhibit A, constitutes the full and complete agreement of
the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company and Warrantholder have each caused this
Warrant Agreement to be executed by its respective duly-authorized corporate
officer.
COMPANY:
HOOVER'S INC.
By:__________________________________
Patrick J. Spain, President
HOOVER'S, INC.
WARRANT AGREEMENT - PAGE 9
<PAGE>
SCHEDULE I
Name No. of Units
- ---- ------------
<PAGE>
EXHIBIT A
STOCK PURCHASE WARRANT
[remainder of this page intentionally left blank]
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To Hoover's, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________________________ (______)(*) Units to
purchase Underlying Securities of Hoover's, Inc. and herewith makes payment of
_______________________________________ ($________________) therefor, and
requests that the certificate or certificates for such shares be issued in the
name of and delivered to the undersigned.
Dated:
------------------------------
Warrantholder:
By:
-------------------------------------------------------
(Signature must conform in all respects to name of holder
as specified on the face of the within Warrant)
Printed Name:
-----------------------
Title:
------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
(Address)
- ---------------------
(*) Insert here the number of Units called for on the face of the
Warrant or, in the case of a partial exercise, the portion thereof as to
which the Warrant is being exercised, in either case without making any
adjustment for additional Underlying Securities or property or cash which,
pursuant to the adjustment provisions of the Warrant Agreement pursuant to
which the Warrant was granted, may be deliverable upon exercise. In the
event that the number of Units indicated exceeds the number exercisable
pursuant to the restrictions of Section 4(c) of the Warrant Agreement, the
number of Units subscribed for shall be deemed to be the total number
exercisable on the date of the Form of Subscription.
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ________________________________________ the right represented by the
within Warrant to purchase ________________________ (______) Units of Underlying
Securities of Hoover's, Inc. to which the within Warrant relates, and appoints
Attorney to transfer such right on the books of Hoover's, Inc. with fall power
of substitution in the premises.
The undersigned represents and Warrants that the transfer of the within
Warrant is permitted by the terms of the Warrant Agreement pursuant to which the
within Warrant has been issued, and the transferee hereof, by his acceptance of
this Assignment, represents and warrants that he is familiar with the terms; of
said Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Dated:
------------------------
Signed in the presence of:
- ------------------------------ Assignor:
---------------------------------------
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the within Warrant)
Assignee:
---------------------------------------
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
Tax ID No.:
----------------------------
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE PURCHASED PURSUANT TO THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES THAT MAY BE PURCHASED
PURSUANT TO THIS WARRANT ARE BEING OFFERED AND SOLD IN RELIANCE UPON CERTAIN
EXEMPTIONS AFFORDED BY SUCH ACTS AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS OR AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
HOOVER'S, INC.
STOCK PURCHASE WARRANT
THIS IS TO CERTIFY THAT _______________ is entitled to purchase at any
time or from time to time after the date hereof until 5:00 p.m., Austin, Texas
time, on the Expiration Date (as defined in the Warrant Agreement) up to
____________ (_____) Units at a Purchase Price of ______________ Dollars
($_____) per Unit, subject to the requirements and limitations of Section 4 of
the Warrant Agreement. On the date hereof, each Unit is equal to one share of
Common Stock, $0.01 par value, of Hoover's, Inc., a Delaware corporation (the
"Company"), subject to adjustment pursuant to Section 6 of the Warrant
Agreement. This Warrant is issued pursuant to a Warrant. Agreement, dated as of
________________ (the "Warrant Agreement"), between the Company, and certain
other Warrantholders, and all rights of the holder of this Warrant are subject
to the terms and provisions of the Warrant Agreement, copies of which are
available for inspection at the offices of the Company.
TRANSFER OF THIS WARRANT IS RESTRICTED AS PROVIDED IN THE WARRANT
AGREEMENT. Subject to the provisions of the Securities Act of 1933 and of the
Warrant Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part, at the principal executive offices of the Company, by the
holder hereof in person or by his or its duly authorized attorney, upon
surrender of this Warrant, together with the Assignment hereof duly endorsed.
Until transfer hereof on the books of the Company, the Company may treat the
registered holder as the owner hereof for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal, (where applicable) to be hereunto affixed in Austin,
Texas by its proper corporate officer thereunto duly authorized, effective the
____th day of ____________.
HOOVER'S, INC.
By:
--------------------------------
Patrick J. Spain, President
<PAGE>
SIGNATURE PAGE
TO
WARRANT AGREEMENT
BETWEEN HOOVER'S, INC. AND CERTAIN STOCKHOLDERS
DATED _________________
The above Warrant Agreement is accepted and agreed to as of the Effective Date.
WARRANT HOLDER:
______________________________ Dated:____________________________
Printed Name:
Title: (*)____________________
CO-OWNER: (*)
______________________________ Dated:____________________________
Printed Name:_________________
SPOUSE: (*)
______________________________ Dated:____________________________
Printed Name:_________________
(*) If the warrant is held jointly, then all co-owners must sign (as co-owner.)
if the warrant is held individually in a community property state, then it is
appropriate for the spouse to sign (as spouse). If the warrant is held by other
than a person (i.e. a corporation, organization, trust, etc.), then please
indicate title/capacity of person signing for the warrantholder.
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made and entered into as of this ___
day of ________, 1999 between Hoover's, Inc., a Delaware corporation (the
"Corporation"), and ___________________ ("Indemnitee").
RECITALS:
A. Indemnitee, an [executive officer of the Corporation and/or a
member of the Board of Directors], performs a valuable service in such capacity
for the Corporation; and
B. The certificate of incorporation (the "Certificate") and by-laws
(the "By-laws") of the Corporation contain provisions providing for the
indemnification of the officers, directors, agents and employees of the
Corporation to the maximum extent authorized by Section 145 of the Delaware
General Corporation Law, as amended ("DGCL"); and
C. The Certificate, the By-laws and the DGCL, by their non-exclusive
nature, permit contracts between the Corporation and the members of its Board of
Directors and officers with respect to indemnification of such directors and
officers; and
D. In accordance with the authorization as provided by the DGCL, the
Corporation has purchased and presently maintains a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of their duties as directors or officers of the Corporation; and
E. As a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded members of the Board of Directors and executive
officers of the Corporation by such D & O Insurance and by statutory and by-law
indemnification provisions; and
F. In order to induce Indemnitee to continue to serve as an
executive officer and a member of the Board of Directors of the Corporation, the
Corporation has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an executive officer and a member of the Board of Directors after the date
hereof, the parties hereto agree as follows:
1. INDEMNIFICATION OF INDEMNITEE. The Corporation hereby agrees to
hold harmless and indemnify Indemnitee and any partnership, corporation, trust
or other entity of which Director is or was a partner, shareholder, trustee,
director, officer, employee or agent (Indemnitee and each such partnership,
corporation, trust or other entity being hereinafter
<PAGE>
referred to collectively as an "Indemnitee") to the fullest extent authorized
or permitted by the provisions of the DGCL, as may be amended from time to
time.
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth
in Section 3 hereof, the Corporation hereby further agrees to hold harmless
and indemnify Indemnitee:
a. against any and all expenses (including attorney's fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including an action by or in the right of
the Corporation) to which Indemnitee is, was or at any time becomes a party,
or is threatened to be made a party, by reason of the fact that Indemnitee
is, was or at any time becomes a director, officer, employee or agent of the
Corporation or any subsidiary of the Corporation, or is or was serving or at
any time serves at the request of the Corporation or any subsidiary of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
if Director acted in good faith and in a manner Director reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe Director's conduct was unlawful; and
b. otherwise to the fullest extent as may be provided to
Indemnitee by the Corporation under the non-exclusivity provisions of Article
IX of the Certificate, Article VII, Section 6 of the By-laws and the DGCL.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by the Corporation:
a. except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which the Indemnitee
is indemnified pursuant to Section 1 hereof or pursuant to any D & O Insurance
purchased and maintained by the Corporation;
b. in respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
c. on account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law,
2
<PAGE>
d. on account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct;
e. on account of Indemnitee's conduct which is the subject of
an action, suit or proceeding described in Section 7(c)(ii) hereof;
f. on account of any action, claim or proceeding (other than
a proceeding referred to in Section 8(b) hereof) initiated by the Indemnitee
unless such action, claim or proceeding was authorized in the specific case
by action of the Board of Directors; and
g. if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both the Corporation and Indemnitee have been advised that the
Securities and Exchange Commission believes that indemnification for
liabilities arising under the federal securities laws is against public
policy and is, therefore, unenforceable and that claims for indemnification
should be submitted to appropriate courts for adjudication).
4. CONTRIBUTION. If the indemnification provided in Sections 1
and 2 hereof is unavailable by reason of a Court decision described in
Section 3(g) hereof based on grounds other than any of those set forth in
paragraphs (b) through (f) of Section 3 hereof, then in respect of any
threatened, pending or completed action, suit or proceeding in which the
Corporation is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), the Corporation shall contribute to the amount
of expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by Indemnitee
in such proportion as is appropriate to reflect (i) the relative benefits
received by the Corporation on the one hand and Indemnitee on the other hand
from the transaction from which such action, suit or proceeding arose, and
(ii) the relative fault of the Corporation on the one hand and of Indemnitee
on the other in connection with the events which resulted in such expenses,
judgments, fines or settlement amounts, as well as any other relevant
equitable considerations. The relative fault of the Corporation on the one
hand and of Indemnitee on the other shall be determined by reference to,
among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting
in such expenses, judgments, fines or settlement amounts. The Corporation
agrees that it would not be just and equitable if contribution pursuant to
this Section 4 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
the Corporation contained herein shall continue during the period Indemnitee is
a director, officer, employee or agent of the Corporation or any subsidiary of
the Corporation (or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) if Indemnitee acted
in good faith and in a manner Indemnitee reasonably believed to be in or not
3
<PAGE>
opposed to the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue or matter as to which Indemnitee
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper and shall continue thereafter so long as Indemnitee shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Indemnitee was an officer of the Corporation or serving in any other capacity
referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Indemnitee of notice of the commencement of any action,
suit or proceeding, Indemnitee will, if a claim in respect thereof is to be
made against the Corporation under this Agreement, notify the Corporation of
the commencement thereof; but the omission so to notify the Corporation will
not relieve it from any liability which it may have to Indemnitee otherwise
than under this Agreement. With respect to any such action, suit or
proceeding as to which Indemnitee notifies the Corporation of the
commencement thereof:
a. the Corporation will be entitled to participate therein at
its own expense;
b. except as otherwise provided below, to the extent that it
may wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election so as to assume the defense thereof, the
Corporation will not be liable to Indemnitee under this Agreement for any
legal or other expenses subsequently incurred by Indemnitee in connection
with the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ its
counsel in such action, suit or proceeding but the fees and expenses of such
counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of Indemnitee unless (i) the
employment of counsel by Indemnitee has been authorized by the Corporation,
(ii) Indemnitee shall have reasonably concluded that there may be a conflict
of interest between the Corporation and Indemnitee in the conduct of the
defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of Indemnitee's separate counsel shall be at the
expense of the Corporation. The Corporation shall not be entitled to assume
the defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Indemnitee shall have made the conclusion provided
for in (ii) above; and
c. the Corporation shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without its
4
<PAGE>
written consent. The Corporation shall be permitted to settle any action
except that it shall not settle any action or claim in any manner which would
impose any penalty or limitation on Indemnitee without Indemnitee's written
consent. Neither the Corporation nor Indemnitee will unreasonably withhold
its consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
a. In the event that Indemnitee employs his own counsel
pursuant to Section 6(b)(i) through (iii) above, the Corporation shall advance
to Indemnitee, prior to any final disposition of any threatened or pending
action, suit or proceeding, whether civil, criminal, administrative or
investigative, any and all reasonable expenses (including legal fees and
expenses) incurred in investigating or defending any such action, suit or
proceeding within ten (10) days after receiving copies of invoices presented to
Indemnitee for such expenses.
b. Indemnitee agrees that Indemnitee will reimburse the
Corporation for all reasonable expenses paid by the Corporation in defending any
civil or criminal action, suit or proceeding against Indemnitee in the event and
only to the extent it shall be ultimately determined by a final judicial
decision (from which there is no right of appeal) that Indemnitee is not
entitled, under the provisions of the DGCL, the Certificate, the By-laws, this
Agreement or otherwise, to be indemnified by the Corporation for such expenses.
c. Notwithstanding the foregoing, the Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by the Corporation and approved by a majority
of the Board which alleges willful misappropriation of corporate assets by
Indemnitee, disclosure of confidential information in violation of Indemnitee's
fiduciary or contractual obligations to the Corporation, or any other willful
and deliberate breach in bad faith of Indemnitee's duty to the Corporation or
its shareholders.
8. PROCEDURE. Any indemnification and advances provided for in
Section 1 and Section 2 shall be made no later than forty-five (45) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Corporation's Certificate or
Bylaws providing for indemnification, is not paid in full by the Corporation
within forty-five (45) days after a written request for payment thereof has
first been received by the Corporation, Indemnitee may, but need not, at any
time thereafter bring an action against the Corporation to recover the unpaid
amount of the claim and, subject to Section 12 of this Agreement, Indemnitee
shall also be entitled to be paid for the expenses (including attorneys' fees)
of bringing such action. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in connection with
any action, suit or proceeding in advance of its final disposition) that
Indemnitee has not met the standards of conduct which make it permissible under
applicable law for the Corporation to indemnify Indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Corporation and
Indemnitee shall be entitled to receive
5
<PAGE>
interim payments of expenses pursuant to Subsection 2(a) unless and until
such defense may be finally adjudicated by court order or judgment from which
no further right of appeal exists. It is the parties' intention that if the
Corporation contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Corporation (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel,
or its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Corporation (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel,
or its stockholders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
9. ENFORCEMENT.
a. The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Corporation hereby in order to induce Indemnitee to continue as an executive
officer and/or member of the Board of Directors of the Corporation, and
acknowledges that Indemnitee is relying upon this Agreement in continuing in
such capacity.
b. In the event Indemnitee is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Corporation shall reimburse Indemnitee for all
Indemnitee's reasonable fees and expenses in bringing and pursuing such
action.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee
by this Agreement shall not be exclusive of any other right which Indemnitee
may have or hereafter acquire under any statute, provision of the
Corporation's Certificate or By-laws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
12. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for some or
a portion of the expenses, judgments, fines or penalties actually or
reasonably incurred by Indemnitee in the investigation, defense, appeal or
settlement of any civil or criminal action, suit or proceeding, but not,
however, for the total amount thereof, the Corporation shall nevertheless
indemnify
6
<PAGE>
Indemnitee for the portion of such expenses, judgments, fines or penalties to
which Indemnitee is entitled.
13. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Corporation and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
14. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
or all of the provisions hereof shall be held to be invalid or unenforceable
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof or the obligation
of the Corporation to indemnify the Indemnitee to the full extent provided by
the Certificate, the By-laws or the DGCL.
15. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be interpreted and enforced in accordance with the laws of the State of
Delaware. The Corporation and Indemnitee each hereby irrevocably consent to
the jurisdiction of the courts of the State of Delaware for all purposes in
connection with any action or proceeding which arises out of or relates to
this Agreement and agree that any action instituted under this Agreement
shall be brought only in the state courts of the State of Delaware.
16. BINDING EFFECT. This Agreement shall be binding upon
Indemnitee and upon the Corporation, its successors and assigns, and shall
inure to the benefit of Indemnitee, his heirs, personal representatives and
assigns and to the benefit of the Corporation, its successors and assigns.
17. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnity
Agreement on and as of the day and year first above written.
HOOVER'S, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
____________________________________
[name]
Indemnitee
[SIGNATURE PAGE TO INDEMNITY AGREEMENT]
<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 _________ 1999
stock split described in Note 2, as to which the date is _____________, 1999,
in the Registration Statement (Form S-1 No. 33-_____) and related Prospectus
of Hoover's, Inc. to be filed on or about May 7, 1999 for the registration of
________ shares of its common stock.
Austin, TX
May 5, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS INCLUDED IN FORM S-1 FILED MAY 7,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 7,814,434
<SECURITIES> 0
<RECEIVABLES> 866,103
<ALLOWANCES> 0
<INVENTORY> 83,513
<CURRENT-ASSETS> 8,852,970
<PP&E> 1,984,875
<DEPRECIATION> (888,296)
<TOTAL-ASSETS> 10,076,339
<CURRENT-LIABILITIES> 3,148,260
<BONDS> 0
0
0
<COMMON> 94,543
<OTHER-SE> 6,665,672
<TOTAL-LIABILITY-AND-EQUITY> 10,076,339
<SALES> 9,229,186
<TOTAL-REVENUES> 9,229,186
<CGS> (5,002,307)
<TOTAL-COSTS> (5,002,307)
<OTHER-EXPENSES> (6,602,846)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (55,998)
<INCOME-PRETAX> (2,254,816)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,254,816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,254,816)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
