<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1999
REGISTRATION NO. 333-77539
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ASK JEEVES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 94-3256053
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
</TABLE>
918 PARKER STREET
BERKELEY, CALIFORNIA 94710
(510) 649-8685
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT W. WRUBEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ASK JEEVES, INC.
918 PARKER STREET
BERKELEY, CALIFORNIA 94710
(510) 649-8685
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ANDREI M. MANOLIU, ESQ. JAMES N. STRAWBRIDGE, ESQ.
MICHAEL L. WEINER, ESQ. JOSE F. MACIAS, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
FIVE PALO ALTO SQUARE PROFESSIONAL CORPORATION
3000 EL CAMINO REAL 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94306 PALO ALTO, CALIFORNIA 94304
(650) 843-5000 (650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number 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>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED PROPOSED
MAXIMUM MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE(3)
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per share..... 3,450,000 $11.00 $37,950,000 $10,551.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 450,000 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(a) of the Securities Act of
1933, as amended.
(3) The registration fee was previously paid by the Registrant pursuant to Rule
457(o) of the Securities Act in connection with the initial filing on April
30, 1999. Pursuant to Rule 457(b) of the Securities Act, such fee is being
credited against the registration fee.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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 THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued June , 1999
3,000,000 Shares
[ASK JEEVES LOGO]
COMMON STOCK
-------------------------
ASK JEEVES, INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR INITIAL
PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $9 AND $11 PER
SHARE.
-------------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "ASKJ."
-------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
-------------------------
PRICE $ A SHARE
-------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................................. $ $ $
Total...................................................... $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Ask Jeeves, Inc. has granted the underwriters the right to purchase up to
450,000 additional shares to cover over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares to purchasers on , 1999.
-------------------------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
HAMBRECHT & QUIST
-------------------------
INTERNET DISTRIBUTION OFFERED BY
DISCOVER BROKERAGE DIRECT
, 1999
<PAGE> 3
EDGAR COLORWORK DESCRIPTIONS:
INSIDE FRONT COVER OF PROSPECTUS:
TITLE: Got a question? Ask Jeeves
Introducing Jeeves, the world's first Internet butler. Always at your service,
Jeeves makes it easy for you to get things done online. Just type a question in
your own words and Jeeves promptly takes you to the answer.
SCREEN SHOT OF ASK JEEVES HOME PAGE WITH QUESTION: How can I rent a flat in
Paris?
CAPTIONS UNDER SCREEN SHOT:
Ask Jeeves unlocks the potential for electronic commerce by connecting
consumers with answers through its Consumer Question Answering Service at
Ask.com and through the Web sites of companies that subscribe to its Corporate
Question Answering Service.
WORDS ALONG BOTTOM: Fast, trusted, easy, relevant
INSIDE GATEFOLD
TITLE: Transforming consumer interaction on the Web
DESCRIPTION OF LEFT SIDE OF GATEFOLD:
CAPTION 1: Consumer Question Answering Service
1) Ask Jeeves at Ask.com has become a popular destination site for
users to obtain answers to millions of questions.
SCREEN SHOT OF ASK JEEVES HOME PAGE WITH QUESTIONS: How can I rent a flat in
Paris?
CAPTION 2: Jeeves makes it easy
1) Type a question in plain English and click Ask!
SCREEN SHOT OF ASK JEEVES SECOND PAGE OF DIALOGUE QUESTIONS IN RESPONSE TO
QUESTION "HOW CAN I RENT A FLAT IN PARIS?"
CAPTION 3: Jeeves educates
1) Jeeves creates a dialogue to confirm your query and to suggest
related questions. Simply click on the dialogue question that
matches what you want to know.
THE FOLLOWING TEXT DESCRIBES THE CAPTIONS HIGHLIGHTING DIFFERENT ASPECTS OF THE
SCREEN SHOT
1) Highly targeted advertising opportunities
2) Dialogue questions present additional opportunities to connect
consumers to businesses
3) Qualified leads are sent to electronic commerce merchants
4) Additional answers create a richer consumer experience
SCREEN SHOT OF WEB PAGE THAT CONTAINS THE ANSWER TO THE QUESTION, "HOW CAN I
RENT A FLAT IN PARIS?"
CAPTION 4: Jeeves delivers answers
1) Jeeves sends you to a third party Web page that answers your
question. The answers are selected by our editors for accuracy,
relevance and credibility.
DESCRIPTION OF RIGHT SIDE OF GATEFOLD:
CAPTION 1: Corporate Question Answering Service
<PAGE> 4
The simple question and answer format of our custom question answering services
is designed to allow companies to increase the number of visitors to their web
sites who buy products or services, lower customer support costs, improve
customer satisfaction and deliver valuable information. As of May 31, 1999, the
Corporate Question Answering Service was available to the public on the web
sites of six of our customers. Revenues for these implementations through March
31, 1999 have not been material. Examples of three Corporate Question Answering
Service implementations are shown below.
CUSTOMER SCREEN SHOT WITH "POWERED BY ASK JEEVES" QUESTION BOX:
CAPTION 2: Compaq selected the Ask Jeeves Corporate Question Answering Service
to help fulfill its electronic commerce strategy.
CUSTOMER SCREEN SHOT WITH "POWERED BY ASK JEEVES" QUESTION BOX WITH CAPTION:
CAPTION 3: "Ask Dudley" allows Dell customers to type in technical support
questions in plain English and quickly find useful information, thereby reducing
expensive offline support costs.
CUSTOMER SCREEN SHOT WITH "POWERED BY ASK JEEVES" QUESTION BOX WITH CAPTION:
CAPTION 4: "Ask IRIS," Toshiba's Instant Response Information Service, provides
customers with easily accessible online technical support and general
information about Toshiba products.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Special Note Regarding Forward-Looking
Statements.......................... 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 30
Management............................ 47
Certain Transactions.................. 58
Principal Stockholders................ 62
Description of Capital Stock.......... 64
Shares Eligible for Future Sale....... 66
Underwriters.......................... 68
Legal Matters......................... 69
Experts............................... 70
Where You Can Find More Information... 70
Index to Financial Statements......... F-1
</TABLE>
You should rely only on the information contained in this prospectus. 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 to
the date of this prospectus, regardless of the time of delivery of the
prospectus or of any sale of the common stock.
Unless otherwise indicated, all information in this prospectus:
-- has been adjusted to give effect to a 1-for-2 reverse stock split to
be completed prior to this offering;
-- gives effect to the conversion of all outstanding shares of preferred
stock into shares of common stock effective upon the closing of this
offering;
-- assumes no exercise of the underwriters' over-allotment option;
-- assumes no exercise of outstanding options and warrants to purchase
5,305,833 shares of our common stock as of April 30, 1999; and
-- assumes our reincorporation from California into Delaware.
UNTIL , 1999, 25 DAYS AFTER COMMENCEMENT OF THE
OFFERING, ALL DEALERS THAT BUY, SELL OR TRADE SHARES, 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.
2
<PAGE> 6
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes to our financial statements
appearing elsewhere in this prospectus.
THE COMPANY
Ask Jeeves is a leading provider of natural-language question answering
services on the Internet for consumers and companies, establishing a new way to
interact with the World Wide Web. Ask Jeeves was first introduced to the public
in April 1997 to provide Web users with a more satisfactory and productive
experience by quickly directing users to relevant answers. Our mission is to
humanize the Internet by making it easier and more intuitive for consumers to
find the information, products and services they need, and for companies to
better acquire, retain and maximize the value of their online customers. Our
branding strategy centers on the Jeeves character, a friendly and trusted
assistant who provides help and guidance on the Web. The Ask Jeeves question
answering services let users ask a question in plain English and receive a
response that points to relevant Internet destinations to provide the answers.
We believe that our question answering services make interaction with the
Internet more intuitive, less frustrating and significantly more productive.
While the growth of the Internet has drawn users at an unprecedented pace,
it has become increasingly difficult for users to effectively navigate the
growing volume of online information. To take full advantage of the Internet,
users must be able to successfully navigate a network of dispersed Web sites,
which are generally not connected in a logical fashion. In addition, once at the
Web site, users are faced with the difficulty of sorting through an overwhelming
amount of information. Users currently rely on Internet search engines or
directories to locate information and make online purchases. These methods
typically require consumers to construct keyword or complex search strings that
often result in hundreds or thousands of matches. Given the magnitude of this
problem, companies are recognizing the need to provide a means by which their
customers and potential customers can more easily find relevant information,
products and services on their Web sites. Until navigation on the Internet
improves, consumers will remain frustrated with their online experiences, and
companies will be frustrated by their inability to maximize returns on their
investments in Internet strategies because of their inability to provide an easy
and intuitive user interface.
We believe that our services connect users to products and services in a
more targeted way than other services on the Internet, thereby better unlocking
the power of electronic commerce. Beginning with only 3,000 questions a day in
its first month of operation, Ask Jeeves answered nearly 1 million questions a
day in April 1999, and the number of users has grown from 425,000 in September
1998 to more than 1.9 million in March 1999. Ask Jeeves, at Ask.com, provides
users with relevant answers to a wide range of questions from "Is it raining in
Paris?" to "Where can I comparison shop for cameras?" Our Corporate Question
Answering Service helps companies provide a higher quality, human-like online
interface for their customers and is designed to improve customer satisfaction
on Web sites, increase the number of browsers on Web sites that become
purchasers and reduce expensive support costs such as phone calls to call
centers. Since its introduction in October 1998, our Corporate Question
Answering Service has been licensed by BellSouth, Compaq Computer Corporation,
Datek Online, Dell Computer Corporation, Iomega Corp., Micron Technology, Inc.,
Office Depot.com, Oxygen Media, Inc., Toshiba America Information Systems, Inc.
and WebTV, Inc. We have incurred significant net losses in each fiscal quarter
since our inception, and as of March 31, 1999, we had an accumulated deficit of
approximately $9.7 million.
------------------------
We were incorporated in California in 1996 and reincorporated in Delaware
in 1999. Our principal executive offices are located at 918 Parker Street,
Berkeley, CA 94710, and our telephone number is (510) 649-8685. Our World Wide
Web site address is Ask.com. The information in the Web site is not incorporated
by reference into this prospectus.
3
<PAGE> 7
THE OFFERING
Common stock offered.................. 3,000,000 shares
Common stock to be outstanding after
the offering.......................... 24,349,424 shares
Over-allotment option................. 450,000 shares
Use of proceeds....................... We intend to use the proceeds for the
marketing and promotion of our
brand and for general
corporate purposes,
including working
capital. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol................................ ASKJ
The foregoing information is based upon shares outstanding as of April 30,
1999.
SUMMARY FINANCIAL DATA
The "as adjusted" column below reflects the issuance and the sale of
3,000,000 shares of our common stock at an assumed initial public offering price
of $10.00 per share, and the application of net proceeds from the offering,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, as set forth under "Use of Proceeds."
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 13, 1996
(INCEPTION) THREE MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ----------------------- -----------------------
1996 1997 1998 1998 1999
------------------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ -- $ -- $ 592,659 $ 14,766 $ 1,131,568
Gross profit (loss)............ -- -- (466,035) (52,904) (390,144)
Operating loss................. (107,797) (451,984) (4,314,005) (339,153) (5,000,353)
Net loss....................... (107,797) (447,777) (4,261,625) (335,355) (4,869,160)
Pro forma basic and diluted net
loss per share............... $ (.48) $ (.29)
Weighted average shares
outstanding used in computing
pro forma basic and diluted
net loss per common share.... 8,828,646 16,730,099
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments........ $25,144,341 $51,944,341
Working capital............................................. 22,622,918 49,422,918
Total assets................................................ 31,924,787 58,724,787
Capital leases, less current portion........................ 33,606 33,606
Total stockholders' equity.................................. 27,680,649 54,480,649
</TABLE>
4
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or operating results could be materially adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
OUR BUSINESS IS EXTREMELY DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS
LIMITED
We were incorporated in June 1996 and launched Ask Jeeves, at Ask.com, our
public Web site, in April 1997. Because of our limited operating history, it is
extremely difficult to evaluate our business and prospects. Our revenue and
income potential are unproven and our business model is constantly evolving. For
example, in the quarter ended March 31, 1999, we restructured our organization
into two business units: the Consumer Question Answering Service and the
Corporate Question Answering Service. Our new operating structure is entirely
untested, and we cannot be sure that this structure will provide the value to us
that we expect. Because the Internet is constantly changing, we may need to
change our business model again to adapt to those changes. Frequent changes in
organizational structure could impose significant burdens on our management and
our employees and could result in loss of productivity or even increased
attrition.
Any investment in our company must be considered in light of the problems
frequently encountered by companies in an early stage of development in new and
rapidly evolving markets. To address the risks we face, we must, among other
things:
-- maintain and enhance our brand;
-- expand our product and service offerings;
-- increase the amount of traffic to Ask Jeeves;
-- increase the number and types of businesses that use the products and
services of our question answering services;
-- increase the value of our question answering services to our users,
customers, electronic commerce merchants and advertisers;
-- attract, integrate, retain and motivate qualified personnel; and
-- maintain the leadership and quality of our services.
We cannot be certain that our business strategy will be successful or that
we will successfully address these risks.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES
We have incurred significant net losses in each fiscal quarter since our
inception, including a net loss of approximately $4.9 million in the quarter
ended March 31, 1999. We incurred net losses for the years ended December 31,
1996, 1997 and 1998 of approximately $108,000, $448,000 and $4.3 million,
respectively. As of March 31, 1999, we had an accumulated deficit of
approximately $9.7 million. We expect to have increasing net losses and negative
cash flows for the foreseeable future. The size of these net losses will depend,
in part, on the rate of growth in our revenues from our advertisers, corporate
customers and electronic commerce merchants and on our expenses. It is critical
to our success that we continue to expend financial and management resources to
develop our brand loyalty through marketing and promotion, enhancement of our
question answering services and expansion of our other services. As a result, we
expect that our operating expenses will increase significantly for the
foreseeable future. With increased expenses, we will need to generate
significant additional revenues to achieve profitability. Consequently, it is
possible that we may never achieve profitability, and even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future. If we do not achieve or sustain profitability in the
future, then we will be unable to continue our operations.
5
<PAGE> 9
OUR QUESTION ANSWERING SERVICES ARE NOVEL AND UNPROVEN
Our question answering services are novel and unproven. We will be
successful only if Internet users adopt our natural-language question answering
services on Ask Jeeves and on the Web sites of our corporate customers. Prior to
the launch of Ask Jeeves, Internet users only had traditional search techniques,
such as search engines, to navigate the Internet. Traditionally, users relied on
methods, such as call centers, chat rooms and e-mail, rather than
difficult-to-navigate corporate Web sites, to obtain information on products and
services. It is difficult to predict the extent and rate of user adoption of our
question answering services. We cannot assure you that widespread acceptance of
our question answering services will occur. Visitors to our service may use it
once or twice and then revert to traditional search techniques to navigate the
Internet.
OUR METHODS OF GENERATING REVENUE ARE RELATIVELY NEW AND LARGELY UNTESTED
Approximately 77%, 20% and 3% of our revenues in 1998 have been generated
through Internet advertising, knowledge base licensing fees and sales of our
Corporate Question Answering Service to customers, respectively. We also expect
to generate a substantial portion of our future revenues through the
facilitation of electronic commerce. We facilitate electronic commerce by
directing users who ask a shopping question to electronic commerce merchants,
some of whom compensate us for the referral. These methods of revenue generation
are relatively new and largely untested.
Revenues from Internet advertising will make up a significant amount of our
revenues for the foreseeable future. Since the Internet advertising market is
new and rapidly evolving, we cannot yet gauge its effectiveness as compared to
traditional advertising media. Advertisers that have traditionally relied on
other advertising media may be reluctant to advertise on the Internet believing
that Internet advertising is less effective than traditional advertising media
for promoting their products and services. Consequently, they may allocate only
limited portions of their advertising budgets to Internet advertising. Our
business could be materially adversely affected if Internet advertising does not
continue to grow or if we are unsuccessful in increasing our advertising
revenues. Furthermore, we rely on a third-party advertising serving service,
DoubleClick, Inc., to deliver advertisements to our users. If that third party
fails to deliver the advertisements as contracted for, due to reliability or
performance problems, or if advertisements cannot be targeted as promised to
advertisers, our revenues will decrease.
In addition, a portion of our revenues for the foreseeable future are
expected to be derived from the facilitation of electronic commerce
transactions. The market for Internet products and services has only recently
begun to develop and is rapidly changing. Therefore, the success of our business
depends upon the adoption of the Internet as a medium for commerce by a broad
base of customers. If this market fails to develop or develops more slowly than
expected, or if our electronic commerce services do not achieve market
acceptance, our business may suffer. The facilitation of electronic commerce has
not constituted a material portion of our revenues to date.
Furthermore, sales to corporate customers are expected to constitute a
growing percentage of our revenues. As of March 31, 1999, we had provided
customized solutions to only five companies. In addition, our question answering
service has only been recently implemented onto these corporate Web sites. As
such, we cannot yet determine the effectiveness of our Corporate Question
Answering Service compared to traditional methods of customer relationship
management, such as e-mail, call centers and other traditional Web solutions. If
we cannot demonstrate to corporate customers that our Corporate Question
Answering Service increases the rate at which browsers become purchasers,
improves customer satisfaction on their Web sites and reduces expensive support
costs, such as those associated with call centers, our ability to attract and
retain corporate customers may be impaired. Our business would be materially
adversely affected if we are unsuccessful in increasing the number of corporate
customers.
OUR GROWTH WILL DEPEND ON OUR ABILITY TO DEVELOP OUR BRAND
We believe that broader brand recognition and a favorable consumer
perception of the Ask Jeeves brand are essential to our future success.
Accordingly, we intend to continue pursuing an aggressive brand-enhancement
strategy, which will include mass market and multimedia advertising, promotional
programs and
6
<PAGE> 10
public relations activities. We intend to incur significant expenditures,
approximately $15.0 million to $20.0 million in 1999, on these advertising and
promotional programs and activities in the future. These expenditures may not
result in a sufficient increase in revenues to cover such advertising and
promotion expenses. In addition, even if brand recognition increases, the number
of new users may not increase. Further, even if the number of new users
increases, the amount of traffic on Ask Jeeves and the number of corporate
customers may not increase sufficiently to justify the expenditures. If our
brand enhancement strategy is unsuccessful, these expenses may never be
recovered and we may be unable to increase future revenues.
TO MANAGE OUR GROWTH, WE NEED TO IMPROVE OUR SYSTEMS, CONTROLS AND PROCEDURES
AND COORDINATE OUR QUESTION ANSWERING SERVICES
We have experienced and may continue to experience rapid growth, which has
placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. This growth will place a significant strain
on our personnel, management systems and resources. We expect that the number of
our employees, including management-level employees, will continue to increase
for the foreseeable future. We must continue to improve our operational and
financial systems and managerial controls and procedures, and we will need to
continue to expand, train and manage our workforce. We must also maintain close
coordination between our Consumer Question Answering Service and Corporate
Question Answering Service, as well as our technical, accounting, finance,
marketing, sales and editorial organizations. We cannot assure you that our
systems, procedures or controls will be adequate to support our operations or
that we will be able to manage any growth effectively. If we do not manage
growth effectively, our business would be materially adversely affected.
WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE AGAINST OUR CURRENT AND POTENTIAL
COMPETITORS
We have a number of competitors in both the consumer and the corporate
areas.
CONSUMER QUESTION ANSWERING SERVICE
We face direct competition from companies that provide Internet-wide search
and directory services. For example, we compete with search engines, including
Excite@Home, Inktomi and AltaVista, for the traffic generated by Internet users
seeking links to third party content to address their online information needs.
We also compete with directory services, such as Yahoo and Looksmart because
they provide alternative ways for users to obtain the desired information.
CORPORATE QUESTION ANSWERING SERVICE
Our Corporate Question Answering Service competes with a number of
companies which are addressing the same need to improve automated or online
customer service for corporate clients. While various companies are addressing
this problem through a range of solutions, none competes directly with our
approach. The companies that provide automated online customer products and
services against whom we compete can be categorized as follows:
<TABLE>
<CAPTION>
CATEGORY FOCUS COMPETITORS
-------- ----- -----------
<S> <C> <C>
Web-based Web-site specific search engine, Inktomi Corporation, Primus
"frequently asked questions" self-help Telecommunication Group, Inc., Inference
problem resolution and expert systems Corporation, Verity, Inc. and Web Answers
E-mail Automated response to customer Aptex Software, Inc., Brightware, Inc.,
generated e-mail and automated routing Egain Communications Corp., Kana
of customer e-mail to appropriate Communications, Inc. and Mustang Software,
answer provider Inc.
Phone call Receive, manage and track telephonic Clarify, Inc., Siebel Systems, Inc.,
with customers communications FaceTime Communications, Inc., Vantive
Corporation and Remedy Corporation
</TABLE>
7
<PAGE> 11
Our ability to compete depends on many factors, many of which are outside
of our control. These factors include: the quality of content, the ease of use
of online services, the timing and market acceptance of new and enhanced online
services, and sales and marketing efforts by us and our competitors.
Many of our existing competitors, as well as 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. Many of these competitors offer a
wider range of services than we do. These services may attract users to our
competitors' sites and, consequently, result in a decrease of traffic to our
site. These competitors may also engage in more extensive research and
development, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, partners, advertisers and electronic
commerce merchants. Our competitors may develop products and services that are
equal or superior to ours or that achieve greater market acceptance. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to better
address the needs of advertisers and businesses engaged in electronic commerce.
As a result, it is possible that new competitors may emerge and rapidly acquire
significant market share.
OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE FAIL TO MEET
THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF
OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that could affect our revenues or our expenses in
any particular quarter. It is possible that in some future periods our results
of operations or other performance metrics may be below the expectations of
public market analysts and investors. If this occurs, the price of our common
stock will likely fall.
You should not rely on our results of operations during any particular
quarter as an indication of our future results for a full year or any other
quarter. Our quarterly revenues and operating results have varied significantly
in the past and may vary significantly in the future due to a number of factors,
including:
-- fluctuations in radio, television, Internet and other advertising
fees;
-- fluctuations in demand for our services, including lower usage of the
Internet during the year-end holiday period;
-- events causing shifts in consumer use of the Internet;
-- unexpected rescheduling or cancellation of significant orders;
-- our ability to develop and introduce new Internet navigation
technology;
-- announcements and new technology introductions by our competitors;
-- our ability to achieve required cost reductions;
-- the ability of our systems to perform adequately as we add additional
features and functionality;
-- our ability to attract and retain key personnel;
-- costs relating to possible acquisitions and integration of
technologies or businesses; and
-- our ability to successfully add and integrate system infrastructure as
traffic to our Web site increases;
We have experienced lower traffic calls during the year-end holiday season
and a slower rate of growth during the summer months. Given our limited
operating history, user traffic on our Web site is extremely difficult to
forecast accurately. Moreover, obtaining new corporate customers depends on many
factors that we are not able to control, such as the allocation of budgetary
resources by potential customers. The average sales cycle for obtaining new
corporate customers has typically ranged between one and three months.
Therefore, it is difficult to predict the number of corporate customers that we
will have in the future. In particular, we intend to expend significant amounts,
approximately $15.0 million to $20.0 million in 1999, to build brand awareness
of Ask Jeeves. We may be unable to adjust spending quickly to offset any
unexpected revenue shortfall. Consequently, as fees are generated from
advertising, corporate customers and, to a lesser extent in
8
<PAGE> 12
the near term, our electronic commerce service, they will constitute a
significant portion of our revenues for the foreseeable future. As such, our
revenues are difficult to accurately predict.
OUR CONSUMER QUESTION ANSWERING SERVICE DEPENDS ON THIRD-PARTY CONTENT
Our Consumer Question Answering Service is designed to directly link users
into a page within a third-party Web site that contains the answer to a question
asked. However, when our Consumer Question Answering Service attempts to direct
the user to a page within the Web site, companies have automatically redirected
users to their home page. If companies prevent us from directly linking our
consumer users to a page within a third-party Web site, and if there are no
comparable alternative Web sites to which we can direct our users, the utility
and attractiveness of our services to consumers may be reduced. If this occurs,
traffic on Ask Jeeves could significantly decrease, which would have an adverse
effect on our business.
Visitors to Ask Jeeves use our question answering service to obtain direct
access to the information, products and services they need through the display
of a third-party Web page containing the answer to the user's question. We have
little control over the content contained on these third-party Web sites. If
these third-party Web sites do not contain high-quality, up-to-date and useful
information to the user, the utility of our service to the user will be reduced,
which could materially and adversely affect our business.
WE MAY BE LIABLE FOR OUR LINKS TO THIRD PARTY WEB SITES
We could be exposed to liability with respect to the selection of
third-party Web sites that may be accessible through Ask Jeeves. Such claims
might include, among others, that by linking to Web sites operated by third
parties, we may be liable for copyright or trademark infringement or other
unauthorized actions by such third parties through such Web sites. Other claims
may be based on errors or false or misleading information provided on Ask
Jeeves, including information deemed to constitute professional advice such as
legal, medical, financial or investment advice. Other claims may be based on our
links to sexually explicit Web sites and our providing sexually explicit
advertisements that may be displayed when this content is displayed. Our
business could be materially adversely affected due to the cost of investigating
and defending such claims, even to the extent such claims do not result in
liability. Implementing measures to reduce our exposure to this liability may
require us to spend substantial resources and limit the attractiveness of our
service to users.
FAILURE TO RETAIN CUSTOMERS OR ADD NEW CUSTOMERS TO OUR CORPORATE QUESTION
ANSWERING SERVICE MAY HAVE AN ADVERSE EFFECT ON OUR REVENUES
To date, a significant portion of our revenues has been attributable to a
limited number of customers. AltaVista Company and The Globe.com accounted for
approximately 14% and 13% of total revenues, respectively, for the year ended
December 31, 1998, and 11% and 21%, respectively, of total revenues for the
quarter ended March 31, 1999. In addition, in the coming year we expect that
revenues associated with the Corporate Question Answering Service will be
heavily dependent on a limited number of customers, comprised primarily of
corporations with large, difficult to navigate Web sites. As a result, if we do
not complete sales to a sufficient number of customers our future revenues will
be adversely affected.
Most of our customer contracts in the Corporate Question Answering Service
have a term of one year. As a result, if we are unable to offer value to our
customers during the term of these contracts, or if our customers choose a
competitor's service over our service, or if such customers decide to use their
own proprietary technology to develop services similar to ours, such customers
may not renew their contracts. If we do not obtain a sufficient amount of
contract renewals or if such renewal contracts are obtained on terms less
favorable than the original contract, our business could be materially adversely
affected.
9
<PAGE> 13
OUR DEVELOPMENT CYCLE FOR CORPORATE QUESTION ANSWERING SERVICES IS LONG AND
LABOR INTENSIVE
Because the customization of our question answering service for corporate
customers is labor intensive, it is difficult to predict the length of the
development cycle. Factors that affect the length of the development cycle
include the overall size and complexity of the Web site, the interaction with
the customer, and the dynamic nature of the content. Generally, it takes three
to five months to launch a custom question answering service. However, because
we have a limited number of corporate customers, it is difficult to predict
whether the development cycle will stay in this timeframe. The long development
cycle makes it difficult to predict the delivery time to the customer, realize
our revenue goals and manage our internal hiring needs to meet new projects. In
addition, in order to meet increased demand for custom question answering
services, we may have to hire additional people and train them in advance of
orders. If we outsource development of custom knowledge bases, we will have
little control over the speed and quality of the development. Any decline in the
speed or quality of the implementation of custom knowledge bases could adversely
effect our business.
Our revenue growth is dependent, in part, on our ability to leverage our
customization of knowledge bases. We intend to outsource our knowledge base
creation process to providers of integrated Internet solutions to leverage our
sales efforts. If we are unable to outsource the labor intensive process of
creating customized knowledge bases, our expenses in developing a customized
corporate Web site will continue to be high which may have an adverse effect on
our business.
WE FACE RISKS RELATED TO EXPANDING INTO RELATIVELY NEW SERVICES AND BUSINESS
AREAS, IN PARTICULAR, ELECTRONIC COMMERCE
To increase our revenues, we will need to expand our operations by
promoting new or complementary products and by expanding the breadth and depth
of our services. In particular, our future success will largely depend on our
ability to substantially increase revenues through the facilitation of
electronic commerce transactions. The market for electronic commerce services is
extremely competitive. Because we only recently entered this market and we have
little experience in it, we may have limited success in this market. The
expansion of our electronic commerce services will require additional
development resources. Such expansion may strain our management, financial and
operational resources. Our expansion into new product and service offerings may
not be timely or may not generate sufficient revenues to offset their cost. If
this occurs, our business, operating results and financial condition will be
materially adversely affected.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RETAIN KEY EXECUTIVES
Our future success depends, in part, on the continued service of Robert
Wrubel, our President and Chief Executive Officer, and David Warthen, our Chief
Technical Officer. Our future success depends in part on the ability of these
executive officers to work with our management team. Neither Mr. Wrubel nor Mr.
Warthen are bound by an employment agreement for any specific term. Our
relationships with these officers are at will. Although we are the beneficiary
of a key person life insurance policy on Mr. Wrubel's life, the loss of his
services, or the services of other executives, would have a material adverse
effect on our business.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT, RETAIN AND MOTIVATE HIGHLY
SKILLED EMPLOYEES
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. Additionally, it is often more difficult to attract employees once a
company's stock is publicly traded because the exercise price of equity awards
such as stock options are based on the public market, which is highly volatile.
We may be unable to attract, assimilate or retain other highly qualified
employees 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 highly skilled employees with appropriate qualifications.
WE RECENTLY RECRUITED MOST OF OUR MANAGEMENT TEAM
Many members of our management team have recently been hired, including the
General Managers of both our Consumer Question Answering Service and Corporate
Question Answering Service, as well as our
10
<PAGE> 14
Chief Financial Officer, Senior Vice President of Business Development,
President of Ask Jeeves International and Corporate Controller. These
individuals do not have significant experience working with us or the rest of
our management team. We cannot assure you that they will be able to successfully
work together or manage any growth we experience. The process of integrating
these individuals may detract from the operation of, and have an adverse effect
on, our business.
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET USAGE GROWS
Our business would be adversely affected if Internet usage does not
continue to grow or grows at significantly lower rates compared to current
trends. The continued growth of the Internet depends on various factors, many of
which are outside our control. These factors include:
-- the Internet infrastructure may not be able to support the demands
placed on it, and its performance and reliability may decline as usage
grows;
-- security and authentication concerns with respect to the transmission
over the Internet of confidential information, such as credit card
numbers, and attempts by unauthorized computer users, so-called
hackers, to penetrate online security systems; and
-- privacy concerns, including those related to the ability of Web sites
to gather user information without the user's knowledge or consent.
THE OPERATING PERFORMANCE OF OUR SYSTEMS AND SERVERS IS CRITICAL TO OUR BUSINESS
AND REPUTATION
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in responsiveness of Ask
Jeeves could result in reduced user traffic on Ask Jeeves and reduced revenues.
Our network and server equipment is located at Frontier Global Center in Palo
Alto, California. This hosting center provides routing and communication lines
with a variety of major Internet backbone providers, as well as continuous
monitoring and communications support. It provides its own power generators and
multiple, redundant backup systems. We maintain significant server over-capacity
at Frontier Global Center so that if certain servers fail, the remaining servers
can service our entire user traffic. Although we believe that our current
back-up methods are adequate, we cannot assure you that the back-up servers will
not fail or cause an interruption in our service.
Our question answering service on both Ask Jeeves and our corporate
customer sites have from time to time experienced slower response times and
interruptions in service from interruptions at our two co-hosting facilities and
on the Internet backbone networks, major software upgrades at Ask Jeeves and
undetected software defects. The Ask Jeeves Web site has been interrupted for
periods ranging from a few minutes to three hours. In addition these Web sites
could also be affected by computer viruses, electronic break-ins or other
similar disruptions. If we experience frequent or persistent system failures,
our reputation and brand could be permanently harmed.
Our users and customers depend on Internet service providers, online
service providers and other Web site operators for access to Ask Jeeves. Each of
these providers has experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems.
The occurrence of an earthquake or other natural disaster or unanticipated
problems at our leased facility in Berkeley, California or at the servers which
host or back-up could cause interruptions or delays in our business, loss of
data or render us unable to provide question answering services. Our systems are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events. Our
general liability insurance policies may not adequately compensate us for losses
that may occur due to interruptions in our service.
WE MAY NOT BE ABLE TO ADAPT TO EVOLVING INTERNET TECHNOLOGIES AND CUSTOMER
DEMANDS
To be successful, we must adapt to rapidly changing Internet technologies
by continually enhancing our products and services and introducing new services
to address our customers' changing needs. We could incur
11
<PAGE> 15
substantial development or acquisition costs if we need to modify our services
or infrastructure to adapt to changes affecting providers of Internet services.
Our business could be materially adversely affected if we incur significant
costs to adapt to these changes. If we cannot adapt to these changes, or do not
sufficiently increase the features and functionality of our products and
services, our customers may switch to the product and service offerings of our
competitors. Furthermore, our competitors or potential competitors may develop a
novel method of Internet navigation that is equal or superior to our question
answering services. As a result, demand for our question answering services may
decrease.
WE MAY FACE POTENTIAL LIABILITY FOR INVASION OF PRIVACY
Although we have a policy against using personal information, current
computing and Internet technology allows us to collect personal information
about our users. We may decide in the future to compile and provide such
information to our corporate customers and electronic commerce merchants. If we
begin collecting such information, we may face potential liability for invasion
of privacy for compiling and providing to our corporate customers and electronic
commerce merchants information based on questions asked by users and visitors on
Ask Jeeves and corporate sites. Because we may not obtain permission from users
to distribute this information, we may potentially face liability for invasion
of privacy.
WE NEED TO EXPAND OUR SALES AND SUPPORT ORGANIZATIONS
We will need to substantially expand both our advertising sales and
corporate sales operations and marketing efforts to increase market awareness
and sales of our products and services. We recently expanded our sales forces
and plan to hire additional sales personnel. Competition for highly-qualified
sales personnel is intense, and we may not be able to hire the kind and number
of sales personnel we are targeting. We will need to increase our staff to
support new customers and the expanding needs of our existing customers. Hiring
highly-qualified customer service and support personnel is very competitive in
our industry due to the limited number of people available with the necessary
technical skills and understanding of the Internet.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business. There is, and will likely continue to be, an increasing number
of laws and regulations pertaining to the Internet. These laws or regulations
may relate to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and the quality of
products and services. Furthermore, the growth and development of electronic
commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on electronic commerce companies as well as companies
like us that provide electronic commerce services. Moreover, the applicability
to the Internet of existing laws governing intellectual property ownership and
infringement, copyright, trademark, trade secret, obscenity, libel, employment,
personal privacy and other issues is uncertain and developing.
We file tax returns in such states as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales tax collection obligations on
out-of-state companies, such as ours, which engage in or facilitate electronic
commerce. A number of proposals have been made at state and local levels that
could impose such taxes on the sale of products and services through the
Internet or the income derived from such sales. Such proposals, if adopted,
could substantially impair the growth of electronic commerce and adversely
affect our opportunity to become profitable.
Legislation limiting the ability of the states to impose taxes on
Internet-based transactions recently has been enacted by the United States
Congress. However, this legislation, known as the Internet Tax Freedom Act,
imposes only a three-year moratorium, which commenced October 1, 1998 and ends
on October 21, 2001, on state and local taxes on (1) electronic commerce where
such taxes are discriminatory and (2) Internet access unless such taxes were
generally imposed and actually enforced prior to October 1, 1998.
12
<PAGE> 16
It is possible that the tax moratorium could fail to be renewed prior to October
21, 2001. Failure to renew this legislation would allow various states to impose
taxes on Internet-based commerce. The imposition of such taxes could adversely
affect our ability to become profitable.
In addition, we are not certain how our business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. The vast majority of such laws were
adopted prior to the advent of the Internet. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes in laws intended to address such issues could create
uncertainty in the Internet market place. Such uncertainty could reduce demand
for our services or increase the cost of doing business as a result of
litigation costs or increased service delivery costs.
WE MAY FACE POTENTIAL ELECTRONIC COMMERCE-RELATED LIABILITIES AND EXPENSES
Arrangements with electronic commerce merchants may expose us to legal
risks and uncertainties, including potential liabilities to consumers of such
products and services. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed.
Some of the risks that may result from these arrangements with businesses
engaged in electronic commerce include:
-- potential liabilities for illegal activities that may be conducted by
participating merchants;
-- product liability or other tort claims relating to goods or services
sold through third-party commerce sites;
-- consumer fraud and false or deceptive advertising or sales practices;
-- breach of contract claims relating to merchant transactions;
-- claims that materials included in merchant sites or sold by merchants
through these sites infringe third-party patents, copyrights,
trademarks or other intellectual property rights, or are libelous,
defamatory or in breach of third-party confidentiality or privacy
rights; and
-- claims relating to any failure of merchants to appropriately collect
and remit sales or other taxes arising from electronic commerce
transactions.
Even to the extent that such claims do not result in material liability,
investigating and defending such claims could have a material adverse effect on
our business, operating results or financial condition.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Third parties may infringe or misappropriate our patents, trademarks or
other proprietary rights, which could have a material adverse effect on our
business. We have applied for a patent on our "Grammar Template Query System"
with the United States Patent and Trademark Office. We have also applied for
registered trademark status for "Ask Jeeves," "Ask.com," "Ask Jeeves Kids," and
"KidsAsk.com" and our logo and service marks in the United States. We have also
applied for registered trademark status of "Ask.com" with the appropriate
offices in Tunisia for international protection. While we enter into
confidentiality agreements with our employees and consultants, and generally
control access to and distribution of our proprietary information, the steps we
have taken to protect our proprietary rights may not prevent misappropriation.
In addition, we do not know whether we will be able to defend our proprietary
rights since the validity, enforceability and scope of protection of proprietary
rights in Internet-related industries is uncertain and still evolving. If we are
unable to register the trade and service marks for which we have applied, or if
we are unable to defend our intellectual property rights, our business may be
materially and adversely affected.
13
<PAGE> 17
Third parties may assert infringement claims against us. From time to time
in the ordinary course of business we have been, and we expect to continue to
be, subject to claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. These claims and any resultant
litigation, should it occur, could subject us to significant liability for
damages. In addition, even if we prevail, litigation could be time-consuming and
expensive to defend, and could result in the diversion of our time and
attention. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are
able to enter into agreements with the third parties making these claims.
WE COULD FACE ADDITIONAL STOCK-BASED COMPENSATION RELATED TO OUR RELATIONSHIP
WITH TRINET
Until May 31, 1999, we used TriNet VCO, an independent professional
employer organization, to provide payroll services and employee benefits for all
our employees. Under the co-employment arrangement, we paid a percentage of
compensation per co-employee, in addition to compensation costs, to TriNet to
cover payroll processing and related taxes and insurance. On March 31, 1999, the
Financial Accounting Standards Board ("FASB") issued an Exposure Draft of a FASB
Interpretation, Accounting for Certain Transactions involving Stock
Compensation -- an interpretation of APB Opinion No. 25. Such FASB Exposure
Draft, if adopted in its current form, could be interpreted to indicate that
employees subject to co-employment arrangements, would not be considered our
employees for purposes of applying APB No. 25. On April 30, 1999, we gave notice
of termination of this co-employment arrangement. If additional clarification
regarding the definition of an employee is not provided in the final
pronouncement, we may be required to establish a new measurement date for stock
options granted after December 15, 1998 to these employees for the purpose of
accounting for stock options under APB No. 25. If a new measurement date is
required to be established, we would recognize the deferred stock-based
compensation which would be amortized as stock-based compensation over the
remaining vesting periods of the options. We estimate that this charge would
aggregate approximately $7.0 million, which would be recognized beginning with
the fourth quarter of fiscal 1999, the estimated date the final pronouncement
will be effective, and ending in 2003. Such amortization could have a material
adverse effect on our operating results.
WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with such Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities. The
failure of our internal systems, or any material third-party systems, to be Year
2000 compliant would have a material adverse effect on our business. Although we
believe that each of our material systems is Year 2000 compliant, we will not
conduct an end-to-end system test until the second quarter of 1999. Accordingly,
we do not yet know whether our internal system, as a whole, is Year 2000
compliant. We are also contacting our third-party vendors, licensors and
providers of hardware, software and services regarding their Year 2000
readiness. Even if our material systems are Year 2000 compliant, any failure of
these third-party systems to become Year 2000 compliant could adversely affect
our systems and cause disruption in our normal business activities. See the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance" section of this prospectus for a more
detailed discussion.
WE MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING TO MEET OUR FUTURE CAPITAL
NEEDS
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated needs
for working capital and capital expenditures for at least the twelve-month
period following the date of this prospectus. We will need to raise additional
funds after the twelve-month period to fund brand promotion, develop new or
enhanced services, respond to competitive pressures or make acquisitions. We may
be unable to obtain any required additional financing or on terms favorable to
us. If adequate funds are not available on acceptable terms, we may be unable to
fund our
14
<PAGE> 18
expansion, successfully promote our brand, develop or enhance services, respond
to competitive pressures or take advantage of acquisition opportunities, any of
which could have a material adverse effect on our business. If we raise
additional funds through the issuance of equity securities, our stockholders may
experience dilution of their ownership interest and the newly issued securities
may have rights superior to those of the common stock. If we raise additional
funds by issuing debt, we may be subject to limitations on our operations,
including limitations on the payment of dividends. We currently anticipate that
the net proceeds from this offering, together with currently available funds,
will be sufficient to meet our anticipated needs for at least the next twelve
months.
SUBSTANTIAL SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD CAUSE OUR
STOCK PRICE TO FALL
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate. Upon completion of this offering,
assuming the number of outstanding shares as of April 30, 1999 we will have
24,349,424 outstanding shares of common stock, 24,799,424 shares if the
underwriters exercise their over-allotment option in full. Of the remaining
shares, a total of 21,106,168 shares held by our directors, executive officers
and our existing stockholders are subject to lock-up agreements generally
providing that these stockholders will not sell or otherwise dispose of any of
their shares for a period of 180 days following the date of the final prospectus
for this offering without the prior written consent of Morgan Stanley & Co.
Incorporated. The shares outstanding prior to the offering will be "restricted
securities" as the term is defined under Rule 144 promulgated under the
Securities Act. Unless sold under Rule 144, which provides for minimum holding
periods, public availability of information and volume and manner restrictions
on sale, restricted securities cannot be sold without an effective registration
statement on file with the Commission. In addition, options to purchase up to
5,281,833 shares of our common stock are outstanding as of April 30, 1999 under
the 1996 Equity Incentive Plan, the 1999 Equity Incentive Plan and pursuant to
options granted outside of these plans. Following the offering, we expect to
register the shares underlying these options. See the "Shares Eligible" section
of this prospectus for a more detailed discussion.
AFTER THIS OFFERING, OUR OFFICERS AND DIRECTORS WILL OWN A LARGE PERCENTAGE OF
OUR OUTSTANDING SHARES AND WILL THEREBY BE ABLE TO SIGNIFICANTLY INFLUENCE
MATTERS REQUIRING STOCKHOLDER APPROVAL
Our executive officers and directors will, in the aggregate, beneficially
own approximately 56% of our outstanding common stock following this offering.
These stockholders will be able to exercise control over matters requiring
approval by our stockholders, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing an acquisition or change in
control of Ask Jeeves, which could have a material adverse effect on our stock
price.
OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS WHICH COULD
RESULT IN SUBSTANTIAL LOSSES FOR INDIVIDUAL STOCKHOLDERS
Prior to the offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiations
between the underwriters and us and may not be indicative of the market price
for our common stock after the offering. We do not know the extent to which
investor interest will lead to the development of an active public market. As
such, investors may not be able to sell our common stock at or above the initial
public offering price. In particular, the market for the stocks of
Internet-related companies has experienced extreme price and volume
fluctuations. Following this offering, investor interest in us may not lead to
the development of an active or liquid trading market. The market price of our
common stock may be volatile and may decline below the initial public offering
price. In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. If instituted against us, regardless of the outcome, litigation
could result in substantial costs and a diversion of our management's attention
and resources and have a material adverse effect on our business, results of
operations or financial condition.
15
<PAGE> 19
PROVISIONS IN DELAWARE LAW AND OUR CHARTER, STOCK OPTION AGREEMENTS AND OFFER
LETTERS TO EXECUTIVE OFFICERS MAY PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our Amended and Restated Certificate of Incorporation, our
Bylaws and Delaware Law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. See
"Description of Capital Stock."
In addition, our option agreements granted under the 1996 Equity Incentive
Plan provide that if a change of control of Ask Jeeves occurs prior to the first
anniversary of the vesting commencement date of the option agreement, then the
vesting which would have occurred by such anniversary shall occur. After the
first anniversary of the date of grant, these option agreements provide that the
vesting of each option shall accelerate by six months. As of April 30, 1999
there were 4,814,004 unvested shares of common stock reserved pursuant to
options granted under this plan. These provisions could have the effect of
discouraging potential takeover attempts.
Furthermore, offer letters with our executive officers provide for the
payment of severance and acceleration of options upon the termination of these
executive officers upon a change of control of Ask Jeeves.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share will significantly exceed the
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate and substantial dilution of their investment
of $7.74 per share.
16
<PAGE> 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
17
<PAGE> 21
USE OF PROCEEDS
The net proceeds to be received by Ask Jeeves from the sale of 3,000,000
shares of common stock in this offering are estimated to be $26.8 million, or
$31.0 million if the underwriters exercise their over-allotment option in full,
at an assumed initial public offering price of $10.00 and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
We plan to use $15 million to $20 million of the net proceeds for
advertising and marketing expenditures to promote our brand and will use the
remaining net proceeds from this offering for general corporate purposes,
including working capital, expenditures for the growth and expansion of our
business, building our brand both online and offline, enhancing our product
development and possible acquisitions. We are not currently a party to any
contracts or letters of intent with respect to any acquisitions, and there can
be no assurance that any of our expansion plans will be realized or, if
realized, will prove profitable for us. We have not identified specific uses for
all of such proceeds, and management will have discretion over their use and
investment. We intend to invest the net proceeds from this offering in
short-term, investment grade, interest-bearing securities until they are used.
We reserve the right to increase or decrease the size of this offering and the
price per share of the shares offered hereby.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business, and we do not expect to pay any cash dividends in the foreseeable
future.
18
<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
-- on an actual basis;
-- on a pro forma basis to reflect the conversion upon the closing of
this offering of all outstanding shares of preferred stock into
9,485,690 shares of common stock; and
-- on a pro forma basis as adjusted to reflect the sale of the common
stock offered in this offering and the receipt of the net proceeds
from the sale of the common stock at an assumed public offering price
of $10.00, after deducting estimated underwriting discounts and
commissions and estimated offering expenses.
This information should be read in conjunction with the Financial
Statements and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Capital lease obligations, less current portion..... $ 33,606 $ 33,606 $ 33,606
----------- ----------- -----------
Stockholders' equity(1):
Convertible preferred stock; 10,000,000 shares
authorized (actual and pro forma); (5,000,000
pro forma as adjusted); issuable in series:
Series A convertible preferred stock: 3,750,000
shares designated; 3,709,884 shares issued
and outstanding (actual); no shares issued
and outstanding (pro forma and pro forma as
adjusted).................................... 7,581,708 -- --
Series B convertible preferred stock: 6,250,000
shares designated; 5,775,806 shares issued
and outstanding (actual); no shares issued
and outstanding (pro forma and pro forma as
adjusted).................................... 24,961,680 -- --
Common stock: 40,000,000 shares authorized;
11,583,733 shares issued and outstanding
(actual); 150,000,000 shares authorized and
21,069,423 shares issued and outstanding (pro
forma); 150,000,000 shares authorized and
24,069,423 shares issued and outstanding (pro
forma as adjusted)............................. 6,876,194 39,419,582 66,219,582
Deferred stock compensation....................... (2,052,574) (2,052,574) (2,052,574)
Accumulated deficit............................... (9,686,359) (9,686,359) (9,686,359)
----------- ----------- -----------
Total stockholders' equity..................... 27,680,649 27,680,649 54,480,649
----------- ----------- -----------
Total capitalization...................... $27,714,255 $27,714,255 $54,514,255
=========== =========== ===========
</TABLE>
- ---------------
(1) Excludes (a) 4,122,457 shares of common stock issuable on exercise of
options outstanding as of March 31, 1999, with a weighted average exercise
price of approximately $.90 per share and (b) 39,000 shares of common stock
issuable upon exercise of warrants outstanding as of March 31, 1999, with a
weighted average exercise price of approximately $.62 per share.
19
<PAGE> 23
DILUTION
The pro forma net tangible book value of Ask Jeeves at March 31, 1999 was
approximately $27.7 million, or $1.31 per share. Pro forma net tangible book
value per share is determined by dividing our pro forma tangible net worth
(total tangible assets less total liabilities) by the number of outstanding
shares of common stock, after giving effect to the conversion of all outstanding
shares of our convertible preferred stock into 9,485,690 shares of common stock.
Assuming the sale of the 3,000,000 shares of common stock offered hereby at an
assumed initial public offering price of $10.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, the pro forma net tangible book value of Ask Jeeves, Inc. as of March
31, 1999 would have been approximately $54.5 million, or $2.26 per share. This
represents an immediate increase in the pro forma net tangible book value per
share of $0.95 per share to existing stockholders and an immediate dilution of
$7.74 per share to new investors purchasing shares at the assumed initial public
offering price. If the assumed initial public offering price is higher or lower,
the dilution to new investors will be greater or less, respectively. The
following table illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of March
31, 1999.............................................. $1.31
Increase in pro forma tangible book value per share
attributable to new investors......................... 0.95
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.26
------
Dilution per share to new investors......................... $ 7.74
======
</TABLE>
The calculation is based on an assumed initial public offering of $10.00
per share, before deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 21,069,423 87.5% $36,829,538 55.1% $ 1.75
New investors.................... 3,000,000 12.5 $30,000,000 44.9% $10.00
---------- ----- ----------- -----
Total............................ 24,069,423 100.0% $66,829,538 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Excludes (a) 4,122,457 shares of common stock issuable on exercise of
options outstanding as of March 31, 1999, with a weighted average exercise
price of approximately $.90 per share and (b) 39,000 shares of common stock
issuable upon exercise of warrants outstanding as of March 31, 1999, with a
weighted average exercise price of approximately $.62 per share.
20
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read in conjunction with, our Financial Statements and the Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results Of Operations" appearing elsewhere in this prospectus. The statement of
operations data presented below for the period from inception through December
31, 1996 and for the years ended December 31, 1997 and 1998 and the selected
balance sheet data at December 31, 1997 and 1998 are derived from our financial
statements that have been audited by Ernst & Young LLP, independent auditors,
included elsewhere in this prospectus. The selected statement of operations data
for the three months ended March 31, 1998 and 1999 and the balance sheet data at
March 31, 1999 are derived from our unaudited financial statements included
elsewhere in this prospectus. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of our financial position and results of operations for these
periods. The financial data for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999 or any other future period.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED THREE MONTHS
JUNE 13, 1996 DECEMBER 31, ENDED MARCH 31,
(INCEPTION) THROUGH ----------------------- -----------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Consumer..................... $ -- $ -- $ 577,159 $ 14,766 $ 1,059,068
Corporate.................... -- -- 15,500 -- 72,500
--------- --------- ----------- --------- -----------
Total revenues................. -- -- 592,659 14,766 1,131,568
Cost of revenues:
Consumer..................... -- -- 602,716 46,371 699,131
Corporate.................... -- -- 455,978 21,299 822,581
--------- --------- ----------- --------- -----------
Total cost of revenues......... -- -- 1,058,694 67,670 1,521,712
--------- --------- ----------- --------- -----------
Gross profit (loss)............ -- -- (466,035) (52,904) (390,144)
Operating expenses:
Product development.......... 107,797 319,824 1,104,193 127,772 742,166
Sales and marketing.......... -- 17,509 1,613,846 80,872 2,669,165
General and administrative... -- 114,651 1,100,921 77,605 881,830
Amortization of deferred
stock compensation........ -- -- 29,010 -- 317,048
--------- --------- ----------- --------- -----------
Total operating expenses....... 107,797 451,984 3,847,970 286,249 4,610,209
--------- --------- ----------- --------- -----------
Operating loss................. (107,797) (451,984) (4,314,005) (339,153) (5,000,353)
Interest income................ -- 4,207 52,380 3,798 131,193
--------- --------- ----------- --------- -----------
Net loss....................... $(107,797) $(447,777) $(4,261,625) $(335,355) $(4,869,160)
========= ========= =========== ========= ===========
Pro forma basic and diluted net
loss per share............... $ (0.48) $ (0.29)
=========== ===========
Weighted average shares
outstanding used in computing
pro forma basic and diluted
net loss per share........... 8,828,046 16,730,099
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------- AS OF
1996 1997 1998 MARCH 31, 1999
------- -------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments..................................... $ -- $521,247 $5,587,883 $25,144,341
Working capital................................... -- 476,011 4,776,279 22,622,918
Total assets...................................... -- 608,259 6,808,172 31,924,787
Capital lease obligations, less current portion... -- -- 45,945 33,606
Total stockholders' equity (deficit).............. (6,219) 542,992 5,565,820 27,680,649
</TABLE>
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Financial
Statements and the related notes contained elsewhere in this prospectus.
OVERVIEW
We have two principal businesses based on the same underlying technology.
The Consumer Question Answering Service, Ask Jeeves, at Ask.com, allows users to
obtain answers to frequently asked questions online. The Corporate Question
Answering Service helps companies provide a high quality, human-like online
interface for their customers.
Revenues from the Consumer Question Answering Service consist primarily of
three components:
-- advertising revenues;
-- knowledge base licensing fees; and
-- electronic commerce transaction fees.
We earn advertising revenues from short-term advertising contracts, by
delivering impressions to users over a specified period of time. Advertising
rates, measured on a cost per thousand impressions ("CPM") basis, are dependent
on whether the impressions are displayed in general rotation throughout our Web
site or are directed to targeted audiences or channels within Ask Jeeves, such
as the computer, entertainment, family, health, money, shopping and travel
channels. Revenues are based upon actual impressions delivered as measured by
our third party advertising delivery provider, Doubleclick, Inc. Approximately
79% of the Consumer Question Answering Service revenues for the year ended
December 31, 1998 were derived from advertising contracts. Total revenues from
advertising contracts were approximately $455,000 for the year ended December
31, 1998 and approximately $923,000 for the three months ended March 31, 1999.
We currently license the Ask Jeeves knowledge base to three companies that
provide Internet-wide search or navigation services. These companies are
AltaVista Company, Netscape Communications, Inc., and Infonautics Corporation.
Knowledge base licensing fees are recognized ratably over the contract term,
generally a twelve month period, for a fixed fee. Revenues for knowledge base
licensing fees totaled approximately $122,000 for the year ended December 31,
1998 and $136,000 for the three months ended March 31, 1999. We expect that
licensing of the knowledge base will not be a significant part of our business
model in the future. We also generate revenues from electronic commerce
transactions through arrangements with our electronic commerce merchants,
typically on a cost per click ("CPC") basis: we receive payment only if the user
clicks on the answer that links to such electronic commerce merchant's web site.
Electronic commerce revenues for the year ended December 31, 1998 and the three
months ended March 31, 1999 were less than 1% of our revenues.
Revenues from the Corporate Question Answering Service consist of three
components:
-- knowledge base customization;
-- maintenance and information service fees; and
-- per-answer fees.
We recognize knowledge base customization and maintenance and information
service fees ratably over the contract term, generally twelve months. We
recognize per-answer fees based on answers delivered at contractual per-answer
rates, subject to negotiated annual minimums and maximums, if applicable.
Payments received prior to delivering the knowledge base, or providing
maintenance and information services are recorded as deferred revenues and are
recognized ratably over the contract term. Revenues from the Corporate Question
Answering Service were $15,500 for the year ended December 31, 1998 and $72,500
for the three months ended March 31, 1999.
22
<PAGE> 26
Cost of revenues for our Consumer Question Answering Service consists
primarily of salaries and personnel costs associated with the content
development and maintenance of Ask Jeeves and providing data analysis, testing
and training. Cost of revenues for our Corporate Question Answering Service
consists primarily of salaries and related personnel costs and other direct
costs to provide knowledge base information and maintenance services to
corporate customers.
Product development expenses consist primarily of salaries and related
personnel costs, consultant fees and expenses related to the design,
development, testing and enhancement of our technology and services. To date all
software development costs have been expensed as incurred. We believe that
continued investment in product development is critical to attaining our
strategic product objectives and, as a result, we expect these expenses to
increase in absolute dollars in the future.
Sales and marketing expenses consist primarily of salaries, commissions and
related personnel expenses as well as advertising and promotional expenditures.
We intend to pursue aggressive sales and marketing campaigns and expand our
sales and marketing organization, which will result in an increase in absolute
dollars in our sales and marketing expenses.
General and administrative expenses consist primarily of salaries and
related personnel costs and other related costs for general corporate functions,
including executive management, finance, facilities administration, legal,
recruiting, and fees for other professional services. We expect general and
administrative expenses to increase in absolute dollars as we add personnel and
incur additional costs related to the growth of our business and our operation
as a public company.
During the year ended December 31, 1998 and the three months ended March
31, 1999, in connection with the grant of certain stock options to employees, we
recorded deferred stock compensation totaling approximately $2.2 million,
representing the difference between the deemed fair value of our common stock on
the date such options were granted and the exercise price. Such amount is
included as a reduction of stockholders' equity and is being amortized by
charges to operations on a graded vesting method. We recorded amortization of
deferred stock compensation expense of approximately $29,000 and $269,000 for
the year ended December 31, 1998 and the three months ended March 31, 1999,
respectively. At March 31, 1999, we had a total of approximately $1.9 million
remaining to be amortized over the corresponding vesting periods of the options,
generally four years. In April 1999, we recorded additional deferred stock
compensation of approximately $573,000 representing the difference between the
deemed fair value of our common stock on the date such options were granted and
the exercise price. For the years ending December 31, 1999 and 2000, we will
record amortization expense relating to deferred stock compensation totaling
approximately $1,509,000 and $737,000, respectively. Due to the graded vesting
method of amortization, most of the deferred compensation charge will be
incurred over the first two years of the vesting of the options. The
amortization expense relates to options awarded to employees in all operating
expense categories. See Note 5 of Notes to Financial Statements.
Additionally, for the three months ended March 31, 1999, in connection with
the grant of stock options to Roger A. Strauch and Daniel H. Miller, who served
as our consultants, we recorded deferred stock compensation of $245,000. This
amount represents the difference between the deemed fair value of our common
stock on the date such options were granted and the exercise price and is being
amortized by charges to operations over the service period which concludes in
December 1999. We recorded amortization of deferred stock compensation expense
of approximately $48,000 in the three months ended March 31, 1999.
We have outsourced our payroll processing and other aspects related to our
employee benefits programs under a co-employment arrangement with TriNet VCO, an
independent professional employer organization. On March 31, 1999, the Financial
Accounting Standards Board ("FASB") issued an Exposure Draft of a FASB
Interpretation, Accounting for Certain Transactions involving Stock
Compensation -- an interpretation of APB Opinion No. 25. Such FASB Exposure
Draft, if adopted in its current form, could be interpreted to indicate that
employees subject to co-employment arrangements, would not be considered
employees for purposes of applying APB No. 25. On April 30, 1999, we gave notice
of termination of this co-employment arrangement. If additional clarification
regarding the definition of an employee is not provided in the final
pronouncement, we may be required to establish a new measurement date for stock
options granted after
23
<PAGE> 27
December 15, 1998 to these employees for the purpose of accounting for stock
options under APB No. 25. If a new measurement date is required to be
established, we would recognize the deferred stock=based compensation which
would be amortized as stock-based compensation over the remaining vesting
periods of the options. We estimate that this charge would aggregate
approximately $7.0 million, which would be recognized beginning with the fourth
quarter of fiscal 1999, the estimated date the final pronouncement will be
effective, and ending in 2003. Such amortization could have a material adverse
effect on our operating results.
We have incurred significant net losses and negative cash flows from
operations since our inception, and at March 31, 1999, we had an accumulated
deficit of approximately $9.7 million. These losses have been funded primarily
through the issuance of preferred and common equity securities. We believe that
we will continue to incur operating and net losses and negative cash flows from
operations for the foreseeable future and that the rate at which we will incur
such losses may increase from current levels.
There was no provision for federal or state income taxes for any period
since inception due to our operating losses. At December 31, 1998, we had net
operating loss carryforwards for federal income tax purposes of approximately
$303,000 which will expire in fiscal year 2018 if not utilized. Utilization of
our net operating loss carryforwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. Such an annual limitation could
result in the expiration of the net operating loss carryforwards before
utilization. A valuation allowance has been established and, accordingly, no
benefit has been recognized for our net operating losses and other deferred tax
assets. The net valuation allowance increased by $978,634 during the year ended
December 31, 1998. We believe that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance has been recorded.
These factors include our history of net losses since inception and expected
near-term future losses. We will continue to assess the realizability of the
deferred tax assets based on actual and forecasted operating results. See Note 4
of Notes to Financial Statements.
ANNUAL RESULTS OF OPERATIONS
INCEPTION TO DECEMBER 31, 1996 AND YEAR ENDED DECEMBER 31, 1997
Because we were a development stage company during the 1996 and the year
ended December 31, 1997, we generated no revenues for these periods. Operating
expenses increased to $451,000 in 1997 from $108,000 in the period from June 13,
1996 through December 31, 1996. During 1996, we incurred only product
development expenses as our sole focus was the development of our question
processing technology. In 1997, product development expenses totaled $320,000,
an increase from $108,000 in 1996, which is attributable to the addition of
product development personnel and related costs and consultant fees.
Additionally, in 1997 we began to build our infrastructure and added finance,
information technology, legal, executive management and administrative personnel
and related costs, which amounted to $115,000 for the period ending December 31,
1997. Sales and marketing expenses were not significant in 1997. We believe that
period-to-period comparisons prior to 1998 are less meaningful than an analysis
of recent quarterly operating results. Accordingly, we are providing a
discussion and analysis of our results of operations that is focused on the five
quarters ended March 31, 1999.
24
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statements of operations
results for the five quarters ended March 31, 1999. We believe that this
information reflects all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of such
information in accordance with generally accepted accounting principles. The
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Consumer.................. $ 14,766 $ 35,355 $ 105,265 $ 421,773 $ 1,059,068
Corporate................. -- -- 7,500 8,000 72,500
--------- --------- --------- ----------- -----------
Total revenues.............. 14,766 35,355 112,765 429,773 1,131,568
Cost of revenues:
Consumer.................. 46,371 69,734 169,144 317,467 699,131
Corporate................. 21,299 29,408 60,878 344,393 822,581
--------- --------- --------- ----------- -----------
Total cost of revenues...... 67,670 99,142 230,022 661,860 1,521,712
--------- --------- --------- ----------- -----------
Gross profit (loss)......... (52,904) (63,787) (117,257) (232,087) (390,144)
Operating expenses:
Product development....... 127,772 170,463 226,188 579,770 742,166
Sales and marketing....... 80,872 183,343 323,828 1,025,803 2,669,165
General and
administrative......... 77,605 157,354 260,565 605,397 881,830
Amortization of deferred
stock compensation..... -- -- -- 29,010 317,048
--------- --------- --------- ----------- -----------
Total operating expenses.... 286,249 511,160 810,581 2,239,980 4,610,209
--------- --------- --------- ----------- -----------
Operating loss.............. (339,153) (574,947) (927,838) (2,472,067) (5,000,353)
Interest income............. 3,798 1,292 9,643 37,647 131,193
--------- --------- --------- ----------- -----------
Net loss.................... $(335,355) $(573,655) $(918,195) $(2,434,420) $(4,869,160)
========= ========= ========= =========== ===========
</TABLE>
Revenues. Revenues increased in each of the five quarters ended March 31,
1999. The increase in revenues in these periods primarily reflected increased
advertising revenues for our Consumer Question Answering Service, related to an
increase in sales personnel and an aggressive marketing campaign that began in
late 1998. To date, a significant portion of our revenues has been attributable
to a limited number of customers. AltaVista Company and The Globe.com accounted
for approximately 14% and 13% of total revenues, respectively, for the year
ended December 31, 1998, and 11% and 21%, respectively, of total revenues for
the quarter ended March 31, 1999. Because we introduced our Corporate Question
Answering Service in October 1998 and we recognize revenues relating to these
contracts ratably over twelve months, our Corporate Question Answering Service
revenues have not been material over the five quarters ended March 31, 1999. See
Note 1 of "Notes to Financial Statements" for a more detailed discussion.
Cost of Revenues. Cost of revenues increased in each of the five quarters
ended March 31, 1999. These quarterly increases primarily related to additional
personnel and related costs associated with the content development and
maintenance of Ask Jeeves and personnel required to provide services to new
customers. The significant increases in cost of revenues for the Corporate
Question Answering Service during the quarter ended December 31, 1998 and the
quarter ended March 31, 1999 related primarily to the addition of personnel and
related costs required to implement and support customized knowledge bases for
our corporate customers.
Product Development Expenses. Product development expenses increased in
each of the five quarters ended March 31, 1999. The increases were primarily due
to expenses related to the addition of product development personnel and related
costs and consultant fees.
25
<PAGE> 29
Sales and Marketing Expenses. Sales and marketing expenses increased in
each of the five quarters ended March 31, 1999. The increases were primarily due
to expenses related to the addition of sales personnel. Furthermore, we embarked
on aggressive marketing campaigns in late 1998, resulting in advertising and
promotional expenses of $748,000 and $1.9 million in the quarter ended December
31, 1998 and the quarter ended March 31, 1999, respectively.
General and Administrative Expenses. General and administrative expenses
increased in each of the five quarters ended March 31, 1999. The increases
primarily reflected the addition of finance, information technology, legal,
executive management and administrative personnel and related costs.
RECENT EVENTS
In April 1999, we entered into an asset purchase agreement and a license
agreement with Lumina Decision Systems, Inc. ("Lumina") for the acquisition of
technology assets of Lumina in exchange for total consideration of $1,538,000
which is comprised of $700,000 in cash, 225,000 shares of our common stock
valued at $3.50 per share and $50,000 in acquisition costs. We allocated
approximately $1,177,000 of the purchase price to core technology and $361,000
to in-process technology. The core technology will be amortized over a three
year period. The in-process technology will be written off as a one-time charge
in the second quarter of 1999. In addition, approximately 107,500 shares of the
shares issued are to be held in escrow for a two year period subject to a right
of repurchase by us.
We acquired Lumina's Personal Decision Engine ("PDE") technology as well as
the right to use Lumina's Analytica and Analytica Decision Engine ("ADE")
technologies. The ADE technologies and a non-configurable version of the PDE
technology have reached technological feasibility and have been classified as
core technology. The configurable PDE technology has yet to reach technological
feasibility and therefore, this product is classified as in-process technology.
This acquisition provides technology and expertise that will complement our
existing technology. Although we believe that the purchased in-process
technology will be successfully developed, there can be no assurance that
commercial viability of these products will be achieved. The estimated cost
incurred to develop the configured PDE prior to the acquisition was $214,000.
The estimated cost to develop the in-process technology is approximately
$226,000, which is expected to be incurred in 1999.
The value of the purchased in-process technology was determined by
estimating the projected net cash flows related to such products, including
costs to complete the development of the technology and the future revenues to
be earned upon commercialization of the products. These cash flows were
discounted back to their net present value. The resulting projected net cash
flows from such products were based on our estimates of revenues and operating
profits related to such products. These estimates were based on several
assumptions, including using a discount rate of 35% for purchased in-process
technology, which was calculated based on the weighted average cost of capital,
adjusted for the technology risk associated with the purchased in-process
technology, which was considered to be significant due to the rapid pace of
technological change in the internet industry. For projected cash flows
attributable to existing technology, a discount rate of 25% was used, which
reflects the weighted average cost of capital, adjusted for the technology risk
associated with these technologies. Our analysis considered only future
operating results of the existing and in-process technology on a stand-alone
basis and did not take into consideration any potential increased revenue or
operating efficiency that may occur post-acquisition.
SEASONALITY AND QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are beyond our control. Factors that may
adversely affect our results of operations include:
-- our ability to obtain new corporate customers, the length of the
development cycle of the question answering service for corporate
customers and the timing of revenue recognition with respect to
contracts with corporate customers;
26
<PAGE> 30
-- our ability to obtain new advertising contracts, maintain existing
ones, and effectively manage our advertising inventory;
-- the number of questions asked and answered on Ask Jeeves and on the
Web sites of our corporate customers;
-- our ability to attract and retain advertisers and our ability to link
our electronic commerce merchants to potential customers;
-- seasonal and other fluctuations in demand for our electronic commerce
services and for advertising space on Ask Jeeves;
-- our ability to develop and introduce new technology;
-- announcements and new technology introductions by our competitors;
-- our ability to attract and retain key executives;
-- our ability to attract and retain highly skilled employees;
-- costs relating to possible acquisitions and integration of
technologies or businesses;
-- rate changes for advertising on Ask Jeeves; and
-- marketing expenses and technology infrastructure costs as well as
other costs that we may incur as we expand our operations.
Because of the foregoing factors, we believe that period-to-period
comparisons of our operating results should not be relied upon as an indicator
of our future performance.
As Internet advertising makes the transition from an emerging to a more
developed market, seasonal and cyclical patterns may develop in our industry
that may also affect our revenues. For instance, during 1998 the rate of growth
decreased in the summer months and traffic levels on Ask Jeeves decreased during
the year-end vacation and holiday periods. Similar to traditional media, this
may result in our advertising sales being lower during such periods. In
addition, we anticipate that sales from electronic commerce may increase during
the fourth quarter as a result of the holiday season and may decline during
other periods. Seasonality in the retail industry and in Internet service usage
are likely to cause quarterly fluctuations in our results of operations and
could have a material adverse effect on our business, results of operations and
financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private placement of equity securities. As of March 31, 1999, we had
approximately $28.3 million in cash, cash equivalents and investments. Net cash
used in operating activities was $3.0 million for the year ended December 31,
1998 and $2.6 million for the three months ended March 31, 1999. The net cash
used in operating activities in each period resulted primarily from net losses,
offset by the timing of payable settlements and depreciation and amortization
expense. Net cash used in investing activities was $782,000 for the year ended
December 31, 1998 and $6.4 million for the three months ended March 31, 1999.
Net cash used in investing activities related to purchases of $782,000 of
property and equipment for the year ended December 31, 1998 and $1.2 million for
purchases of property and equipment for the three months ended March 31, 1999.
In addition, in the three months ended March 31, 1999, we purchased $5.2 million
of short-term and long-term investments. Net cash provided by financing
activities was $8.9 million and $26.5 million for the year ended December 31,
1998 and the three months ended March 31, 1999, respectively, and related
primarily to net proceeds from the sale of common and preferred equity
securities.
We have no material commitments or obligations other than capital and
operating leases. See Note 3 of Notes to Financial Statements.
Our capital requirements depend on numerous factors, including market
acceptance of our question answering services and the amount of resources we
invest in site and content development, marketing and
27
<PAGE> 31
selling our services, our brand promotions and other factors. We have
experienced a substantial increase in our expenditures since our inception
consistent with growth in our operations and staffing, and we anticipate that
this will continue for the foreseeable future. Additionally, we will continue to
evaluate possible investments in businesses and technologies, and we plan to
expand our sales and marketing programs and conduct more aggressive brand
promotions.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated needs
for working capital and capital expenditures for at least the 12 months
following the date of this prospectus. However, if during that period or
thereafter we are not successful in generating sufficient cash flow from
operations or in raising additional capital when required in sufficient amounts
and on terms acceptable to us, these failures could have a material adverse
effect on our business, results of operations and financial condition. If we
raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be reduced.
DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk is principally confined to our cash and cash
equivalents and available-for-sale securities, which have short maturities and,
therefore, minimal and immaterial market risk.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with such Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have made a preliminary assessment of the Year 2000 readiness of our
operating, financial and administrative systems, including the hardware and
software that support our information technology ("IT") and non-IT systems. Our
assessment plan consists of:
-- quality assurance testing of our internally developed proprietary
software;
-- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our services to its users;
-- contacting vendors of third-party systems;
-- assessing repair or replacement requirements;
-- implementing repair or replacement;
-- implementation of the plan; and
-- creating of contingency plans in the event of Year 2000 failures.
Our plan is to perform a Year 2000 simulation on our systems during the
first half of 1999 to test system readiness. Based on the results of our Year
2000 simulation test, we intend to revise our internally developed proprietary
software as necessary to improve our Year 2000 compliance. Many vendors of
material hardware and software components of our systems have indicated that the
products we use are currently Year 2000 compliant. We plan to complete this
process during the second half of 1999. Until such testing is completed and such
vendors and providers are contacted, we will not be able to completely evaluate
whether our systems will need to be revised or replaced.
28
<PAGE> 32
RISKS OF YEAR 2000 ISSUES
We are not currently aware of any Year 2000 compliance problems relating to
our software or our IT or non-IT systems that would have a material adverse
effect on our business, results of operations and financial condition,
notwithstanding our efforts to detect and correct such problems. There can be no
assurance that we will not discover Year 2000 compliance problems in our
software that will require substantial revisions or replacements. In addition,
there can be no assurance that third-party software, hardware or services
incorporated into our material IT and material non-IT systems will not need to
be revised or replaced, which could be time consuming and expensive. Our failure
to fix our software, if necessary, or to fix or replace third-party software,
hardware or services, if necessary, on a timely basis could result in lost
revenues, increased operating costs and other business interruptions, any of
which could have a material adverse effect on our business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in our IT and non-IT systems could result in claims
of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend. In addition,
there can be no assurance that governmental agencies, utility companies,
Internet access companies, third-party service providers and others outside our
control will be Year 2000 compliant. The failure by such entities to be Year
2000 compliant could result in a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, which could
prevent us from operating our Web site. All of our material third party vendors
have posted notices of Year 2000 compliance on their Web sites.
While we are engaged in an ongoing Year 2000 assessment, we have not
developed any contingency plans. The results of our Year 2000 simulation testing
and the responses received from third-party vendors and service providers will
be taken into account in determining the need for and nature and extent of any
contingency plans.
COSTS TO DATE
Costs associated with Year 2000 compliance matters have been approximately
$100,000. Most of our expenses have related to, and are expected to continue to
relate to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. At this time, we
do not possess the information necessary to estimate the potential costs of
revisions to our systems should such revisions be required or the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although we do not anticipate that such expenses will be
material, such expenses, if higher than anticipated, could have a material
adverse effect on our business, results of operations and financial condition.
29
<PAGE> 33
BUSINESS
OVERVIEW
Ask Jeeves is a leading provider of natural-language question answering
services on the Internet for consumers and companies, establishing a new way to
interact with the World Wide Web. Ask Jeeves was introduced to the public in
April 1997 to provide Web users with a more satisfactory and productive
experience by quickly directing users to relevant answers to questions posed.
Our mission is to humanize the Internet by making it easier and more intuitive
for consumers to find the information, products and services they need and for
companies to better acquire, retain and maximize the value of their online
customers. Our branding strategy centers on the Jeeves character, a friendly and
trusted assistant who provides help and guidance on the Web. The Ask Jeeves
question answering services allow users to ask questions in plain English and
receive responses pointing to Internet destinations that provide the answers. We
believe that our question answering services make interaction with the Internet
more intuitive, less frustrating and significantly more productive.
Our question answering services combine sophisticated, proprietary
technologies with human editorial judgment to create a system that dynamically
responds to questions consumers ask every day. We have two principal businesses
based on the same underlying technology. The core of our Consumer Question
Answering Service, Ask Jeeves, at Ask.com, allows users to obtain answers to
millions of questions online. Our Corporate Question Answering Service helps
companies provide a high quality, human-like online interface for their
customers. Answering more than 1.5 million questions per day across our question
answering services, we believe that we handle answers to a broad range of plain
English questions.
Beginning with only 3,000 questions a day in its first month of operation,
Ask Jeeves answered over 1 million questions per day in April 1999, and has
grown its unique user base from 425,000 in September 1998 to more than 1.9
million in March 1999. By leveraging our proprietary tools and technologies, we
have been able to grow the knowledge base supporting Ask Jeeves from 30,000
answers to more than 7 million answers over the past two years. Ask Jeeves has
grown from answering a small number of reference and Web-related questions, to
answering a wide range of questions from "Is it raining in Paris?" and "Where
can I comparison shop for cameras?" to "How can I improve my golf game?" and "Am
I in love?" We believe that our ability to provide users with a more
satisfactory and productive Web experience will allow us to connect users with
providers of products and services in a more targeted way than other services on
the Internet, thereby better unlocking the power of electronic commerce.
Our Corporate Question Answering Service is designed to improve customer
satisfaction on corporate Web sites, improve conversion rates of browsers to
purchasers and reduce expensive support costs such as phone calls to call
centers. Since its introduction in October 1998, our Corporate Question
Answering Service has been adopted by BellSouth, Compaq Computer Corporation,
Datek Online, Dell Computer Corporation, Iomega Corp., Micron Technology, Inc.,
OfficeDepot.com, Oxygen Media, Inc., Toshiba America Information Systems, Inc.
and WebTV, Inc.
INDUSTRY BACKGROUND
The Internet has emerged as a mass-market communications medium, enabling
millions of users to obtain and share information, interact and conduct business
electronically. International Data Corporation ("IDC") estimates that the number
of Internet users will increase from approximately 97 million at the end of 1998
to approximately 320 million by the end of 2002, representing a compound annual
growth rate of approximately 35%. This growth is being driven by an increasing
base of computers in the home and in the workplace, improvements in network
infrastructure, more convenient, faster and inexpensive Internet access,
advances in computer and modem technology, increased public awareness of
benefits of using the Internet and improving user interfaces. These factors make
the Internet accessible to inexperienced users as well as the technologically
sophisticated. In addition to its benefits for individuals, the ubiquity of the
Internet as a global communications tool provides businesses with a new,
attractive vehicle to deliver product information, market and sell products and
services and provide post-sales support. According to IDC, worldwide electronic
30
<PAGE> 34
commerce revenue is expected to increase from approximately $32 billion in 1998
to more than $425 billion in 2002, representing a compound annual growth rate of
approximately 90%.
EVOLVING USE OF THE INTERNET BY INDIVIDUALS AND COMPANIES
The Internet has evolved from a mere repository of information to a
powerful personal tool for managing important aspects of users' lives. In
addition to searching for information, individuals can, for instance, buy and
sell products, maintain personal calendars and contact information, engage in
personal securities transactions and communicate with others. In the future,
individuals will have the opportunity to conduct more personal and professional
activities through the Internet, creating more opportunities for businesses to
reach users in a direct and focused manner.
As the Internet has grown, many businesses have come to realize the
commercial potential it offers. Businesses are embracing the Internet as an
important vehicle for communicating with customers and changing traditional
business processes and practices. As advertisers have turned to the Internet as
a new way to reach consumers, businesses have developed content-rich Web sites
designed to hold users' attention for extended time periods. More recently, new
technology has enabled commercial transactions to be conducted over the
Internet, creating the opportunity for business-to-consumer and
business-to-business electronic commerce.
We believe that the creation of highly intuitive and intelligent Web sites
designed to manage a company's interactions with its customers is an emerging
market opportunity. Given its pervasiveness, the Internet has the potential to
enable companies to electronically manage the entire customer value chain,
including:
-- attracting or delivering the customer;
-- providing the customer with easy access to requested information;
-- retaining the customer's attention by expanding the scope of the
interaction;
-- enabling the customer transaction;
-- dealing with customer post-sales questions; and
-- improving management of the customer relationship by collecting and
analyzing customer data.
Properly developed, these consumer-friendly Web sites may alter the way
businesses interact with their customers. Nevertheless, significant shortcomings
in the way users interact with the Internet must be overcome for this market
opportunity to be fully realized.
CURRENT INTERNET NAVIGATION
While the growth of the Internet has drawn users at an unprecedented pace,
the volume of online information has made it increasingly difficult for users to
navigate the Internet effectively. According to Forrester Research, 1.5 million
new Web pages are added to the Internet every day. To take full advantage of the
Web, users must be able to successfully navigate a network of dispersed Web
sites, which are generally not connected in a logical fashion.
Users currently rely on Internet search engines or directories of Web sites
and Web pages to locate information and make online purchases. Search engines
typically require consumers to construct keyword or complex search strings that
often result in hundreds or thousands of matches. As directories become larger,
they require users to move through large and complex hierarchies of information.
As the Internet grows, consumers using conventional search and directory
products are finding that locating the information they need is increasingly
difficult and electronic commerce vendors are losing opportunities for sales.
The difficulty of online navigation does not end with finding the desired
Web site. Once there, users are faced with the difficulty of searching an
overwhelming amount of information. According to Forrester Research, major
corporate Web sites now have thousands of pages, which often makes finding
relevant information a frustrating and time-consuming experience. Consumers
often must click through multiple
31
<PAGE> 35
"frequently asked questions" pages or navigate long data trees to locate desired
information. Unable to find answers to their questions about a product, service
or price, consumers often delay the buying decision or give up entirely.
Compounding the problem, corporate Web sites are generally not tailored to
individual needs. In addition, we believe that corporate Web sites do not
currently have the ability to carry on an effective dialogue with existing or
potential customers.
Further, companies need to provide a means by which their customers and
potential customers can more easily find relevant information about products and
services on their Web site. While online shoppers cite convenience as the reason
for choosing electronic commerce, according to IDC, over 70% abandon their
"shopping carts" because they have problems or questions. The online conversion
rate (the percentage of visitors who complete a purchase) is 2.7%, according to
Forrester Research, similar to that of unsolicited direct mailings through
conventional mail.
We believe that to fulfill the promise of the Internet, access to relevant
information, products and services must become simpler and quicker. Until
navigation on the Internet improves, consumers will become increasingly
frustrated with their online experiences, and companies will be frustrated by
their inability to provide an easy, intuitive and intelligent user interface and
as a result to maximize returns on their investments in Internet strategies. We
believe that a more direct and personal means of interacting with the Internet
will improve the user's experience and enhance companies' returns from Internet
strategies. This will, in turn, make the Internet more valuable to consumers and
companies alike.
THE ASK JEEVES SOLUTION
We have developed and deployed natural-language question answering
services, creating an easier, more intuitive and more efficient way of finding
answers on the Internet. Our proprietary technologies, including
natural-language parsing software, knowledge base technology and data mining
processes, allow our users to ask questions and find answers without human
intervention. Our editors create new confirming questions on an ongoing basis to
update the Ask Jeeves knowledge base. However, our users' retrieval of
information is entirely automated. Our question answering services make relevant
information, products and services on the Web directly accessible to consumers
and enhance the commercial potential of corporate Web sites.
We have two principal businesses based on the same underlying technology.
The core of our Consumer Question Answering Service, Ask Jeeves, at Ask.com,
allows users to obtain answers to millions of questions online. Currently it is
primarily supported by advertising fees. Our Corporate Question Answering
Service helps companies provide a high quality, human-like interface for their
customers and is supported by professional services, maintenance and per answer
fees. Answering more than 1.5 million questions a day across our question
answering services, we believe that we handle a broad range of plain English
questions.
HOW ASK JEEVES WORKS
A user of our question answering services begins by entering a question in
plain English. Our proprietary question processing engine ("QPE") parses the
question for word meaning and grammar and then maps it to a set of questions in
the Ask Jeeves knowledge base. Our interactive system suggests additional
related questions that are likely to be responsive to the user's needs. These
questions create an electronic dialogue with the user that not only helps the
user find the desired information but also educates the user about a range of
related topics and electronic commerce possibilities. After the user chooses
from among these dialogue questions, Ask Jeeves connects the user to a page on a
Web site containing the desired information without requiring any additional
navigation. The user can return to the dialogue questions for other information
and shopping links offered by our question answering services.
We created the Ask Jeeves question answering services to become smarter in
response to consumer questions and needs. Our system is built on the belief that
a large percentage of the questions asked can be mapped to a manageable number
of answers. The Ask Jeeves technology records all the questions consumers ask
and our editors apply this information to update the knowledge bases.
32
<PAGE> 36
THE CONSUMER QUESTION ANSWERING SERVICE
Ask Jeeves, at Ask.com, was launched in April 1997 to make finding answers
to questions easier. We believe that Ask Jeeves offers consumers the following
benefits:
Ease of use. Users have access to a human-like, intuitive interface with
the Web and can ask their questions in plain English. Users can spend less time
searching and more time obtaining relevant information.
Relevance. Ask Jeeves parses a user's query for word meaning and grammar.
Our proprietary technology allows us to respond with matching dialogue questions
even if the user asks a question in a different way or uses words different than
used in the question template in our knowledge base.
Precision. Ask Jeeves can answer a wide range of questions, by pointing the
consumer to a small set of relevant answers, avoiding hundreds or thousands of
search results which are often produced by search engines or directory searches.
These answers have been selected by our editors and validated for accuracy and
quality.
Ability to learn. Our technology monitors and analyzes all the questions
asked on Ask Jeeves. Our editors use the information to update the knowledge
base regularly, making Ask Jeeves smarter. Because our knowledge base is built
on past usage by other consumers, we believe it is better adapted to the needs
of future consumers than traditional software-driven search engines.
In addition to being a valuable advertising medium, Ask Jeeves can link
users with electronic commerce merchants who offer relevant products and
services. Substantially all of our revenues attributable to the Consumer
Question Answering Service are derived from advertising and electronic commerce
merchant fees.
THE CORPORATE QUESTION ANSWERING SERVICE
We also deploy our proprietary technologies and editorial tools to
customize our question answering service for a company's Web site to enable
intuitive online interaction between the company and its customers. We believe
visitors to a corporate question answering service-enabled Web site can readily
find desired information through a simple question and answer dialogue. Further,
we believe that our Corporate Question Answering Service provides companies with
the following advantages:
Increased conversion rates. The Corporate Question Answering Service is
designed to provide quick and direct answers, reduce the customer's frustration
level and supply additional product suggestions relevant to the question asked
by the customer or potential customers on a company's Web site. As a result, we
believe that more users will make purchases on these Web sites.
Lowered support costs. The Corporate Question Answering Service is designed
to enable more effective online customer self-service. We believe that
implementation of the Company's technology on our corporate customers' Web
sites, will facilitate their users' access to information, on a self-service
basis, thereby reducing the costs to our corporate customers of phone and e-mail
interactions with their customers.
Improved customer satisfaction and retention. By providing intuitive
interaction and relevant answers, we believe that the Corporate Question
Answering Service makes interacting with a company's Web site faster and easier.
Valuable customer data. By collecting and analyzing questions and customer
preferences, we believe that the Corporate Question Answering Service offers an
efficient and inexpensive means for companies to obtain market data and improve
customer loyalty.
Outsourced development. By providing a stand-alone, fully outsourced
service, the Corporate Question Answering Service can be easily developed using
existing company Web content and maintained without interference with a
company's other information systems infrastructure.
33
<PAGE> 37
THE ASK JEEVES STRATEGY
Our strategy is to establish Ask Jeeves as the leading question answering
service provider for information, products and services on the Internet. The key
elements of our strategy are as follows:
Continue to Build the Ask Jeeves Brand. To enhance public awareness of our
question answering services, we are pursuing an aggressive brand development
strategy through mass market and targeted advertising, promotions and public
relations. Our branding strategy centers on the Jeeves character, a friendly and
trusted assistant who provides help and guidance on the Web. We believe that
building our brand will increase traffic to Ask Jeeves and, as a result,
increase revenues from advertising and transactions. We also believe that
enhancing our brand will increase licensing opportunities with corporate
customers.
Unlock Electronic Commerce for Consumers and Corporations. Because Ask
Jeeves' question answering services can intuitively and intelligently connect
users with product and service purchase opportunities, we believe it offers
powerful targeting advantages over other Internet-based alternatives. To further
enhance the electronic commerce potential of our services, we plan to
aggressively devote resources to expanding the scope and breadth of
shopping-related questions. For example, we will continue to leverage our
technology to provide users with access to consumer information, such as product
reviews and pricing data, which empowers the user with enough knowledge to
complete a transaction. For our corporate service customers, we plan to continue
broadening the application of our question answering service beyond customer and
technical support into services specifically geared to guiding customers through
purchases directly on a corporate Web site.
Leverage the Ask Jeeves Brand to Continue Expansion of Our Corporate
Question Answering Service. We believe that the Jeeves brand is attractive to
corporations seeking to improve their online customer interactions. Since
October 1998, ten customers: BellSouth, Compaq Computer Corporation, Datek
Online, Dell Computer Corporation, Iomega Corp., Micron Technology, Inc., Office
Depot, Oxygen Media, Inc., Toshiba America Information Systems, Inc., and WebTV,
Inc., have licensed our service to handle interactions such as pre- and
post-sales service. To continue expanding our corporate question answering
service, we are initially focusing on technology and financial services, both of
which are markets with complex products and services requiring a high level of
pre- and post-sales customer support. We believe that our strategy of focusing
on key markets will enhance our competitive advantage by allowing us to leverage
the expertise gained in building each successive knowledge base.
Outsourced Corporate Question Answering Service Implementation. To enable
us to provide our corporate question answering service to the broadest possible
range of corporate customers, we intend to supplement our direct sales and
implementation capability by licensing tools to selected third-party technology
integration vendors. This outsourcing strategy will allow us to reach the
significant customer base of these strategic partners, while reducing the amount
of direct labor we must apply to implement new Corporate Question Answering
Services. For example, we recently entered into a relationship with USWeb/CKS
under which USWeb will provide outsourced professional services to create,
implement and maintain corporate question answering services.
Make Ask Jeeves Smarter. To maintain our competitive advantage, we must
continue to develop a rich base of questions and related answer links for our
knowledge base. To supplement the ongoing efforts of our editors in increasing
the breadth of our knowledge base, we intend to enter into arrangements with
large content providers to link answers in their content to a base of questions
contained in Ask Jeeves.
PRODUCTS AND SERVICES
The Ask Jeeves question answering services provide users a fast, easy and
intuitive way to find information, products and services on the Internet. We
combine proprietary tools and technologies with editorial judgment to let users
ask questions in plain English and to direct them to a small selection of
relevant destinations on the Internet. Unlike traditional Web navigation methods
that require keyword searching or complex search strings, and often generate
hundreds or thousands of responses, our natural-language question answering
service generally provides "two-click" access to relevant Web sites.
34
<PAGE> 38
CONSUMER QUESTION ANSWERING SERVICE
Ask Jeeves at Ask.com. Initially introduced to handle general reference and
Web-related questions, Ask Jeeves has become a popular destination site, where
users get answers to a broad range of questions from "Why is the sky blue?" to
"Where can I buy flowers online?" The following table illustrates the breadth of
questions that Ask Jeeves can answer:
<TABLE>
<S> <C>
COMPUTERS MONEY
- --------------------------------------------- ---------------------------------------------
What are Web cookies? How much do I need to save for retirement?
Where can I find computer deals online? What is an annuity?
How do I install a modem? Where can I bank online?
Where can I find anti-virus software? How much life insurance do I need?
How can I create my own Web page? How does the stock market work?
ENTERTAINMENT REFERENCE
- --------------------------------------------- ---------------------------------------------
What parties are happening on New Year's Eve? How many feet are in a mile?
Where can I see a magic trick online? What does my phone number spell?
Are the Rolling Stones on tour? How can I become Miss America?
What's on TV tonight? Why is the sky blue?
What happened on this day in rock and roll Who was the first woman in space?
history?
ROMANCE
FAMILY ---------------------------------------------
- ---------------------------------------------
Am I in love?
How can I help my child with her homework? How do I get out of the doghouse?
How do I train my dog? How do I write a love poem?
Where can I find a good summer camp for kids? What are some good date ideas?
What should I name my baby? How can I prepare a romantic dinner?
How much will it cost to send my child to
college? SHOPPING
---------------------------------------------
GEOGRAPHY
- --------------------------------------------- How can I order a pizza over the Internet?
What is a good anniversary present?
What are the Seven Wonders of the World? What are the latest fashions?
How deep is the ocean? Where can I comparison shop for cameras?
Where can I find a current map of the world? Where can I find recommendations on software?
Where are the deserts of the world?
What is the capital of Malaysia? SPORTS
---------------------------------------------
HEALTH
- --------------------------------------------- Where can I buy a snowboard?
When are the Giants playing next?
How can I cure my headache? Where can I sign up for a fantasy football
Is yawning contagious? league?
How can I get rid of allergies? Who won the first World Series?
Where can I find a good gym? Where can I get my scuba diving
How do antioxidants work? certification?
KIDS TRAVEL
- --------------------------------------------- ---------------------------------------------
Where can I play a game with Elmo? What's the weather in New York?
When do I capitalize a letter? How can I renew my passport?
Where can I get facts on dinosaurs? How can I optimize my frequent flier miles?
What is static electricity? What are good travel tips for going abroad?
Where can I hear the sound a lion makes? Where can I find cheap airline tickets?
</TABLE>
Ask Jeeves was designed to create a more personal interaction with users.
The Jeeves character is intended to be a helpful, trusted assistant for our
users, providing help and guidance when they visit our Web site. We believe that
Jeeves will help us increase awareness and user loyalty to Ask Jeeves.
The Question Answering Process. Visitors to our Web site can type a
question in plain English and click the "Ask" button. Ask Jeeves creates an
interaction with the user by presenting a selection of dialogue questions based
on the word meaning and grammar of the original query. When the user clicks on
the appropriate dialogue question, Ask Jeeves provides a direct link to the page
on a third-party Web site that contains the answer.
35
<PAGE> 39
For example, a visitor to Ask Jeeves can enter the question:
[Screen shot of Ask Jeeve's Web site home page with the question "Where can I
find a recipe for creme brulee?"]
LOGO
36
<PAGE> 40
Ask Jeeves parses the question for word meaning and grammar and displays a
selection of dialogue questions, which help refine the visitor's query. The
dialogue questions also alert users to related possibilities, including relevant
electronic commerce opportunities. For example, in addition to answering the
question "Where can I find a recipe for creme brulee?" our service gives users
the option to click on the "Shop" question "Where can I buy a book about
cooking?" Ask Jeeves also presents results from several leading search engines
to supplement the Ask Jeeves answers. We believe that the question answering and
"Shop" functionalities provide significant opportunities for existing and new
advertising and electronic commerce partners.
[Screen shot of Ask Jeeve's Web site second page containing a set for dialogue
questions in response to the question "Where can I find a recipe for creme
brulee?"]
LOGO
37
<PAGE> 41
After users click on the "Ask" or "Shop" button next to the question that
most clearly represents what they are looking for, Ask Jeeves links users to a
relevant Internet destination containing the answer. We are generally able to
point users directly to the specific page of a third-party Web site that
contains the answer, rather than the home page, thus eliminating several
unnecessary clicks. All answers have been selected by our editors and checked
for credibility, accuracy and relevance.
LOGO
[Screen shot page on a third party Web site containing the answer to the
question "Where can I find a recipe for creme brulee?"]
Features. Ask Jeeves offers a number of features:
- Shopping. We believe that our ability to answer questions and connect
consumers with the relevant providers of goods and services in a
non-intrusive way presents a compelling electronic commerce opportunity.
We direct users to a wide variety of shopping-related information, such
as price comparisons and product reviews. We believe these features will
create loyal users who will use Ask Jeeves as an online personal shopping
assistant.
- Channels. Ask Jeeves has created a series of vertical channels that
present frequently asked questions on specific subjects. We created Ask
Jeeves for Kids, at ajkids.com, and the computer, entertainment, family,
health, money, shopping and travel channels, to reflect the topics most
frequently asked by Web users. These channels allow users to browse
questions which we have answered for other users. These channels offer
highly targeted opportunities for our advertising and electronic commerce
partners. Currently, advertisers directly sponsor our presentation of
these channels.
Ask Jeeves for Kids, at ajkids.com, our flagship channel, is geared to
children, teachers and parents. A special editorial team ensures that all
answers are appropriate for children. Accessed through a link on Ask Jeeves or
at Ask Jeeves for Kids, children can find answers to their questions using the
same question answering service used on Ask Jeeves. A kid-safe meta-search
option is also provided using a filtering system provided by SurfWatch. Ask
Jeeves for Kids received an Editor's Choice Award from PC Magazine in 1998.
38
<PAGE> 42
We believe that our ability to offer an easy, safe and credible resource for
children will present corporate partnership opportunities.
- Meta-search. We offer a meta-search capability that provides results
from leading search engines in response to each question. This feature
supplements the information in our knowledge base. We believe that this
functionality increases user satisfaction and loyalty.
- Other Features. Ask Jeeves includes a "Take a Peek" feature to allow
users to see the most recently answered questions, which are refreshed
every 30 seconds. This provides both entertainment and guidance about the
types of questions Ask Jeeves can answer. Visitors can also take
advantage of the "New User Tour" to receive instruction on how to use Ask
Jeeves. Visitors can also click on the "Play a Game" feature to build
familiarity with the capabilities of the site.
We have selectively licensed our Consumer Question Answering Service
knowledge base to enhance the Internet-wide search capabilities of company's Web
sites. We entered into these arrangements to endorse and promote our brand
awareness. We currently license our knowledge base to AltaVista, Infonautics
Corporation and Netscape Communications, Inc. We do not currently anticipate
entering into similar knowledgebase licensing arrangements in the future.
CORPORATE QUESTION ANSWERING SERVICE
We provide a custom question answering service for companies to help them
quickly connect their customers with relevant information, products and services
on their Web sites. Our customers use our Corporate Question Answering Service
to increase conversion rates of browsers to purchasers, improve customer
satisfaction on their Web sites, and reduce expensive support costs, such as
those associated with call centers. We currently provide question answering
services to BellSouth Corporation, Compaq Computer Corporation, Datek Online,
Dell Computer Corporation, Iomega Corp., Micron Technology, Inc., Oxygen Media,
Inc., Office Depot.com, Toshiba America Information Systems, Inc. and WebTV,
Inc.
Companies can use our question answering service across their entire Web
site or limit it to a specific section or function. For example, a company can
use our question answering service to address only pre-sales or support-related
questions. Companies can also license the knowledge bases that support Ask
Jeeves to provide their visitors access to answers that reside on other Web
sites.
Ask Jeeves provides its custom question answering services on an outsourced
basis with little involvement from the customer's technical personnel. The
development of the service begins with the creation of a customized knowledge
base by our professional services group or, in the future, one of our strategic
implementation partners. The editors creating the knowledge base are trained to
develop dialogue questions and to provide links to content on the company Web
site that provides answers to the questions visitors are most likely to ask. A
typical implementation, which takes approximately three months, requires the
development of question templates that link to the customer's existing Web site
content.
Once the Corporate Question Answering Service is operational, our
proprietary tools are used to collect, analyze and report the questions asked
and overall user behavior patterns. Our customers pay us to maintain their
knowledge bases. In addition, we provide user question data to our customers,
allowing them to improve their Web site content and adjust their marketing,
merchandising and product development strategies.
The following table illustrates the breadth of questions that a corporate
question answering service can answer:
<TABLE>
<CAPTION>
GENERAL INFORMATION PRODUCT INFORMATION
------------------- -------------------
<S> <C>
Where are you located? What is the best printer for digital photos?
Where can I find recent press releases? What are the advantages of online banking?
Are you hiring? How can I upgrade my computer to Windows 98?
Who are your customers? Do you have educational software to help
Where can I get a copy of your annual report? with math?
How can I invest in mutual funds?
</TABLE>
39
<PAGE> 43
<TABLE>
<CAPTION>
TRANSACTION SUPPORT
----------- -------
<S> <C>
How much tax do I have to pay in Wisconsin? How do I get rid of the black lines on my
What is your return policy? monitor?
Do you offer any discounts? Where can I find technical support
Will an extra charges be added to my documentation?
purchase? How do I troubleshoot my floppy disk drive?
How quickly can I receive my order? What services are available in my support
plan?
How can I check the status of my order?
</TABLE>
TECHNOLOGY AND OPERATIONS
Ask Jeeves has created a proprietary technology and production system aimed
at creating a unique user experience that emphasizes ease of use, relevance,
precision and ability to learn. The goal of the Ask Jeeves technology is to
combine the strengths of natural-language parsing software, data mining
processes, knowledge base creation and maintenance tools with the cognitive
strengths and capabilities of human editors. Our technology matches our user's
question to a short list of dialogue questions and directs the user to
corresponding answers on the Internet. To do this, we focus on five main areas:
the question processing engine, the knowledge base creation and maintenance
process, the customer data mining process, the editorial process and the
scalable operation of the entire system.
The Question Processing Engine. The Question Processing Engine ("QPE") is
an internally-developed proprietary engine that drives our question answering
services. The QPE uses our natural-language parsing software to tokenize, or
identify the terms in, each user question. The QPE then takes the user's
question and analyzes it syntactically and semantically. The syntactic analysis
extracts information about the role that each word fills in the question, while
the semantic analysis extracts information about the meaning of the words in the
question. Then the question is reorganized into a structure that is compatible
with our "question templates." A question template is a master question to which
many natural language questions are matched. This processing allows the system
to match appropriate question templates to the user's question, even if the user
asks the question in a different way or is using different words than used in
the question templates. For example, if a user asks "Who is the king of Siam?"
the service can correctly tell that this is equivalent to "Who is the head of
state of Thailand?" a question template that is stored in the knowledge base.
The matching question templates are then displayed for the user as dialogue
questions. A dialogue question is a question template customized to respond to a
user query. When the user picks a dialogue question, the QPE then extracts an
"answer template" from the knowledge base that contains the information to link
the user directly to a destination on the Internet, including static and dynamic
Hypertext Markup Language ("HTML") pages. The answer templates have been
editorially selected for relevance, accuracy, credibility and quality of the
answer link. A meta-search, which generates links to answers from several
leading search engines, is included with every response to supplement answer
templates available or to provide answers when there are no matching question
templates.
40
<PAGE> 44
The diagram below shows the Ask Jeeves QPE and question answering process:
LOGO
Description of the Diagram depicting the QPE and question answering process:
1) Graphic depicting person at computer
Caption: User visits Ask Jeeves and asks a question
2) Box with heading: Question Processing Engine
a) Box containing word: Tokenize
Box containing question: Where can I buy antique furniture?
Caption: QPE identifies the terms within the question
b) Box containing word: Parse
Box containing question: Where can I buy antique furniture?
Caption: QPE parses the question for word meaning and grammar using
semantic and syntactic analysis
c) Box containing word: Normalize
Box containing question: Where can I buy antique furniture?
Caption: Question is reorganized into a structure that is compatible with
Ask Jeeves question templates
d) Box containing word: Match
Box containing text: Ask Jeeves Knowledge Base; Where can I buy; How much
is; Why is: Who is; How can I find a yellow pages listing for
Caption: Question is matched against question templates
e) Arrow to box outside larger box with text: User Log
Caption: User questions are recorded daily
3) User selects from a set of customized question templates presented as
dialogue questions by the QPE
4) Box depicting Web page frame containing text: Answer
Caption: User is directed to the Internet destination containing the answer
The Knowledge Base. Our knowledge base is a collection of question
templates and answer templates. Each knowledge base for the Consumer and
Corporate Question Answering Services is created and maintained using a set of
internally developed proprietary tools which allow content editors to make
efficient editorial judgments about what questions should be included and which
Web pages, databases or other sources of information on the Internet provide the
best answer to a particular question. These tools facilitate a variety of tasks
such as creating question templates and managing knowledge base content. In
addition, these tools enable editors to automatically map sites for answers and
content, making the integration of new content into a knowledge base more
efficient. The tools also help content editors maintain the knowledge base for
accuracy and quality by frequently checking all links from the knowledge base to
the Web to ensure that links are functioning and that the content is still
appropriate for the related question.
Data Mining Process. The Ask Jeeves data mining process stores, analyzes
and reports on all queries asked of the Ask Jeeves question answering services.
In the process of responding to user questions, the QPE logs all questions and
the selected dialogue questions to a "user log." This user log tracks whether or
not the user's questions were answered. We carefully analyze this information to
determine patterns in the usage of our question answering services. This data
not only helps editors determine what questions should be answered, but it also
enables corporate customers to identify content gaps on their Web sites. Our
data mining process improves the performance of the underlying system by
automatically discovering terms not previously identified by the system.
41
<PAGE> 45
The Editorial Process. Our editorial process is aimed at taking advantage
of the cognitive ability of individuals to understand the questions people ask
and to determine the quality of the Web sites containing the answers. Our
editors focus on conforming the knowledge base to the questions most frequently
asked by our users. As editors build up a base of questions, answers, terms and
phrases in a specific area of knowledge and interest, the human effort required
to add to that knowledge base diminishes.
The diagram below illustrates our editorial process:
1) Cylinder containing text: User Log LOGO
Caption: User questions are recorded daily
2) Graphic depicting human editors
Caption: Ask Jeeves editor receives regular reports for analysis
3) Box containing text: Tools
Caption: Editor uses proprietary tools to efficiently maintain and grow the
knowledge base
4) Box depicting creation of question templates
Caption: Editor creates question templates based on most frequently asked
questions
5) Box depicting development of answer templates
Caption: Editor develops answer templates, checking Web links for relevance
and credibility
6) Box depicting addition of terms and phrases
Caption: Editor adds terms and phrases previously unidentified
7) Box depicting validation of Web links
Caption: Editor ensures Web links are functional and content is still
relevant
8) Cylinder containing text: Ask Jeeves knowledge base
Caption: Ask Jeeves knowledge base get smarter everyday
Scalability and Operations. Our Consumer and Corporate Question Answering
Services run on arrays of Intel-based server systems running Microsoft Windows
NT and Internet Information Server Software. The QPE is written in the C++
computer language and is optimized to handle high traffic volumes. The Ask
Jeeves' knowledge bases are deployed on these servers as read-only, memory
mapped files. To scale our service as traffic increases, we only need to install
our QPE and knowledge base on additional servers.
The servers hosting Ask Jeeves, and some of our corporate customers' Web
sites, are located at Frontier Global Center in Palo Alto, California. This
hosting center provides routing and communication lines with a variety of major
Internet backbone providers, as well as continuous monitoring and communications
support. It also provides its own power generators and multiple, redundant
backup systems. We maintain significant server over-capacity at Frontier Global
Center so that if certain servers fail, the remaining servers can service our
entire user traffic.
42
<PAGE> 46
CUSTOMERS
The following is a selected list of our advertisers, and a complete list of
our electronic commerce merchants and licensing customers as of May 31, 1999:
<TABLE>
<CAPTION>
ADVERTISING ELECTRONIC COMMERCE LICENSING CUSTOMERS
----------- ------------------- -------------------
<S> <C> <C>
AutoNation, Inc. Amazon.com AltaVista Company
eBay, Inc. BarnesandNoble.com BellSouth Corporation
Kellogg Corporation Bigstar Compaq Computer Corporation
Eastman Kodak Company Big Words Datek Online
MSN.com CDNow.com Dell Computer Corporation
NetVision, Inc. CD Universe Iomega Corp.
OnNow.com Computer Discount Infonautics Corporation
Sony Corporation Warehouse Micron Technology, Inc.
TheGlobe.com Creative Computers Netscape Communications
Toshiba America Information DVD Express Corporation
Systems, Inc. DVD Wave Office Depot.com
Wired Solutions eBay Oxygen Media, Inc.
eToys Toshiba America Information
First Source Systems, Inc.
FTD Florist WebTV, Inc.
Global Electronic
Music Marketplace
Gift Tree
IC-Direct
My Simon
PC Flowers
Powell's
Pro Flowers
Reel.com
911 Gifts
</TABLE>
To date, a significant portion of our revenue has been attributable to a
limited number of customers. AltaVista Company and TheGlobe.com accounted for
approximately 14% and 13%, respectively, of our total revenues for the year
ended December 31, 1998 and 11% and 21%, respectively, of total revenues for the
period ended March 31, 1999. In addition, in the coming year we expect that
revenues associated with the Corporate Question Answering Service will be
heavily dependent on a limited number of customers.
SALES AND MARKETING
We have a direct sales force that targets advertisers and electronic
commerce merchants. Advertising sales on Ask Jeeves have been generated
primarily by our internal advertising sales organization. Our internal
advertising sales force maintains close relationships with advertisers by
consulting regularly with them on design and placement of their Internet-based
advertising, by providing them with advertising measurement analysis and by
providing a high level of customer support. We also have agreements with
third-party advertising sales organizations. We allocate a percentage of our
advertising inventory to these third parties to include in their advertising
sales networks. Our direct sales force consists of seven professionals as of
April 30, 1999.
We also employ a team of professionals that sell our question answering
service to companies. The sales cycle for corporate sales takes approximately
one to three months. During such time, our sales force works with customers on
the design and functionality of our question answering service on the customer's
Web site. This direct sales force consists of six professionals as of April 30,
1999.
We believe that an aggressive brand promotion campaign will increase usage
of Ask Jeeves, as well as attract additional advertisers and electronic commerce
partners. Historically, we have relied on word-of-mouth publicity and some
online advertising. Today, we engage a number of marketing tools to reach
consumers, including online and offline advertising, public relations, direct
mail, trade shows and ongoing customer
43
<PAGE> 47
communications programs. We recently began consumer public relations campaigns
to build brand awareness, drive consumers to Ask Jeeves and generate increased
awareness among corporate customers.
COMPETITION
Consumer Question Answering Service
We face direct competition from companies that provide Internet-wide search
and directory services. For example, we compete with search engines, including
Excite@Home, Inktomi and AltaVista, for the traffic generated by Internet users
seeking links to third party content to address their online information needs.
We also compete with directory services, such as Yahoo and Looksmart because
they provide alternative ways for users to obtain the desired information.
CORPORATE QUESTION ANSWERING SERVICE
Our Corporate Question Answering Service competes with a number of
companies which are addressing the same need to improve automated or online
customer service for corporate clients. While various companies are addressing
this problem through a range of solutions, none competes directly with our
approach. The companies that provides automated online customer products and
services against whom we compete can be categorized as follows:
<TABLE>
<CAPTION>
CATEGORY FOCUS COMPETITORS
-------- ----- -----------
<S> <C> <C>
Web-based Web-site specific: Inktomi Corporation, Primus
Search engine, "frequently asked Telecommunication Group, Inc., Inference
questions" self-help problem resolution Corporation, Verity, Inc. and Web Answers
and expert systems
E-mail Automated response to customer Aptex Software, Inc., Brightware, Inc.,
generated e-mail and automated routing Egain Communications Corp., Kana
of customer e-mail to appropriate Communications, Inc. and Mustang Software,
answer provider Inc.
Phone call Receive, manage and track telephonic Clarify, Inc., Siebel Systems, Inc.,
with customers communications FaceTime Communications, Inc., Vantive
Corporation and Remedy Corporation
</TABLE>
Our ability to compete depends on many factors, many of which are outside
of our control. These factors include: the quality of content, the ease of use
of online services and the timing and market acceptance of new and enhanced
online services. We believe we compete favorably with respect to each of these
factors.
Many of our existing competitors, as well as 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. Many of these competitors offer a
wider range of services than we do. These services may attract users to our
competitors' sites and, consequently, result in a decrease of traffic to our
site. These competitors may also engage in more extensive research and
development, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, partners, advertisers and electronic
commerce partners. Our competitors may develop products and services that are
equal or superior to ours or that achieve greater market acceptance. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to better
address the needs of advertisers and businesses engaged in electronic commerce.
As a result, it is possible that new competitors may emerge and rapidly acquire
significant market share.
INTELLECTUAL PROPERTY
Ask Jeeves seeks to protect its proprietary rights, but its actions may be
inadequate to protect its patents, trademarks or other proprietary rights to
prevent others from claiming violations of their proprietary rights. Ask Jeeves
has one patent application on file with the United States Patent and Trademark
Office for its "Grammar Template Query System". Ask Jeeves enters into
confidentiality agreements with its employees
44
<PAGE> 48
and consultants and generally controls access to and distribution of its
proprietary information. We also enter into non-disclosure agreements with third
parties to whom we disclose confidential information. Despite Ask Jeeves'
efforts to protect its proprietary rights from unauthorized use or disclosure,
parties may attempt to disclose, obtain or use its proprietary information. The
steps Ask Jeeves has taken may not prevent misappropriation of its proprietary
information. Third parties may infringe or misappropriate Ask Jeeves'
proprietary rights, which could have a material adverse effect on Ask Jeeves'
business, results of operations and financial condition. The validity,
enforceability and scope of protection of proprietary rights in Internet-
related industries is uncertain and still evolving.
Furthermore, third parties may assert infringement claims against Ask
Jeeves. Claims relating to infringement of the trademarks and other intellectual
property rights of third parties and any resultant litigation, should it occur,
could subject Ask Jeeves to significant liability for damages and could result
in the invalidation of Ask Jeeves' proprietary rights. In addition, even if Ask
Jeeves prevails, any litigation could be time-consuming and expensive to defend,
and could result in the diversion of management's time and attention, any of
which could materially adversely affect Ask Jeeves' business, results of
operations and financial condition. Any claims from third parties may also
result in limitations on Ask Jeeves ability to use the trademarks and other
intellectual property subject to those claims unless Ask Jeeves enters into
agreements with the third parties responsible for those claims, which may be
unavailable on commercially reasonable terms.
To date, we have copyrighted all of our computer code, Web site design and
the knowledgebases by affixing a standard copyright notice in the appropriate
places. We have not registered any copyrights. We have also applied for
registered trademark status for "Ask Jeeves," "Ask.com," "Ask Jeeves Kids," and
"KidsAsk.com" and our logo and service marks in the United States. We have
applied for registered trademark status of "Ask.com" with the appropriate
offices in Tunisia for international protection. We seek to protect our
copyrights, service marks, trademarks, trade dress and trade secrets through a
combination of laws and contractual restrictions, such as confidentiality
agreements. For example, we attempt to register our trademarks and service marks
in the United States and internationally. However, effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our services are made available online. If we are not granted
registered status for the trade and service marks for which we have applied, or
if we are unable to defend our intellectual property rights, our business may be
materially and adversely affected.
We currently own a number of Internet domain names including Ask.com,
askjeeves.com and ajkids.com. Domain names generally are regulated by Internet
regulatory bodies. The relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights is unclear. We,
therefore, could be unable to prevent third parties from acquiring domain names
that infringe or otherwise decrease the value of our trademarks and other
proprietary rights.
NEW AND EXISTING REGULATION ON THE INTERNET
We are subject to the same federal, state and local laws as other companies
conducting business on the Internet. Today there are relatively few laws
specifically directed towards online services. However, due to the increasing
popularity and use of the Internet and online services, it is possible that laws
and regulations will be adopted with respect to the Internet or online services.
These laws and regulations could cover issues such as online contracts, user
privacy, freedom of expression, pricing, fraud, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain.
Several states have proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission also has recently
started a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues could directly affect the way we do business or could create uncertainty
in the
45
<PAGE> 49
marketplace. This could reduce demand for our services or increase the cost of
doing business as a result of litigation costs or increased service delivery
costs, or could otherwise harm our business. In addition, goods to users
worldwide, foreign jurisdictions may claim that we are required to comply with
their laws. In some jurisdictions, we will be required to collect value-added
taxes on our fees. Our failure to comply with foreign laws could subject it to
penalties ranging from fines to bans on our ability to offer our services.
EMPLOYEES
As of April 30, 1999, we had approximately 200 employees. We have never had
a work stoppage, and no employees are represented under collective bargaining
agreements. We consider our relations with our employees to be good.
FACILITIES
Our headquarters are currently located in a leased facility in Berkeley,
California, consisting of approximately 13,000 square feet of office space that
is under a three-year lease with two years remaining. Our annual rental expense
under this lease during 1998 was approximately $81,000, which is subject to
annual increases. We have entered into a lease agreement to relocate our
headquarters to a new facility located in Emeryville, California in the third
quarter of 1999. The original term of the lease is sixty-one months, with an
option, exercisable by us, to extend the lease for up to two additional
five-year terms. The new facility will consist of approximately 37,500 square
feet and our annual rental expense under this lease during 1999 is expected to
be approximately $1,050,000. We also have an option to lease up to an additional
36,000 square feet in the same facility. We believe that this facility will be
adequate for our current and foreseeable future needs.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
46
<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of Ask Jeeves, the
positions held by them and their ages, as of May 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger A. Strauch(1)...................... 43 Chairman of the Board
Robert W. Wrubel......................... 38 President, Chief Executive Officer and
Director
David C. Warthen......................... 41 Chief Technical Officer
Edward D. Briscoe III.................... 36 Senior Vice President and General
Manager, Consumer Question Answering
Service
Laurence G. Fishkin...................... 45 Senior Vice President, Business
Development
M. Bruce Nakao........................... 55 Chief Financial Officer
Frank A. Vaculin......................... 41 Senior Vice President and General
Manager, Corporate Question Answering
Service
George Lichter........................... 48 President of Ask Jeeves International
Amy Slater............................... 45 General Counsel and Secretary
Christine M. Davis....................... 41 Controller
A. George Battle(1)(2)................... 55 Director
Garrett Gruener(1)....................... 44 Director
Daniel J. Nova(2)........................ 37 Director
Benjamin M. Rosen........................ 65 Director
Geoffrey Y. Yang......................... 40 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Roger A. Strauch has served as Chairman of the Board of Ask Jeeves since
August 1997. Mr. Strauch was Chief Executive Officer of Ask Jeeves from April
1998 to November 1998. Mr. Strauch has served as Chief Executive Officer and
Chief Financial Officer of Symmetricom, Inc., a manufacturer of mixed signal
integrated circuits and telecommunications hardware, since June 1998 and July
1998, respectively. Since July 1997, Mr. Strauch served as Chairman of the Board
of the Roda Group, a venture development firm based in Berkeley, California.
From 1989 to June 1997, Mr. Strauch served as President, then Chairman of the
Board and Chief Executive Officer of TCSI Corporation, a telecommunications
software company.
Robert W. Wrubel has served as Chief Executive Officer and a director of
Ask Jeeves since November 1998 and has served as President since May 1998. From
February 1993 to May 1998, Mr. Wrubel was employed by Knowledge Adventure, Inc.,
an educational software company, in various capacities, including Chief
Operating Officer from February 1997 to May 1998, Vice President, Product
Development from August 1995 to February 1997 and Executive Producer from
February 1993 to July 1995.
David C. Warthen has served as Chief Technical Officer of Ask Jeeves since
August 1997. Mr. Warthen is a founder of Ask Jeeves and served as a director
from June 1996 to February 1999 and as Chief Executive Officer and Chief
Financial Officer from June 1996 to August 1997. In May 1988, Mr. Warthen
founded Desktop Software, a custom software development firm, where he served as
sole proprietor until June 1996. From 1983 to 1988, Mr. Warthen served as
Director of Engineering at Virtual Microsystems, Inc., a software and hardware
company.
Edward D. Briscoe III has served as Senior Vice President and General
Manager, Consumer Question Answering Service of Ask Jeeves since February 1999.
From January 1995 to January 1999, Mr. Briscoe was employed by Iomega
Corporation, a data storage company, in various capacities including President,
Personal Storage Division from January 1997 to January 1999 and Vice President,
Global Sales from January 1995 to
47
<PAGE> 51
December 1996. From May 1993 to December 1994, Mr. Briscoe was Director of Sales
and Marketing for the Personal Interactive Electronics Division of Apple
Computer, Inc., a computer manufacturing company.
Laurence G. Fishkin has served as Senior Vice President, Business
Development of Ask Jeeves since January 1999. From January 1998 to September
1998, Mr. Fishkin served as Vice President of Business Development for Relevance
Technologies, Inc., a knowledge management software company. From September 1996
to June 1997, Mr. Fishkin served as Vice President of Business Development and
Acting General Manager for Yahoo! Marketplace, a joint venture between Yahoo!
Inc., an Internet portal company, and Visa International, Inc., a credit
services provider. From June 1992 to February 1994, Mr. Fishkin served as
Director of Business Development and from February 1994 through August 1996, Mr.
Fishkin served as Vice President of Business Development for Information Access
Company, a database publishing company and a division of Ziff-Davis Publishing.
M. Bruce Nakao has served as Chief Financial Officer of Ask Jeeves since
April 1999. From August 1996 to April 1999, Mr. Nakao served as Senior Vice
President and Chief Financial Officer of Puma Technology, Inc., a software
company. From May 1986 to August 1996, Mr. Nakao served as Senior Vice President
and Chief Financial Officer of Adobe Systems Incorporated, a graphic software
company. Mr. Nakao is a member of The Roda Group advisory board.
Frank A. Vaculin has served as Senior Vice President and General Manager,
Corporate Question Answering Service of Ask Jeeves since January 1999. From
August 1996 to January 1999, Mr. Vaculin served as Vice President of North
American Sales for Softbank Services Group, a leading provider of outsource
services to technology companies. From October 1993 to August 1996, Mr. Vaculin
was employed by Borland International, a software company, in various
capacities, including Senior Vice President and General Manager, Desktop and LAN
Tools, Vice President North American Sales, Technical Support and Service, and
Director of Channel Sales.
George Lichter has served as President of Ask Jeeves International since
May 1999. From January 1997 to May 1999, Mr. Lichter served as Senior Vice
President, Business Development of Havas Interactive/Cendant Software. From 1994
to 1997, Mr. Lichter served as Vice President New Business Development of
Knowledge Adventure, a software company. From 1993 to 1994, Mr. Lichter was
employed as an attorney at the law firm of Rosenfeld, Meger & Susman.
Amy Slater has served as General Counsel and Secretary for Ask Jeeves since
November 1997. From January 1996 to November 1997, Ms. Slater was in private law
practice with an emphasis on intellectual property law. From December 1993 to
October 1995, Ms. Slater was employed by Oracle Corporation, a relational
database software company. From October 1990 to June 1993, Ms. Slater was of
counsel at the law firm of Townsend & Townsend & Crew L.L.P. Ms. Slater is
married to Mr. Gruener, a director of the Company.
Christine M. Davis has served as Controller of Ask Jeeves since January
1999. From January 1999 to April 1999, Ms. Davis served as Acting Chief
Financial Officer of the Company. From December 1997 to January 1999, Ms. Davis
served as Corporate Controller of TIBCO Software, Inc., a software company. From
April 1987 to December 1997, Ms. Davis served as Corporate Controller, Assistant
Secretary and Treasurer of TCSI Corporation, a telecommunications software
company.
Skip Battle has served as a director of Ask Jeeves since August 1998. Mr.
Battle retired from Andersen Consulting in June 1995. Mr. Battle joined the firm
in 1968, became a partner in 1978 and held a series of management positions in
the firm including Worldwide Managing Partner Market Development and a member of
the firm's Executive Committee, Global Management Council and Partner Income
Committee. Mr. Battle is a member of the Boards of Directors of PeopleSoft,
Inc., Barra Inc. and Fair, Isaac and Company, Incorporated as well as a director
of Masters Select Equity Fund and Masters Select International, registered
investment companies. He is chairman of The Roda Group advisory board.
Garrett Gruener is a founder of the Company and has served as a director
since June 1996 and Secretary from June 1996 to August 1997. Mr. Gruener is a
founding general partner of Alta Partners, a venture capital firm, which was
formed in February 1996. Since September 1992, Mr. Gruener has been a general
partner of
48
<PAGE> 52
Burr, Egan, Deleage & Co., a venture capital firm. Mr. Gruener is married to Ms.
Slater, General Counsel and Secretary of Ask Jeeves.
Daniel J. Nova has served as a director of Ask Jeeves since February 1999.
Since August 1996, Mr. Nova has served as a general partner of Highland Capital
Partners, a venture capital firm. From January 1995 to August 1996, he was a
general partner of CMG@Ventures, a venture capital firm. From June 1991 to
January 1995, he was a Senior Associate at Summit Partners, a venture capital
firm. Mr. Nova is a director of Lycos, Inc., an online portal company, and eToys
Inc., a web-based retailer of toys.
Benjamin M. Rosen has served as a director of Ask Jeeves since January
1999. Mr. Rosen is the Acting Chief Executive Officer and a member of the Office
of the Chief Executive of Compaq Computer Corporation, a computer company and a
global supplier of computer systems. Mr. Rosen has served as Chairman of the
Board of Directors of Compaq since 1983. Mr. Rosen is Vice Chairman of the Board
of Trustees of the California Institute of Technology.
Geoffrey Y. Yang has served as a director of Ask Jeeves since February
1999. Since June 1989, Mr. Yang has been a general partner of Institutional
Venture Partners, a venture capital firm. He is a director of Excite, Inc., an
online portal company, and MMC Networks, Inc., a developer of network
processors.
BOARD COMPOSITION
Upon the closing of this offering, our board will be divided into three
classes designated as Class I, Class II and Class III and will be assigned to
each class by the board. At the first annual meeting of stockholders following
the closing of this offering, the term of office of the Class I directors will
expire and Class I directors will be elected for a full term of three years. At
the second annual meeting of stockholders following the closing of this
offering, the term of office of the Class II directors will expire and Class II
directors will be elected for a full term of three years. At the third annual
meeting of stockholders following the closing of this offering, the term of
office of the Class III directors will expire and Class III directors will be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors will be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
The Class I directors are Geoffrey Y. Yang and Daniel J. Nova; the Class II
directors are Skip Battle, Roger A. Strauch and Garrett Gruener; and the Class
III directors are Robert W. Wrubel and Benjamin M. Rosen.
BOARD COMMITTEES
The audit committee of the board consists of Skip Battle and Daniel J.
Nova. The audit committee reviews our financial statements and accounting
practices, makes recommendations to the board regarding the selection of
independent auditors and reviews the results, scope, extent and procedures of
the audit and other services provided by our independent auditors. The
compensation committee of the board consists of Roger A. Strauch, Skip Battle
and Garrett Gruener. The compensation committee makes recommendations to the
board concerning salaries and incentive compensation for our officers and
employees and administers our employee benefit plans.
DIRECTORS' COMPENSATION
We do not currently pay any cash compensation to our directors for their
service as members of the board. For his services as Chairman of the Board,
Roger A. Strauch received options to purchase an aggregate of 102,892 shares on
August 31, 1998 and an aggregate of 104,078 shares on December 14, 1998, at a
weighted average exercise price of $.20 per share. Skip Battle, one of our
directors, received options to purchase 30,000 shares on August 31, 1998 and
30,000 shares on December 14, 1998, at a weighted average exercise price of $.63
per share.
49
<PAGE> 53
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the compensation committee of the board consists of Messrs.
Strauch, Battle and Gruener. Mr. Strauch was Chief Executive Officer of Ask
Jeeves from April 1998 to November 1998. Mr. Gruener was Secretary of Ask Jeeves
from June 1996 to August 1997 and is married to Amy Slater, General Counsel and
Secretary of Ask Jeeves. None of our executive officers serve as members of the
board of directors or compensation committee of any entity that has one or more
executive officers who serve on our board or compensation committee. See
"Certain Transactions" for information regarding transactions with members of
the compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation earned
in the fiscal year ended December 31, 1998 for our President and Chief Executive
Officer and our three other most highly compensated executive officers, whose
compensation as defined by the Securities and Exchange Commission exceeded
$100,000. These people are referred to as the "named executive officers." The
information in the table includes salaries, bonuses, stock options granted and
other miscellaneous compensation. Ask Jeeves has not granted stock appreciation
rights or restricted stock awards and has no long-term compensation benefits
other than stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- ------------------
NAME AND 1998 OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) UNDERLYING OPTIONS COMPENSATION(3)
------------------ ---- ------- -------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Roger A. Strauch......... 1998 $ -- $ -- $ -- 205,485 $79,116
Chairman of the Board
and former Chief
Executive Officer
Robert W. Wrubel......... 1998 96,231 9,844 300 1,050,000 --
President and Chief
Executive Officer
David C. Warthen......... 1998 77,590 -- -- 88,209 40,552
Executive Vice
President and Chief
Technical Officer
Daniel H. Miller......... 1998 -- -- -- 205,485 79,116
Former President and
former Vice President
of Sales
</TABLE>
- ---------------
(1) Represents a relocation assistance allowance.
(2) Represents payments received in lieu of health benefits.
(3) Represents the difference between the fair market value and the exercise
prices of options granted during the year consistent with the agreement
between the named executive officer, Ask Jeeves and others for management
services. A description of the agreement is contained in "Certain
Transactions."
50
<PAGE> 54
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of stock
options to each of the named executive officers during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------------------
NAME GRANTED(1) 1998(2) PER SHARE DATE 0% 5% 10%
---- ---------- ---------- ------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger A. Strauch..... 65,028 2.6% $.12 05/29/08 $ 642,477 $ 1,051,434 $ 1,678,855
37,864 1.5 .13 07/30/08 373,718 611,842 977,172
37,500 1.5 .73 12/13/08 347,625 583,460 945,278
18,932 0.8 .13 12/13/08 186,859 305,921 488,586
47,646 1.9 .18 12/13/08 467,884 767,527 1,227,238
Robert W. Wrubel..... 675,000 26.9 .46 05/25/08 6,439,500 10,684,535 17,197,260
375,000 15.0 .73 10/11/08 3,476,250 5,834,603 9,452,784
David C. Warthen..... 9,633 0.4 .12 02/27/08 95,174 155,755 248,699
28,900 1.2 .12 05/29/08 285,532 467,282 746,124
8,413 0.3 .13 06/29/08 83,036 135,945 217,118
8,413 0.3 .13 07/30/08 83,036 135,945 217,118
8,414 0.3 .13 12/13/08 83,046 135,961 217,134
24,434 1.0 .18 12/13/08 239,942 393,606 629,357
Daniel H. Miller..... 65,028 2.6 .12 05/30/08 642,477 1,051,434 1,678,855
37,864 1.5 .13 07/30/08 373,718 611,842 977,172
37,500 1.5 .73 12/13/08 347,625 583,460 945,278
18,932 0.8 .13 12/13/08 186,859 305,921 488,586
47,646 1.9 .18 12/13/08 467,884 767,527 1,227,238
</TABLE>
- ---------------
(1) Options granted during the fiscal year ended December 31, 1998 were granted
under either the 1996 Equity Incentive Plan or pursuant to certain
nonstatutory stock option agreements.
(2) Based on granted options to purchase 2,504,979 shares of common stock during
the period from January 1, 1998 to December 31, 1998.
(3) Potential realizable values are computed by multiplying the number of shares
of common stock subject to a given option by the assumed initial public
offering price of $10.00 per share, assuming that the aggregate stock value
derived from that calculation compounds at the annual 0%, 5% or 10% rate
shown in the table for the entire ten-year term of the option and
subtracting from that result the aggregate option exercise price. The 5% and
10% assumed annual rates of stock appreciation are mandated by the rules of
the SEC and do not reflect our estimate or projection of future stock price
growth.
51
<PAGE> 55
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares acquired and the value
realized upon the exercise of stock options during the fiscal year ended
December 31, 1998 and the number of shares of common stock subject to
exercisable and unexercisable stock options held as of December 31, 1998 by each
of the named executive officers. Also reported are values of unexercised
in-the-money options, which represent the positive spread between the respective
exercise prices of outstanding stock options and the assumed initial public
offering price of $10.00 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger A. Strauch.......... 102,892 $1,016,194 66,578 37,500 $ 654,743 $ 347,625
Robert W. Wrubel.......... -- -- -- 1,050,000 -- 9,915,750
David C. Warthen.......... 25,002 249,930 184,457 -- 1,825,333 --
Daniel H. Miller.......... 102,892 1,016,194 66,578 37,500 654,743 347,625
</TABLE>
- ---------------
(1) Based on the assumed initial public offering price per share of $10.00,
minus the per share exercise price, multiplied by the number of shares
issued upon exercise of the option.
EMPLOYEE BENEFIT PLANS
1996 EQUITY INCENTIVE PLAN
Our 1996 Equity Incentive Plan was adopted by the board and approved by the
stockholders in December 1996. The 1996 Incentive Plan was amended in January
1999 and February 1999, and by the stockholders in January 1999 and February
1999. There is currently an aggregate of 5,502,852 shares of common stock
authorized for issuance under the 1996 Incentive Plan. Options currently
outstanding under the 1996 Incentive Plan will continue in full force and effect
under the terms of the 1996 Incentive Plan until such outstanding options are
exercised or terminated in accordance with their terms.
As of April 30, 1999, we had granted options under the 1996 Incentive Plan
to purchase an aggregate of approximately 5,379,335 shares of common stock, of
which options to purchase approximately 301,960 shares had been exercised,
options to purchase approximately 22,500 shares had been cancelled and options
to purchase approximately 5,054,875 shares at exercise prices ranging from
$.0036 to $9.50 per share remained outstanding. We will not make future grants
under the 1996 Incentive Plan.
The 1996 Option Plan provides for the grant of incentive stock options
under the Internal Revenue Code, as amended to employees and nonstatutory stock
options to employees, non-employee directors and consultants. The 1996 Incentive
Plan also provides for the grant of restricted stock awards and stock bonuses
although no such awards were granted prior to the termination. The 1996
Incentive Plan is administered by the board, or a committee appointed by the
board which determines recipients and types of awards to be granted, including
the exercise price, number of shares subject to the award and the exercisability
thereof. Currently, the 1996 Incentive Plan is being administered by the
compensation committee of the board.
The terms of stock options granted under the 1996 Incentive Plan may not
exceed 10 years. The exercise price of options granted under the 1996 Incentive
Plan is determined by the board or a committee appointed by the board provided
that the exercise price of an incentive stock option cannot be less than 100% of
the fair market value of the common stock on the date of the option grant and
the exercise price of a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of the option grant. Options
granted under the 1996 Incentive Plan vest at the rate specified in the
applicable option agreement. No options may be transferred by the optionholder
other than by will or the laws of descent or distribution; provided that, an
optionholder whose employment or other service relationship with us or any
affiliate terminates for any reason other than by death or permanent and total
disability, may exercise vested options in the three-month period following such
cessation, unless such options terminate or expire sooner by
52
<PAGE> 56
their terms, or in such longer or shorter period specified in the option
agreement. Vested options may be exercised for up to 12 months after an
optionholder's employment or other service relationship with us or any affiliate
ceases due to death or disability, unless such options terminate or expire
sooner by their terms.
Prior to the termination of the 1996 Incentive Plan, shares subject to
stock options that have expired or otherwise terminated without having been
exercised in full become available again for the grant of awards under the 1996
Incentive Plan.
No incentive stock option may be granted to any person who, at the time of
the grant, owns stock possessing more than 10% of the total combined voting
power of Ask Jeeves or any affiliate of Ask Jeeves, unless the option exercise
price is at least 110% of the fair market value of the stock subject to the
option on the date of grant, and the term of the option does not exceed five
years from the date of grant. The aggregate fair market value, determined at the
time of grant, of the shares of common stock with respect to which incentive
stock options are exercisable for the first time by an optionholder during any
calendar year under all stock option plans of Ask Jeeves and its affiliates may
not exceed $100,000.
The option agreements may provide that we may exercise a right of first
refusal on any proposed transfer of shares exercised. Substantially all of the
option agreements provide that if a change of control of Ask Jeeves occurs prior
to the first anniversary of the vesting commencement date of the option
agreement, then the vesting which would have occurred by such anniversary shall
occur. After the first anniversary of the date of grant, these option agreements
provide that the vesting of each option shall accelerate by six months.
Upon a change in control of Ask Jeeves, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or, if
the successor corporation does not assume or substitute for outstanding options,
the vesting provisions of all such options shall accelerate.
1999 EQUITY INCENTIVE PLAN
In April 1999, the board adopted the 1999 Equity Incentive Plan. In May
1999, the board amended and the stockholders approved the 1999 Incentive Plan.
There is currently an aggregate of 2,125,000 shares of common stock authorized
for issuance under the 1999 Incentive Plan; provided, however, that each year on
the date of the annual stockholders meeting, beginning on the date of the annual
meeting in 2000, the share reserve under the 1999 Incentive Plan shall be
increased by the least of the following: (1) 2,250,000 shares, (2) 5% of shares
outstanding or (3) a smaller number of shares as determined by the board.
The 1999 Incentive Plan provides for the grant of incentive stock options,
as defined under the Internal Revenue Code, to employees and nonstatutory stock
options, restricted stock purchase awards and stock bonuses to employees,
non-employee directors, consultants and advisors of Ask Jeeves and its
affiliates. The 1999 Incentive Plan is administered by the board, or a committee
appointed by the board, which determines recipients and types of awards to be
granted, including the exercise price, number of shares subject to the award and
the exercisability thereof. Currently, the 1999 Incentive Plan is administered
by the compensation committee of the board.
The terms of options granted under the 1999 Incentive Plan may not exceed
10 years. The board, or committee appointed by the board, determines the
exercise price of options granted under the 1999 Incentive Plan. However, the
exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of the option grant, and the
exercise price for a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of the option grant. Options
granted under the 1999 Incentive Plan vest at the rate specified in the option
agreement. Generally, the optionholder may not transfer a stock option other
than by will or the laws of descent or distribution unless the optionholder
holds a nonstatutory stock option that provides for transfer in the stock option
agreement. However, an optionholder may designate a beneficiary who may exercise
the option following the optionholder's death. An optionholder whose employment
or other service relationship with Ask Jeeves or any affiliate ceases for any
reason may exercise vested options for the term provided in the option
agreement.
No incentive stock option may be granted to any person who, at the time of
the grant, owns stock possessing more than 10% of the total combined voting
power of Ask Jeeves or any affiliate of Ask Jeeves,
53
<PAGE> 57
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant and the term of the option
does not exceed five years from the date of grant. In addition, the aggregate
fair market value, determined at the time of grant, of the shares of common
stock with respect to which incentive stock options are exercisable for the
first time by an optionholder during any calendar year under all stock plans of
Ask Jeeves and its affiliates may not exceed $100,000.
Subject to Section 162(m) of the Internal Revenue Code which denies a
deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000, no person may be granted options under the 1999 Incentive
Plan covering more than 500,000 shares of common stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the 1999 Incentive Plan.
Restricted stock purchase awards granted under the 1999 Incentive Plan may
be granted pursuant to a repurchase option in favor of Ask Jeeves in accordance
with a vesting schedule determined by the board or a committee appointed by the
board. The price of a restricted stock purchase award under the 1999 Incentive
Plan can not be less than 85% of the fair market value of the stock subject to
the award on the date of grant. Stock bonuses may be awarded in consideration of
past services without a purchase payment. Unless otherwise specified, rights
under a stock bonus or restricted stock bonus agreement generally may not be
transferred other than by will or the laws of descent and distribution during
such period as the stock awarded pursuant to such an agreement remains subject
to the agreement.
If there is any sale, lease or other disposition of all or substantially
all of Ask Jeeves' assets, any merger, reverse merger or any consolidation in
which Ask Jeeves is not the surviving corporation, then all outstanding awards
under the 1999 Incentive Plan either will be assumed or substituted for by any
surviving entity. If the surviving entity determines not to assume or substitute
for such awards, the vesting provisions of such stock awards held by persons
whose continuous service with Ask Jeeves has not terminated will be accelerated
and the awards terminated if not exercised prior to such transaction.
As of April 30, 1999, no options to purchase shares of common stock, stock
bonuses or restricted stock grants have been granted under the 1999 Incentive
Plan. The 1999 Incentive Plan will terminate on April 15, 2009 unless sooner
terminated by the board, or a committee appointed by the board.
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the board adopted the Employee Stock Purchase Plan covering
an aggregate of 125,000 shares of common stock. In May 1999, the board amended
and the stockholders approved the Purchase Plan to increase the number of shares
to reserved under the Purchase Plan to 400,000 shares of common stock and to
provide that each year on the date of the annual stockholders meeting, beginning
in 2000, the share reserve under the Purchase Plan shall be increased by the
least of the following (1) 300,000 shares, (2) 0.5% of shares outstanding (3) a
smaller number of shares as determined by the board. The Purchase Plan will
become effective on the effective date of the initial public offering of Ask
Jeeves' common stock. The Purchase Plan is intended to qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue
Code. Under the Purchase Plan, the board may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no longer than
27 months.
The Purchase Plan provides a means by which employees of Ask Jeeves and
designated affiliates may purchase common stock of Ask Jeeves through payroll
deductions. The Purchase Plan is implemented by offerings of rights to eligible
employees. Under the Purchase Plan, Ask Jeeves may specify offerings with a
duration of not more than 27 months and may specify shorter purchase periods
within each offering. The first offering will begin on the effective date of the
initial public offering of Ask Jeeves' common stock and will end on July 31,
2001. Purchases will occur on January 31, 2000, July 31, 2000 and each
subsequent January 31 and July 31 thereafter. Unless otherwise determined by the
board, common stock is purchased for accounts of employees participating in the
Purchase Plan at a price per share equal to the lower of (1) 85% of the fair
54
<PAGE> 58
market value of a share of common stock on the date of commencement of
participation in the offering or (2) 85% of the fair market value of a share of
common stock on the date of purchase. Generally, all regular employees,
including executive officers, who work at least 20 hours per week and are
customarily employed by Ask Jeeves or by an affiliate of Ask Jeeves for at least
five months per calendar year may participate in the Purchase Plan and may
authorize payroll deductions of up to 15% of their base compensation for the
purchase of stock under the Purchase Plan.
Eligible employees may be granted rights only if the rights together with
any other rights granted under employee stock purchase plans do not permit such
employee's rights to purchase stock of Ask Jeeves to accrue at a rate that
exceeds $25,000 of fair market value of such stock for each calendar year in
which such rights are outstanding. No employee shall be eligible for the grant
of any rights under the Purchase Plan if immediately after such rights are
granted, such employee has voting power over 5% or more of Ask Jeeves'
outstanding capital stock.
As of April 30, 1999, no shares of common stock had been purchased under
the Purchase Plan.
In the event of certain changes of control, the board has discretion to
provide that each right to purchase common stock will be assumed or an
equivalent right substituted by the successor corporation, or the Board may
shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan will terminate at the direction of the board or when
all of the shares reserved for issuance have been purchased.
401(k) PLAN
Effective January 1, 1999, the board adopted a tax-qualified employee
savings and retirement plan covering all employees. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the lesser of
25% decreased by amounts contributed in the form of a matching contribution, if
any, of eligible compensation or $10,000, the statutorily prescribed annual
limit, in 1999 and have the amount of reduction contributed to the 401(k) Plan.
The trustee under the 401(k) Plan, at the direction of each participant, invests
the assets of the 401(k) Plan in any of eight investment options. The 401(k)
Plan is intended to qualify under Section 401(a) of the Internal Revenue Code so
that contributions by employees to the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn, and so that we can
deduct the contributions by employees when made. We may make matching or
additional contributions to the 401(k) Plan, in amounts to be determined
annually by the board. We do not expect to make matching or additional
contributions to the 401(k) Plan in 1999.
COMPENSATION ARRANGEMENTS
Mr. Wrubel's employment letter of May 22, 1998 with Ask Jeeves provides for
an initial annual base salary of $180,000. Pursuant to the offer letter, Mr.
Wrubel received a loan of $75,000 for 90 days with an annual interest rate of
7.5%. The loan was repaid in full in February 1999. Mr. Wrubel was granted an
option to purchase 675,000 shares of common stock at an exercise price of $.46
per share. Pursuant to the offer letter, upon his promotion to Chief Executive
Officer, Mr. Wrubel received an additional option to purchase 375,000 shares of
common stock at an exercise price of $.73 per share. The options vest over four
years; provided, however, that in the event Mr. Wrubel's employment is
terminated less than six months before or less than one year after a change of
control, all unvested options held by Mr. Wrubel shall vest and become
immediately exercisable. In addition, Ask Jeeves paid $9,844 in relocation
expenses for Mr. Wrubel. On June 1, 1999, Mr. Wrubel's offer letter was revised
to grant to Mr. Wrubel an additional 200,000 options and to provide that in the
event Mr. Wrubel's employment is terminated for any reason other than cause, he
will receive six months base salary and the equivalent of six months expected
bonus, with a total of expected bonus and salary cost not to exceed $200,000.
Mr. Briscoe's employment offer letter of January 18, 1999 with Ask Jeeves
provides for an initial annual base salary of $170,000, approximately $156,000
of which he has elected to defer until February 2000, a bonus of $30,000 payable
on January 20, 2000 and a potential performance-based bonus of $100,000 payable
on January 20, 2000. Mr. Briscoe was granted an option to purchase 400,000
shares of common stock at an
55
<PAGE> 59
exercise price of $.73 per share. The option vests over a period of four years.
It also provided Mr. Briscoe with the right to purchase 231,032 shares of Series
B Preferred Stock at a price of $4.33 per share in our March 1999 financing.
These shares all automatically convert into common stock on a one-for-one basis
upon the completion of this offering. Based on the assumed initial offering
price of $10.00 per share, these shares have an aggregate value of $2,310,320.
Mr. Briscoe also received a relocation allowance of up to $150,000. Mr.
Briscoe's offer letter was revised on June 1, 1999 to increase his annual base
salary to $175,000, and to provide that in the event Mr. Briscoe's employment is
terminated without cause he will receive six months base salary and the
equivalent of six months expected bonus, with the total payment not to exceed
$150,000. In addition, if Mr. Briscoe's employment is terminated due to a change
in control, in addition to any accelerated vesting contained in his option
agreement, six months of vesting under the option shall vest and become
immediately exercisable.
Mr. Nakao's employment offer letter of April 16, 1999 with Ask Jeeves
provides for an initial annual base salary of $175,000. It also provides that,
in the event Mr. Nakao's employment is terminated for any reason other than
cause, he will receive six months salary. Mr. Nakao was also granted an option
to purchase 250,000 shares of common stock at an exercise price of $9.50 per
share. The option vests over a period of four years, with 62,500 shares vesting
on April 19, 2000 and 5,208 shares vesting at the end of each month thereafter,
provided, however, in the event Mr. Nakao's employment is terminated without
cause, (i) prior to April 19, 2000, 100,000 of the options will vest immediately
or (ii) after April 19, 2000, 37,500 of the options will be immediately
exercisable. However, if Mr. Nakao resigns and a transition to a successor CFO
approved by the board has been accomplished, Mr. Nakao will receive the same
vesting acceleration as if he was terminated without cause.
Mr. Fishkin's employment offer letter of January 11, 1999 with Ask Jeeves
provides for an initial annual base salary of $130,000 and an initial bonus of
$50,000. It also provides that, in the event Mr. Fishkin's employment is
terminated due to a change in control of Ask Jeeves, he will receive six months
base salary. Mr. Fishkin was also granted an option to purchase 225,000 shares
of common stock at an exercise price of $.73 per share. The option vests over
four years, with 56,250 shares vesting on January 18, 2000 and 4,687 shares
vesting at the end of each month thereafter; provided, however, that in the
event of a change in control of Ask Jeeves, in addition to any acceleration of
vesting contained in his option agreement, 12 months of vesting under the
options shall become immediately exercisable.
Mr. Vaculin's employment offer letter of January 5, 1999 with Ask Jeeves
provides for an initial annual base salary of $175,000 and quarterly
performance-based bonuses based upon achievement of recognized revenues. It also
provides that in the event Mr. Vaculin's employment is terminated for any reason
other than cause, he will receive six months base salary and the equivalent of
six months expected bonus, with a total of expected bonus and salary not to
exceed $150,000. In addition, if Mr. Vaculin's employment is terminated due to a
change in control of Ask Jeeves, in addition to any accelerated vesting
contained in his option agreement, he will receive six months of vesting under
the option shall vest and become immediately exercisable. Mr. Vaculin was also
granted an option to purchase 300,000 shares of common stock at an exercise
price of $.73 per share. The option vests over four years, with 75,000 shares
vesting on January 21, 2000 and 6,250 shares vesting at the end of each month
thereafter; provided, however, in the event Mr. Vaculin's employment is
terminated due to a change in control of Ask Jeeves, in addition to any
acceleration of vesting contained in his option agreement, six months of vesting
under the option shall become immediately exercisable.
Mr. Lichter's employment offer letter of May 19, 1999 with Ask Jeeves
provides for an initial annual base salary of $150,000 and an initial annual
bonus of $50,000 paid on the first anniversary of his start date. Mr. Lichter
was also granted an option to purchase 100,000 shares of common stock at the
fair market value as determined by the board of directors on the date of grant.
The option vests over four years, with 25,000 shares vesting on May 19, 2000 and
2,083 shares vesting at the end of each month thereafter; provided, however, in
the event of a change in control of Ask Jeeves, in addition to any vested
options, six months of vesting under the option shall vest and become
immediately exercisable. It also provides that, in the event Mr. Lichter's
employment is terminated without cause, he will receive six months base salary
and, in addition to any vested options, six months of vesting under the options
shall become immediately exercisable.
56
<PAGE> 60
As described under "Certain Transactions," Mr. Warthen's employment
agreement contained in the Common Stock and Warrant to Purchase Common Stock
Purchase Agreement dated August 20, 1997 provides for an initial annual base
salary of $80,000 and the grant of immediately exercisable nonstatutory stock
options at an exercise price equal to 25% of the fair market value of the common
stock on the date of grant. Pursuant to this provision, we granted Mr. Warthen
options to purchase an aggregate of 184,458 shares of common stock at a weighted
average exercise price of $.10 per share. This provision has expired and the
Company will not grant any further options under this provision. To date, Mr.
Warthen has not exercised such options. If Mr. Warthen voluntarily terminates
his employment with us prior to August 20, 1999, we have the right to repurchase
a portion of the total number of our shares held by him.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities, including reimbursement for expenses
incurred, arising under the Securities Act.
As permitted by Delaware Law, our Amended and Restated Certificate of
Incorporation, which will become effective upon the closing of this offering,
includes a provision that eliminates the personal liability of its directors for
monetary damages for breach of fiduciary duty as a director, except for
liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware Law regarding unlawful dividends and
stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by Delaware Law, our Amended and Restated Certificate of
Incorporation and/or our Bylaws, which will become effective upon the closing of
this offering, provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware Law, so long as such person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of Ask Jeeves, and with respect to any
criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful.
- we are permitted to indemnify our other employees to the extent that we
indemnify our officers and directors, unless otherwise required by law,
our Amended and Restated Certificate of Incorporation, our Bylaws or
agreements;
- we are required to advance expenses, as incurred, to our directors and
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law, subject to certain very limited exceptions;
and
- the rights conferred in our Bylaws are not exclusive.
Prior to the closing of this offering, we intend to enter into Indemnity
Agreements with each of our current directors and officers to give such
directors and officers additional contractual assurances regarding the scope of
the indemnification set forth in our Amended and Restated Certificate of
Incorporation and our Bylaws and to provide additional procedural protections.
At present, there is no pending litigation or proceeding involving any of our
directors, officers or employees regarding which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
We expect to obtain directors' and officers' liability insurance prior to
the offering.
57
<PAGE> 61
CERTAIN TRANSACTIONS
COMMON STOCK FINANCINGS
We issued 1,083,498 shares of common stock at a purchase price of $.23 per
share and warrants to purchase 541,749 shares of common stock with an exercise
price of $.23 to each of Roger A. Strauch, our Chairman of the Board, and Daniel
H. Miller, a 5% stockholder and former officer and director of Ask Jeeves,
pursuant to the Common Stock and Warrant to Purchase Common Stock Purchase
Agreement dated August 20, 1997 among the Company, Roger A. Strauch, Daniel H.
Miller, The Roda Group Venture Development Company, LLC ("The Roda Group") and
David C. Warthen (the "Purchase Agreement"). Mr. Strauch and Mr. Miller are
managing members of The Roda Group. As a condition of the Purchase Agreement,
The Roda Group agreed to lease Ask Jeeves 1,700 square feet of office space at
918 Parker Street, Berkeley, California, 94710 through December 31, 1998. Ask
Jeeves paid a total of $4,157 in lease payments to The Roda Group during such
term. As a further condition of the Purchase Agreement, Mr. Strauch and Mr.
Miller agreed to provide us with management services through December 31, 1998
for which they each received nonstatutory stock options at an exercise price
equal to 25% of the fair market value of the common stock on the date of grant.
Pursuant to such provision, Mr. Strauch and Mr. Miller each received options to
purchase an aggregate of 169,470 shares of common stock at a weighted average
exercise price of $.14 per share. This provision has expired and we will not
grant any further options under this provision. As a further condition of the
Purchase Agreement, Mr. Warthen agreed to act as our Executive Vice President
and Chief Technical Officer, for which he received an annual salary of $80,000
and nonstatutory stock options at an exercise price equal to 25% of the fair
market value of the common stock on the date of grant. Pursuant to this
provision, we granted Mr. Warthen options to purchase an aggregate of 184,458
shares of common stock at a weighted average price of $.10 per share. This
provision has expired and we will not grant any further options under this
provision. If Mr. Warthen voluntarily terminates his employment with us prior to
August 20, 1999, we have the right to repurchase a portion of the total number
of our shares held by him at the original issuance price.
In June 1998, we sold an aggregate of 2,148,805 shares of common stock at a
purchase price of $.53 per share. The following executive officers, directors,
holders of more than 5% of our securities and members of such persons' immediate
families purchased shares of common stock:
<TABLE>
<CAPTION>
AGGREGATE
SHARES OF PURCHASE VALUE OF
PURCHASER COMMON STOCK PRICE SHARES(1)
--------- ------------ --------- -------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Roger A. Strauch...................... 94,661 $ 50,170 $ 946,610
Daniel H. Miller...................... 94,661 50,170 946,610
M. Bruce Nakao........................ 47,330 25,085 473,300
Skip Battle........................... 47,330 25,085 473,300
Garrett Gruener....................... 94,661 50,170 946,610
Benjamin M. Rosen..................... 141,991 75,255 1,417,910
5% STOCKHOLDERS
Leavitt Family Trust.................. 236,653 $125,426 $ 2,366,530
</TABLE>
- ---------------
(1) Based on the assumed initial public offering price per share of $10.00.
See the notes to the table on beneficial ownership in "Principal
Stockholders" for information relating to the beneficial ownership of such
shares.
58
<PAGE> 62
In September 1998, we sold an aggregate of 1,855,415 shares of common stock
at a purchase price of $.73 per share. The following executive officers,
directors, holders of more than 5% of our securities and members of such
persons' immediate families purchased shares of Common Stock:
<TABLE>
<CAPTION>
SHARES OF AGGREGATE
COMMON PURCHASE VALUE OF
PURCHASER STOCK PRICE SHARES(1)
--------- ------------ --------- -------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Roger A. Strauch...................... 137,438 $100,330 $ 1,374,380
Daniel H. Miller...................... 137,438 100,330 1,374,380
Garrett Gruener....................... 137,438 100,330 1,374,380
Benjamin M. Rosen..................... 584,112 426,402 5,841,120
5% STOCKHOLDERS
Leavitt Family Trust.................. 103,078 $ 75,247 $ 1,030,780
</TABLE>
- ---------------
(1) Based on the assumed initial public offering per share of $10.00.
See the notes to the table on beneficial ownership in "Principal
Stockholders" for information relating to the beneficial ownership of such
shares.
PREFERRED STOCK FINANCINGS
In November 1998 and January 1999, we sold an aggregate of 3,709,884 shares
of Series A preferred stock at a purchase price of $2.06 per share. Upon the
closing of this offering, all outstanding shares of Series A preferred stock
will automatically convert into shares of common stock on a one-for-one basis.
The following executive officers, directors, holders of more than 5% of our
securities and members of such persons' immediate families purchased shares of
Series A preferred stock.
<TABLE>
<CAPTION>
SHARES OF AGGREGATE
SERIES A PURCHASE VALUE OF
PURCHASER PREFERRED STOCK PRICE SHARES(1)
--------- --------------- ---------- --------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Roger A. Strauch.................... 106,125 $ 218,618 $ 1,061,250
M. Bruce Nakao...................... 4,847 9,985 48,470
Amy Slater.......................... 4,847 9,985 48,470
Daniel H. Miller.................... 106,125 218,618 1,061,250
Garrett Gruener..................... 92,595 190,746 925,950
Benjamin M. Rosen................... 519,544 1,070,261 5,195,440
5% STOCKHOLDERS
CPQ Holdings, Inc. ................. 2,480,765 $5,110,376 $ 24,807,650
Leavitt Family Trust................ 42,248 87,031 422,480
</TABLE>
- ---------------
(1) Based on the assumed initial public offering per share of $10.00.
In February and March 1999, we sold an aggregate of 5,775,806 shares of
Series B preferred stock at a purchase price of $4.33 per share. Upon the
closing of this offering, all outstanding shares of Series B preferred stock
will automatically convert into shares of common stock on a one-for-one basis.
The following executive
59
<PAGE> 63
officers, directors, holders of more than 5% of our securities and members of
such persons' immediate families purchased shares of Series B preferred stock.
<TABLE>
<CAPTION>
SHARES OF AGGREGATE
SERIES B PURCHASE VALUE OF
PURCHASER PREFERRED STOCK PRICE SHARES(1)
--------- --------------- ----------- -----------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Edward D. Briscoe III............... 231,032 $ 1,000,368 $ 2,310,320
M. Bruce Nakao...................... 8,645 37,433 86,450
Amy Slater.......................... 8,520 36,892 85,200
Skip Battle......................... 13,458 58,273 134,580
Garrett Gruener..................... 57,758 250,092 577,580
Benjamin M. Rosen................... 172,776 748,120 1,727,760
5% STOCKHOLDERS
CPQ Holdings, Inc................... 344,091 $ 1,489,914 $ 3,440,910
Entities affiliated with Highland
Capital........................... 2,310,322 10,003,694 23,103,220
Entities affiliated with
Institutional Venture Partners.... 1,386,193 $ 6,002,216 $ 13,861,930
Leavitt Family Trust................ 128,136 554,829 1,281,360
Roda Group Investment Fund I, LLC... 856,732 3,709,650 8,567,320
</TABLE>
- ---------------
(1) Based on the assumed initial public offering price per share of $10.00.
See the notes to the table on beneficial ownership in "Principal
Stockholders" for information relating to the beneficial ownership of such
shares.
VOTING AGREEMENT
In connection with our Series B preferred stock financing, we entered into
the Amended and Restated Voting Agreement dated February 24, 1999 with the
holders of the Series A preferred stock, the Series B preferred stock and
certain of our common stockholders to provide for the future voting of such
holders' shares. Under the Voting Agreement, the preferred stockholders agreed
to vote their shares in connection with any class or series vote pursuant to our
Amended and Restated Certificate of Incorporation, Bylaws or the law in the same
proportion as the overall vote of the eligible stock of Ask Jeeves. In addition,
these holders agreed to elect one individual nominated by entities affiliated
with Highland Capital to our board, so long as entities affiliated with Highland
Capital hold at least 5% of our outstanding common stock. The Voting Agreement
terminates on the closing date of this offering.
INVESTOR RIGHTS AGREEMENT
In connection with our Series B preferred stock financing, we entered into
the Amended and Restated Investor Rights Agreement dated February 24, 1999 with
the holders of Series A and Series B preferred stock. The Investor Rights
Agreement provided these stockholders rights relating to the registration of
their preferred stock with the Securities and Exchange Commission. These rights
have been waived as to this offering by the holders of the Series A and Series B
preferred stock. In addition, the Investors Rights Agreement granted these
investors a right of first refusal to participate in future issuances of equity
securities by Ask Jeeves. This offering is not covered by this right of first
refusal and it terminates on the closing date of this offering. The other
registration rights will survive this offering terminate no later than three
years after the closing date of this offering.
CO-SALE AGREEMENT
In connection with our Series B preferred stock financing, we entered into
a Co-Sale Rights Agreement on February 24, 1999 with each holder of more than
1,000,000 shares of our capital stock. The Co-Sale Agreement provides that each
holder has a right to participate on a pro rata basis in the sale of any shares
of
60
<PAGE> 64
Ask Jeeves capital stock by any other holder. If such selling holder proposes to
sell shares of capital stock to a third party, such right of co-sale does not
apply to sales between holders, a sale or series of sales that amount to less
than 15% of the shares of capital stock held by the holder and transfers for
estate planning purposes. The Co-Sale Agreement terminates on the closing date
of this offering.
CONSULTING AGREEMENT
The Consulting Agreement with The Roda Group dated December 14, 1998
provides for cash payments and the grant of nonstatutory stock options to
purchase a total of 37,500 shares of common stock with an exercise price of $.73
per share to each of Roger A. Strauch and Daniel H. Miller, one-sixth of the
options vest each month. Roger A. Strauch, our Chairman of the Board, and Daniel
H. Miller, our former director and Vice President of Sales, are managing members
of The Roda Group.
OPTIONS TO EXECUTIVE OFFICERS
In March 1999, the Board of Directors granted David Warthen, our Chief
Technical Officer, an option to purchase 100,000 shares of common stock at an
exercise price of $3.50 per share. In May 1999, the Board of Directors granted
Robert Wrubel, our President and Chief Executive Officer, an option to purchase
200,000 shares of common stock as at exercise price of $10.00 per share. Both
options vest over four years. The exercise prices of these options were equal to
the fair market value of our common stock on the date of grant, as determined by
the board.
DIRECTED SHARES TO EXECUTIVE OFFICERS
At our request, the underwriters have reserved up to
shares of common stock to be issued by us and offered hereby for sale, at the
initial public offering price, to business associates and persons related to us
including M. Bruce Nakao, Chief Financial Officer, and George Lichter, President
of Ask Jeeves International, who are each purchasing 10,000 shares.
PERSONAL GUARANTEES BY EXECUTIVE OFFICERS
During 1998, Roger A. Strauch, the Chairman of the Board, and Daniel H.
Miller, our former director and President, personally guaranteed obligations by
us to make payments in the aggregate of approximately $77,000 in connection with
certain equipment leases.
ASSUMPTION OF LEASE OBLIGATIONS
In January 1999, The Roda Group assigned its leases for office space at 918
Parker Street, Berkeley, California 94710, Suites A-11, A-12 and A-14 to us, and
we assumed all of The Roda Group's obligations under these leases. Our rental
payment under these leases total approximately $519,000 over the remaining terms
of the leases. Roger A. Strauch, our Chairman of the Board, and Daniel H.
Miller, our former director and Vice President of Sales, are managing members of
The Roda Group.
We believe that the foregoing transactions were on terms no less favorable
to us than could be obtained from unaffiliated third parties.
61
<PAGE> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of April 30, 1999 and as adjusted to reflect
the sale of common stock in this offering for:
- each person or entity known by us to beneficially own more than 5% of our
outstanding common stock;
- each of our directors;
- each of the named executive officers listed in the Summary Compensation
Table; and
- all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES -------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING(1) OFFERING(2)
------------------------------------ ------------ ----------- -----------
<S> <C> <C> <C>
CPQ Holdings, Inc.(3).............................. 2,824,856 13.23% 11.60%
529 Bryant Street
Palo Alto, CA 94301
Entities affiliated with Highland Capital Partners,
Inc.(4).......................................... 2,310,322 10.82 9.49
Two International Place
Boston, MA 02110
Entities affiliated with Institutional Venture
Partners(5)...................................... 1,386,193 6.49 5.69
3000 Sand Hill Road
Building Two, Suite 290
Menlo Park, CA 94025
Roda Group Investment Fund I, L.L.C.(6)............ 856,732 4.01 3.51
918 Parker Street
Berkeley, CA 94710
Roger A. Strauch(7)................................ 3,078,340 14.40 12.63
Skip Battle(8)..................................... 140,125 * *
Garrett Gruener(9)................................. 2,820,881 13.21 11.59
Daniel J. Nova(4).................................. 2,310,322 10.82 9.49
Benjamin M. Rosen.................................. 1,413,802 6.62 5.81
Geoffrey Y. Yang(5)................................ 1,386,193 6.49 5.69
Robert W. Wrubel(10)............................... 189,424 * *
Daniel H. Miller(11)............................... 2,954,456 13.83 12.13
David C. Warthen(12)............................... 1,034,457 4.80 4.21
All executive officers and directors as a group
(14 persons)(13)................................. 13,934,551 63.94 56.21
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the securities. Common stock subject to options or warrants
that are currently exercisable or exercisable within 60 days of April 30,
1999 are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrants for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address for each of the individuals listed
in the table is care of Ask Jeeves, 918 Parker Street, Berkeley, CA 94710.
Unless otherwise indicated by footnote, the persons named in the table have
sole voting and sole investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to applicable community
property laws. Percentage of beneficial ownership is based on 21,349,424
shares of common stock outstanding as of April 30, 1999, after giving
effect to the conversion of the preferred stock and 24,349,424 shares of
common stock issued and outstanding after completion of this offering.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Benjamin M. Rosen is Chairman of the Board of Compaq Computer Corporation,
of which CPQ Holdings, Inc. is a wholly-owned subsidiary.
62
<PAGE> 66
(4) Highland Capital Partners, Inc. manages Highland Capital Partners IV
Limited Partnership (HCP IV) and Highland Entrepreneurs' Fund IV Limited
Partnership (HEF IV, and together with HCP IV, the "Highland Entities").
Includes 2,217,910 shares of common stock owned by HCP IV and 92,413 shares
of common stock owned by HEF IV. Daniel J. Nova, a director of Ask Jeeves,
is a general partner of the Highland Entities and can be deemed to be a
beneficial owner of the shares held by the Highland Entities as he has
shared voting and investment power in connection with his role as general
partner.
(5) Institutional Venture Partners manages Institutional Venture Partners VIII,
L.P. (IVP) and IVP Institutional Investment Fund III, LLC (IIF, and
together with IVP, the "Institutional Entities"). Includes 1,365,400 shares
of common stock owned by IVP and 20,793 shares of common stock owned by
IIF. Geoffrey Y. Yang, a director of Ask Jeeves, is a general partner of
the Institutional Entities and can be deemed to be a beneficial owner of
the shares held by the Institutional Entities as he has shared voting and
investment power in connection with his role as general partner.
(6) Roger A. Strauch and Daniel H. Miller are managing members and Garrett
Gruener is a beneficiary of The Roda Group Investment Fund I, L.L.C.
(7) Includes 2,036,921 shares held by the Strauch Kulhanjian Family Trust UAD
December 3, 1992. Includes 856,732 shares held by The Roda Group Investment
Fund I, L.L.C., of which he is a managing member, as to which Mr. Strauch
disclaims beneficial ownership except to the extent of his pro rata
interest in such shares. Also includes 1,500 shares held by Benno S.M.
Kling Educational Trust, Roger A. Strauch, Trustee, 1,500 shares held by
Samuel J.M. Kling Educational Trust, Roger A. Strauch, Trustee, 1,500
shares held by Jesse Kling Educational Trust, Roger A. Strauch, Trustee,
1,500 shares held by Rebecca A. Miller Educational Trust, Roger A. Strauch,
Trustee, 1,500 shares held by Sarah Miller Educational Trust, Roger A.
Strauch, Trustee, 1,500 shares held by Julia F. Dan Educational Trust,
Roger A. Strauch, Trustee, 1,500 shares held by Kalden Gonsar Educational
Trust, Roger A. Strauch, Trustee, 1,500 shares held by Fletcher Kennamer
Educational Trust, Roger A. Strauch, Trustee, 1,500 shares held by Aidan
Clements Educational Trust, Roger A. Strauch, Trustee, 15,000 shares held
by Cooper Ogden Miller Educational Trust, Roger A. Strauch, Trustee, 45,813
shares held by Roger Strauch as Custodian Under CUTMA for Alexan K.
Strauch, 45,812 shares held by Roger Strauch as Custodian Under CUTMA for
Paul K. Strauch and 45,812 shares held by Roger Strauch as Custodian Under
CUTMA for Nairi S. Strauch, as to which Mr. Strauch disclaims beneficial
ownership. Includes 18,750 shares issuable pursuant to options exercisable
within 60 days.
(8) Includes 96,431 shares held by Mr. Battle, 6,847 shares held by A. George
Battle Custodian Emily Taylor Battle UTMA IL, 4,847 shares held by A.
George Battle TTEE UA Daniel Kurt Webster Battle Trust and 2,000 shares
held by Daniel Kurt Webster Battle, as to which Mr. Battle disclaims
beneficial ownership. Includes 30,000 shares issuable pursuant to options
exercisable within 60 days.
(9) Includes 1,885,383 shares held by Mr. Gruener, 78,766 shares held by Amy
Slater and 856,732 shares held by The Roda Group Investment Fund I, L.L.C.
Amy Slater is the spouse of Mr. Gruener. Mr. Gruener, a director of Ask
Jeeves is a beneficiary of The Roda Group Investments Fund I, L.L.C and
disclaims beneficial ownership of the shares held by such entity.
(10) Includes 182,812 shares issuable pursuant to options exercisable within 60
days.
(11) Includes 2,063,974 shares held by Mr. Miller. Includes 856,732 shares held
by The Roda Group Investment Fund I, L.L.C., of which he is a managing
member, as to which Mr. Miller disclaims beneficial ownership except to the
extent of his pro rata interest in such shares. Also includes 15,000 shares
held by Cooper Ogden Miller Educational Trust, Roger A. Strauch, Trustee,
as to which Mr. Miller disclaims beneficial ownership. Includes 18,750
shares issuable pursuant to options exercisable within 60 days.
(12) Includes 184,457 shares issuable pursuant to options exercisable within 60
days.
(13) Represents (a) 13,493,532 shares and (b) options to purchase 441,019 shares
that are currently exercisable or exercisable within 60 days.
63
<PAGE> 67
DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately following the closing of this offering, our authorized capital
stock will consist of 150,000,000 shares of common stock, $.001 par value per
share, and 5,000,000 shares of preferred stock, $.001 par value per share. Upon
completion of this offering, based on the number of shares, options and warrants
outstanding as of April 30, 1999, there will be 24,349,424 outstanding shares of
common stock, outstanding options to purchase 5,281,833 shares of common stock
and outstanding warrants to purchase 24,000 shares of common stock.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available at such time and
in such amounts as the board of directors may from time to time determine. Each
stockholder is entitled to vote each share of common stock on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is not provided for in our Amended and Restated Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The common stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon the occurrence of a liquidation, dissolution or winding-up, the
holders of shares of common stock would be entitled to share ratably in the
distribution of all of Ask Jeeves' assets remaining available for distribution
after satisfaction of all of our liabilities and the payment of the liquidation
preference of any outstanding preferred stock. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in the Amended and Restated Certificate of Incorporation, to
authorize the issuance of shares of preferred stock, in one or more classes or
series, and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
WARRANTS
As of April 30, 1999, we had outstanding two warrants to purchase shares of
common stock for 21,500 shares at an exercise price of $.53 per share and 2,500
shares at an exercise price of $4.33 per share.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
Upon the closing of this offering, we will be subject to the provisions of
Section 203 of the Delaware General Corporation Law (the "Anti-Takeover Law")
regulating corporate takeovers. The Anti-Takeover Law prevents certain Delaware
corporations, including those that are listed on the Nasdaq National Market,
from engaging, under certain circumstances, in a "business combination," which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder," a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such person, for three years following the date that such stockholder became
an "interested stockholder" unless:
-- the transaction that resulted in the stockholder becoming an
"interested stockholder" was approved by the board of directors prior
to the date the "interested stockholder" attained such status;
64
<PAGE> 68
-- upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding those shares owned by
(i) persons who are directors as well as officers and (ii) 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 by the affirmative vote of at least two-thirds
of the outstanding voting stock that is not owned by the "interested
stockholder."
A Delaware corporation may "opt out" of the Anti-Takeover Law with an
express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. We have not "opted out" of the provisions of the Anti-Takeover
Law. This statute could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to Ask Jeeves and, accordingly, may
discourage attempts to acquire us.
CHARTER AND BYLAW PROVISIONS
Our Amended and Restated Certificate of Incorporation and Bylaws include a
number of provisions that may have the effect of deterring or impeding hostile
takeovers or changes in control or management. These provisions include:
-- our board of directors is classified into three classes of directors
as nearly equal in size as possible with staggered three year terms;
-- all stockholder action must be effected at a duly called meeting of
stockholders and not by written consent;
-- limitations on who may call special meetings of the stockholders;
-- the elimination of cumulative voting may be called only by the
Chairman of the Board, the Chief Executive Officer, or, if none, the
President or the board.
Such provisions may have the effect of delaying or preventing a
change-in-control.
Our Amended and Restated Certificate of Incorporation and Bylaws provide
that we will indemnify officers and directors against losses that they may incur
in investigations and legal proceedings resulting from their services to Ask
Jeeves, which may include services in connection with takeover defense measures.
Such provisions may have the effect of preventing changes in the management of
Ask Jeeves.
REGISTRATION RIGHTS
We entered into the Amended and Restated Investor Rights Agreement with
certain of our investors. Under this agreement, certain of our investors are
entitled to rights relating to the registration of their shares with the
Securities and Exchange Commission. These rights have been waived as to this
offering by the holders of preferred stock. The registration rights will survive
this offering and terminate no later than three years after the closing date of
this offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is Boston EquiServe,
N.A.
LISTING
We have applied for quotation of our common stock on the Nasdaq National
Market under the trading symbol "ASKJ."
65
<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
there can be no assurance that a significant public market for our common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market after this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through the sale of our equity securities. Sales of substantial
amounts of our common stock in the public market could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, based on the number of shares outstanding
on April 30, 1999, we will have 24,349,424 outstanding shares of common stock,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding warrants and options. Of these shares, the 3,000,000 shares, plus
an additional 450,000 shares if the underwriters exercise their over-allotment
option in full, of common stock sold in this offering will be freely tradable
without restriction under the Securities Act unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act.
Of the remaining shares, a total of 21,106,168 shares held by our
directors, executive officers and our existing stockholders are subject to
lock-up agreements generally providing that, these stockholders will not (1)
offer, pledge, 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, lend, file a registration statement, or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock or (2) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the common stock, whether
any of these transactions described in (1) or (2) are to be settled by delivery
of common stock or such other securities, in cash or otherwise, for a period of
180 days following the date of the final prospectus for this offering without
the prior written consent of Morgan Stanley & Co. Incorporated. The restrictions
described in this paragraph do not apply to:
-- the sale of shares to the underwriters;
-- the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
-- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after
the completion of the offering of the shares; or
-- transfers by gift or distributions by a partnership to its partners,
so long as, in any such instance, such transferee executes a lock-up
agreement with terms identical to those described in this paragraph.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (1) 1% of the number of shares of common stock then outstanding,
which will equal approximately 243,494 shares immediately after this offering or
(2) the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an affiliate of
Ask Jeeves at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or
66
<PAGE> 70
consultant to Ask Jeeves who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares.
Following the closing of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of common stock
subject to (1) outstanding options under the 1996 Incentive Plan, 1999 Incentive
Plan and nonstatutory stock option agreements which are outside of either of
these plans and (2) rights outstanding under the Purchase Plan. Based on the
number of shares subject to outstanding options as of April 30, 1999 and
currently reserved for issuance under all such plans and agreements, such
registration statement would cover approximately 5,200,892 shares. Such
registration statement will automatically become effective upon filing.
Accordingly, subject to the exercise of such options, shares registered under
such registration statement will be available for sale in the open market
immediately after the 180-day lock-up agreements expire.
67
<PAGE> 71
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens Inc. and
Hambrecht & Quist LLC are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to them, severally, the respective number
of shares of common stock set forth opposite the names of the underwriters
below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
BancBoston Robertson Stephens Inc. .........................
Hambrecht & Quist LLC.......................................
--------
Total............................................. 3,000,000
========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the shares of common stock offered hereby are subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
underwriters are obligated to take and pay for all of the shares of common stock
offered by this prospectus, other than those covered by the over-allotment
option described below, if any such shares are taken. Discover Brokerage Direct,
Inc., an affiliate of Morgan Stanley & Co. Incorporated and facilitator of
Internet distribution, is acting as a selected dealer in connection with the
offering.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain other dealers.
After the initial offering of the shares of common stock, the offering price and
other selling terms may from time to time be varied by the representatives of
the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 450,000
additional shares of common stock at the initial public offering price set forth
on the cover page hereof, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with this offering of common stock.
To the extent this option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
additional shares of common stock as the number set forth next to such
underwriter's name in the preceding table bears to the total number of shares of
common stock set forth next to the names of all underwriters in the preceding
table.
At our request, the underwriters have reserved up to
shares of common stock to be issued by us and offered hereby for sale, at the
initial public offering price, to business associates and persons related to us.
The number of shares of common stock available for sale to the general public
will be reduced to the extent these individuals purchase such reserved shares.
Any reserved shares that are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares offered
by this prospectus.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
Each of Ask Jeeves and the holders of 21,106,168 shares has agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the underwriters, it will not, during the period
68
<PAGE> 72
ending 180 days after the date of this prospectus (1) offer, pledge, 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, lend or
otherwise transfer or dispose of directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the common stock, whether any of these transactions are to be settled by
delivery of common stock or such other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to:
-- the sale of shares to the underwriters;
-- the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
-- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after
the completion of the offering of the shares; or
-- transfers by gift or distributions by a partnership to its partners,
so long as, in any such instance, such transferee executes a lock-up
agreement with terms identical to those described in this paragraph.
In order to facilitate the offering of the common stock, 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 short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, 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.
Ask Jeeves and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between us and the representatives of the underwriters. Among the factors to be
considered in determining the initial public offering price will be our future
prospects and our industry in general, sales, earnings and certain other
financial and operating information of Ask Jeeves in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of Ask Jeeves. The estimated initial public offering price
range set forth on the cover page of this preliminary prospectus is subject to
change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
and certain other matters will be passed upon for us by Cooley Godward LLP, Palo
Alto, California. An investment partnership of attorneys of Cooley Godward
beneficially own an aggregate of 27,598 shares of our common stock. Legal
matters relating to this offering will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Wilson Sonsini Goodrich & Rosati attorneys and an entity affiliated
with Wilson Sonsini Goodrich & Rosati beneficially own an aggregate of 273,773
shares of our common stock.
69
<PAGE> 73
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998, for the period from June 13, 1996
(inception) through December 31, 1996, and for each of the years in the two-year
period ended December 31, 1998 as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given upon the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the shares of common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information with respect to us and our common stock, see
the registration statement and the exhibits thereto. Statements contained in
this prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and, in each instance
where a copy of such contract or other document has been filed as an exhibit to
the registration statement, reference is made to the copy so filed, each such
statement being qualified in all respects by such reference. Any document we
file may be read and copied at the Public Reference Room of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. Our filings with the Commission are also available
to the public from the Commission's Web site (http://www.sec.gov).
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the Web site of the Commission referred to above.
Our principal executive offices are located at 918 Parker Street, Berkeley,
California 94710 and our telephone number is (510) 649-8685. Our fiscal year
ends on December 31. We maintain a worldwide web site at http://www.ask.com. The
reference to our worldwide web address does not constitute incorporation by
reference of the information contained at this site.
70
<PAGE> 74
ASK JEEVES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young, LLP Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 75
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ask Jeeves, Inc.
We have audited the accompanying balance sheets of Ask Jeeves, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the period from June 13, 1996
(inception) through December 31, 1996 and for each of the two years ended
December 31, 1998. 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 Ask Jeeves, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from June 13, 1996 (inception) through December 31, 1996 and for each of
the two years ended December 31, 1998 in conformity with generally accepted
accounting principles.
Walnut Creek, California
March 10, 1999, except for Note 7,
as to which the date is June , 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the reincorporation in Delaware and 1 for 2 reverse stock split as described
in Note 7 to the financial statements.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
June 1, 1999
F-2
<PAGE> 76
ASK JEEVES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
---------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 521,247 $ 5,587,883 $23,125,357
Short-term investments................................... -- -- 2,018,984
Restricted cash.......................................... -- 45,000 545,000
Accounts receivable, net of allowance for doubtful
accounts of none at December 31, 1997 and $85,000 at
December 31, 1998 and March 31, 1999................... 20,031 236,258 1,056,491
Prepaid expenses and other current assets................ -- 103,545 87,618
---------- ----------- -----------
Total current assets.............................. 541,278 5,972,686 26,833,450
---------- ----------- -----------
Property and equipment, net................................ 66,981 835,486 1,941,337
Investments................................................ -- -- 3,150,000
---------- ----------- -----------
Total assets...................................... $ 608,259 $ 6,808,172 $31,924,787
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ -- $ 605,283 $ 1,299,012
Accrued compensation and related expenses................ 33,665 253,062 626,769
Accrued marketing expenses............................... -- -- 1,134,000
Other accrued liabilities................................ 18,602 160,000 343,804
Deferred revenue......................................... 13,000 149,842 776,083
Current portion of capital lease obligations............. -- 28,220 30,864
---------- ----------- -----------
Total current liabilities......................... 65,267 1,196,407 4,210,532
Capital lease obligations, less current portion............ -- 45,945 33,606
Commitments
Stockholders' equity:
Convertible preferred stock, no par value; 10,000,000
shares authorized at March 31, 1999 (5,000,000 pro
forma); issuable in series:
Series A convertible preferred stock, no par value;
3,750,000 shares designated at March 31, 1999 (none
pro forma), 2,970,655 and 3,709,884 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively (none pro forma); aggregate liquidation
preference of $7,653,337 at March 31, 1999 (none pro
forma)............................................... -- 6,088,222 7,581,708 --
Series B convertible preferred stock, no par value;
6,250,000 shares designated at March 31, 1999 (none
pro forma); 5,775,806 shares issued and outstanding
at March 31, 1999 (none pro forma); aggregate
liquidation preference of $25,000,000 at March 31,
1999 (none pro forma)................................ -- -- 24,961,680 --
Common stock, no par value; 40,000,000 shares authorized
(150,000,000 pro forma); 5,912,519, 11,358,077 and
11,583,733 shares issued and outstanding at December
31, 1997 and 1998 and March 31, 1999, respectively,
(21,069,423 pro forma)................................. 1,098,566 4,771,781 6,876,194 39,419,582
Deferred stock compensation.............................. -- (476,984) (2,052,574) (2,052,574)
Accumulated deficit...................................... (555,574) (4,817,199) (9,686,359) (9,686,359)
---------- ----------- ----------- -----------
Total stockholders' equity........................ 542,992 5,565,820 27,680,649 $27,680,649
---------- ----------- ----------- ===========
Total liabilities and stockholders' equity........ $ 608,259 $ 6,808,172 $31,924,787
========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 77
ASK JEEVES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
JUNE 13, 1996 YEAR ENDED DECEMBER 31, MARCH 31,
(INCEPTION) THROUGH ------------------------ ------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Consumer........................ $ -- $ -- $ 577,159 $ 14,766 $ 1,059,068
Corporate....................... -- -- 15,500 -- 72,500
---------- ---------- ----------- ---------- -----------
Total revenues.......... -- -- 592,659 14,766 1,131,568
Cost of revenues:
Consumer........................ -- -- 602,716 46,371 699,131
Corporate....................... -- -- 455,978 21,299 822,581
---------- ---------- ----------- ---------- -----------
Total cost of
revenues.............. -- -- 1,058,694 67,670 1,521,712
---------- ---------- ----------- ---------- -----------
Gross profit (loss)............... -- -- (466,035) (52,904) (390,144)
Operating expenses:
Product development............. 107,797 319,824 1,104,193 127,772 742,166
Sales and marketing............. -- 17,509 1,613,846 80,872 2,669,165
General and administrative...... -- 114,651 1,100,921 77,605 881,830
Amortization of deferred stock
compensation................. -- -- 29,010 -- 317,048
---------- ---------- ----------- ---------- -----------
Total operating
expenses.............. 107,797 451,984 3,847,970 286,249 4,610,209
---------- ---------- ----------- ---------- -----------
Operating loss.................... (107,797) (451,984) (4,314,005) (339,153) (5,000,353)
Interest income................... -- 4,207 52,380 3,798 131,193
---------- ---------- ----------- ---------- -----------
Net loss.......................... $ (107,797) $ (447,777) $(4,261,625) $ (335,355) $(4,869,160)
========== ========== =========== ========== ===========
Basic and diluted net loss per
share........................... $ (.08) $ (.13) $ (.51) $ (.06) $ (.43)
========== ========== =========== ========== ===========
Weighted average shares
outstanding used in computing
basic and diluted net loss per
share........................... 1,295,342 3,319,187 8,413,568 5,912,519 11,388,164
========== ========== =========== ========== ===========
Pro forma basic and diluted net
loss per share.................. $ (.48) $ (.29)
=========== ===========
Weighted average shares
outstanding used in computing
pro forma basic and diluted net
loss per common share........... 8,828,646 16,730,099
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 78
ASK JEEVES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders for
assets of Cameo Technology, Inc. and
contributed services at inception, June 13,
1996......................................... -- $ -- -- $ -- 2,400,000 $ 53,333
Contribution of capital by founders.......... -- -- -- -- -- 48,245
Net loss and comprehensive loss.............. -- -- -- -- -- --
--------- ---------- --------- ----------- ---------- ----------
Balances at December 31, 1996................. -- -- -- -- 2,400,000 101,578
Contribution of capital by founders.......... -- -- -- -- -- 86,536
Contribution of services by stockholders..... -- -- -- -- -- 105,000
Issuance of common stock for cash, net of
issuance costs............................. -- -- -- -- 2,937,521 771,169
Issuance of common stock upon exercise of
stock options.............................. -- -- -- -- 574,998 2,108
Issuance of stock options to consultants..... -- -- -- -- -- 15,510
Compensation charge related to grants of
stock options.............................. -- -- -- -- -- 16,665
Net loss and comprehensive loss.............. -- -- -- -- -- --
--------- ---------- --------- ----------- ---------- ----------
Balances at December 31, 1997................. -- -- -- -- 5,912,519 1,098,566
Issuance of preferred stock for cash, net of
issuance costs............................. 2,970,655 6,088,222 -- -- -- --
Issuance of common stock options to
stockholders in exchange for services...... -- -- -- -- -- 300,000
Issuance of common stock for cash............ -- -- -- -- 5,141,892 2,747,500
Issuance of common stock upon exercise of
stock options.............................. -- -- -- -- 287,366 31,765
Issuance of common stock to consultants...... -- -- -- -- 16,300 7,521
Issuance of common stock warrants to
consultants................................ -- -- -- -- -- 23,780
Compensation charge related to grants of
stock options.............................. -- -- -- -- -- 56,655
Deferred stock compensation.................. -- -- -- -- -- 505,994
Amortization of deferred stock
compensation............................... -- -- -- -- -- --
Net loss and comprehensive loss.............. -- -- -- -- -- --
--------- ---------- --------- ----------- ---------- ----------
Balances at December 31, 1998................. 2,970,655 6,088,222 -- -- 11,358,077 4,771,781
Issuance of preferred stock for cash, net of
issuance costs (unaudited)................. 739,229 1,493,486 5,775,806 24,961,680 -- --
Issuance of common stock upon exercise of
stock options (unaudited).................. -- -- -- -- 225,656 28,525
Issuance of common stock warrants to
consultants (unaudited).................... -- -- -- -- -- 8,750
Compensation charge related to grants of
stock options (unaudited).................. -- -- -- -- -- 174,500
Deferred stock compensation (unaudited)...... -- -- -- -- -- 1,892,638
Amortization of deferred stock compensation
(unaudited)................................ -- -- -- -- -- --
Net loss and comprehensive loss
(unaudited)................................ -- -- -- -- -- --
--------- ---------- --------- ----------- ---------- ----------
Balances at March 31, 1999 (unaudited)........ 3,709,884 $7,581,708 5,775,806 $24,961,680 11,583,733 $6,876,194
========= ========== ========= =========== ========== ==========
<CAPTION>
TOTAL
DEFERRED STOCKHOLDERS'
STOCK ACCUMULATED EQUITY
COMPENSATION DEFICIT (DEFICIT)
------------ ----------- -------------
<S> <C> <C> <C>
Issuance of common stock to founders for
assets of Cameo Technology, Inc. and
contributed services at inception, June 13,
1996......................................... $ -- $ -- $ 53,333
Contribution of capital by founders.......... -- -- 48,245
Net loss and comprehensive loss.............. -- (107,797) (107,797)
----------- ----------- -----------
Balances at December 31, 1996................. -- (107,797) (6,219)
Contribution of capital by founders.......... -- -- 86,536
Contribution of services by stockholders..... -- -- 105,000
Issuance of common stock for cash, net of
issuance costs............................. -- -- 771,169
Issuance of common stock upon exercise of
stock options.............................. -- -- 2,108
Issuance of stock options to consultants..... -- -- 15,510
Compensation charge related to grants of
stock options.............................. -- -- 16,665
Net loss and comprehensive loss.............. -- (447,777) (447,777)
----------- ----------- -----------
Balances at December 31, 1997................. -- (555,574) 542,992
Issuance of preferred stock for cash, net of
issuance costs............................. -- -- 6,088,222
Issuance of common stock options to
stockholders in exchange for services...... -- -- 300,000
Issuance of common stock for cash............ -- -- 2,747,500
Issuance of common stock upon exercise of
stock options.............................. -- -- 31,765
Issuance of common stock to consultants...... -- -- 7,521
Issuance of common stock warrants to
consultants................................ -- -- 23,780
Compensation charge related to grants of
stock options.............................. -- -- 56,655
Deferred stock compensation.................. (505,994) -- --
Amortization of deferred stock
compensation............................... 29,010 -- 29,010
Net loss and comprehensive loss.............. -- (4,261,625) (4,261,625)
----------- ----------- -----------
Balances at December 31, 1998................. (476,984) (4,817,199) 5,565,820
Issuance of preferred stock for cash, net of
issuance costs (unaudited)................. -- -- 26,455,166
Issuance of common stock upon exercise of
stock options (unaudited).................. -- -- 28,525
Issuance of common stock warrants to
consultants (unaudited).................... -- -- 8,750
Compensation charge related to grants of
stock options (unaudited).................. -- -- 174,500
Deferred stock compensation (unaudited)...... (1,892,638) -- --
Amortization of deferred stock compensation
(unaudited)................................ 317,048 -- 317,048
Net loss and comprehensive loss
(unaudited)................................ -- (4,869,160) (4,869,160)
----------- ----------- -----------
Balances at March 31, 1999 (unaudited)........ $(2,052,574) $(9,686,359) $27,680,649
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 79
ASK JEEVES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
JUNE 13, 1996 YEAR ENDED DECEMBER 31, MARCH 31,
(INCEPTION) THROUGH ----------------------- -----------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................. $(107,797) $(447,777) $(4,261,625) $(335,355) $(4,869,160)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... -- 4,098 102,214 8,245 103,344
Issuance of stock options to
consultants......................... -- 15,510 -- -- --
Issuance of common stock to
consultants......................... -- -- 7,521 -- --
Issuance of common stock warrants to
consultants......................... -- -- 23,780 5,996 8,750
Contribution of assets and services by
stockholders........................ 53,333 105,000 300,000 75,000 --
Compensation charge related to grants
of stock options.................... -- 16,665 56,655 3,333 174,500
Amortization of deferred stock
compensation........................ -- -- 29,010 -- 317,048
Changes in operating assets and
liabilities:
Restricted cash..................... -- -- (45,000) -- (500,000)
Accounts receivable................. -- (20,031) (216,227) 13,031 (820,233)
Prepaids and other current assets... -- -- (103,545) -- 15,927
Accounts payable.................... -- -- 605,283 -- 693,729
Accrued compensation and related
expenses.......................... 6,219 27,446 219,397 (16,934) 373,707
Accrued marketing expenses.......... -- -- -- 1,110 1,134,000
Other accrued liabilities........... -- 18,602 141,398 30,983 183,804
Deferred revenue.................... -- 13,000 136,842 -- 626,241
--------- --------- ----------- --------- -----------
Net cash used in operating activities.... (48,245) (267,487) (3,004,297) (214,591) (2,558,343)
INVESTING ACTIVITIES
Purchases of property and equipment...... -- (71,079) (781,543) (55,588) (1,209,195)
Purchases of investments................. -- -- -- -- (5,168,984)
--------- --------- ----------- --------- -----------
Net cash used in investing activities.... -- (71,079) (781,543) (55,588) (6,378,179)
FINANCING ACTIVITIES
Issuance of common stock for cash........ -- 773,277 2,747,500 -- --
Issuance of common stock upon exercise of
stock options.......................... -- -- 31,765 -- 28,525
Issuance of preferred stock for cash, net
of issuance costs...................... -- -- 6,088,222 -- 26,455,166
Contribution of capital by founders...... 48,245 86,536 -- -- --
Repayment of capital lease obligations... -- -- (15,011) -- (9,695)
--------- --------- ----------- --------- -----------
Net cash provided by financing
activities............................. 48,245 859,813 8,852,476 -- 26,473,996
--------- --------- ----------- --------- -----------
Increase (decrease) in cash and cash
equivalents............................ -- 521,247 5,066,636 (270,179) 17,537,474
Cash and cash equivalents at beginning of
period................................. -- -- 521,247 521,247 5,587,883
--------- --------- ----------- --------- -----------
Cash and cash equivalents at end of
period................................. $ -- $ 521,247 $ 5,587,883 $ 251,068 $23,125,357
========= ========= =========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred..... $ -- $ -- $ 89,176 $ -- $ --
========= ========= =========== ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 80
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Ask Jeeves, Inc. ("Ask Jeeves" or the "Company") develops and deploys
natural-language question answering services on the Internet for consumers and
companies. The Company was incorporated in the State of California on June 13,
1996. The Company was in the development stage in 1996 and 1997.
Unaudited Interim Financial Information
The accompanying financial statements at March 31, 1999 and for the three
months ended March 31, 1998 and 1999 are unaudited but include all adjustments
(consisting of normal recurring accruals) which, in the opinion of management,
are necessary for a fair statement of the financial position and the operating
results and cash flows for the interim date and periods presented. Results for
the interim period ended March 31, 1999 are not necessarily indicative of
results for the entire fiscal year or future periods.
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 reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ materially
from those estimates.
Cash Equivalents, Short-Term Investments, and Long-Term Investments
The Company invests its excess cash in money market accounts and debt
instruments and considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Investments
with an original maturity at the time of purchase of over three months but less
than a year are classified as short-term investments. Investments with an
original maturity at the time of purchase of greater than a year are classified
as long-term investments. Management determines the appropriate classification
of investments at the time of purchase and reevaluates such designation at the
end of each period.
At March 31, 1999, all of the Company's investments were classified as
available-for-sale and consisted of obligations of domestic municipalities or
corporate commercial paper. The amortized cost of cash equivalents, short-term
investments and long-term investments at December 31, 1997 and 1998 and March
31, 1999 approximated fair value and the amount of unrealized gains or losses
was not significant. The estimated fair values of cash equivalents and
short-term investments are based on quoted market prices. The amount of realized
gains or losses for the years ended December 31, 1997 and 1998 and three months
ended March 31, 1998 and 1999 were not significant.
Restricted Cash
Restricted cash consists of two certificates of deposit required under
standby letters of credit for certain advertising and other obligations which
expire in 1999. The certificates of deposit are held by a domestic financial
institution.
Concentrations of Credit Risk and Credit Risk Evaluations
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, investments and accounts
receivable. Cash and cash equivalents consist principally
F-7
<PAGE> 81
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of demand deposit and money market accounts held with domestic financial
institutions with high credit standing. Investments consist primarily of debt
securities of domestic municipalities and corporations with strong credit
ratings. The Company has not experienced any significant losses on its cash and
cash equivalents or investments.
The Company conducts business with companies in various industries
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. Allowances are
maintained for potential credit issues, and such losses to date have been within
management's expectations.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method over three to five years. Leasehold improvements are
amortized over the shorter of the useful life or the remaining lease term.
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed" ("FAS 86") under
which certain software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and amortized over
the estimated lives of the related products. Technological feasibility is
established upon completion of a working model. To date, costs incurred
subsequent to the establishment of technological feasibility have not been
significant, and all software development costs have been charged to product
development expense in the accompanying statements of operations.
Revenue Recognition
The Company currently conducts business within two business units, the
Consumer Question Answering Service and the Corporate Question Answering
Service. The Consumer Question Answering Service, Ask Jeeves, at Ask.com, allows
users to obtain answers to the most frequently asked questions online. The
Corporate Question Answering Service helps companies provide a high quality,
human-like online interface for their customers.
Revenues from the Consumer Question Answering Service consist primarily of
advertising revenues that are derived from short-term advertising contracts.
Under these contracts, the Company delivers impressions to users over a
specified period of time. Advertising rates, measured on a cost per thousand
impressions ("CPMs") basis, are dependent on whether the impressions are for
general rotation throughout the Company's Web site or for targeted audiences and
properties within specific areas of Ask Jeeves such as the computer,
entertainment, family, health, money, shopping and travel channels. The Company
recognizes revenues based upon actual impressions delivered. Substantially all
of the Company's revenues for the year ended December 31, 1998 were derived from
Ask Jeeves advertising contracts.
Revenues from the Corporate Question Answering Service consist of three
components: (1) knowledge base customization; (2) maintenance and information
service fees; and (3) per-answer fees. The Company recognizes knowledge base
customization and maintenance fees ratably over the contractual term, generally
twelve months. The Company recognizes per-answer fees based on answers delivered
at contractual per-answer rates, subject to negotiated annual minimums and
maximums, if applicable. Payments received prior to delivery of the knowledge
base, information and maintenance services are recorded as deferred revenues
F-8
<PAGE> 82
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and are recognized ratably over the contractual term. To date, revenues from the
Corporate Question Answering Service have not been material.
Significant Customers
Revenues from two customers accounted for 14% and 13%, respectively, of
total revenues for the year ended December 31, 1998 and 11% and 21%,
respectively, of total revenues for the three months ended March 31, 1999.
Receivables from these same two customers were none and $80,000, respectively at
December 31, 1998 and none and $147,555, respectively as of March 31, 1999.
Accounting for Stock-Based Compensation
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 ("APB 25")
and makes the pro forma disclosures required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123").
Advertising Costs
The Company expenses the costs of advertising as incurred. Advertising
expense for the years ended December 31, 1997 and 1998 was $12,512 and $960,735,
respectively.
Income Taxes
The Company uses the liability method to account for income taxes as
required by Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("FAS 109"). Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Prior to the issuance of Series A convertible preferred stock on November
10, 1998, the Company's shareholders elected to be treated as an S Corporation
for federal and state income tax purposes. Accordingly, the accompanying
financial statements for the periods prior to that date do not include a
provision for federal or state income taxes. Subsequent to November 10, 1998,
the Company became a C Corporation subject to federal and state statutory income
tax rates.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities by adding other common stock
equivalents, including stock options, warrants and convertible preferred stock,
in the weighted average number of common shares outstanding for a period, if
dilutive. Potentially dilutive securities have been excluded from the
computation as their effect is antidilutive.
Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will
F-9
<PAGE> 83
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
automatically convert upon completion of the Company's initial public offering,
using the as if-converted method.
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
JUNE 13, 1996 YEAR ENDED DECEMBER 31, MARCH 31,
(INCEPTION) THROUGH ------------------------ ------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss.................... $(107,797) $ (447,777) $(4,261,625) $ (335,355) $(4,869,160)
========= ========== =========== ========== ===========
Weighted average shares of
common stock outstanding
used in computing basic
and diluted net per loss
share.................... 1,295,342 3,319,187 8,413,568 5,912,519 11,388,164
========= ========== =========== ========== ===========
Basic and diluted net loss
per share................ $ (.08) $ (.13) $ (.51) $ (.06) $ (.43)
========= ========== =========== ========== ===========
Pro forma:
Net loss.................... $(4,261,625) $(4,869,160)
=========== ===========
Weighted average shares of
common stock used in
computing basic and
diluted net loss per
share (from above)....... 8,413,568 11,388,164
Adjustment to reflect the
effect of the assumed
conversion of preferred
stock from the date of
issuance................. 415,078 5,544,803
=========== ===========
Weighted average shares
outstanding used in
computing pro forma basic
and diluted net loss per
share.................... 8,828,646 16,730,099
=========== ===========
Pro forma basic and diluted
net loss per share....... $ (.48) $ (.29)
=========== ===========
</TABLE>
Other Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reportable Comprehensive
Income" ("FAS 130") which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. There is no difference in the Company's historical net
losses as reported and the comprehensive net losses under the provisions of FAS
130 for all periods presented. Accordingly, the adoption of FAS 130 had no
effect on the Company's reported results of operations.
F-10
<PAGE> 84
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Business Segments
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131") which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. For management purposes, the Company is divided into two business
units, the Consumer Question Answering Service and the Corporate Question
Answering Service. Each of these groups has a vice president who reports
directly to the Chief Executive Officer ("CEO"), who is the Chief Operating
Decision Maker as defined by FAS 131. Results of operations for these business
units which are provided to the CEO include only revenue and gross profit (loss)
information which is disclosed in the statement of operations in accordance with
FAS 131. The majority of the Company's operating expenses are not allocated to
the business units, but instead are treated as corporate expenses.
Computer Software
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that entities
capitalize certain costs related to internal use software once certain criteria
have been met. The Company is required to implement SOP 98-1 for the year ending
December 31, 1999. Adoption of SOP 98-1 is expected to have no material impact
on the Company's financial condition or results of operations.
Reclassifications
Certain prior year balances have been restated to conform with current year
presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment......................................... $71,079 $ 813,381 $1,968,488
Furniture and fixtures............................ -- 18,289 54,796
Leasehold improvements............................ -- 110,128 127,709
------- --------- ----------
71,079 941,798 2,150,993
Less accumulated depreciation and amortization.... (4,098) (106,312) (209,656)
------- --------- ----------
Property and equipment, net....................... $66,981 $ 835,486 $1,941,337
======= ========= ==========
</TABLE>
Cost and accumulated amortization related to assets under capital lease
obligations at December 31, 1998 were $89,176 and $16,801, respectively, and at
March 31, 1999 (unaudited) were $89,176 and $24,232, respectively. No assets
were acquired under capital lease arrangements in 1997.
3. LEASE COMMITMENTS
The Company has entered into operating and capital leases for certain
office space and equipment which contain certain renewal options.
F-11
<PAGE> 85
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
3. LEASE COMMITMENTS (CONTINUED)
Capital lease obligations for equipment represent the present value of
future lease payments under the agreements. The Company has options to purchase
the leased assets at the end of the lease terms.
The future minimum lease payments under all noncancellable leases with
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Years ending December 31:
1999...................................................... $36,939 $259,326
2000...................................................... 36,939 248,628
2001...................................................... 10,651 126,791
------- --------
Total minimum lease payments................................ 84,529 $634,745
========
Less interest............................................... 10,364
-------
Present value of minimum lease payments..................... 74,165
Less current portion of capital lease obligations........... 28,220
-------
Capital lease obligations, less current portion............. $45,945
=======
</TABLE>
Rent expense was none, $4,157 and $80,916 for the period from June 13, 1996
(inception) through December 31, 1996 and the years ended December 31, 1997 and
1998, respectively.
4. INCOME TAXES
Subsequent to the issuance of Series A convertible preferred stock in
November 1998, the Company was no longer eligible for S Corporation status and
became a C Corporation subject to statutory federal and state income tax rates.
There has been no provision for U.S. federal or state income taxes for any
period as the Company has incurred operating losses in all periods.
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
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Net operating loss carryforwards............................ $ -- $ 121,295
Capitalized research and development costs.................. -- 478,751
Accrued expenses............................................ -- 352,638
Other....................................................... -- 25,950
--------- ---------
Total deferred tax assets................................... -- 978,634
Valuation allowance......................................... -- (978,634)
--------- ---------
Net deferred tax assets..................................... $ -- $ --
========= =========
</TABLE>
A valuation allowance has been established and, accordingly, no benefit has
been recognized for the Company's net operating losses and other deferred tax
assets. The net valuation allowance increased by $978,634 during the year ended
December 31, 1998. The Company believes that, based on a number of factors, the
available objective evidence creates sufficient uncertainty regarding the
realizability of the
F-12
<PAGE> 86
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
4. INCOME TAXES (CONTINUED)
deferred tax assets such that a full valuation allowance has been recorded.
These factors include the Company's history of net losses since its inception
and expected near-term future losses. The Company will continue to assess the
realizability of the deferred tax assets based on actual and forecasted
operating results. There was no valuation allowance at December 31, 1997 because
the Company was a S corporation for federal and state income tax purposes.
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $303,000 which expire in the year
2018.
Utilization of the Company's net operating loss may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss before
utilization.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Preferred Stock at December 31, 1997 and 1998 and March 31, 1999 is as
follows by series:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
--------------------------------
DECEMBER 31,
DESIGNATED ----------------- MARCH 31,
SERIES SHARES 1997 1998 1999
------ ---------- ---- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
A Convertible....................... 3,750,000 -- 2,970,655 3,709,884
B Convertible....................... 6,250,000 -- -- 5,775,806
---------- -- --------- ---------
10,000,000 -- 2,970,655 9,485,690
========== == ========= =========
</TABLE>
Subject to certain anti-dilutive provisions, each share of Series A and B
convertible preferred stock is convertible at the option of the holder into the
same number of shares of common stock. The Series A and B convertible preferred
stock will be automatically converted into common stock in the event of an
affirmative election of the holders of at least a majority of the outstanding
shares of preferred stock, voting as separate classes, or a public offering,
with gross proceeds of at least $7,500,000 and a per share offering price of at
least $5.00.
The holders of the Series A and B convertible preferred stock are entitled
to receive noncumulative dividends when and if declared by the Board of
Directors. These dividends are in preference to any declaration or payment of
any dividend on the common stock of the Company. As of December 31, 1998, no
dividends have been declared.
In the event of any liquidation, the holders of the Series A and B
convertible preferred stock have a liquidation preference over holders of common
stock equal to the original issuance price of $2.06 and $4.33 per share, plus
any declared and unpaid dividends. The remaining assets will be distributed to
the common and preferred stockholders on an as-if-converted basis.
Stock Compensation
The Company recorded a compensation charge of $16,665 and $56,655 during
the years ended December 31, 1997 and 1998 for the difference between the
exercise price and the deemed fair value of certain stock options granted by the
Company. These amounts were expensed immediately as the options vested at the
grant date.
F-13
<PAGE> 87
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
In April 1998, the Company issued 16,300 shares of common stock to an
independent contractor for services performed. The Company imputed a value for
the services of $13,221, of which $5,700 was paid in cash, and the remainder was
allocated to the shares issued.
The Company recorded deferred stock compensation of $505,994 during the
year ended December 31, 1998 and $1,892,638 during the three months ended March
31, 1999 representing the difference between the exercise price and the deemed
fair value of certain of the Company's stock options granted to employees. These
amounts are being amortized by charges to operations on a graded vesting method
over the vesting periods of the individual stock options. Such amortization
amounted to $29,010 for the year ended December 31, 1998 and $317,048 for the
three months ended March 31, 1999.
Warrants
In connection with the issuances of common stock in August, September and
October 1997, the Company issued to purchasers of common stock a warrant
exercisable into one share of common stock for each two shares of common stock
purchased. In total, the Company issued warrants exercisable into 1,137,672
shares of common stock at a per share exercise price of $.24. In April and June
1998, all of the Company's outstanding warrants were exercised and the Company
issued 1,137,672 shares of common stock for cash proceeds of $262,500.
In May, June, July and December 1998, the Company issued warrants
exercisable into 39,000 shares of common stock to various contractors for
services performed. The warrants are exercisable at any time into shares of
common stock at per share exercise prices ranging from $.53 to $.73. The
warrants expire on various dates between May and December 2003. The Company
determined the fair value of the warrants to be $.53 to $1.65 per share or
$23,780 in total using the Black Scholes valuation model and recorded a charge
to operations over the consulting period, which concluded in 1998.
Options Issued to Consultants
The Company granted options to purchase 70,500 shares of common stock to
consultants at an exercise price of $.01 in September 1997. These options were
granted in exchange for consulting services provided. The Company valued these
options using the Black Scholes valuation model. Amounts recorded totaling
$15,510 were charged to operations over the consulting period, which concluded
in 1997.
Under the Company's 1996 Equity Incentive Plan ("1996 Plan"), 3,000,000
shares of common stock are reserved for the issuance of incentive stock options
("ISOs") or non-statutory stock options ("NSOs") to employees, officers,
directors, and consultants. The ISOs may be granted at a price per share not
less than the fair market value on the date of the grant. The NSOs may be
granted at a price per share not less than 85% of the fair market value at the
date of grant. Options granted under the 1996 Plan are exercisable over a
maximum term of 10 years from the date of grant and generally vest over periods
of up to 4 years. Options granted under the 1996 plan contain an accelerated
vesting feature based upon a change in control of the Company.
F-14
<PAGE> 88
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Activity
A summary of stock option activity is set forth below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED-AVERAGE
EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Granted.................................................. 780,000 $ .02
--------- -----
Outstanding at December 31, 1996......................... 780,000 .02
Granted................................................ 256,748 .10
Exercised.............................................. (574,998) .02
--------- -----
Outstanding at December 31, 1997......................... 461,750 .06
Granted................................................ 2,504,979 .50
Canceled............................................... (22,500) .60
Exercised.............................................. (287,366) .12
--------- -----
Outstanding at December 31, 1998......................... 2,656,863 .46
Granted (unaudited).................................... 1,691,250 1.46
Exercised (unaudited).................................. (225,656) .12
--------- -----
Outstanding at March 31, 1999 (unaudited)................ 4,122,457 $ .90
========= =====
Vested and exercisable at December 31, 1998.............. 547,168 $ .12
========= =====
Vested and exercisable at March 31, 1999 (unaudited)..... 376,251 $ .44
========= =====
</TABLE>
The weighted-average remaining contractual life of options outstanding at
December 31, 1997 and 1998 was 9.4 years and 9.5 years, respectively.
Pro Forma Disclosures of the Effect of Stock-Based Compensation
Pro forma information regarding the results of operations and net loss per
share is required by FAS 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options using
the fair value method of FAS 123. The fair value of each option granted is
estimated on the date of grant using the Black Scholes valuation model. The
risk-free interest rate for 1997 and 1998 was 6.0% and 6.5%, respectively. The
expected life of options granted in the years ended December 31, 1997 and 1998
was 5 years. No dividend and a near zero volatility factor were used.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The option valuations models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value of estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-15
<PAGE> 89
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of FAS 123, the Company's net loss and
basic and diluted net loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
--------- -----------
<S> <C> <C>
Pro forma net loss......................................... $(456,864) $(4,295,512)
Pro forma basic and diluted net loss per share............. $ (.14) $ (.51)
</TABLE>
The weighted-average grant-date fair value of options granted, which is the
value assigned to the options under FAS 123, was $0.08 and $0.16 for grants made
during years ended December 31, 1997 and 1998, respectively.
The pro forma impact of options on the net loss for the years ended
December 31, 1997 and 1998 is not representative of the effects on net income
(loss) for future years, as future years will include the effects of additional
years of stock option grants.
6. RELATED PARTY TRANSACTIONS
Certain members of the Company's Board of Directors are also owners of a
related entity to which the Company paid facilities fees for rent, utilities,
and administrative services of approximately $4,000 and $109,000 for the years
ended December 31, 1997 and 1998. For the years ended December 31, 1997 and
1998, these directors served in management positions of the Company and received
common stock options as compensation. The Company determined the fair value of
the services contributed to be $105,000 and $300,000 for the years ended
December 31, 1997 and 1998, respectively.
All of the employees of the Company were paid from the Company's inception
until August 1997 by a separate related entity. The contributions provided by
this entity have been recorded as a capital contribution and as a charge to
operations of $86,536 in the year ended December 31, 1997. In 1997, the Company
also purchased approximately $22,000 of computer and office equipment and
furniture from this related entity. In 1998, the related entity paid certain
expenses totaling $80,440 on the Company's behalf. The Company reimbursed the
related entity for all amounts paid on its behalf during 1998.
7. SUBSEQUENT EVENTS (UNAUDITED)
Sale of Preferred Stock
In January 1999, the Company issued to new and existing investors 739,229
shares of Series A convertible preferred stock at $2.06 per share resulting in
net proceeds of $1,493,485. Series A convertible preferred shares are
convertible into common stock at a one-to-one ratio.
In February and March 1999, the Company issued to new and existing
investors 5,775,806 shares of Series B convertible preferred stock at $4.33 per
share resulting in net proceeds of $24,961,680. Series B convertible preferred
shares are convertible into common stock at a one-to-one ratio.
Defined Contribution Plan
Effective January 1, 1999, the Company adopted a defined contribution
retirement plan under Section 401(k) of the Internal Revenue Code which covers
substantially all employees. Eligible employees may
F-16
<PAGE> 90
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
7. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
contribute amounts to the plan, via payroll withholding, subject to certain
limitations. The Company does not match contributions by plan participants.
Proposed Public Offering of Common Stock
On April 16, 1999, the Board of Directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, all of the outstanding preferred stock
will automatically convert into common stock. The unaudited pro forma
stockholders' equity (deficit) at March 31, 1999 gives effect to the conversion
of all outstanding shares of convertible preferred stock at March 31, 1999 into
9,485,690 shares of common stock upon completion of the offering. The Board also
approved, subject to stockholder approval, the reincorporation of the Company in
the State of Delaware and a change in the total number of shares which the
Company is authorized to issue to 155,000,000 shares, of which 150,000,000 will
be common stock and 5,000,000 will be preferred stock.
Stock Split
On April 16, 1999, the Board of Directors approved, subject to stockholder
approval, a 1 for 2 reverse stock split of issued and outstanding common and
preferred stock. All common and preferred share and per share amounts in the
accompanying financial statements have been retroactively adjusted to reflect
the stock split.
1999 Employee Stock Purchase Plan
The Company's amended 1999 Employee Stock Purchase Plan was adopted by the
Board of Directors and approved by the stockholders in May 1999 to be effective
upon the completion of the Company's initial public offering of its common
stock. The Company has reserved a total of 400,000 shares of common stock for
issuance under the plan. Eligible employees may purchase common stock at 85% of
the lesser of the fair market value of the Company's common stock on the first
day of the applicable one year offering period or the last day of the applicable
six month purchase period.
1999 Equity Incentive Plan
In April 1999, the Board of Directors adopted the 1999 Equity Incentive
Plan which will become effective upon stockholder approval. The Company has
reserved a total of 2,125,000 shares of common stock for the issuance of ISOs or
NSOs to employees, officers, directors, or consultants under the 1999 plan.
Asset Purchase
In April 1999, the Company entered into an asset purchase agreement and a
license agreement with Lumina Decision Systems, Inc. for the acquisition of
certain technology of Lumina in exchange for total consideration of $1,537,500
which is comprised of cash of $700,000, 225,000 shares of the Company's common
stock valued at $3.50 per share and $50,000 in acquisition costs. The Company
allocated $1,176,803 of the purchase price to core technology and $360,697 to
in-process technology. The core technology will be amortized over a three year
period. The in-process technology will be written off as a one-time charge in
the second quarter of 1999. In addition, approximately 107,500 shares of the
shares issued are to be held in escrow for a two year period.
The Company acquired Lumina's Personal Decision Engine ("PDE") technology
as well as the right to use Lumina's Analytica and Analytica Decision Engine
("ADE") technologies. The ADE technologies and a
F-17
<PAGE> 91
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999 IS UNAUDITED)
7. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
non-configurable version of the PDE technology had reached technological
feasibility and have been classified as core technology. The configurable PDE
technology had yet to reach technological feasibility and therefore, this
product was classified as in-process technology. The value of the purchased
in-process technology was determined by estimating the projected net cash flows
related to such products, including costs to complete the development of the
technology and the future revenues to be earned upon commercialization of the
products. These cash flows were discounted back to their net present value. The
resulting projected net cash from such projects were based on the Company's
estimates of revenues and operating profits related to such projects. These
estimates were based on several assumptions, including those summarized below.
Revenues and operating profit attributable to the in-process research and
development were estimated over a three-year projection period, beginning in
fiscal 1999. The resulting projected net cash flows were discounted to their
present value using a discount rate of 35%, which was calculated based on the
weighted average cost of capital, adjusted for the technology risk associated
with the purchased in-process technology, which was considered to be significant
due to the rapid pace of technological change in the internet industry. For
projected cash flows attributable to existing technology, a discount rate of 25%
was used, which reflects the weighted average cost of capital, adjusted for the
technology risk associated with these technologies. The Company's analysis
considered only future operating results of the existing and in-process
technology on a stand-alone basis and did not take into consideration any
potential increased revenue or operating efficiency that may occur
post-acquisition.
F-18
<PAGE> 92
INSIDE BACK COVER OF PROSPECTUS:
LIST OF QUESTIONS:
Why do I never see baby pigeons?
How much is my car worth?
What are the latest fashions?
Where can I comparison shop for cameras?
How do I install a modem?
Where can I buy a snowboard?
What is a good anniversary present?
Where can I get driving directions?
Where can I get my scuba diving certification?
Jeeves is asked millions of questions a day. What's yours?
How many feet are in a mile?
How much do I need to save for retirement?
What's the weather in New York?
What are some good date ideas?
How can I create my own Web page?
How much life insurance do I need?
How can I cure my headache?
What is my IQ?
How does the stock market work?
Where can I find computer deals on line?
Where can I find cheap airline tickets?
Company LOGO
OUTSIDE BACK COVER OF PROSPECTUS:
Company logo
<PAGE> 93
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
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 11,510
NASD Filing fee............................................. 4,640
Nasdaq National Market listing fee.......................... 1,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 350,000
Blue sky fees and expenses.................................. 10,000
Transfer agent fees......................................... 10,000
Miscellaneous fees and expenses............................. 112,850
----------
Total............................................. $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a court to award, or a corporation's board of directors to grant indemnity to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities, including
reimbursement for expenses incurred, arising under the Securities Act.
As permitted by the DGCL, our Amended and Restated Certificate of
Incorporation, which will become effective upon the closing of this offering,
includes a provision that eliminates the personal liability of its directors for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to us or our
stockholders; (2) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) under Section 174 of
the DGCL regarding unlawful dividends and stock purchases; or (4) for any
transaction from which the director derived an improper personal benefit.
As permitted by the DGCL, our Amended and Restated Certificate of
Incorporation and/or our Bylaws, which will become effective upon the closing of
this offering, provide that (1) we are required to indemnify our directors and
officers to the fullest extent permitted by the DGCL, subject to certain very
limited exceptions; (2) we are permitted to indemnify our other employees to the
extent that we indemnify our officers and directors, unless otherwise required
by law, our Amended and Restated Certificate of Incorporation, our Bylaws or
agreements; (3) we are required to advance expenses, as incurred, to our
directors and officers in connection with a legal proceeding to the fullest
extent permitted by the DGCL, subject to certain very limited exceptions; and
(4) the rights conferred in our Bylaws are not exclusive.
Prior to the closing of this offering, we intend to enter into Indemnity
Agreements with each of our current directors and officers to give such
directors and officers additional contractual assurances regarding the scope of
the indemnification set forth in our Amended and Restated Certificate of
Incorporation and our Bylaws and to provide additional procedural protections.
At present, there is no pending litigation or proceeding involving a director,
officer or employee of the Company regarding which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
With approval by the Board, we expect to obtain directors' and officers'
liability insurance. Reference is made to the Underwriting Agreement contained
in Exhibit 1.1 hereto, which contains provisions indemnifying our officers and
directors against certain liabilities.
II-1
<PAGE> 94
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since the Company's inception on June 13, 1996, the Company has issued and
sold the following unregistered securities:
1. Prior to the completion of this offering, the Company intends to effect
a one-for-two reverse stock split of its outstanding common stock in
which each two outstanding shares of common stock will be split into
one share of common stock.
2. On June 17, 1996, the Company issued 1,500,000 shares of its common
stock to Garrett Gruener in consideration of the assets of Cameo
Technology, Inc. a company owned by Garrett Gruener, with a value of
$13,333 and $20,000 pursuant to the Asset Purchase Agreement and Plan
of Reorganization by and between the Company and Cameo Technology, Inc.
This sale was made in reliance on Section 4(2).
3. On June 17, 1996, the Company issued 900,000 shares of its common stock
to David Warthen in consideration of $20,000. This sale was made in
reliance on Section 4(2).
4. From inception through April 30, 1999, the Company granted options to
purchase 5,379,335 shares of common stock at a weighted average
exercise price of $2.40 per share to employees, consultants, directors
and other service providers pursuant to its 1996 Equity Incentive Plan
and issued an aggregate of 301,960 shares of its common stock to
employees, consultants, directors and other service providers for
aggregate consideration of approximately $89,602 pursuant to exercises
of options granted under the 1996 Equity Incentive Plan. These grants
were made in reliance on Rule 701.
5. From inception through April 30, 1999, the Company granted options to
purchase 1,050,518 shares of common stock at a weighted average
exercise price of $0.13 per share to employees and consultants pursuant
to option agreements outside of the 1996 Equity Incentive Plan and
issued an aggregate of 823,561 shares of its common stock to employees,
consultants, directors and other service providers for aggregate
consideration of approximately $41,353 pursuant to exercises of options
granted outside of the 1996 Equity Incentive. These grants were made in
reliance on Rule 701.
6. In August 1997, the Company issued 1,083,498 shares of common stock at
a purchase price of $0.23 and warrants to purchase 541,749 shares of
common stock to two investors. The warrants have a per share exercise
price of $0.23 per share. These sales were made in reliance on Section
4(2).
7. In November 1997, the Company issued 12,000 shares of common stock at
$0.23 per share in exchange for assets related to the domain name
"AJ.com." This sale was made in reliance on Section 4(2).
8. In December 1997, the Company issued 541,829 shares of common stock for
an aggregate purchase price of $249,241 or $0.46 per share to one
investor. This sale was made in reliance on Section 4(2).
9. In April 1998, the Company issued 16,300 shares of common stock to an
independent contractor for graphic design services performed. The
Company imputed a value for the services of $13,221, of which $5,700
was paid in cash, and the remainder was allocated to the shares issued.
This sale was made in reliance on Section 4(2).
10. In May, June and July 1998, the Company issued warrants exercisable
into 21,500 shares of common stock to an independent contractor for
public relations services performed with a value of $11,005. The
warrants are exercisable into shares of common stock at a per share
exercise price of $.53. This sale was made in reliance on Section 4(2).
11. In June 1998, the Company issued and sold an aggregate of 2,148,807
shares of its common stock for an aggregate purchase price of
approximately $1,138,868 or $0.53 per share to 16 investors. This sale
was made in reliance on Section 4(2).
II-2
<PAGE> 95
12. In September 1998, the Company issued and sold 1,855,415 shares of its
common stock for an aggregate purchase price of approximately $983,370
or $0.73 per share to 11 investors. This sale was made in reliance on
Section 4(2).
13. In November 1998 and January 1999, the Company issued and sold
3,709,884 shares of its Series A preferred stock for an aggregate
purchase price of approximately $7,642,361 or $2.06 per share to 25
investors. These sales were made in reliance on Rule 506 of Regulation
D.
14. In December 1998, the Company issued a warrant to purchase 17,500
shares of common stock at an exercise price of $0.73 per share to our
landlord in consideration for improved lease terms valued at $12,775.
The warrant was exercised in April 1999.
15. In February and March 1999, the Company issued and sold 5,775,806
shares of its Series B preferred stock for an aggregate purchase price
of approximately $25,009,239, or $4.33 per share to 44 investors. These
sales were made in reliance on Rule 506 of Regulation D.
16. In March 1999, the Company issued a warrant exercisable into 2,500
shares of common stock to a consultant in consideration for graphic
design services performed. The warrant is exercisable into shares of
common stock at a per share exercise price of $4.33. The issuance was
made in reliance on Section 4(2).
17. On April 16, 1999, the Company issued 225,000 shares of common stock
with a value of $3.50 per share in consideration for assets of Lumina
Decision Systems, Inc., pursuant to the Asset Purchase Agreement by and
between the Company and Lumina Decision Systems. The sale was made in
reliance on Section 4(2).
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving any public
offering or transactions pursuant to compensation benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with us, to information about Ask Jeeves.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Form of Certificate of Incorporation of the Registrant.
3.2* Certificate of Merger to be filed with the Secretary of
State of the State of Delaware on ,
1999.
3.3* Form of Certificate of Incorporation of the registrant to be
filed on the closing of the offering made hereby.
3.4* Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.1, 3.2 and 3.3 hereof.
4.2 Specimen Certificate for Registrant's Common Stock.
4.3* Warrant to purchase 15,000 shares of Common Stock granted by
the Registrant to Antenna Group PR dated as of June 30,
1998.
4.4* Warrant to purchase 20,000 shares of Common Stock granted by
the Registrant to Antenna Group PR dated as of July 31,
1998.
</TABLE>
II-3
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.5* Warrant to purchase 8,000 shares of Common Stock granted by
the Registrant to Antenna Group PR dated as of May 31, 1998.
4.6* Warrant to purchase 5,000 shares of Common Stock granted by
the Registrant to Soren Jacobsen dated as of March 10, 1999.
5.1 Opinion of Cooley Godward LLP.
10.1* Amended and Restated 1996 Equity Incentive Plan.
10.2* Form of Option Agreement for the Amended and Restated 1996
Equity Incentive Plan.
10.3.1* 1999 Equity Incentive Plan.
10.3.2 1999 Equity Incentive Plan, as amended.
10.4* Form of Option Agreement for the 1999 Equity Incentive Plan.
10.5.1* 1999 Employee Stock Purchase Plan.
10.5.2 1999 Employee Stock Purchase Plan, as amended.
10.6* Commercial Office Lease by and between Eat/Work Development,
L.P. and the Roda Group Venture Development Company dated as
of August 20, 1997.
10.7* Commercial Office Lease by and between Eat/Work Development,
L.P. and the Roda Development Company dated as of August 14,
1998.
10.8* Commercial Office Lease by and between Eat/Work Development,
L.P. and the Roda Development Company dated as of November
15, 1998.
10.9* Commercial Office Lease by and between Eat/Work Development,
L.P. and the Registrant dated as of May 15, 1998.
10.10* Lease Agreement by and between Parker Associates and the
Registrant dated as of January 26, 1999.
10.11* Assignment and Assumption of Standard Commercial Office
Lease for Eat/Work Development by and between The Roda Group
Venture Development Company, L.L.C. and the Registrant dated
as of January 1, 1999 (relating to 918 Parker Street, Suite
A-14, Berkeley, California).
10.12* Assignment and Assumption of Standard Commercial Office
Lease for Eat/Work Development by and between The Roda Group
Venture Development Company, L.L.C. and the Registrant dated
as of January 1, 1999 (relating to 918 Parker Street, Suite
A-1-1 and A-1-2, Berkeley, California).
10.13+ License Agreement between the Registrant and Compaq Computer
Corporation dated as of October 2, 1998.
10.14+ License and Development Agreement between the Registrant and
Compaq Computer Corporation dated as of March 31, 1999.
10.15* Consulting Services Agreement by and between the Registrant
and The Roda Development. Group dated as of December 14,
1998.
10.16* Offer letter by and between the Company and M. Bruce Nakao
dated as of April 16, 1999.
10.17* Offer letter by and between the Registrant and Laurence
Fishkin dated as of January 11, 1999.
10.18.1* Offer letter by and between the Registrant and Edward
Briscoe III dated as of January 18, 1999.
10.18.2 Offer letter by and between the Registrant and Edward Brisco
III, as amended, dated as of June 1, 1999.
10.19* Offer letter by and between the Registrant and Frank Vaculin
dated as of January 5, 1999.
10.20.1* Offer letter by and between the Registrant and Robert W.
Wrubel dated as of May 22, 1998.
</TABLE>
II-4
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.20.2 Offer letter by and between the Registrant and Robert W.
Wrubel, as amended, dated as of June 1, 1999.
10.21* Common Stock and Warrant Purchase Agreement by and between
the Registrant, and each of Daniel H. Miller, Roger A.
Strauch and the Roda Group Venture Development Company, LLC.
dated as of August 20, 1997.
10.22* Common Stock Subscription Agreement, by and between the
Registrant and certain investors of the Registrant dated as
of June 26, 1998.
10.23* Common Stock Subscription Agreement, by and between the
Registrant and certain investors of the Registrant dated as
of August 31, 1998.
10.24* Series A Preferred Stock Purchase Agreement by and between
the Registrant and certain investors of the Registrant dated
as of November 13, 1998.
10.25* Series B Preferred Stock Purchase Agreement by and between
the Registrant and certain investors of the Registrant dated
as of February 24, 1999.
10.26+ Asset Purchase Agreement by and between the Registrant and
Lumina Decision Systems, Inc. dated as of April 16, 1999.
10.27* Form of Indemnity Agreement by and between the Registrant
and each of its directors and executive officers.
10.28 Office Lease by and between Emery Station Associates, L.L.C.
and the Registrant dated as of April 29, 1999.
10.29 Offer Letter by and between the Registrant and George
Lichter dated as of May 27, 1999.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1* Power of attorney. Reference is made to Page II-6.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
+ Certain portions of this document have been omitted pursuant to a
confidential treatment request.
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the combined financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
II-5
<PAGE> 98
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) of
(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 purposes 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 the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Berkeley, State of California, on June 3, 1999.
ASK JEEVES, INC.
By: /s/ ROBERT W. WRUBEL
------------------------------------
Robert W. Wrubel
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ ROBERT W. WRUBEL President, Chief Executive June 3, 1999
- ----------------------------------------------------- Officer and Director
Robert W. Wrubel
PRINCIPAL FINANCIAL OFFICER:
/s/ M. BRUCE NAKAO Chief Financial Officer June 3, 1999
- -----------------------------------------------------
M. Bruce Nakao
PRINCIPAL ACCOUNTING OFFICER:
/s/ CHRISTINE M. DAVIS Controller June 3, 1999
- -----------------------------------------------------
Christine M. Davis
ADDITIONAL DIRECTORS:
* Chairman of the Board of June 3, 1999
- ----------------------------------------------------- Directors
Roger A. Strauch
* Director June 3, 1999
- -----------------------------------------------------
A. George Battle
* Director June 3, 1999
- -----------------------------------------------------
Benjamin M. Rosen
* Director June 3, 1999
- -----------------------------------------------------
Daniel J. Nova
* Director June 3, 1999
- -----------------------------------------------------
Geoffrey Y. Yang
* Director June 3, 1999
- -----------------------------------------------------
Garrett Gruener
</TABLE>
*By: /s/ ROBERT W. WRUBEL
-------------------------------
Robert W. Wrubel
Attorney-in-Fact
II-7
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Form of Certificate of Incorporation of the Registrant.
3.2* Certificate of Merger to be filed with the Secretary of
State of the State of Delaware on ,
1999.
3.3* Form of Certificate of Incorporation of the registrant to be
filed on the closing of the offering made hereby.
3.4* Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.1, 3.2 and 3.3 hereof.
4.2 Specimen Certificate for Registrant's Common Stock.
4.3* Warrant to purchase 15,000 shares of Common Stock granted by
the Registrant to Antenna Group PR dated as of June 30,
1998.
4.4* Warrant to purchase 20,000 shares of Common Stock granted by
the Registrant to Antenna Group PR dated as of July 31,
1998.
4.5* Warrant to purchase 8,000 shares of Common Stock granted by
the Registrant to Antenna Group PR dated as of May 31, 1998.
4.6* Warrant to purchase 5,000 shares of Common Stock granted by
the Registrant to Soren Jacobsen dated as of March 10, 1999.
5.1 Opinion of Cooley Godward LLP.
10.1* Amended and Restated 1996 Equity Incentive Plan.
10.2* Form of Option Agreement for the Amended and Restated 1996
Equity Incentive Plan.
10.3.1* 1999 Equity Incentive Plan.
10.3.2 1999 Equity Incentive Plan, as amended.
10.4* Form of Option Agreement for the 1999 Equity Incentive Plan.
10.5.1* 1999 Employee Stock Purchase Plan.
10.5.2 1999 Employee Stock Purchase Plan, as amended.
10.6* Commercial Office Lease by and between Eat/Work Development,
L.P. and the Roda Group Venture Development Company dated as
of August 20, 1997.
10.7* Commercial Office Lease by and between Eat/Work Development,
L.P. and the Roda Development Company dated as of August 14,
1998.
10.8* Commercial Office Lease by and between Eat/Work Development,
L.P. and the Roda Development Company dated as of November
15, 1998.
10.9* Commercial Office Lease by and between Eat/Work Development,
L.P. and the Registrant dated as of May 15, 1998.
10.10* Lease Agreement by and between Parker Associates and the
Registrant dated as of January 26, 1999.
10.11* Assignment and Assumption of Standard Commercial Office
Lease for Eat/Work Development by and between The Roda Group
Venture Development Company, L.L.C. and the Registrant dated
as of January 1, 1999 (relating to 918 Parker Street, Suite
A-14, Berkeley, California).
10.12* Assignment and Assumption of Standard Commercial Office
Lease for Eat/Work Development by and between The Roda Group
Venture Development Company, L.L.C. and the Registrant dated
as of January 1, 1999 (relating to 918 Parker Street, Suite
A-1-1 and A-1-2, Berkeley, California).
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.13+ License Agreement between the Registrant and Compaq Computer
Corporation dated as of October 2, 1998.
10.14+ License and Development Agreement between the Registrant and
Compaq Computer Corporation dated as of March 31, 1999.
10.15* Consulting Services Agreement by and between the Registrant
and The Roda Development. Group dated as of December 14,
1998.
10.16* Offer letter by and between the Company and M. Bruce Nakao
dated as of April 16, 1999.
10.17* Offer letter by and between the Registrant and Laurence
Fishkin dated as of January 11, 1999.
10.18.1* Offer letter by and between the Registrant and Edward
Briscoe III dated as of January 18, 1999.
10.18.2 Offer letter by and between the Registrant and Edward Brisco
III, as amended, dated as of June 1, 1999.
10.19* Offer letter by and between the Registrant and Frank Vaculin
dated as of January 5, 1999.
10.20.1* Offer letter by and between the Registrant and Robert W.
Wrubel dated as of May 22, 1998.
10.20.2 Offer letter by and between the Registrant and Robert W.
Wrubel, as amended, dated as of June 1, 1999.
10.21* Common Stock and Warrant Purchase Agreement by and between
the Registrant, and each of Daniel H. Miller, Roger A.
Strauch and the Roda Group Venture Development Company, LLC.
dated as of August 20, 1997.
10.22* Common Stock Subscription Agreement, by and between the
Registrant and certain investors of the Registrant dated as
of June 26, 1998.
10.23* Common Stock Subscription Agreement, by and between the
Registrant and certain investors of the Registrant dated as
of August 31, 1998.
10.24* Series A Preferred Stock Purchase Agreement by and between
the Registrant and certain investors of the Registrant dated
as of November 13, 1998.
10.25* Series B Preferred Stock Purchase Agreement by and between
the Registrant and certain investors of the Registrant dated
as of February 24, 1999.
10.26+ Asset Purchase Agreement by and between the Registrant and
Lumina Decision Systems, Inc. dated as of April 16, 1999.
10.27* Form of Indemnity Agreement by and between the Registrant
and each of its directors and executive officers.
10.28 Office Lease by and between Emery Station Associates, L.L.C.
and the Registrant dated as of April 29, 1999.
10.29 Offer Letter by and between the Registrant and George
Lichter dated as of May 27, 1999.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1* Power of attorney. Reference is made to Page II-6.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
+ Certain portions of this document have been omitted pursuant to a
confidential treatment request.
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
_____________, 1999
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Ask Jeeves, Inc., a Delaware corporation (the "COMPANY"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"UNDERWRITERS") ________ shares of its common stock, $0.001 par value per share
(the "FIRM SHARES"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional ________ shares of its common stock,
$0.001 par value per share (the "ADDITIONAL SHARES"), if and to the extent that
you, as Managers of the offering, shall have determined to exercise, on behalf
of the Underwriters, the right to purchase such shares of common stock granted
to the Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "SHARES." The shares of
common stock, $0.001 par value per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "COMMON STOCK."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT", the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley &
Co. Incorporated ("MORGAN STANLEY") has agreed to reserve out of the Shares set
forth opposite its name on Schedule I to this Agreement, up to _________ shares,
for sale to certain of the Company's business associates and other parties
associated with the Company (collectively, "PARTICIPANTS"), as set forth in the
Prospectus under the heading "Underwriting" (the "DIRECTED SHARE PROGRAM"). The
Shares to be sold by Morgan Stanley pursuant to the Directed Share Program (the
"DIRECTED SHARES") will be sold by Morgan Stanley pursuant to this Agreement at
the public offering price. Any Directed Shares not orally confirmed for purchase
by any Participants by the end of the first business day after the date on which
this Agreement is executed will be offered to the public by Morgan Stanley as
set forth in the Prospectus.
<PAGE> 2
1. Representations and Warranties. The Company represents and warrants
to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company. The
execution and delivery of the Agreement and Plan of Merger dated as of
_________, 1999 (the "MERGER AGREEMENT") between Ask Jeeves, Inc., a California
corporation (the "CALIFORNIA CORPORATION"), and the Company, effecting the
reincorporation of the California Corporation under the laws of the State of
Delaware, was duly authorized by all necessary corporate action on the part of
each of the California Corporation and the Company. Each of the California
Corporation and the Company had all corporate power and authority to execute and
deliver the Merger Agreement, to file the Merger Agreement with the Secretary of
State of California and the Secretary of State of Delaware and to consummate the
reincorporation contemplated by the Merger Agreement. The Merger Agreement at
the time of its execution and filing constituted a binding obligation of each of
the California Corporation and the Company, enforceable in accordance with its
terms, and the reincorporation contemplated by the Merger Agreement has been
consummated in accordance with its terms.
(d) The Company does not have and has never had any subsidiaries
or affiliated companies and does not otherwise own and has never otherwise owned
any shares of capital stock or any interest in, and does not control and has
never controlled, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity.
-2-
<PAGE> 3
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or any agreement or other instrument binding upon the
Company that is material to the Company, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company, from that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company is a party or to which any of the properties of
the Company is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (i) the Company has
not incurred any material liability or obligation, direct or contingent, nor
entered into any material transaction not in the ordinary course of business;
(ii) the Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any kind on its
capital stock other than
-3-
<PAGE> 4
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the Company,
except in each case as described in the Prospectus.
(n) The Company has good and marketable title in fee simple to
all real property and good and marketable title to all personal property owned
by them which is material to the business of the Company, in each case free and
clear of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are
held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company, in each case except as
described in the Prospectus.
(o) The Company owns or possesses, or can acquire on reasonable
terms, all material patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names currently employed by them in connection with the
business now operated by them, and, except as described in the Prospectus, the
Company has not received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse affect on the Company.
(p) No material labor dispute with the employees of the Company
exists, except as described in the Prospectus, or, to the knowledge of the
Company, is imminent; and the Company is not aware of any existing, threatened
or imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could have a material adverse
effect on the Company.
(q) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which they are engaged; the Company has not
been refused any insurance coverage sought or applied for; and the Company does
not have any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not have a material adverse effect on the Company, except as
described in the Prospectus.
(r) The Company has complied and is in compliance with all
federal, state, local and foreign statutes, executive orders, proclamations,
regulations, rules, directives, decrees, ordinances and similar provisions
having the force or effect of law and all judicial and administrative orders,
rulings, determinations and common law concerning the importation of
merchandise, the export or reexport of products, services and technology, and
the terms and conduct of international transactions applicable to the Company in
connection with the conduct of the Company's business (including as the same
relates to record keeping requirements) ("INTERNATIONAL TRADE LAWS AND
-4-
<PAGE> 5
REGULATIONS"); the Company has not made or provided any material false statement
or material omission to any agency of any federal, state or local government,
purchasers of products, or foreign government or foreign agency, in connection
with the exportation of merchandise (including with respect to export licenses,
exceptions and other export authorizations and any filings required for or
related to exportation of any item), the importation of merchandise or other
approvals required by a foreign government or agency or any other requirement
relating to any International Trade Laws and Regulations; the Company has not
made any payment, offer, gift, promise to give, or authorized or otherwise
participated in, assisted or facilitated any payment or gift related to the
Company's business that is prohibited by the United States Foreign Corrupt
Practices Act.
(s) The Company possesses all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct its business, and the Company has not received
any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the Company, except as described the Prospectus.
(t) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) Ernst & Young LLP are independent public accountants with
respect to the Company as required by the Securities Act.
(v) The financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the financial position, results
of operations and changes in financial position of the Company on the basis
stated therein at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; the supporting
schedules, if any, included in the Registration Statement present fairly in
accordance with generally accepted accounting principles the information
required to be stated therein; and the other financial and statistical
information and data set forth in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) are, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(w) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
-5-
<PAGE> 6
(x) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company.
(y) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on the
Company.
(z) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the Company
to file a registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such securities
with the Shares registered pursuant to the Registration Statement, except such
as have been validly waived.
(aa) The Company has reviewed its operations and the operations
of any third parties with which the Company has a material relationship to
evaluate the extent to which the business or operations of the Company will be
affected by the Year 2000 Problem. As a result of such review, the Company has
no reason to believe, and does not believe, that the Year 2000 Problem will have
a material adverse effect on the Company. The "Year 2000 Problem" as used herein
means any significant risk that the computer hardware or software used in the
receipt, transmission, storage, retrieval, retransmission or other utilization
of data or in the operation of mechanical or electrical systems of any kind will
not, in the case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000.
(bb) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.
(cc) The Nasdaq Stock Market, Inc. has approved the Common Stock
for listing on the Nasdaq National Market, subject only to official notice of
issuance.
(dd) Except for the Shares or as disclosed in the Prospectus,
all outstanding shares of Common Stock, and all securities convertible into or
exercisable or exchangeable for Common Stock, are subject to valid and binding
agreements (collectively, the "LOCK-UP AGREEMENTS") that restrict the holders
thereof from selling, making any short sale of, granting any option for the
purchase of, or otherwise transferring or disposing of, any of such shares of
Common Stock, or any
-6-
<PAGE> 7
such securities convertible into or exercisable or exchangeable for Common
Stock, for a period of 180 days after the date of the Prospectus without the
prior written consent of Morgan Stanley & Co. Incorporated.
(ee) The Company (i) has notified each holder of a currently
outstanding option issued under the 1996 Equity Incentive Plan or the 1999
Equity Incentive Plan (the "OPTION PLANS") and each person who has acquired
shares of Common Stock pursuant to the exercise of any option granted under the
Option Plans that pursuant to the terms of the Option Plans, that none of such
options or shares may be sold or otherwise transferred or disposed of for a
period of 180 days after the date of the Prospectus and (ii) has imposed a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the Option Plans.
(ff) The Company (i) has notified each shareholder who is party
to the Amended and Restated Investor Rights Agreement dated February 24, 1999,
(the "Registration Rights Agreement"), that pursuant to the terms of the
Registration Rights Agreement, none of the shares of the Company's capital stock
held by such stockholder or capital stock into which such shares are convertible
may be sold or otherwise transferred or disposed of for a period of 180 days
after the date of the Prospectus and (ii) has imposed a stop-transfer
instruction with the Company's transfer agent in order to enforce the foregoing
lock-up provision imposed pursuant to the Registration Rights Agreement.
Furthermore, the Company represents and warrants to Morgan Stanley that
(i) the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered.
Moreover, the Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite the Underwriter's name at $______ a share (the "PURCHASE PRICE").
-7-
<PAGE> 8
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to _______________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, (i) offer, pledge, 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, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to
be sold hereunder, (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing or (C) any options granted under any Company stock option plan or any
shares issued under the Company's Employee Stock Purchase Plan.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "PUBLIC OFFERING PRICE") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on _________, 1999, or at such
other time on the same or such other date, not later than _________,
-8-
<PAGE> 9
1999, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than _______, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [_____] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company, from that
set forth in the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is material
and adverse and that makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in Section 5(a)(i) above and to the effect that
the representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has complied
with
-9-
<PAGE> 10
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Cooley Godward LLP, outside counsel to the Company, dated the Closing
Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company;
(ii) the execution and delivery of the Merger Agreement
effecting the reincorporation of the California Corporation into the State of
Delaware pursuant to the laws of the State of California and the State of State
of Delaware, was duly authorized by all necessary corporate action on the part
of each of the California Corporation and the Company;
(iii) each of the California Corporation and the Company
had all corporate power and authority to execute and deliver the Merger
Agreement, to file the Merger Agreement with the Secretary of State of
California and the Secretary of State of Delaware and to consummate the
reincorporation contemplated by the Merger Agreement; the Merger Agreement at
the time of execution and filing constituted a valid and binding obligation of
each of the California Corporation and the Company; and the reincorporation
contemplated by the Merger Agreement has been consummated in accordance with its
terms;
(iv) the Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, and does not
control and has never controlled, directly or indirectly, any other corporation,
partnerships, association, joint venture or other business entity;
(v) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the Prospectus;
(vi) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
(vii) the Shares have been duly authorized and, when
issued and delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights; except as set forth in
the Prospectus, the Company has no statutory preemptive rights or to such
counsel's
-10-
<PAGE> 11
knowledge, any outstanding options to purchase, or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations; and all outstanding
shares of capital stock and options and other rights to acquire capital stock
were not issued in violation of any preemptive rights or to such counsel's
knowledge, rights of first refusal or other similar rights;
(viii) this Agreement has been duly authorized, executed
and delivered by the Company;
(ix) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Company that is material to the
Company, or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be required
by the securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares;
(x) the statements (A) in the Prospectus under the
captions "Risk Factors--After This Offering, Our Officers and Directors Will Own
a Large Percentage of Our Outstanding Shares and Will Thereby be Able to
Significantly Influence Matters Regarding Stockholder Approval," "Risk
Factors--Provisions in Our Charter or Agreements May Prevent or Delay a Change
of Control," "Management--Employee Benefit Plans," "Management--Compensation
Arrangements," "Management--Indemnification of Directors and Executive Officers
and Limitation of Liability," "Certain Transactions," "Description of Capital
Stock," "Shares Eligible for Future Sale" and "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as such
statements constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein;
(xi) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the Company is
a party or to which any of the properties of the Company is subject that are
required to be described in the Registration Statement or the Prospectus and are
not so described or of any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
described or filed as required;
(xii) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
-11-
<PAGE> 12
(xiii) to such counsel's knowledge there is no legal or
beneficial owner of any securities of the Company who has any rights, not
effectively satisfied or waived, to require registration of any shares of
capital stock of the Company in connection with the filing of the Registration
Statement;
(xiv) the Company (A) is in compliance with any and all
applicable Environmental Laws, (B) has received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (C) is in compliance with all terms and conditions of
any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company;
(xv) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial statements and
schedules included therein and financial and statistical data derived therefrom,
as to which such counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder, (B) has no reason to believe that
(except for financial statements and schedules included therein and financial
and statistical data derived therefrom, as to which such counsel need not
express any belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and (C) has no reason to believe that (except for financial statements and
schedules included therein and financial and statistical data derived therefrom,
as to which such counsel need not express any belief) the Prospectus contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(xvi) to the best of such counsel's knowledge: (A) the
Registration Statement has become effective under the Securities Act, no stop
order proceedings with respect thereto have been instituted or are pending or
threatened under the Securities Act and nothing has come to such counsel's
attention to lead it to believe that such proceedings are contemplated; and (B)
any required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been made in the manner and within the
time period required by Rule 424(b); and
(xvii) the Shares to be sold under this Agreement to the
Underwriters are duly authorized for listing on the Nasdaq National Market.
(d) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel
for the Underwriters, dated the Closing Date, covering the matters referred to
in Sections 5(c)(vii), 5(c)(viii), 5(c)(x) (but only as to the statements in the
Prospectus under "Description of Capital Stock" and "Underwriters"), and
5(c)(xv) above.
-12-
<PAGE> 13
With respect to Section 5(c)(xv) above, Cooley Godward LLP and
Wilson Sonsini Goodrich & Rosati, Professional Corporation may state that their
belief is based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and review
and discussion of the contents thereof, but are without independent check or
verification, except as specified.
The opinion of Cooley Godward LLP described in Section 5(c) above
shall be rendered to the Underwriters at the request of the Company and shall so
state therein.
(e) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters, from
Ernst & Young LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided, however, that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(f) The "lock-up" agreements, each substantially in the form
attached hereto as Exhibit A, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions of
shares of Common Stock or certain other securities, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing Date.
All of the agreements, opinions, certificates and letters
mentioned above or elsewhere in this Agreement shall be deemed in compliance
with the provisions hereof only if Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Underwriters, shall be reasonably
satisfied that they comply in form and scope.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the Additional
Shares and an opinion or opinions of Cooley Godward LLP in form and substance
reasonably satisfactory to Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Underwriters.
6. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four (4) signed copies of
the Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 10:00 a.m. New York City time on the business day next succeeding the date of
this Agreement and during the period mentioned in Section 6(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
-13-
<PAGE> 14
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus required
to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of counsel for
the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers (whose names
and addresses you will furnish to the Company) to which Shares may have been
sold by you on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the twelve-month
period ending June 30, 2000 that satisfies the provisions of Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder.
(f) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Shares under the Securities Act and all other fees or expenses
in connection with the preparation and filing of the Registration Statement, any
preliminary prospectus, the Prospectus and amendments and supplements to any of
the foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 6(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to
-14-
<PAGE> 15
the Underwriters incurred in connection with the review and qualification of the
offering of the Shares by the National Association of Securities Dealers, Inc.
(the "NASD"), (v) all fees and expenses in connection with the preparation and
filing of the registration statement on Form 8-A relating to the Common Stock
and all costs and expenses incident to listing the Shares on the Nasdaq National
Market, (vi) the cost of printing certificates representing the Shares, (vii)
the costs and charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the production
of road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, (ix) all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program, and (x) all other
costs and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section 7 entitled
"Indemnity and Contribution," and the last paragraph of Section 9 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock transfer taxes payable on resale of any of
the Shares by them and any advertising expenses connected with any offers they
may make.
(g) That in connection with the Directed Share Program, the
Company will ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer, assignment, pledge
or hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Morgan Stanley will notify the
Company as to which Participants will need to be so restricted. The Company will
direct the transfer agent to place stop transfer restrictions upon such
securities for such period of time.
Furthermore, the Company covenants with Morgan Stanley that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
7. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not
-15-
<PAGE> 16
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
(b) The Company agrees to indemnify and hold harmless Morgan
Stanley and each person, if any, who controls Morgan Stanley within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
("MORGAN STANLEY ENTITIES"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in the prospectus wrapper material
prepared by or with the consent of the Company for distribution in foreign
jurisdictions in connection with the Directed Share Program attached to the
Prospectus or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein, when considered in conjunction with the
Prospectus or any applicable preliminary prospectus, not misleading; (ii) caused
by the failure of any Participant to pay for and accept delivery of the shares
which, immediately following the effectiveness of the Registration Statement,
were subject to a properly confirmed agreement to purchase; or (iii) related to,
arising out of, or in connection with the Directed Share Program, provided that,
the Company shall not be responsible under this subparagraph (iii) for any
losses, claim, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Morgan Stanley Entities.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 7(a) or 7(c), such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same
-16-
<PAGE> 17
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party shall not, in respect
of the legal expenses of any indemnified party in connection with any proceeding
or related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all such indemnified parties and that all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
Morgan Stanley, in the case of parties indemnified pursuant to Section 7(a), and
by the Company, in the case of parties indemnified pursuant to Section 7(c). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding. Notwithstanding
anything contained herein to the contrary, if indemnity may be sought pursuant
to Section 7(b) hereof in respect of such action or proceeding, then in addition
to such separate firm for the indemnified parties, the indemnifying party shall
be liable for the reasonable fees and expenses of not more than one separate
firm (in addition to any local counsel) for Morgan Stanley for the defense of
any losses, claims, damages and liabilities arising out of the Directed Share
Program, and all persons, if any, who control Morgan Stanley within the meaning
of either Section 15 of the Act or Section 20 of the Exchange Act.
(e) To the extent the indemnification provided for in Section
7(a), 7(b) or 7(c) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(e)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(e)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
-17-
<PAGE> 18
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(f) The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 7(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
8. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
-18-
<PAGE> 19
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
number of Shares without the written consent of such Underwriter. If, on the
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option (i) to
terminate their obligation hereunder to purchase Additional Shares or (ii) to
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-
-19-
<PAGE> 20
of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
-20-
<PAGE> 21
12. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
ASK JEEVES, INC.
By:
-------------------------------------
Robert W. Wrubel
President and Chief Executive Officer
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
------------------------------------
Name:
Title:
<PAGE> 22
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES TO BE
UNDERWRITER PURCHASED
----------- ----------------------
<S> <C>
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
--------------
Total...... ==============
</TABLE>
<PAGE> 23
EXHIBIT A
LOCK-UP AGREEMENT
April ___, 1999
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") proposes to enter into an Underwriting Agreement (the
"UNDERWRITING AGREEMENT") with Ask Jeeves, Inc., a Delaware corporation (the
"COMPANY"), providing for the initial public offering (the "PUBLIC OFFERING") by
the several Underwriters, including Morgan Stanley (the "UNDERWRITERS"), of
shares (the "SHARES") of Common Stock, par value $.001 per share, of the Company
(the "COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "PROSPECTUS"), (1) offer, pledge, 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, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement, (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering or (c)
transfers by gift or distributions by a partnership to its partners, provided,
however, that in any such case, it shall be a condition to the transfer that the
transferee execute an agreement stating that the transferee is receiving and
holding the Shares subject to the provisions of this agreement, and there shall
be no further transfer of such Shares except in accordance with this agreement.
In addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
----------------------------------------
(Name)
----------------------------------------
(Address)
<PAGE> 24
_______________ SHARES(1)
ASK JEEVES, INC.
COMMON STOCK, PAR VALUE $0.001 PER SHARE
UNDERWRITING AGREEMENT
__________, 1999
<PAGE> 1
Exhibit 4.2
[LOGO]
COMMON STOCK COMMON STOCK
ASK JEEVES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 045174 10 9
NEW YORK, N.Y. OR BOSTON, MA SEE REVERSE FOR
CERTAIN DEFINITIONS
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $0.001 PER SHARE, OF
ASK JEEVES, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar. Witness the facsimile seal of
said Corporation and the facsimile signatures of its duly authorized officers.
Dated:
/s/ AMY SLATER [SEAL] /s/ ROBERT W. WRUBEL
SECRETARY PRESIDENT AND CHIEF EXECUTIVE
OFFICER
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
June 2, 1999
Ask Jeeves, Inc.
918 Parker Street
Berkeley, CA 94710
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Ask Jeeves, Inc. (the "Company") of a Registration Statement
on Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission"), covering an underwritten public offering of up
to 3,000,000 (plus up to 450,000 additional shares of Common Stock for which
the underwriters have been granted an over allotment option) shares of the
Company's common stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and Bylaws and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable to render
the opinion expressed below and (ii) assumed that the shares of the Common
Stock will be sold by the underwriters at a price established by the Pricing
Committee of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ ANDREI M. MANOLIU
----------------------------
Andrei M. Manoliu
<PAGE> 1
EXHIBIT 10.3.2
ASK JEEVES, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED APRIL 16, 1999
AMENDED MAY 21, 1999
APPROVED BY STOCKHOLDERS JUNE __, 1999
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options and (iii) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Ask Jeeves, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
1.
<PAGE> 2
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
2.
<PAGE> 3
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
security exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provision of the Section 25100(o) of the California
Corporate Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this Ask Jeeves, Inc. 1999 Equity Incentive Plan.
3.
<PAGE> 4
(z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section
12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
4.
<PAGE> 5
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to
a Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED.
At such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate two million one hundred
twenty-five thousand (2,125,000) shares of Common Stock, plus an annual increase
to be added on the day of each Annual Stockholders Meeting beginning with the
Annual Stockholders Meeting in 2000, equal to the lesser of (i) five percent
(5%) of the total number of shares of Common Stock outstanding on such date,
(ii) two million two hundred fifty thousand (2,250,000) shares, or (iii) such
smaller number of shares as determined by the Board.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5.
<PAGE> 6
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(M) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than five hundred thousand
(500,000) shares of the Common Stock during any calendar year.
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
6.
<PAGE> 7
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be
7.
<PAGE> 8
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's
8.
<PAGE> 9
Continuous Service for a reason other than death, then the Option may be
exercised (to the extent the Optionholder was entitled to exercise such Option
as of the date of death) by the Optionholder's estate, by a person who acquired
the right to exercise the Option by bequest or inheritance or by a person
designated to exercise the option upon the Optionholder's death pursuant to
subsection 6(e) or 6(f), but only within the period ending on the earlier of (1)
the date twelve (12) months following the date of death (or such longer or
shorter period specified in the Option Agreement) or (2) the expiration of the
term of such Option as set forth in the Option Agreement. If, after death, the
Option is not exercised within the time specified herein, the Option shall
terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.
(m) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option shall be subject to the same exercise price and
term provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
9.
<PAGE> 10
7. PROVISIONS OF RESTRICTED STOCK AWARDS.
Each restricted stock purchase agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. The terms
and conditions of the restricted stock purchase agreements may change from time
to time, and the terms and conditions of separate restricted stock purchase
agreements need not be identical, but each restricted stock purchase agreement
shall include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(b) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to the restricted stock purchase agreement shall be paid either: (i) in cash at
the time of purchase; (ii) at the discretion of the Board, according to a
deferred payment or other similar arrangement with the Participant; or (iii) in
any other form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in Delaware, then payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(c) VESTING. Shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(d) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(e) TRANSFERABILITY. Rights to acquire shares under the restricted stock
purchase agreement shall be transferable by the Participant only upon such terms
and conditions as are set forth in the restricted stock purchase agreement, as
the Board shall determine in its discretion, so long as Common Stock awarded
under the restricted stock purchase agreement remains subject to the terms of
the restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be
10.
<PAGE> 11
required to grant Stock Awards and to issue and sell shares of Common Stock upon
exercise of the Stock Awards; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Stock
Award or any Common Stock issued or issuable pursuant to any such Stock Award.
If, after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of Common Stock under the Plan,
the Company shall be relieved from any liability for failure to issue and sell
Common Stock upon exercise of such Stock Awards unless and until such authority
is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances
11.
<PAGE> 12
satisfactory to the Company as to the Participant's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award; and (ii) to give written assurances satisfactory to
the Company stating that the Participant is acquiring Common Stock subject to
the Stock Award for the Participant's own account and not with any present
intention of selling or otherwise distributing the Common Stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares of Common Stock upon the
exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act or (iv) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
12.
<PAGE> 13
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar stock
awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(c)) for those
outstanding under the Plan. In the event any surviving corporation or acquiring
corporation refuses to assume or continue such Stock Awards or to substitute
similar stock awards for those outstanding under the Plan, then with respect to
Stock Awards held by Participants whose Continuous Service has not terminated,
the vesting of such Stock Awards (and, if applicable, the time during which such
Stock Awards may be exercised) shall be accelerated in full, and the Stock
Awards shall terminate if not exercised (if applicable) by a time established by
the Board at or following the occurrence of such event. With respect to any
other Stock Awards outstanding under the Plan, such Stock Awards shall terminate
if not exercised (if applicable) at or prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
13.
<PAGE> 14
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect, except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the Listing Date, but no Stock Award
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
14.
<PAGE> 1
EXHIBIT 10.5.2
ASK JEEVES, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON APRIL 16, 1999
AMENDED MAY 21, 1999
APPROVED BY THE STOCKHOLDERS ON JUNE __, 1999
TERMINATION DATE: APRIL 15, 2019
1. PURPOSE.
(a) The purpose of this Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of Ask Jeeves, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of its employees, to secure and retain the services of new employees,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of
the Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
1
<PAGE> 2
(ii) To designate from time to time which Affiliates of
the Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
(c) The Board may delegate administration of the Plan to a
Committee composed of one (1) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(d) Any interpretation of the Plan by the Board of any decision
made by it under the Plan shall be final and binding on all persons.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to rights
granted under the Plan shall not exceed in the aggregate four hundred thousand
(400,000) shares of the Company's common stock (the "Common Stock"), plus an
annual increase to be added on the day of each Annual Stockholders Meeting
beginning with the Annual Stockholders Meeting in 2000 equal to the least of (i)
three hundred thousand (300,000) shares, (ii) one-half of one percent (0.5%) of
the total number of shares of Common Stock outstanding on such date, or (iii)
such smaller number of shares as determined by the Board. If any right granted
under the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for the
Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
2
<PAGE> 3
(a) The Board or the Committee may from time to time grant or
provide for the grant of rights to purchase Common Stock of the Company under
the Plan to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one (1) right outstanding under
the Plan, unless he or she otherwise indicates in agreements or notices
delivered hereunder, a right with a lower exercise price (or an earlier-granted
right if two (2) rights have identical exercise prices), will be exercised to
the fullest possible extent before a right with a higher exercise price (or a
later-granted right if two (2) rights have identical exercise prices) will be
exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as
the Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall have
the same characteristics as any rights originally granted under that Offering,
as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
3
<PAGE> 4
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such employee
owns stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any employee, and stock which
such employee may purchase under all outstanding rights and options shall be
treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan
only if such rights, together with any other rights granted under "employee
stock purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan; provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one (1) or more dates during an Offering
(the "Purchase Date(s)") on which rights granted under the Plan shall be
exercised and purchases of Common Stock carried out in accordance with such
Offering.
(b) In connection with each Offering made under the Plan, the
Board or the Committee may specify a maximum number of shares that may be
purchased by any employee as well as a maximum aggregate number of shares that
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering that contains
4
<PAGE> 5
more than one (1) Purchase Date, the Board or the Committee may specify a
maximum aggregate number of shares which may be purchased by all eligible
employees on any given Purchase Date under the Offering. If the aggregate
purchase of shares upon exercise of rights granted under the Offering would
exceed any such maximum aggregate number, the Board or the Committee shall make
a pro rata allocation of the shares available in as nearly a uniform manner as
shall be practicable and as it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights
granted under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan
pursuant to an Offering by delivering an enrollment agreement to the Company
within the time specified in the Offering, in such form as the Company provides.
Each such agreement shall authorize payroll deductions of up to the maximum
percentage specified by the Board or the Committee of such employee's Earnings
during the Offering. "Earnings" is defined as an employee's regular salary or
wages (including amounts thereof elected to be deferred by the employee, that
would otherwise have been paid, under any arrangement established by the Company
that is intended to comply with Section 125, Section 401(k), Section 402(e)(3),
Section 402(h) or section 403(b) of the Code, and also including any deferrals
under a non-qualified deferred compensation plan or arrangement established by
the Company), and also, if determined by the Board or the Committee and set
forth in the terms of the Offering, may include any or all of the following: (i)
overtime pay, (ii) commissions, (iii) bonuses, incentive pay, profit sharing and
other remuneration paid directly to the employee, and/or (iv) other items of
remuneration not specifically excluded pursuant to the Plan. Earnings shall not
include the cost of employee benefits paid for by the Company or an Affiliate,
education or tuition reimbursements, imputed income arising under any group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company or an Affiliate under any employee benefit plan, and similar
items of compensation, as determined by the Board or the Committee.
Notwithstanding the foregoing, the Board or Committee may modify the definition
of "Earnings" with respect to one or more Offerings as the Board or Committee
determines appropriate. The payroll deductions made for each participant shall
be credited to an account for such participant under the Plan and shall be
deposited with the general funds of the Company. A participant may reduce
(including to zero) or increase such payroll deductions, and an eligible
employee may begin such payroll deductions, after the beginning of any Offering
only as provided for in the Offering. A participant may make additional payments
into his or her account only if specifically provided
5
<PAGE> 6
for in the Offering and only if the participant has not had the maximum amount
withheld during the Offering.
(b) At any time during an Offering, a participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new enrollment agreement in order to
participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant
Offering, each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional shares shall be issued upon the exercise of rights
granted under the Plan. The amount, if any, of accumulated payroll deductions
remaining in each participant's account after the purchase of shares which is
less than the amount required to purchase one share of Common Stock on the final
Purchase Date of an Offering shall be held in each such participant's account
for the purchase of shares under the next Offering under the Plan, unless such
participant withdraws from such next Offering, as provided in subparagraph 7(b),
or is no longer eligible to be granted rights under the Plan, as provided in
paragraph 5, in which case such amount shall be distributed to the participant
after such final Purchase Date, without interest. The amount, if any, of
accumulated payroll deductions remaining in any participant's account after the
purchase of shares which is equal to the amount required to purchase one or more
whole shares of Common
6
<PAGE> 7
Stock on the final Purchase Date of an Offering shall be distributed in full to
the participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any
extent unless the shares to be issued upon such exercise under the Plan
(including rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act of 1933, as amended (the "Securities
Act") and the Plan is in material compliance with all applicable state, foreign
and other securities and other laws applicable to the Plan. If on a Purchase
Date in any Offering hereunder the Plan is not so registered or in such
compliance, no rights granted under the Plan or any Offering shall be exercised
on such Purchase Date, and the Purchase Date shall be delayed until the Plan is
subject to such an effective registration statement and such compliance, except
that the Purchase Date shall not be delayed more than twelve (12) months and the
Purchase Date shall in no event be more than twenty-seven (27) months from the
Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to
the maximum extent permissible, the Plan is not registered and in such
compliance, no rights granted under the Plan or any Offering shall be exercised
and all payroll deductions accumulated during the Offering (reduced to the
extent, if any, such deductions have been used to acquire stock) shall be
distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such rights.
(b) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell shares of stock upon
exercise of the rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such rights
unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company (or
its transfer agent).
7
<PAGE> 8
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a sale of all or substantially all of the assets of the Company;
(3) a merger or consolidation in which the Company is not the surviving
corporation; (4) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; (5) the acquisition by any
person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors; or (6) the individuals who, as of the date
of the adoption of this Plan, are members of the Board (the "Incumbent Board";
(if the election, or nomination for election by the Company's stockholders, of a
new director was approved by a vote of at least fifty percent (50%) of the
members of the Board then comprising the Incumbent Board, such new director
shall upon his or her election be considered a member of the Incumbent Board)
cease for any reason to constitute at least fifty percent (50%) of the Board;
then the Board in its sole discretion may take any action or arrange for the
taking of any action among the following: (i) any surviving or acquiring
corporation may assume outstanding rights or substitute similar rights for those
under the Plan, (ii) such rights may continue in full force and effect, or (iii)
all participants' accumulated payroll deductions may be used to purchase Common
Stock immediately prior to or within a reasonable period of time following the
transaction described above and the participants' rights under the ongoing
Offering terminated.
13. AMENDMENT OF THE PLAN OR OFFERINGS.
(a) The Board at any time, and from time to time, may amend the
Plan or the terms of one or more Offerings. However, except as provided in
paragraph 12 relating to adjustments upon changes in stock, no amendment shall
be effective unless approved by the
8
<PAGE> 9
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for rights
under the Plan;
(ii) Modify the provisions as to eligibility for
participation in the Plan or an Offering (to the extent such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act, or any comparable
successor rule ("Rule 16b-3"); or
(iii) Modify the Plan or an Offering in any other way if
such modification requires stockholder approval in order for the Plan to obtain
employee stock purchase plan treatment under Section 423 of the Code or to
comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan or an Offering in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under an Offering
into compliance therewith.
(b) The Board may, in its sole discretion, submit any amendment
to the Plan or an Offering for stockholder approval.
(c) Rights and obligations under any rights granted before
amendment of the Plan or Offering shall not be impaired by any amendment of the
Plan, except with the consent of the person to whom such rights were granted, or
except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under an
Offering comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if applicable, from the participant's
account under the Plan in the event of such participant's death subsequent to
the end of an Offering but prior to delivery to the participant of such shares
and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice in the form prescribed by the Company.
In the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living (or if an entity, is otherwise
in existence) at the time of such participant's death, the Company shall deliver
such shares and/or cash to the executor or administrator of the estate of the
participant, or
9
<PAGE> 10
if no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such shares and/or
cash to the spouse or to any one (1) or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may determine.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Plan shall automatically terminate on April 15, 2019.
Notwithstanding the foregoing, the Board in its discretion, may suspend or
terminate the Plan at any time prior to April 15, 2019. No rights may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under an Offering comply with the requirements of Section
423 of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the same day on which the Company's
registration statement under the Securities Act with respect to the initial
public offering of shares of the Company's Common Stock becomes effective (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan had been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
17. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
10
<PAGE> 1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.13
LICENSE AGREEMENT
BETWEEN
ASK JEEVES, INC. AND COMPAQ COMPUTER CORPORATION
THIS LICENSE AGREEMENT (the "Agreement") is made as of October 2, 1998 (the
"Effective Date") by and between ASK JEEVES, INC., a California corporation
("Ask Jeeves"), with its principal place of business at 918 Parker Street,
Berkeley, CA 94710 ("Ask Jeeves"), and COMPAQ COMPUTER CORPORATION ("Compaq"),
with its principal place of business at 20555 SH 249, Houston, TX 77070.
RECITALS
A. Ask Jeeves has developed and owns Internet navigation tools and
databases that simplify the process of locating information on the World
Wide Web through the use of a question and answer format (the
"Service").
B. Compaq owns and operates an Internet search engine known as Alta Vista
located at www.altavista.com ("Alta Vista").
C. Compaq would like to facilitate its users' ability to locate information
on the World Wide Web by integrating the Service into Alta Vista, and
Ask Jeeves desires to license the Service to Compaq on the terms and
conditions set forth below.
AGREEMENT
In consideration of the mutual covenants contained in this Agreement,
the parties agree as follows:
1. DEFINITIONS.
1.1 "AJ ANSWER LINK" means the specific instances of Answer
Templates contained in the Ask Jeeves Knowledgebase, excluding
AV Answer Links.
1.2 "AV ANSWER LINK" means the specific instances of Answer
Templates that are modified at the request of Compaq under the
conditions and procedures set forth in this Agreement.
1.3 "ALTA VISTA" means the search engine owned and operated by
Compaq located at www.altavista.com.
1.4 "ANNUAL PERIOD" means the twelve (12) month period beginning on
Launch Date and each twelve (12) month period thereafter
beginning on the anniversary date of the Launch Date. "Quarterly
Period" means one-quarter of an Annual Period.
1.5 "ANSWER LINK" means an AJ Answer Link or an AV Answer Link.
<PAGE> 2
1.6 "ANSWER LINK RELATIONSHIP" means an agreement with a third party
to provide it the privilege of being the destination of an
Answer Link (i.e., make their site the answer to an Ask Jeeves
Question) in return for compensation.
1.7 "ANSWER LINK REVENUE" means any monetary compensation paid by a
third party, as a result of being the Answer Link to an Ask
Jeeves Question. Answer Link Revenue will be calculated on a
gross basis, without deduction for sales commissions or other
sales expenses.
1.8 "ANSWER TEMPLATE" means the general form of answer scripts
stored in the Ask Jeeves Knowledgebase that when associated with
a specific Ask Jeeves Question and processed by the Question
Processing Engine forms a specific Answer Link.
1.9 "ASK JEEVES INTELLECTUAL PROPERTY" means the Software, the Ask
Jeeves Knowledgebase, the Ask Jeeves Questions, the Question
Processing Engine and all other intellectual property owned by
Ask Jeeves.
1.10 "ASK JEEVES KNOWLEDGEBASE" means the collection of Question
Templates and Answer Templates (and associated data structures)
that operates with the Question Processing Engine and is
currently used by Ask Jeeves in the service it operates at
www.askjeeves.com.
1.11 "ASK JEEVES QUESTION" means a specific instance of a Question
Template in the Ask Jeeves Knowledgebase, which the Service will
offer to its users to confirm the users' query. (For example, if
a user asks "Is it raining in Portland?" the Service will offer
the Ask Jeeves Question "What is the weather forecast for
Portland?" to confirm the user's question.)
1.12 "CLICK" means the return of an Answer Link from the Question
Processing Engine in response to the submittal of a selected Ask
Jeeves Question.
1.13 "CLICK RATE FEE" means the amount of money to be paid by Compaq
to Ask Jeeves for each Click.
1.14 "LAUNCH DATE" means the date the Service is first offered to
Compaq users on a regular, publicly available basis.
1.15 "NUMBER OF QUERIES" means the number of times users submit a new
search, resulting in a first results page that contains Ask
Jeeves questions.
1.16 "QUESTION PROCESSING ENGINE" means the proprietary, software
developed and owned by Ask Jeeves that allows users to pose
questions and be directed to appropriate web sites that answer
associated Ask Jeeves Questions.
1.17 "QUESTION TEMPLATE" means the general form of a question stored
in the Ask Jeeves Knowledgebase that when associated with a
specific user query and processed by the Question Processing
Engine forms one or more Ask Jeeves Questions.
1.18 "SERVICE" means the Ask Jeeves navigation service using the
Question Processing Engine and the Ask Jeeves Knowledgebase as
it will appear on and/or within Alta Vista.
1.19 "SOFTWARE" means the software and documentation provided to
Compaq by Ask Jeeves in connection with implementing the Service
on Alta Vista platforms meeting the technical specifications set
forth in Exhibit A.
2. DESCRIPTION OF THE SERVICE.
a. ASK JEEVES OBLIGATIONS.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2.
<PAGE> 3
(1) SERVICE AND KNOWLEDGEBASE. Ask Jeeves will provide
Compaq with the Software, the Ask Jeeves Knowledgebase
(and regular updates to the Ask Jeeves Knowledgebase)
and technical support as may be needed for Compaq to
implement the Service on Alta Vista.
(2) EDITORIAL CONTROL OF ASK JEEVES KNOWLEDGEBASE. Ask
Jeeves will define the content of the Ask Jeeves
Knowledgebase, including the determination of what
constitutes appropriate questions and answers. Compaq
may request that the Ask Jeeves Knowledgebase Answer
Templates be modified to link appropriate questions to
Compaq and Alta Vista's content and e-commerce partners
or to avoid links to Alta Vista's or Compaq's
competitors when other appropriate answers are
available. Such modified Assayer Links are referred to
as "AV Answer Links". Ask Jeeves and Compaq will
cooperate to develop a formal process to accept and
process AV Answer Links including reasonable limits on
the number of AV Answer Links processed in a given time
period and the amount of labor involved (including the
labor to maintain the AV Answer Links).
b. COMPAQ OBLIGATIONS. Compaq will configure and operate the
Service on Alta Vista. Compaq's operation of the Service on Alta
Vista will be done in a manner that does not reflect negatively
on Ask Jeeves or the functionality of the Service.
3. LICENSE
a. GRANT OF LICENSE. Upon receipt of the fees set forth in Section
4, below, and subject to the terms and conditions of this
Agreement, Ask Jeeves grants Compaq a non-exclusive,
non-sublicensable, worldwide, nontransferable, license for the
duration of this Agreement (including any extensions) to use,
reproduce, store, distribute and display the information, data,
content, Software or other intellectual property provided by Ask
Jeeves to Compaq, for the sole purpose of providing the Service.
Ask Jeeves further grants to Compaq a non-exclusive,
non-transferable worldwide license to publicly perform and
publicly display the Service or other intellectual property
provided by Ask Jeeves at trade shows, exhibitions, and to
prospective Customers, as long as such performance or display is
of the Service as implemented on Alta Vista.
b. LICENSE RESTRICTIONS. Except as specifically granted in this
Agreement, Ask Jeeves owns and retains all right, title and
interest in all information, data, content, software or other
intellectual property provided by Ask Jeeves to Compaq in
connection with the Service. This Agreement does not transfer
ownership rights of any description in Ask Jeeves' intellectual
property to Compaq or to any other third party. Compaq will
install, reproduce and render the Service operational only for
the purposes of implementing it on Alta Vista. Compaq agrees not
to modify, reverse engineer or decompile any intellectual
property of Ask Jeeves, or to intentionally create derivative
works based on such intellectual property. Compaq agrees not to
distribute the Service to any person or entity other than as
contemplated by this Agreement or to make any other use of the
Service. Compaq agrees to display Ask Jeeves' copyright and
trademark notices on the Software and Service as stated in
Section 11.b. "Copyright Notice" and to take other steps
necessary to protect Ask Jeeves' intellectual property rights as
specified within Section 12.2 "Confidentiality."
c. COMPAQ RIGHTS. Except as otherwise stated in this Agreement, Ask
Jeeves shall place no restrictions regarding (i) the placement
of the Ask Jeeves Questions (including but not limited to
follow-up questions) on Alta Vista and (ii) Ask Jeeves shall
have no rights within the banner advertising or other
advertising on Alta Vista.
4. PAYMENT. In consideration for providing the Service, Compaq will pay Ask
Jeeves as follows:
a. PER CLICK FEE.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
3.
<PAGE> 4
(1) for the first [*] Clicks per Annual Period, Compaq will
pay Ask Jeeves at a Click Rate Fee of [*] per Click:
(2) for all Clicks in excess of [*] per Annual Period,
Compaq will pay Ask Jeeves at a Click Rate Fee of [*]
per Click.
(3) In the event that the actual number of Clicks exceeds
the actual Number of Queries in any given calendar
month, then Ask Jeeves will be paid based on the actual
Number of Queries that month.
b. MINIMUM FEE PAYMENT. Compaq will pay Ask Jeeves a "Minimum Fee"
of [*] per Quarterly Period, with the first payment to be made
no later than two (2) weeks after the Launch Date and the
subsequent payments to be made on the first day of each
Quarterly Period thereafter. If the Click Rate Fee in any
Quarterly Period exceeds the Minimum Fee, Compaq will pay the
excess amount to Ask Jeeves within forty-five (45) days of the
end of such Quarterly Period. If the Click Rate Fee in any
Quarterly Period is less than the Minimum Fee, Ask Jeeves will
retain the entire Minimum Fee, without refund or credit to
Compaq. Provided, however, that the Minimum Fee may be adjusted
on a calendar prorated basis as set forth in subsection 4.f.,
below.
c. ANSWER LINK REVENUES. In addition to the payments described in
2.a and 2.b., above. Compaq and Ask Jeeves agree that they will
share in any Answer Link Revenue which may occur as follows:
(1) for all Answer Link Revenue resulting from Answer Link
Relationships established by Compaq, Compaq will retain
[*] percent [*] of such Answer Link Revenues and will
pay Ask Jeeves the remaining [*] percent [*];
(2) for all Answer Link Revenues resulting from Answer Link
Relationships established by Ask Jeeves, Ask Jeeves will
retain [*] percent [*] of the Answer Link Revenues and
will pay Compaq the remaining [*] percent [*].
(3) In the case where one party receives a monetary benefit
that is not easily calculated as Answer Link Revenue,
the parties will compensate each other based on a
compensation method jointly determined by the parties.
(4) Compaq shall have the right to market and establish
Answer Link Relationships associated with AV Answer
Links and Ask Jeeves shaft have the right to market and
establish Answer Link Relationships associated with AJ
Answer Links. Either party may assign the other the
right to market and establish Answer Link Relationships
associated with a specified portion of its Answer Links.
d. TAXES. All fees and payments stated herein exclude, and the
party receiving payment shall pay, any sales, use, property,
license, value added, withholding, excise or similar tax,
federal, state or local, related to the parties' performance of
its obligations or exercise of its rights under this Agreement
and any related duties, tariffs, imposts and similar charges,
exclusive of taxes based on the paying party's net income.
e. AUDIT RIGHTS. Each party agrees that it will keep, for a minimum
of two (2) years, proper records and books of account relating
to its activities under this Agreement. Once every twelve (12)
months, either party may inspect the accounting records of the
other party to verify, reports and/or payment amounts. Any such
inspection will be conducted in a manner that does not
unreasonably interfere with the inspected party's business
activities. Such inspection shall be performed by an independent
accounting firm chosen and compensated by the requesting party,
for purposes of audit. Such accounting firm shall be required to
sign an agreement protecting the party's confidential
information and shall be authorized to report only the amount of
royalties due and
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
4.
<PAGE> 5
payable for the period requested. The inspected party shall
immediately make any overdue payments disclosed by the audit.
Such inspection shall be at the inspecting party's expense;
however, if the audit reveals overdue payments in excess of [*]
of the payments owed to date, the inspected party shall
immediately pay the cost of such audit, and the inspecting
party, may conduct another audit during the same twelve (12)
month period. Each party shall upon written request, during
normal business hours, but not more frequently than once each
calendar year, provide access to such accounting records.
f. ADJUSTMENT TO PAYMENTS
In the event that the Software licensed under this Agreement
encounters problems with scalability or other functional
problems that render the Software not viable to Compaq, and Ask
Jeeves is unable to correct such problems after written notice
and the opportunity to cure as set forth in Section 5.b (2),
than Compaq may terminate this Agreement and adjust on a
prorated calendar basis the Minimum Fees payable to Ask Jeeves.
5. TERM AND TERMINATION.
a. TERM. The term (the "Term") of the Agreement is two (2) years
from the Effective Date. The Agreement will renew automatically
for additional one (1) year terms (a "Renewal Term") unless
either party notifies the other m writing at least ninety (90)
days before the expiration of the Term or any Renewal Term of
its desire to terminate the Agreement.
b. TERMINATION. Either party, as applicable, has the right, in
addition and without prejudice to any other rights or remedies,
to terminate this Agreement as follows:
(1) By Compaq as set forth in Section 4.f. above.
(2) By either party, upon thirty (30) days written notice,
in the event that the either party fails to pay the
amounts due to the other party, pursuant to this
Agreement;
(3) By either party, for any material breach of this
Agreement, other than the failure to make payments under
this Agreement, that is not cured within sixty (60) days
of receipt by the party in default of a written notice
specifying the breach and requiring its cure;
(4) By either party, immediately upon receiving written
notice, if (a) all or a substantial portion of the
assets of the other party are transferred to an assignee
for the benefit of creditors, or to a receiver or a
trustee in bankruptcy, (b) a proceeding is commenced by
or against the other party for relief under bankruptcy
or similar laws and such proceeding is not dismissed
within sixty (60) days, or (c) the other party is
adjudged bankrupt.
c. ASK JEEVES RIGHTS ON TERMINATION. On termination, (a) all rights
granted to Compaq under this Agreement cease and Compaq agrees
to use all commercially reasonable efforts, which shall in no
event extend for more than one (1) week from the date of
termination, to cease all use and reproduction of the Ask Jeeves
Intellectual Property, and (b) Compaq will promptly return all
copies of the Ask Jeeves Intellectual Property to Ask Jeeves, or
destroy all copies in its possession. Ask Jeeves has and
reserves all rights and remedies that it has by operation of law
or otherwise to enjoin the unlawful or unauthorized use of the
Ask Jeeves Intellectual Property.
d. COMPAQ RIGHTS ON TERMINATION
(1) Ask Jeeves shall grant Compaq a fully paid up,
irrevocable, worldwide license to the Software in the
event that Compaq terminates this Agreement pursuant to
Section 5.b (4), above, and that Ask Jeeves, or a
trustee or receiver for Ask Jeeves, does not assume this
Agreement in the bankruptcy proceeding, with no
modification to existing terms. This license grant shall
not grant any right to future maintenance, upgrades,
enhancements or fixes.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
5.
<PAGE> 6
(2) Upon material breach by Ask Jeeves, Compaq shall have
the right, at no additional cost, to continue to provide
the Service on Alta Vista until the earlier to occur of
(i) Compaq securing a replacement technology or (ii)
ninety (90) days.
e. SURVIVAL FOLLOWING TERMINATION. Sections 4, 5, 8, 9, 10 and 12
will survive termination or expiration of this Agreement. In
addition, provisions of this Agreement which, by their nature,
are intended to remain in effect beyond the termination or
expiration of this Agreement, shall survive its termination or
expiration.
6. MAINTENANCE, UPGRADES AND SUPPORT. Ask Jeeves will provide maintenance
and support for the Service as follows:
a. MAINTENANCE. Ask Jeeves will provide bug fixes for the Software
and the Ask Jeeves Knowledgebase at no additional cost to
Compaq. Non-bug fix support and changes specifically requested
by Compaq for use in connection with the Service may be charged
by Ask Jeeves to Compaq at the then current Ask Jeeves' standard
rates.
b. UPGRADES. For a period of time coterminous with this Agreement
and consistent with Ask Jeeves standard distribution practices,
Ask Jeeves will provide Compaq with periodic upgrades,
enhancements, modifications, versions to the Software and the
Ask Jeeves Knowledgebase (including beta versions, if
appropriate at no additional cost to Compaq. The periodic
upgrades, enhancements, modifications, versions shall
automatically become part of the licensed Software for purposes
of this Agreement. The rights to, said upgrades, enhancements,
modifications, versions shall remain with Ask Jeeves, and
provided however, that said rights shall not exceed the granting
party's ability to grant such rights.
c. TECHNICAL SUPPORT. Ask Jeeves will provide Compaq with standard
technical support during normal business hours. Ask Jeeves
technical support will be available through pager contact on a
24x7 basis in the event of a major software failure. Ask Jeeves
will work with Compaq as it relates to a catastrophic failure,
or to correct software failures or errors that prevent the
Software from functioning, on the following basis:
(1) Severity 1 - catastrophic failure, an emergency,
condition that causes critical impact and that makes the
performance or continued performance of any one or more
functions impossible. Ask Jeeves will use its best
efforts to resolve technical issues of Severity 1 within
twenty-four hours and will develop and communicate to
Compaq a resolution plan within twenty-four hours.
(2) Severity 2 - is a condition which significantly affects
and makes the performance or continued performance of
any one or more functions difficult and which cannot be
circumvented or avoid on a temporary basis by the user.
Ask Jeeves will use its best efforts to resolve
technical issues of Severity 2 within seventy-two hours
and will develop and communicate to Compaq a resolution
plan within seventy-two hours.
7. REPORTS AND REPORTING. Ask Jeeves will provide Compaq with user log
analysis tools that will allow Compaq to determine the number of
questions asked and answered in a given period as well as determine the
number of times a given Answer Template was selected (by both total
count and percentage.) Alta Vista will, on a weekly basis, provide Ask
Jeeves with copies of its Service user logs for Ask Jeeves' internal
use.
8. INFRINGEMENT INDEMNITY BY ASK JEEVES. Ask Jeeves agrees to indemnify,
defend and hold Compaq harmless from and against any claims, actions or
demands alleging that all or any part of the Ask Jeeves Intellectual
Property infringes any United States patent, copyright, trademark, or
other United States intellectual property right of a third party. If use
of the Ask Jeeves Intellectual Property is permanently enjoined for any
reason, Ask Jeeves, at Ask Jeeves' option, and in its sole discretion,
may (a) modify the
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
6.
<PAGE> 7
Ask Jeeves Intellectual Property so as to avoid infringement; (b)
procure the right for Compaq to continue to use and reproduce the
Service; or (c) terminate this Agreement, in which case Compaq shall be
given a refund of all Minimum Fees actually paid to the date of
termination as its sole and exclusive remedy. Ask Jeeves shall have no
obligation under this Section 8 for or with respect to claims, actions
or demands alleging infringement that arise solely as a result of (i)
the combination of noninfringing items supplied by Ask Jeeves with any
items not supplied by Ask Jeeves, (ii) modification of the Ask Jeeves
Intellectual Property by Compaq or without the authorization or consent
of Ask Jeeves, or (iii) continued alleging infringing activity by Compaq
after Compaq has been notified Ask Jeeves' decision to terminate under
subsection 8 (c), above.
9. OTHER INDEMNITY. Each party (the "Indemnifying Party") shall indemnify
the other party (the "Indemnified Party") against any and all claims,
losses, costs and expenses, including reasonable attorneys' fees, which
the Indemnified Party may incur as a result of claims in any form by
third parties arising from: (a) the Indemnifying Party's acts, omissions
or misrepresentations, or (b) the violation of any third party
proprietary right by the Indemnifying Party's domain name, software or
any content provided by the Indemnifying Party for use on the
Indemnified Party's servers. The Indemnified Party shall (i) give the
Indemnifying Party notice of the relevant claim, (ii) cooperate with the
Indemnifying Party, at the Indemnifying Party's expense, in the defense
of such claim, and (iii) give the Indemnifying Party the right to
control the defense and settlement of any such claim, except that the
Indemnifying Party shall not enter into any settlement that affects the
Indemnified Party's rights or interest without the Indemnified Party's
prior written approval. The Indemnified Party shall have the right to
participate in the defense at its expense.
10. WARRANTIES, DISCLAIMER AND LIMITATIONS.
a. WARRANTY. Ask Jeeves warrants that (a) it holds the necessary
rights to provide and permit the use of the Service (b when the
Service is delivered to Compaq, it will be of substantially the
same quality as the service operated by Ask Jeeves at
askjeeves.com; (c) the media containing the Software will be
free from defects for a period of thirty (30) days from the date
of delivery to Compaq, provided that this warranty does not
cover defects due to Compaq's misuse of the media or an accident
subsequent to delivery, to Compaq; and (d) it has not made and
will not make any commitments to any third party inconsistent
with or in derogation of the rights and licenses granted to
Compaq and that it is free of any obligation that would prevent
it from entering into this Agreement.
b. DISCLAIMER. THE WARRANTIES SET FORTH IN SECTION 10.a. ARE IN
LIEU OF, AND THIS AGREEMENT EXPRESSLY EXCLUDES, ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, INCLUDING
WITHOUT LIMITATION, (a) ANY WARRANTY THAT THE SOFTWARE IS
ERROR-FREE, WILL OPERATE WITHOUT INTERRUPTION, OR IS COMPATIBLE
WITH ALL EQUIPMENT OR SOFTWARE CONFIGURATIONS; (b) ANY AND ALL
IMPLIED WARRANTIES OF MERCHANTABILITY; AND (c) ANY AND ALL
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE.
c. LIMITATION ON LIABILITY. EXCEPT IN THE EVENT OF A BREACH OF A
LICENSE GRANT BY LICENSEE, NEITHER PARTY SHALL BE LIABLE FOR
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS
(HOWEVER ARISING, INCLUDING NEGLIGENCE) ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT. EXCEPT IN THE EVENT OF A BREACH
OF A LICENSE GRANT, A FAILURE TO PAY FEES, OR AN INDEMNITY
CLAIM, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY IN AN AMOUNT GREATER THAN THE AMOUNTS ACTUALLY PAID BY
COMPAQ TO ASK JEEVES UNDER THIS AGREEMENT.
11. PROMOTION, PUBLICITY AND COPYRIGHT NOTICE.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
7.
<PAGE> 8
a. PROMOTION ON ALTA VISTA. Compaq agrees that it will place a
Question Answering Powered by Ask Jeeves," "Question Answering
Technology by Ask Jeeves," "Question Answering by Ask Jeeves" or
other reference mutually agreed upon by. the parties on the
results page of the Service. Compaq will have control over the
placement, size, font, and color of the reference. However,
Compaq agrees that the reference will be clearly readable to an
average consumer user.
b. COPYRIGHT NOTICE. Compaq also agrees to place "Question and
Answer Templates copyrighted by Ask Jeeves, Inc., 1996-98, all
rights reserved" notice on its copyright notice page in a manner
similar to the other copyright notices on that page. In no event
shall the notice "Question and Answer Templates copyrighted by
Ask Jeeves" be more prominately displayed that that of the
Compaq or Alta Vista copyright notices.
c. PRESS RELEASES. The parties may issue press releases announcing
the Service. The parties agree that any such press releases
shall acknowledge that the Service is based on technology
licensed from Ask Jeeves. Each party, agrees to obtain the
permission of the other, which shall not be unreasonably
withheld, BEFORE RELEASING PRESS RELEASES OR OTHER FORMS OF
PROMOTION THAT MENTION THE OTHER IN REGARDS TO THIS AGREEMENT,
except that each party may use specific information previously
approved for public release by the other, without further
approval. Neither party shall disclose the terms and conditions
of this Agreement to any, third party, including, but not
limited to, any information relating to the royalties or fees
paid by Compaq to Licensor pursuant to this Agreement. except as
required by law.
12. GENERAL PROVISIONS.
12.1 GOVERNING LAW. This Agreement will be governed and construed in
accordance with the laws of the State of New York without giving
effect to conflict of laws principles. Both parties agree that
the Agreement shall be interpreted as if the actions within the
Agreement where performed within the State of New York.
12.2 CONFIDENTIALITY. All disclosures of proprietary and/or
confidential information in connection with this Agreement or
the transaction contemplated by this Agreement shall be governed
by the terms of the Corporate Disclosure Agreement previously
executed by the parties, a copy of which is attached as Exhibit
B to this Agreement.
12.3 ASSIGNMENT. Neither party may assign this Agreement, or any part
of this Agreement, without the prior written consent of the
other party., except that this Agreement may be assigned by
either party, without the other party's consent, to an entity
acquiring all or substantially all of the outstanding shares of
the assigning party's stock or all or substantially all of the
assigning party's assets.
A further exception to the above shall be as it regards Alta
Vista and the Alta Vista Division within Compaq. In the event
that there is a restructuring of the current Alta Vista Division
within the Compaq Consumer Products Group, and such
restructuring would effect a change of control of the assets
within the Division or a change including but not limited to
creation of a Subsidiary, to which Compaq will sell transfer or
assign the majority of the assets of the Alta Vista Division,
including Alta Vista, then Compaq shall have no limitation
placed on it and it may assign all rights and obligations within
this Agreement, without prior written consent of Ask Jeeves.
12.4 SEVERABILITY; HEADINGS. If any provision herein is held to be
invalid or unenforceable for any reason, the remaining
provisions will continue in full force without being impaired or
invalidated in any way. Headings are for reference purposes only
and in no way define, limit, construe or describe the scope or
extent of such section.
12.5 FORCE MAJEURE. If performance hereunder is prevented, restricted
or interfered with by any act or condition whatsoever beyond the
reasonable control of a party, the party, so affected, upon
giving
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
8.
<PAGE> 9
prompt notice to the other party, shall be excused from such
performance to the extent of such prevention, restriction or
interference.
12.6 INDEPENDENT CONTRACTORS. The parties are independent
contractors, and no agency, partnership, joint venture,
employee-employer or franchisor-franchisee relationship is
intended or created by this Agreement. Neither party shall make
any warranties or representations on behalf of the other party.
12.7 COMPLIANCE WITH LAWS. At its own expense, each party shall
comply with all applicable laws, regulations, rules, ordinances
and orders regarding its activities related to this Agreement.
12.8 NOTICE. Any notices hereunder shall be given to the appropriate
party, at the following addresses or at such other address as
the party shall specify, in writing.
For Ask Jeeves: For Compaq:
Ask Jeeves, Inc. Compaq Computer Corporation
918 Parker Street 20555 SH 249
Berkeley, CA 94710 Houston, TX 77070
Attn: Robert Wrubel, President Attn: Law Department
Notice shall be deemed given: upon personal delivery; if sent by
fax, upon confirmation of receipt; or if sent by certified or
registered mail, postage prepaid, 5 days after the date of
mailing.
12.9 ENTIRE AGREEMENT, AMENDMENT AND WAIVER. This Agreement sets
forth the entire understanding and agreement of the parties, and
supersedes any and all oral or written agreements or
understandings between the parties, as to the subject matter of
this Agreement. It may be changed only by a writing signed by
both parties. The waiver of a breach of any provision of this
Agreement will not operate or be interpreted as a waiver of any
other or subsequent breach.
12.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which together constitute one and the same agreement. A
facsimile copy of this Agreement, including the signature pages,
will be deemed to be an original.
IN WITNESS WHEREOF, ASK JEEVES, INC. and COMPAQ COMPUTER CORPORATION have
executed this License Agreement as of the Effective Date.
ASK JEEVES, INC. COMPAQ COMPUTER CORPORATION
By: /s/ R. W. Wrubel By: /s/ Kurt Losart
-------------------------------- ---------------------------------
Name: R. W. Wrubel Name: Kurt Losart
------------------------------- ------------------------------
Title: President Title: VP, Internet Services
------------------------------ ------------------------------
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
9.
<PAGE> 10
EXHIBIT A
SYSTEMS REQUIREMENTS
The Ask Jeeves software requires the following software environment:
- Windows NT Server 4.0 operating system, with Service Pack 3
installed
Ask Jeeves is compiled to run on Intel CPUs, and has been deployed on both
single and dual processer systems. Minimum system requirements are:
- 400MHz Intel Pentium II processor (dual 400 MHz or faster
processors recommended)
- 256 MB RAM
- 2GB Hard Disk
- Fast Ethernet Hardware (PCI bus or other fast bus)
The QPE runs as a Windows NT service. The QPE is accessed using a TCP/IP sockets
interface.
The Ask Jeeves knowledge base resides in two components. The Question Template
set (which includes the Semantic and Syntactic Networks) resides in a set of 9
files, which are memory mapped and highly optimized for fast, efficient run time
performance. The Answer Template set (that is, the set of URLs - and other
answers - to which the Question Template set points) resides in several SQL
Server tables.
It is important to note that the Ask Jeeves servers are essentially read-only
systems. To handle increased traffic, one need only add additional servers. The
separate Ask Jeeves systems do not interact (except for accessing a common User
Log), so they are highly scalable, and ultimately limited in the number of users
they can service by external factors such as the speed of the Internet
connection.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
10.
<PAGE> 11
EXHIBIT B
CORPORATE NONDISCLOSURE (PAUL, LAST WORD IS CUT OFF FROM PAPER)
Effective Date: Aug. 6 , 1998
----------------------------------- --
In order to protect certain Confidential Information, Compaq Computer
Corporation and its wholly owned subsidiaries ("COMPAQ"), and the "Participant"
identified below, agree that:
1. DISCLOSING PARTY: The party disclosing Confidential Information
("Discloser") is Both Parties
------------------------------------------
(Note: Fill in "COMPAQ", "Participant", or "both parties".)
2. REPRESENTATIVES: Each party's representative for coordinating disclosure or
receipt of Confidential Information is:
COMPAQ Celia Francis
------------------------------------------
Participant: Rob Wrubel
------------------------------------------
3. DESCRIPTION OF CONFIDENTIAL INFORMATION: The Confidential Information
disclosed under this Agreement is described as:
COMPAQ: Altavista Strategy and
------------------------------------------
Technology
------------------------------------------
Participant: Ask Jeeves Strategy and Technology
--------------------------------------------------
(Note: Be specific: for example, individually list materials provided, if
necessary. Please attach additional sheets referencing this Agreement and signed
by the parties.)
4. RESTRICTIONS: The party receiving Confidential Information ("Recipient")
shall maintain the Confidential Information in confidence and disclose the
Confidential Information only to its employees, subcontractors, and consultants
that have a need to know such Confidential Information in order to fulfill the
purpose described below provided that Recipient shall first have entered into a
confidentiality agreement with such employees, subcontractors, and consultants
that is substantially similar to this. Recipient shall make use of the
Confidential Information only for the following purpose (check one):
[ ] Evaluation in anticipation of a business relationship between the parties.
[ ] Developing a proposal for Discloser.
[ ] Modification of Recipient's product to enhance compatibility with
Discloser's product.
[ ] Furthering the business relationship between the parties.
[ ] Other
----------------------------------------------------------------------
(Requires approval from Compaq's legal dept. Be specific. If necessary, please
attach additional sheet referencing this Agreement and signed by the parties.)
5. CONFIDENTIALITY PERIOD: This Agreement and Recipient's duty to protect
Confidential Information expires three (3) years from the date of receipt of
Confidential Information.
6. DISCLOSURE PERIOD: This Agreement applies to Confidential Information
described in Paragraph 3 that is disclosed between the Effective Date and two
(2) years thereafter.
7. STANDARD OF CARE: Recipient shall protect the disclosed Confidential
Information by using the same degree of care as Recipient uses to protect its
own Confidential Information _______ less than a reasonable degree of care to
prevent the unauthorized use, disclosure, dissemination, or publication of the
Confidential Information.
COMPAQ COMPUTER CORPORATION
20555 SH 249, P.O. Box 692000
Houston, TX 77269-2000
By /s/Celia Francis
---------------------------------------
Printed Name Celia Francis
-----------------------------
Title
-----------------------------------
8. MARKING: Recipient's obligations shall only extend to Confidential
Information that is described in Paragraph 3, and that: (a) is marked as
confidential at the time of disclosure; or (b) is unmarked (e.g. orally
disclosed) but treated as confidential at the time of disclosure, and is
designated as confidential in a written memorandum sent to Recipient's
representative within thirty (30) days of disclosure, summarizing the
Confidential Information sufficiently for identification.
9. EXCLUSIONS: This Agreement imposes no obligation upon Recipient with respect
to Confidential Information that: (a) was rightfully in Recipient's possession
before receipt from Discloser; (b) is or becomes a matter of public knowledge
through no fault of Recipient; (c) is rightfully received by Recipient from a
third party without a duty of confidentiality; (d) is disclosed by Discloser to
a third party without a duty of confidentiality on the third party; (e) is
independently developed by Recipient; (f) must be disclosed under operation of
law or regulation; or (g) is disclosed by Recipient with Discloser's prior
written approval.
10. WARRANTY: Each Discloser warrants that it has the right to make the
disclosures under this Agreement. NO OTHER WARRANTIES, INCLUDING WARRANTIES
AGAINST INFRINGEMENT, ARE MADE BY EITHER PARTY UNDER THIS AGREEMENT. ANY
INFORMATION EXCHANGED UNDER THIS AGREEMENT IS PROVIDED "AS IS".
11. RIGHTS: Neither party acquires any intellectual property rights under this
Agreement except the limited rights necessary to carry out the Purpose set forth
in Paragraph 4. This Agreement shall not restrict reassignment of Recipient's
employees.
12. EXPORT LAWS AND REGULATIONS: The parties agree to adhere to all applicable
U.S. Export Laws and Regulations and that absent any required prior
authorization from the Office of Export Licensing. U.S. Department of Commerce,
they will knowingly export or re-export (as defined in Part 779 of the Export
Administration Regulations), directly or indirectly, through their affiliates,
licensees, or subsidiaries, any of the Confidential Information (or any product,
process, or service resulting directly therefrom) to any country restricted by
U.S. law or governmental order.
13. ECONOMIC ESPIONAGE ACT: The Confidential Information disclosed under this
Agreement is subject to the provisions of the Economic Espionage Act of 1995.
14. MISCELLANEOUS:
14a. This Agreement imposes no obligation on either party to purchase, transfer
or otherwise dispose of any technology, services or products.
14b. This Agreement does not create any agency or partnership relationship. Each
party is responsible for its own expenses incurred as a result of any
discussions between the parties.
14c. This Agreement embodies the entire understanding between the parties
pertaining to the subject matter hereof. Any additions or modifications to this
Agreement must be made in writing and must be signed by both parties. Facsimile
signatures are deemed equivalent to original signatures for purposes of this
Agreement.
14d. This Agreement shall be construed according to the substantive laws of the
State of Texas, U.S.A.
PARTICIPANT
Name Ask Jeeves
---------------------------------------------------------
(Name of Participant)
Address 918 Parker St.
---------------------------------------------------------
Berkeley, CA 94710
---------------------------------------------------------
(Address of Participant)
By /s/Robert Wrubel
---------------------------------------------------------
(Signature of Authorized Participant)
Printed Name Robert Wrubel
-----------------------------------------------
Title President
-------------------------------------------------------
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT B-PAGE 1 OF 1
<PAGE> 1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED. CERTAIN CONFIDENTIAL INFORMATION CONTAINED
IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
ACT OF 1933, AS AMENDED.
EXHIBIT 10.14
License and Development Agreement
between Ask Jeeves, Inc. and
Compaq Computer Corporation
This License and Development Agreement (the "Agreement") is made as of March 29,
1999 (the "Effective Date") by and between ASK JEEVES, INC., a California
corporation, with its principal place of business at 918 Parker Street,
Berkeley, CA 94710 ("Ask Jeeves") and COMPAQ COMPUTER CORPORATION, a Delaware
corporation, with its principal place of business at 20555 SH 249, Houston TX
77070 ("Customer") on behalf of its worldwide divisions, affiliates and
subsidiaries.
RECITALS
A. Ask Jeeves is in the business of developing, marketing and licensing
on-line natural language question answering products and services,
including a software product known as the Question Processing Engine
("QPE"). The services Ask Jeeves provides include the creation and
maintenance of customized knowledgebases to be used in conjunction with
the QPE. The knowledgebases and the QPE when used together allow end
users to access online information using the Ask Jeeves' question and
answer format.
B. Customer manufactures and sells personal computers and related products
and services. Customer has created and maintains a website on the
Internet related to Customer's computer products located at
www.Compaq.com (the "Customer Site").
C. Customer desires to license the QPE and have Ask Jeeves develop
customized knowledgebases (the "Knowledgebases") that will allow
visitors to the Customer Site to navigate portions of the Customer Site
through the use of natural language questions.
D. Ask Jeeves desires to license the QPE to Customer and develop and
maintain the Knowledgebases on the terms set forth in this Agreement.
AGREEMENT
THEREFORE, the parties agree as follows:
1. SCOPE OF WORK.
a. KNOWLEDGEBASE CREATION SERVICES. Ask Jeeves agrees to create the
Knowledgebases as more specifically described in Exhibits Al, A2
and A3 (and
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE> 2
any further additions or amendments to Exhibit A) according to
the schedules also set forth in Exhibit Al, A2 and A3.
b. KNOWLEDGEBASE MAINTENANCE AND UPDATE SERVICES. Ask Jeeves agrees
to maintain and update the Knowledgebases as the content of the
Customer Site changes, as specified in Exhibit B. The
maintenance and updates will be done on an ongoing basis to
promptly reflect changes in or additions to the Customer Site.
Customer agrees to provide Ask Jeeves with a minimum of ten (10)
days advance notice of changes to the Customer Site to allow Ask
Jeeves to update the Knowledgebases. Ask Jeeves' obligation to
maintain and update each of the Knowledgebases is limited to the
number of hours set forth in the Exhibit A that describes the
scope of work for that Knowledgebase (the "Monthly Maintenance
Obligations"). In the event Customer requires maintenance and
update services beyond the Monthly Maintenance Obligations, Ask
Jeeves will provide those services at the rates set forth in
Section 5.g.
c. QPE Support and Upgrades. Ask Jeeves agrees to provide Customer
technical support as described in Exhibit E and bug fixes,
upgrades and updates to the QPE, including major and minor
releases, as such may be released from time to time. Ask Jeeves
agrees to assign a designated Ask Jeeves employee to manage the
technical support to be provided under this Agreement.
2. TECHNICAL REQUIREMENTS. The QPE and the Knowledgebases will operate in
the software environment described in Exhibit C.
3. OWNERSHIP OF KNOWLEDGEBASES; EXCLUSIVITY.
a. OWNERSHIP. The Knowledgebases will be the property of Ask Jeeves
and will be licensed to Customer under the terms of the license
set forth in Section 4, below. However, to the extent the
Knowledgebases contain any proprietary or confidential
information of Customer, such information will belong to
Customer ("Customer Information"). Ask Jeeves will treat the
Customer Information used in the Knowledgebases as Confidential
Information of Customer, subject to the provisions of Section
16, below.
b. EXCLUSIVITY. Ask Jeeves agrees that for one hundred (100) days
after the Effective Date it will not deliver to [*], a
production version of a question-answering system that is
primarily designed to answer end-user pre-sale questions and
that incorporates portions of Knowledgebase content that was
first used for the Compaq "Prosignia II Pre-Sale" (Exhibit A1)
system.
4. LICENSE.
a. GRANT. Upon receipt of the fees set forth in Section 5, below,
and subject to the terms and conditions of this Agreement, Ask
Jeeves grants Customer a non-exclusive, fully-paid,
nontransferable, non-sublicensable, worldwide license for
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2.
<PAGE> 3
the term of this Agreement (including any extensions) in the
QPE, the Knowledgebases and any and all related materials,
including, without limitation, documentation, trademarks, and
logos (the "Licensed Products") solely for purposes set forth in
this Agreement.
b. LICENSE RESTRICTIONS. Except as specifically granted in this
Agreement, Ask Jeeves owns and retains all right, title and
interest in the Licensed Products and any and all related
materials. This Agreement does not transfer ownership rights of
any description in the Licensed Products to Customer or any
third party. Customer agrees not to modify, reverse engineer or
decompile the Licensed Products or create derivative works based
on them. Customer agrees to retain all copyright and trademark
notices on the Licensed Products and to take other steps
necessary to protect Ask Jeeves' intellectual property rights.
5. FEES AND PAYMENT. As consideration for the licenses granted and the
services rendered under this Agreement, Customer agrees to pay Ask
Jeeves as follows:
a. PROFESSIONAL SERVICES FEE. Customer agrees to pay Ask Jeeves the
following professional services fees for the creation of the
Knowledgebases (the "Knowledgebase Creation Fees"):
<TABLE>
<S> <C>
Prosignia II Pre-sales (Exhibit A1) [*]
Home Computing PC Tech Support (Exhibit A2) [*]
Enterprise PC Tech Support (excl. Servers) (Exhibit A3) [*]
</TABLE>
The Knowledgebase Creation Fees will be invoiced [*] percent [*]
upon execution of this Agreement and the remaining [*] percent
[*]on the Release Date for each of the Knowledgebases. For
purposes of this Agreement the Release Date is defined as the
date on which Ask Jeeves delivers a production ready copy of
each Knowledgebase to Customer.
b. KNOWLEDGEBASE MAINTENANCE FEE. Customer agrees to pay Ask Jeeves
for maintenance of the Knowledgebases (the "Knowledgebase
Maintenance Fees") as follows:
<TABLE>
<CAPTION>
Project Monthly Fee
<S> <C>
Home Computing PC Tech Support [*]
Enterprise PC Tech Support (excluding Servers) [*]
Prosignia II Pre-Sale (deferred, see below) [*]
</TABLE>
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
3.
<PAGE> 4
The Knowledgebase Maintenance Fee for each of the Knowledgebases
will be invoiced in advance on a quarterly basis beginning on
the Release Date for each of the Knowledgebases. If the Release
Date for each Knowledgebase is a day other than the beginning of
a quarter, the Maintenance Fee will be prorated for the
percentage of the quarter remaining. The Knowledgebase
Maintenance Fee for the Prosignia II Pre-Sale Knowledgebase will
be deferred for a period of ninety (90) days after its Releasae
Date pending the conclusion of negotiations between Ask Jeeves
and Customer for additional Prosignia II Pre-Sale Knowledgebase
development. In the event the parties do not reach an agreement
concerning future development of the Prosignia II Pre-Sale
Knowledgebase within ninety (90) days of its Release Date,
Customer agrees to pay Ask Jeeves the amount shown above.
c. USAGE FEE. Customer agrees to pay Ask Jeeves a minimum yearly
usage fee (the "Minimum Yearly Usage Fee") of [*] dollars [*].
The Minimum Yearly Usage Fee includes up to [*] Answers, as
defined below. Each Answer provided in excess of [10 million]
during any year will be billed at [*] per answer (the "Excess
Answer Fee"), provided, however, that the total usage fee to be
paid by Customer to Ask Jeeves during the Initial Term will not
exceed [*] (the "Maximum Yearly Usage Fee"). Customer will not
receive any refund of the Yearly Usage Fee if fewer than [*]
Answers are provided. An "Answer" occurs when (a) an end user of
the Licensed Products selects a matching question presented to
the user in response to a user's query or (b) an alternative
mechanism by which an end user is taken to an answer to his or
her query on the Customer Site. The Yearly Usage Fees will be
paid quarterly in advance. The Excess Answer Fee, if any, will
be billed quarterly in arrears, beginning on the date that
Customer provides in excess of [*] Answers to users of the
Customer Site.
d. TRAVEL AND OUT OF POCKET EXPENSES. Customer agrees to reimburse
Ask Jeeves for all travel expenses and out of pocket expenses at
cost, which will not exceed Compaq's Standard Travel Guidelines
attached as Exhibit D to this Agreement.
e. PAYMENT. For all invoices hereunder, payment is due forty-five
(45) days from invoice date.
f. TAXES. Customer will also reimburse Ask Jeeves for any sales,
use and similar taxes associated with the Software, except for
taxes based on Ask Jeeves' net assets or net income. Customer
reserves the right to promptly pay all taxes due directly to the
applicable taxing authorities under Customer's Direct Pay Tax
Permit.
g. PROFESSIONAL SERVICES. In the event Customer requests that Ask
Jeeves perform consulting, engineering, Knowledgebase creation
or other professional services that are beyond the scope of work
described in this Agreement, Customer agrees
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
4.
<PAGE> 5
to pay Ask Jeeves for such professional services in accordance
with the applicable scope-of-work at Ask Jeeves' customary
rates, which, as of the date of this Agreement, are as follows:
<TABLE>
<S> <C>
Engineering [*]
Knowledgebase Creation [*]
Consulting [*]
</TABLE>
Ask Jeeves agrees that for the term of this Agreement (including
any extensions) the maximum professional services fees it will
charge will be the lesser of (i) the actual rates for such
services charged by Ask Jeeves to its customers or (ii) the
amounts set forth above plus [*] percent [*] per year.
6. AUDIT RIGHTS. Each party agrees that it will keep, for a minimum of two
(2) years, proper records and books of account relating to its
activities under this Agreement. Once every twelve (12) months, either
party may inspect the records of the other party to verify reports
provided to the other, each party's compliance with its obligations
under this Agreement and/or payment amounts. Any such inspection will be
conducted in a manner that does not unreasonably interfere with the
inspected party's business activities. Such inspection shall be
performed by an independent accounting firm chosen and compensated by
the requesting party, for purposes of audit. Such accounting firm shall
be required to sign an agreement protecting the party's confidential
information and shall be authorized to report only the amounts due and
payable for the period requested. The inspected party shall immediately
make any overdue payments disclosed by the audit. Such inspection shall
be at the inspecting party's expense; however, if the audit reveals
overdue payments in excess of [*] of the payments owed to date, the
inspected party shall immediately pay the cost of such audit, and the
inspecting party may conduct another audit during the same twelve (12)
month period. Each party shall, upon written request, during normal
business hours, in accordance with Customer's standard security
requirements, but not more frequently than once each calendar year,
provide access to such accounting records.
7. CUSTOMER LIAISON. Customer agrees to provide a designated employee to
act as liaison with Ask Jeeves for the installation, and technical
implementation and support of the QPE and the Knowledgebases. With
respect to the maintenance of the Knowledgebases, Customer, at its
option, may assign an individual liaison for each Customer product
group. Customer further agrees to comply with Ask Jeeves' reasonable
requests to modify the Customer Site (e.g. adding location tags to
answer content) in order to maximize the efficacy of the Knowledgebases.
8. ASK JEEVES ANSWER NETWORK. Upon future, separate mutual agreement of the
parties, the Knowledgebases may be included in the Ask Jeeves Answer
Network, allowing users at another website access to the publicly
available, non-confidential portions of the Knowledgebases and
vice-versa.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
5.
<PAGE> 6
9. TERM AND TERMINATION.
a. TERM. This Agreement and the licenses granted under this
Agreement become effective as of the Effective Date and, unless
sooner terminated as set forth in Section 9.b, below, shall
continue in effect for a period of twelve (12) months from the
Release Date (the "Initial Term"). Upon expiration of the
Initial Term, this Agreement will automatically renew for
additional twelve-month terms (the "Renewal Terms") on the terms
and conditions set forth in this Agreement or such other terms
and conditions as the parties may agree to in writing. Ask
Jeeves agrees to notify Customer in writing not less than sixty
(60) days prior to expiration of the Initial Term or any Renewal
Term of the termination date for that term (the "Expiration
Notice"). In the event that Ask Jeeves fails to provide Customer
the Expiration Notice, this Agreement will terminate upon the
expiration of the term to which it applies.
b. TERMINATION. Either party, as applicable, has the right, in
addition and without prejudice to any other rights or remedies,
to terminate this Agreement as follows:
(1) By either party for convenience upon thirty (30) days
written notice to the other party, given not more than
thirty (30) days prior to the expiration of the Initial
Term or not more than thirty (30) days prior to the
expiration of any quarter during a Renewal Term.
(2) By Ask Jeeves, upon thirty (30) days written notice, if
Customer fails to pay the amounts due to Ask Jeeves
pursuant to this Agreement;
(3) By either party for any material breach of this
Agreement, other than the failure to make payments under
Section 5, that is not cured within thirty (30) days of
receipt by the party in default of a written notice
specifying the breach and requiring its cure;
(4) By either party, immediately upon receiving written
notice, if (a) all or a substantial portion of the
assets of the other party are transferred to an assignee
for the benefit of creditors, or to a receiver or a
trustee in bankruptcy, (b) a proceeding is commenced by
or against the other party for relief under bankruptcy
or similar laws and such proceeding is not dismissed
within sixty (60) days, or (c) the other party is
adjudged bankrupt.
c. RIGHTS ON TERMINATION. On termination, (a) all licenses granted
to Customer under this Agreement cease and Customer agrees to
promptly cease all use and reproduction of the Licensed
Products; and (b) Customer will promptly return all copies the
Licensed Products to Ask Jeeves or destroy all copies in its
possession. Ask Jeeves has and reserves all rights and remedies
that it has by operation of law or otherwise to enjoin the
unlawful or unauthorized use of the Licensed Products as long as
Ask Jeeves can meet the legal requirements therefor. Customer
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
6.
<PAGE> 7
reserves the right to terminate Maintenance and Support Services
without terminating the right to continue use of the licenses
granted in the state at the time of termination.
d. SURVIVAL FOLLOWING TERMINATION. 3, 5, 7, 9, 10, 11, 12, 13, 14,
15, 16 and 18 will survive termination or expiration of this
Agreement. In addition, provisions of the Agreement which, by
their nature, are intended to survive its termination or
expiration, shall survive its termination or expiration.
10. INFRINGEMENT INDEMNITY BY ASK JEEVES. Ask Jeeves indemnifies, defends
and holds Customer harmless from and against any claims, actions or
demands alleging that all or any of the Licensed Products infringe any
patent, copyright, trademark, or other intellectual property right of a
third party. If use of any or all of the Licensed Products is
permanently enjoined for any reason, Ask Jeeves, at Ask Jeeves' option,
and in its sole discretion, may (a) modify the Licensed Products so as
to avoid infringement without the loss of functionality; (b) procure the
right for Customer to continue to use the Licensed Products; or (c)
terminate this Agreement and refund to Customer all fees paid. Ask
Jeeves shall have no obligation under this Section 10 for or with
respect to claims, actions or demands alleging infringement that arise
as a result of (a) the combination of noninfringing items supplied by
Ask Jeeves with any items not supplied by Ask Jeeves, unless prior
approved by Ask Jeeves, (b) modification of the Licensed Products by
Customer, unless prior approved by Ask Jeeves, or (c) continued
allegedly infringing activity by Customer after Customer has been
notified of possible infringement, unless approved in advance by Ask
Jeeves.
11. CUSTOMER DISCLAIMER AND INDEMNITY AS TO CONTENT. Ask Jeeves assumes no
responsibility for the content of the Customer Site, and Customer agrees
to indemnify, defend and hold Ask Jeeves harmless from and against any
claims, actions or demands alleging that Ask Jeeves has any liability to
any third party arising from the third party's use of the Customer Site.
12. WARRANTIES.
a. PRODUCT WARRANTY. Ask Jeeves warrants that (a) it holds the
necessary rights to provide the services set forth in this
Agreement; (b) the media containing the Licensed Products will
be free from defects for a period of thirty (30) days from the
date of delivery to Customer, provided that this warranty does
not cover defects due to Customer's misuse of the media; (c) Ask
Jeeves is free of any obligation that would prevent it from
entering into this Agreement, and (d) the Licensed Products will
perform substantially in accordance with Ask Jeeves published
documentation.
b. YEAR 2000 WARRANTY. Ask Jeeves warrants, at no additional cost
to Customer and until March 31, 2001, the following under this
Agreement:
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
7.
<PAGE> 8
(i) That the Licensed Products will accurately process,
calculate, compare and sequence date and time data from,
into and between the twentieth and twenty-first
centuries, including leap year calculations, when used
in accordance with Ask Jeeves supplied documentation. As
used herein, the term accurately shall mean in
accordance with industry standard conventions with
respect to the environment in which the Licensed
Products are operating;
(ii) That the Licensed Products will accurately handle dates
utilizing the International Standards Organization (ISO)
8601 standard formats, including YYYY-MM-DD; and
(iii) That any licensing keys contained in the Licensed
Products will not expire or cause the Licensed Products
to perform at less than full function due to the
Software not performing as set out herein.
Customer's sole and exclusive remedy for Ask Jeeves' breach of
this warranty shall be either repair or replacement of the
non-compliant Licensed Product(s). Ask Jeeves agrees to use all
reasonable commercial efforts to complete such repair or
replacement within sixty (60) days of receiving written notice
from Customer of the non-compliant Licensed Product(s). This
warranty shall not be construed to limit any rights or remedies
that Customer may otherwise have under this Agreement with
respect to defects other than Year 2000 performance.
13. DISCLAIMER. THE WARRANTIES SET FORTH IN SECTION 12, ABOVE, ARE IN LIEU
OF, AND THIS AGREEMENT EXPRESSLY EXCLUDES, ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, ORAL OR WRITTEN, INCLUDING, WITHOUT LIMITATION, (a) ANY
WARRANTY THAT THE LICENSED PRODUCTS ARE ERROR-FREE OR COMPATIBLE WITH
ALL EQUIPMENT AND SOFTWARE CONFIGURATIONS (b) ANY AND ALL WARRANTIES OF
MERCHANTABILITY; AND (c) ANY AND ALL WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE.
14. LIMITATION OF LIABILITY. EXCEPT AS TO ITS INDEMNITY OBLIGATIONS UNDER
SECTION 10, ABOVE, ASK JEEVES IS NOT LIABLE FOR ANY DIRECT, INDIRECT,
INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING THE LOSS OF
PROFITS, REVENUE, DATA, OR USE OR COST OF PROCUREMENT OF SUBSTITUTE
GOODS INCURRED BY CUSTOMER OR ANY THIRD PARTY, WHETHER IN AN ACTION IN
CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF ASK JEEVES OR ANY OTHER
PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. ASK JEEVES'
LIABILITY FOR DAMAGES UNDER THIS AGREEMENT SHALL NOT UNDER ANY
CIRCUMSTANCES EXCEED THE GREATER OF THE AMOUNTS ACTUALLY PAID BY
CUSTOMER TO ASK JEEVES OR ONE MILLION DOLLARS
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
8.
<PAGE> 9
($1,000,000.00) (NET OF TRAVEL AND OUT OF POCKET COSTS) UNDER THIS
AGREEMENT.
15. EXPORT CONTROLS. Customer agrees to comply with and be responsible for
understanding any and all export regulations and rules now in effect or
that may be issued from time to time by the Office of Export
Administration of the United States Department of Commerce or any other
governmental authority that has jurisdiction relating to export laws.
Customer agrees to comply fully and strictly with the export controls
and laws of any country in which it does, or intends to do, business.
Ask Jeeves agrees to provide Customer with sufficient technical
information concerning the Licensed Products so that Customer may make
application for a U. S. export license and Ask Jeeves agrees to assign
any existing Ask Jeeves obtained export license for Customer's use in
exporting the Licensed Products.
16. CONFIDENTIALITY. All disclosures of proprietary and confidential
information in connection with this Agreement or the transaction
contemplated by this Agreement are governed by the terms of the
Corporate Non Disclosure Agreement previously executed by the parties, a
copy of which is attached as Exhibit F to this Agreement.
17. PUBLICITY.
a. PRESS RELEASES AND ANNOUNCEMENTS. Ask Jeeves and Customer agree
that upon the execution of this Agreement, Customer and Ask
Jeeves will issue a joint press release, with text mutually
agreed to by the parties. Thereafter, neither party shall use
the name(s), trademark(s), tradename(s) or logo(s), whether or
not registered, of the other party in publicity releases without
securing the prior written approval of the other party;
provided, however, that (i) Ask Jeeves may use Customer's name
in its customer list; and (ii) each party may use specific
information previously approved for public release by the other,
without further approval. Each party agrees not to disclose to
any third party the terms of this Agreement.
b. OTHER PUBLICITY. Beginning on the Release Date, Customer agrees
to (a) mention Ask Jeeves in directly related press releases;
(b) consider including mentions of Ask Jeeves in relevant
promotions and advertisements and, if requested to do so by Ask
Jeeves, not to unreasonably withhold consent; and (c)
prominently display the "Powered by Ask Jeeves" logo on the
question confirmation page, with a link from such logo to the
corporate systems information page on the Ask Jeeves website.
18. GENERAL PROVISIONS.
a. ASSIGNMENT. Neither party may assign, sublicense or transfer its
rights or delegate its obligation under this Agreement without
the other party's prior written consent, which will not be
unreasonably withheld. This Agreement is binding on the
successors and assigns of the parties to the Agreement.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
9.
<PAGE> 10
b. WAIVER AND SEVERABILITY. The failure of either party to enforce
any provision of this Agreement shall not be deemed a waiver of
that provision or of the right of the party to thereafter
enforce that or any other provision. In case any provision of
this Agreement is held to be invalid, unenforceable or illegal,
the provision will be severed from this Agreement and such
invalidity, unenforceability or illegality will not affect any
other provision of the Agreement.
c. RELATIONSHIP OF THE PARTIES. Ask Jeeves' relationship to
Customer is that of an independent contractor. Nothing in this
Agreement shall be deemed to create an employer/employee,
principal/agent or joint venture relationship. Neither party
shall have the authority to enter into any contract on behalf of
the other party without that party's express written consent.
d. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.
e. ENTIRE AGREEMENT. This Agreement, along with the exhibits
attached and referenced in this Agreement, constitutes the final
and complete understanding between the parties and replaces and
supercedes all previous oral or written agreements,
understandings or arrangements between the parties with respect
to the subject matter of this Agreement. This Agreement may not
be amended or modified except in a writing duly executed by both
parties.
f. EXHIBITS. The following exhibits are attached to the Agreement
and incorporated by reference:
Exhibit A Knowledgebase Creation Services
Exhibit B Knowledgebase Maintenance and Update Services
Exhibit C Required Software Environment
Exhibit D Compaq Standard Travel Guidelines
Exhibit E Technical Support Guidelines
Exhibit F Mutual Non-Disclosure Agreement
g. NOTICES. Except as otherwise provided in this Agreement, notices
required to be given pursuant to this Agreement shall be
effective when received and shall be sufficient if given in
writing and (a) hand-delivered, (b) sent by facsimile with
confirmation of receipt, (c) sent by First Class Mail, return
receipt requested and postage pre-paid, or (d) sent by overnight
courier service and addressed as follows:
To Ask Jeeves: Ask Jeeves, Inc.
918 Parker Street
Berkeley, CA 94710
Attn: General Counsel
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
10.
<PAGE> 11
Telephone: (510) 649-8685
Fax: (510) 649-8633
To Customer: Compaq Computer Corporation
20555 S. H. 249
Houston, TX 77070
Attn: Legal Dept. 110701
And
Compaq Computer Corporation
20555 S. H. 249 MC060308
Houston, TX 77070
Attn: Cora Nell Worthy-Blumberg
Sr. Commodity Manager,
Corp. Software Procurement
Ph: 281-514-0961
IN WITNESS WHEREOF, ASK JEEVES, INC. and COMPAQ COMPUTER CORPORATION
have duly executed this Agreement as of the Effective Date.
ASK JEEVES, INC. COMPAQ COMPUTER CORPORATION
By: /s/ R. W. Wrubel By: /s/ Kenny Kurtzman
------------------------------ --------------------------------------
Robert W Wrubel, President
Printed/Typed Name: Kenny Kurtzman
---------------------
Title: President Title: V.P. and General Manager Compaq
----------------------------- ------------------------------------
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
11.
<PAGE> 12
EXHIBIT A1
[*]
Style Guidelines
[*]
Customer Extranet
[*]
Knowledgebase Creation Schedule
It is expected that the Knowledgebase ("KB") creation and
implementation activities will be conducted according to the schedule
below. This schedule may be changed jointly by Ask Jeeves and
Customer. Ask Jeeves will post the most up-to-date version of the
schedule to the Customer Extranet.
[*]
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
12.
<PAGE> 13
EXHIBIT A2
[*]
Style Guidelines
[*]
Customer Extranet
[*]
Knowledgebase Creation Schedule
It is expected that the Knowledgebase ("KB") creation and
implementation activities will be conducted according to the schedule
below. This schedule may be changed jointly by Ask Jeeves and
Customer. Ask Jeeves will post the most up-to-date version of the
schedule to the Customer Extranet.
[*]
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
13.
<PAGE> 14
EXHIBIT A3
[*]
Style Guidelines
[*]
Customer Extranet
[*]
Knowledgebase Creation Schedule
It is expected that the Knowledgebase ("KB") creation and
implementation activities will be conducted according to the
schedule below. This schedule may be changed jointly by Ask Jeeves
and Customer. Ask Jeeves will post the most up-to-date version of
the schedule to the Customer Extranet.
[*]
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
14.
<PAGE> 15
EXHIBIT B
Knowledgebase Maintenance and Update Services
[*]
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
15.
<PAGE> 16
EXHIBIT C
Required Software Environment
The Ask Jeeves software requires the following software environment:
a. Windows NT Server 4.0 operating system, with Service Pack 4
installed
b. Microsoft Internet Information Server (IIS) 4.0
Ask Jeeves is compiled to run on Intel Pentium II CPUs, and has been deployed on
both single and dual processor systems. Minimum system requirements are:
c. 400MHz (or higher) Intel Pentium II processor (dual processors
recommended)
d. 512 MBRAM
e. 9 GB Hard Disk
f. Fast Ethernet Hardware (100 Mbps)
The Ask Jeeves software is comprised of several dynamic link library (DLL)
files, some HTML files, and several Active Server Page (ASP) files. The ASP
files are a mixture of HTML and Visual Basic Script (VBScript) language
routines. The DLLs encapsulate the Ask Jeeves linguistic and matching
algorithms, while the ASP files embody the user interface.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
16.
<PAGE> 17
EXHIBIT D
ASK JEEVES-COMPAQ
COMPAQ TRAVEL GUIDELINES FOR
CONTRACTORS AND CONSULTANTS
4/98 revision
This document describes guidelines to be used by Ask Jeeves (`Contractors and
Consultants") who are providing a service to Compaq when travel expenses are
reimbursable. Travel expenses require prior approval of Compaq Computer Company
("Compaq"). Approved expenses shall be detailed separately on invoicing.
COMPAQ TRAVEL SERVICES
Compaq Travel Services (CTS) has been established by Compaq to help reduce
overall travel costs. Contract rates with travel suppliers are maintained via
our on-site agency. CTS should be used by Contractors and Consultants whenever
possible, unless Contractor/Consultant rates are lower. All airline reservations
should be made via CTS using Compaq's preferred carriers. CTS is also available
to assist with car rentals and hotel reservations. Reservations may be made with
CTS during regular business hours (7:30 a.m. to 6:00 p.m. Central Time, Monday -
Friday) by calling 281-518-7770.
AIR TRAVEL
Compaq has agreement in place with various airlines for travel within the United
States and around the world.
Coach Class is the appropriate choice for a domestic travel. Business Class is
appropriate only for international travel, recognizing that Coach Class may be
necessary if Business is unavailable. CTS will provide the most economical means
of booking.
Consistent with reasonable planning, air travel should generally be booked at
the lowest available rate within the required time constraints. The use of
restricted fares (non-refundable tickets) can result in substantial savings and
is encouraged if travelers are certain of their schedules.
The cost of upgrading beyond the Guidelines stated above is not considered a
reimbursable expense.
LODGING
Compaq has select agreements in place with hotel properties throughout the
United States and around the world. A single room with private bath in a
business class hotel or motel should be requested.
It is recommended that Contractor or Consultant calls CTS for reservations in
order to secure Compaq rates. If not possible, request Compaq Contractor rates.
Should an extended stay be required at any location, long-term, apartment-style
lodging should be investigated.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
17.
<PAGE> 18
GROUND TRANSPORTATION, GASOLINE, PARKING AND TOLLS
Fuel expenses, parking and tolls are reimbursable. An original receipt is
required for reimbursement of expenses of $15.00 or more.
Compaq has a worldwide agreement in place for car rental requirements. Rental
cars are to be returned with a full tank of gasoline.
CTS can provide information pertaining to alternate ground transportation
requirements, such as taxis or limousines.
MEALS
Because the cost of meals varies widely according to location and environment,
there are no guidelines on dollars per meal or dollars per day. However,
Contractor/Consultant personnel are expected to exercise prudence. Original
receipts must be submitted with the Expense Statement for meals costing $15.00
or more.
TELEPHONE CALLS
While traveling, business calls specifically relevant to the scope of Compaq
business are reimbursable. For extended stay, one (1) personal call per day
domestically or three (3) personal calls per week for international travel is
considered reasonable and shall be reimbursable.
NON-REIMBURSABLE EXPENDITURES
The following miscellaneous items are expenses that will not be considered for
reimbursement:
- - Travel expenses for spouse or companion
- - Personal portion of trip when combined with Compaq business
- - Non-Compaq business portion of trip when combined with Compaq business
- - Personal grooming items
- - Flight insurance
- - Airline or rental club dues
- - In-room hotel movies
- - Personal (or other non-Compaq) mail or packages
- - Items for personal use
- - Over weight luggage fees
- - Drugs (prescription or over-the-counter)
- - Sundries such as candy, gum, tobacco
- - Newspapers of magazines
- - Haircuts, shoe shines
- - Spa, gym or golf fees
- - Entertainment (movies, theater tickets, sporting events)
- - Gifts
- - In-flight movies
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
18.
<PAGE> 19
EXHIBIT E
Technical Support Guidelines
1. Definitions.
(a) Hours of Operation. Ask Jeeves will provide Customer with 7X24
support as set forth herein.
(b) Problem. Any error, bug, or malfunction that makes any feature
of the Ask Jeeves Service perform unpredictably or otherwise
become intermittently available, or that causes the Service to
have a material degradation in response time performance.
(c) Severe Problem. Any error, bug or malfunction that causes the
Ask Jeeves Service to become inaccessible to Customer and its
end-users, or that causes any feature of the Service to become
continuously unavailable.
(d) Enhancement Request. A request by Customer to incorporate a new
feature or enhance an existing feature of the Service (exclusive
of maintenance of the Knowledgebase.)
(e) Fix. A correction, fix, alteration or workaround that solves a
Problem or a Severe Problem.
2. Contact Points.
(a) Customer Technical Support Personnel. Customer will designate no
more than three Customer employees as qualified to contact Ask
Jeeves for technical support.
(b) Ask Jeeves Technical Support Personnel. Ask Jeeves will ensure
that its technical support personnel are adequately trained to
provide technical support to Customer. Ask Jeeves will provide
Customer with a web interface or an email address (the "Support
Address") as well as a pager number (the "Support Pager") for
contacting the Ask Jeeves Technical Support Personnel no later
than one week prior to the Launch Date. Ask Jeeves will provide
Customer with contact information for executive escalation no
later than one week prior to the Launch Date. Ask Jeeves may
change its designated Technical Support Personnel and the
executive escalation personnel at its discretion with reasonable
notice to Customer.
3. Support Procedures.
(a) All Problems reported by Customer Technical Support Personnel to
Ask Jeeves must be submitted via web site or email to the
Support Address.
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
19.
<PAGE> 20
(b) If Customer believes it is reporting a severe problem, Customer
will accompany its web site or email request with a page to the
Support Pager.
(c) Upon receiving a report from Customer, Ask Jeeves will determine
whether the request is a Problem, a Severe Problem or an
Enhancement Request. Ask Jeeves will respond to the request and
use reasonable commercial efforts to provide a Fix as described
in the response table, below.
(d) Ask Jeeves will use commercially reasonable efforts to inform
Customer Technical Support Personnel of Fixes.
4. Support Levels.
(a) Customer will provide technical support to end users who email
or otherwise contact Customer directly with questions about the
Customer Site or the Service. Customer will use commercially
reasonable efforts to Fix any Problems without escalation to Ask
Jeeves.
(b) Ask Jeeves will provide the following technical support solely
to Customer Technical Support Personnel.
<TABLE>
<CAPTION>
RECEIPT OF EMAIL TYPE OF EMAIL TARGET RESPONSE TARGET FIX TIME AND
REQUEST REQUEST TIME FROM EMAIL REPORTING
RECEIPT
<S> <C> <C> <C>
During business hours or other Problem Within one business day Commercially reasonable best
times efforts with weekly status
reports to Customer
During the hours of 8:00 a.m. and Severe Problem Within four hours Commercially reasonable best
6:00 p.m. Pacific time efforts with daily status
reports to Customer
During other times Severe problem Within four hours Commercially reasonable best
efforts with daily status
reports to Customer
During business hours or other Enhancement Requests Within five business days At Ask Jeeves discretion
times
</TABLE>
(c) In the event Ask Jeeves does not respond to Customer within the
target response time from email receipt set froth above, then
Customer may contact the following Ask Jeeves executive
escalation personnel in order:
Project Manager
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
20.
<PAGE> 21
Lauren Guzak, [[email protected], 510/649-2184]
General Manager, Corporate Systems
Fadi Samaha, [*]
Chief Technical Officer
David Warthen, [*]
Chief Executive Officer
Robert Wrubel, [*]
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
21.
<PAGE> 22
EXHIBIT F
Mutual Non-Disclosure Agreement
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
22.
<PAGE> 23
MUTUAL NON-DISCLOSURE AGREEMENT
Effective Date: February 1, 1999
In order to protect certain Confidential Information, Compaq Computer
Corporation and its wholly owned subsidiaries ("COMPAQ"), and the "Participant"
identified below, agree that:
1. DISCLOSING PARTY: The party disclosing Confidential Information
("Discloser") is both parties
(Note: Fill in "COMPAQ", "Participant", or "both parties".)
2. REPRESENTATIVES: Each party's representative for coordinating disclosure or
receipt of Confidential Information is:
COMPAQ /s/Seth Romanow
----------------------------------------------------
Participant: /s/ Dan Miller
------------------------------------------------
3. DESCRIPTION OF CONFIDENTIAL INFORMATION: The Confidential Information
disclosed under this Agreement is described as:
COMPAQ Compaq.com and Compaq intranet information and related data not publicly
available. Compaq intranet/internet configuration, related software/equipment
support structure, network configuration and related data, pre-release Compaq
product information.
Participant Ask Jeeves technology, research and development and business plans
(Note: Be specific: for example, individually list materials provided, if
necessary. Please attach additional sheets referencing this Agreement and signed
by the parties.)
4. RESTRICTIONS: The party receiving Confidential Information ("Recipient")
shall maintain the Confidential Information in confidence and disclose the
Confidential Information only to its employees, subcontractors, and consultants
that have a need to know such Confidential Information in order to fulfill the
purpose described below provided that Recipient shall first have entered into a
confidentiality agreement with such employees, subcontractors, and consultants
that is substantially similar to this. Recipient shall make use of the
Confidential Information only for the following purpose (check one):
[ ] Evaluation in anticipation of a business relationship between the parties.
[ ] Developing a proposal for Discloser.
[ ] Modification of Recipient's product to enhance compatibility with
Discloser's product.
[X] Furthering the business relationship between the parties.
[ ] Other
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Requires approval from Compaq's legal dept. Be specific. If necessary, please
attach additional sheet referencing this Agreement and signed by the parties.)
5. CONFIDENTIALITY PERIOD: This Agreement and Recipient's duty to protect
Confidential Information expires three (3) years from the date of receipt of
Confidential Information.
6. DISCLOSURE PERIOD: This Agreement applies to Confidential Information
described in Paragraph 3 that is disclosed between the Effective Date and two
(2) years thereafter.
7. STANDARD OF CARE: Recipient shall protect the disclosed Confidential
Information by using the same degree of care as Recipient
COMPAQ COMPUTER CORPORATION
20555 SH 249, P.O. Box 692000
Houston, TX 77269-2000
By /s/H. Seth Romanow
-----------------------------------------------------
Printed Name H. Seth Romanow
-----------------------------------------
Title Director, Internet/Marketing
----------------------------------------------
uses to protect its own Confidential Information _________ less than a
reasonable degree of care to prevent the unauthorized use, disclosure,
dissemination, or publication of the Confidential Information.
8. MARKETING: Recipient's obligations shall only extend to Confidential
Information that is described in Paragraph 3, and that: (a) is marked as
confidential at the time of disclosure; or (b) is unmarked (e.g. orally
disclosed) but treated as confidential at the time of disclosure, and is
designated as confidential in a written memorandum sent to Recipient's
representative within thirty (30) days of disclosure, summarizing the
Confidential Information sufficiently for identification.
9. EXCLUSIONS: This Agreement imposes no obligation upon Recipient with respect
to Confidential Information that: (a) was rightfully in Recipient's possession
before receipt from Discloser; (b) is or becomes a matter of public knowledge
through no fault of Recipient; (c) is rightfully received by Recipient from a
third party without a duty of confidentiality; (d) is disclosed by Discloser to
a third party without a duty of confidentiality on the third party; (e) is
independently developed by Recipient; (f) must be disclosed under operation of
law or regulation; or (g) is disclosed by Recipient with Discloser's prior
written approval.
10. WARRANTY: Each Discloser warrants that it has the right to make the
disclosures under this Agreement. NO OTHER WARRANTIES, INCLUDING WARRANTIES
AGAINST INFRINGEMENT, ARE MADE BY EITHER PARTY UNDER THIS AGREEMENT. ANY
INFORMATION EXCHANGED UNDER THIS AGREEMENT IS PROVIDED "AS IS".
11. RIGHTS: Neither party acquires any intellectual property rights under this
Agreement except the limited rights necessary to carry out the Purpose set forth
in Paragraph 4. This Agreement shall not restrict reassignment of Recipient's
employees.
12. EXPORT LAWS AND REGULATIONS: The parties agree to adhere to all applicable
U.S. Export Laws and Regulations and that absent any required prior
authorization from the Office of Export Licensing. U.S. Department of Commerce,
they will knowingly export or re-export (as defined in Part 779 of the Export
Administration Regulations), directly or indirectly, through their affiliates,
licensees, or subsidiaries, any of the Confidential Information (or any product,
process, or service resulting directly therefrom) to any country restricted by
U.S. law or governmental order.
13. ECONOMIC ESPIONAGE ACT: The Confidential Information disclosed under this
Agreement is subject to the provisions of the Economic Espionage Act of 1995.
14. MISCELLANEOUS:
14a. This Agreement imposes no obligation on either party to purchase, transfer
or otherwise dispose of any technology, services or products.
14b. This Agreement does not create any agency or partnership relationship. Each
party is responsible for its own expenses incurred as a result of any
discussions between the parties.
14c. This Agreement embodies the entire understanding between the parties
pertaining to the subject matter hereof. Any additions or modifications to this
Agreement must be made in writing and must be signed by both parties. Facsimile
signatures are deemed equivalent to original signatures for purposes of this
Agreement.
14d. This Agreement shall be construed according to the substantive laws of the
State of Texas, U.S.A.
PARTICIPANT
Name Ask Jeeves, Inc.
-----------------------------------------------------------------
(Name of Participant)
Address 918 Parker St.
-----------------------------------------------------------------
Berkeley, CA 94710
-----------------------------------------------------------------
(Address of Participant)
By /s/ Dan Miller
-----------------------------------------------------------------
(Signature of Authorized Participant)
Printed Name Dan Miller
-----------------------------------------------------------------
Title EVP
-----------------------------------------------------------------
[ ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
23.
<PAGE> 1
EXHIBIT 10.18.2
June 1, 1999
Mr. Ted Briscoe
Ask Jeeves, Inc.
918 Parker Street
Berkeley, CA 94710
Dear Ted:
As we have agreed, certain provisions of your accepted offer letter dated
January 18, 1999 (the "Offer Letter") are amended as set forth below effective
June 1, 1999. All terms of the Offer Letter not amended by this letter remain in
full force and effect.
BASE SALARY
Your new base salary will be $175,000, which will be paid semi-monthly in
accordance with the Company's normal payroll procedures.
SEVERANCE
The Company has the right to terminate your employment at any time, with or
without cause. "Cause" for termination means: (a) indictment or conviction of
any felony or any crime involving dishonesty; (b) participation in any fraud
against the Company; (c) breach of your duties to the Company, including
persistent unsatisfactory performance of job duties; (d) intentional damage to
any property of the Company; or (e) conduct which, in the good faith and
reasonable determination of the Company's Board of Directors, demonstrates gross
unfitness to serve.
In the event your employment is terminated without cause at any time during your
employment, you will be entitled to receive a severance package of six (6)
months base salary plus six (6) months of your expected bonus (with a total of
salary and pro-rated expected bonus not to exceed $150,000).
In the event that your termination without cause is due to a corporate
transaction, as that term is defined in the Company's 1996 Equity Incentive Plan
adopted November 26, 1996 (a "Corporate Transaction"), you will be entitled to
receive the severance package described above, plus immediate vesting of 6/48ths
of the options granted to you pursuant to the Offer Letter, in addition to those
vested as of the date of your termination.
<PAGE> 2
Ted Briscoe
June 1, 1999
Page 2
You will not be eligible to receive the severance package described above in any
circumstances other than (i) a termination without cause, as to the monetary
severance package, and (ii) a termination without cause due exclusively to a
Corporate Transaction as to the accelerated vesting of 6/48ths of your options.
You should be aware that, notwithstanding anything contained in this letter or
in your Offer Letter, your employment with the Company is for no specified
period and constitutes at will employment. As a result, you are free to resign
at any time, for any reason or no reason. Similarly, the Company is free to
conclude its employment relationship with you at any time, with or without
cause, with or without reason.
To indicate your acceptance of these amended terms please sign and date this
letter in the space provided below and return it to me. A duplicate original is
enclosed for your records. This letter, along with the Offer Letter and the
Confidential Information and Invention Assignment Agreement between you and the
Company, set forth the terms of your employment with the Company. This letter
supercedes any prior representations or agreements, whether written or oral as
to the terms stated above. To the extent not amended by this letter, the Offer
Letter remains in full force and effect. Neither this letter nor the Offer
Letter may be amended or modified except by written agreement signed by the
Company and by you.
Sincerely,
/s/ ROBERT WRUBEL
- -------------------
Robert Wrubel
President
Ask Jeeves, Inc.
Accepted.
/s/ TED BRISCOE June 1, 1999
- ---------------------- -------------------
Ted Briscoe Date
<PAGE> 1
EXHIBIT 10.20.2
June 1, 1999
Robert W. Wrubel
Ask Jeeves, Inc.
918 Parker Street
Berkeley, CA 94710
Dear Rob:
As we have agreed, certain provisions of your accepted offer letter dated May
22, 1998 (the "Offer Letter") are amended as set forth below effective June 1,
1999. All terms of the Offer Letter not amended by this letter remain in full
force and effect.
BASE SALARY AND BONUS
Your salary will remain $180,000, which will be paid semi-monthly in accordance
with the Company's normal payroll procedures. You will also be eligible to
receive a bonus of $100,000, payable on or before February 15, 2000, based on
the Company's achievement of certain financial goals by the end of 1999. The
specific financial goals to be achieved will be jointly determined between you
and the Company by August 1, 1999. Please note that this bonus plan is for 1999
only, and future bonus plans, if any, will be defined at a later date.
OPTIONS
You have been granted the following options to purchase shares of Ask Jeeves
common stock (all numbers reflect the 1 for 2 stock split):
<TABLE>
<CAPTION>
Date Number of Shares Exercise Price/Share
- ---------------- ---------------- --------------------
<S> <C> <C>
May 25, 1998 675,000 $ 0.46
October 11, 1998 375,000 $ 0.73
May 22,1999 200,000 $10.00
</TABLE>
Your Offer Letter provides that in the event of a corporate transaction, as that
term is defined in the Company's 1996 Equity Incentive Plan adopted November 26,
1996 (a "Corporate Transaction"), all of the 675,000 options granted to you on
May 25, 1998 and the 375,000 options granted to you on October 11, 1998 will
immediately vest and be exercisable. As part of the consideration for the
additional 200,000 options granted to you on May 22, 1999 and the severance
package described below, you agree to relinquish the accelerated vesting rights
in the event of a Corporate Transaction granted to you in the May 25, 1998 and
October 11, 1998 option grants. The Company may, at its discretion, issue you
new stock options agreements reflecting this change in the vesting provisions.
SEVERANCE
<PAGE> 2
Robert W. Wrubel
June 1, 1999
Page 2
The Company has the right to terminate your employment at any time, with or
without cause. "Cause" for termination means: (a) indictment or conviction of
any felony or any crime involving dishonesty; (b) participation in any fraud
against the Company; (c) breach of your duties to the Company, including
persistent unsatisfactory performance of job duties; (d) intentional damage to
any property of the Company; or (e) conduct which, in the good faith and
reasonable determination of the Company's Board of Directors, demonstrates gross
unfitness to serve.
In the event your employment is terminated without cause at any time during your
employment, you will be entitled to receive a severance package of six (6)
months base salary plus six (6) months of your expected bonus (with a total of
salary and pro-rated expected bonus not to exceed $200,000).
In the event that your termination without cause is due to a Corporate
Transaction, you will be entitled to receive the severance package described
above, plus immediate vesting of one hundred percent (100%) of any unvested
options granted to you and approved by the Company's Board of Directors as of
the date of your termination. Furthermore, in the event your employment is
terminated without cause less than six (6) months prior to, or less than one (1)
year after, a Corporate Transaction, such termination will be deemed to be due
to the Corporate Transaction and you will be entitled to accelerated vesting of
your options as set forth in this paragraph.
You will not be eligible to receive the severance package described above in any
circumstances other than (i) a termination without cause, as to the monetary
severance package, and (ii) a termination without cause due to a Corporate
Transaction as to the accelerated vesting of your options.
You should be aware that, notwithstanding anything contained in this letter or
in your Offer Letter, your employment with the Company is for no specified
period and constitutes at will employment. As a result, you are free to resign
at any time, for any reason or no reason. Similarly, the Company is free to
conclude its employment relationship with you at any time, with or without
cause, with or without reason.
To indicate your acceptance of these amended terms please sign and date this
letter in the space provided below and return it to me. A duplicate original is
enclosed for your records. This letter, along with the Offer Letter and the
Confidential Information and Invention Assignment Agreement between you and the
Company, set forth the terms of your employment with the Company. This letter
supercedes any prior representations or agreements, whether written or oral as
to the terms stated above. To the extent not amended by this letter, the Offer
Letter remains in full force and effect. Neither this letter, nor the Offer
Letter may be amended or modified except by written agreement signed by the
Company and by you.
Sincerely,
<PAGE> 3
Robert W. Wrubel
June 1, 1999
Page 3
/s/ Roger Strauch
- ----------------------------------
Roger Strauch
Chairman of the Board of Directors
Ask Jeeves, Inc.
Accepted.
/s/ Robert W. Wrubel June 1, 1999
- ---------------------- -------------------
Robert W. Wrubel Date
<PAGE> 1
EXHIBIT 10.26
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
between
ASK JEEVES , INC.
a California corporation; and
LUMINA DECISION SYSTEMS, INC.
a California corporation.
Dated as of April 16, 1999
____________________________
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. SALE OF ASSETS; RELATED TRANSACTIONS..................................1
1.1 Purchase and Sale..............................................1
1.2 Assignment of Contracts........................................1
1.3 Complete Transfer..............................................1
1.3.1 No Assumption of Liabilities............................2
2. PAYMENT...............................................................2
2.1 Purchase Price.................................................2
2.2 Taxes..........................................................2
3. CLOSING...............................................................2
3.1 Closing........................................................2
3.2 Transfer of Assets.............................................2
4. REPRESENTATIONS AND WARRANTIES OF LUMINA.............................3
4.1 Organization and Standing......................................3
4.2 Power and Authorization........................................3
4.3 Title to Assets; Intellectual Property.........................3
4.4 Conflicting Agreements.........................................4
4.5 Capitalization.................................................5
4.6 Litigation.....................................................5
4.7 Governmental Authorizations and Regulations....................5
4.8 Bulk Sales Laws................................................5
4.9 Material Contracts, Commitments, and Product Warranties........5
4.10 Manufacturing and Technology Rights............................5
4.11 Taxes..........................................................5
4.12 Brokerage......................................................6
4.13 Full Disclosure................................................6
5. REPRESENTATIONS AND WARRANTIES OF ASK JEEVES..........................6
5.1 Organization and Standing......................................6
5.2 Power; Authorization...........................................6
5.3 Capitalization.................................................6
5.4 Shares Validly Issued..........................................6
5.5 Conflicting Agreements.........................................7
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
5.6 Litigation.....................................................7
5.7 Brokerage......................................................7
5.8 Financial Statements...........................................7
6. CLOSING CONDITIONS OF LUMINA..........................................7
6.1 Material Adverse Change........................................7
6.2 Consents, Approvals and Waivers................................7
6.3 Covenants......................................................8
6.4 Proceedings and Documents......................................8
6.5 Offer Letters..................................................8
6.6 License Agreement..............................................8
7. CLOSING CONDITIONS OF ASK JEEVES......................................8
7.1 Satisfactory Due Diligence; Material Adverse Change............8
7.2 Consents, Approvals and Waivers................................8
7.3 Covenants......................................................8
7.4 Proceedings and Documents......................................8
7.5 Offers of Employment...........................................8
7.6 License Agreement..............................................9
7.7 Escrow Agreement...............................................9
8. INDEMNIFICATION.......................................................9
8.1 Lumina Indemnity...............................................9
8.2 Ask Jeeves Indemnity...........................................9
8.3 Indemnification Claims.........................................9
8.4 Defense of Third Party Actions................................10
8.5 Expiration of Representations and Warranties..................11
8.6 Threshold.....................................................11
9. POST-CLOSING COVENANTS...............................................11
9.1 Further Assurances............................................11
9.2 Confidentiality...............................................11
10. MISCELLANEOUS........................................................12
10.1 Governing Law.................................................12
10.2 Waivers; Cumulative Remedies..................................12
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
10.3 Notices.......................................................12
10.4 Audit.........................................................12
10.5 Attorneys' Fees...............................................12
10.6 Expenses......................................................12
10.7 Severability..................................................12
10.8 Title and Headings............................................12
10.9 Successor and Assigns.........................................13
10.10 Rights of Third Parties.......................................13
10.11 Publicity.....................................................13
10.12 Entire Agreement; Amendment...................................13
</TABLE>
iii.
<PAGE> 5
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is entered into effective as of
April 16, 1999 (the "Effective Date") between ASK JEEVES, INC., a California
corporation ("Ask Jeeves"), and LUMINA DECISION SYSTEMS, INC. a California
corporation ("Lumina"). Certain capitalized terms used in this Agreement are
defined in the License Agreement.
RECITALS
A. Lumina is engaged in the business of developing and marketing
business decision support software and related products.
B. Pursuant to the terms and conditions of this Agreement, Lumina wishes
to sell to Ask Jeeves, and Ask Jeeves desires to purchase from Lumina certain
assets related to the Personal Decision Expert ("PDE").
C. Ask Jeeves and Lumina are entering into, concurrently with the
execution of this Agreement, a License Agreement (the "License Agreement")
pursuant to which Lumina is granting to Ask Jeeves an exclusive license to the
Licensed Technology in the Ask Jeeves Field of Use, as defined in the License
Agreement.
D. As a condition of entering this Agreement and the License Agreement,
Ask Jeeves has requested that Lumina agree to certain restrictions in the
License Agreement regarding Lumina's development and use of the Licensed
Technology.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. SALE OF ASSETS; RELATED TRANSACTIONS.
1.1 PURCHASE AND SALE. Subject to the terms and conditions contained
herein, Ask Jeeves agrees to buy and Lumina agrees to sell those certain
tangible and intangible assets, contracts, rights, and properties, including
without limitation the PDE and related Intellectual Property Rights (as defined
below), all as more particularly described in Exhibit A to this Agreement
(collectively, the "Assets").
1.2 ASSIGNMENT OF CONTRACTS. To the best of each parties' knowledge,
there are no contracts directly related to the Assets (collectively, the
"Contracts"). Lumina agrees to assign all of its rights in such Contracts, if
any, to Ask Jeeves. Lumina shall give all such assistance to Ask Jeeves as Ask
Jeeves reasonably requests to enable Ask Jeeves to enjoy the benefit of such
1
<PAGE> 6
Contracts. If consents to the transfer or assignment of such Contracts from
third parties are required or in Ask Jeeves' reasonable opinion desirable and
such consents have not already been obtained, Lumina will use its best efforts
to obtain such consents prior to the Closing Date.
1.3 COMPLETE TRANSFER. Lumina expressly agrees that the sale of the
Assets under this Agreement constitutes a complete transfer of all of its
rights, title and interest with respect to the Assets and that Lumina reserves
no rights to market or otherwise transfer the Assets. Lumina hereby assigns,
waives, and/or sublicenses any and all Moral Rights (as defined below) Lumina
may have in or with respect to the Assets to the maximum extent permitted under
the laws of any relevant jurisdiction worldwide. For purposes of this Section
"Moral Rights" means any right to (i) divulge a copyrighted work to the public;
(ii) retract a copyrighted work from the public; (iii) claim authorship of a
copyrighted work; (iv) object to any distortion, mutilation or other
modification of a copyrighted work; or (v) any and all similar rights, existing
under the law of any jurisdiction in the world, or under any treaty. Ask Jeeves
shall have no obligation to Lumina to support, maintain, offer, or do any other
act relating to the Assets and may dispose of the Assets as Ask Jeeves, in its
sole discretion, decides. Notwithstanding the foregoing, Lumina will retain all
rights to the Licensed Technology (as defined in the License Agreement) outside
the Ask Jeeves Field of Use (as defined in the License Agreement). Further,
except as restricted by any noncompetition obligations set forth in the License
Agreement, Lumina shall retain the right to create derivative works from the
Licensed Technology (as defined in the License Agreement).
1.3.1 NO ASSUMPTION OF LIABILITIES. This Agreement does not
transfer, Ask Jeeves does not assume, and Ask Jeeves expressly disclaims any and
all liabilities, costs, debts, claims and obligations of Lumina relating to the
Assets or otherwise. Ask Jeeves shall have no obligation with respect to any
obligations of Lumina arising prior to the Closing Date.
2. PAYMENT.
2.1 PURCHASE PRICE. The aggregate purchase price for the Assets shall be
eight hundred twelve thousand five hundred ($812,500) dollars and shall be paid
as set forth on Exhibit B subject to the successful completion of the closing as
set forth in Section 3.1.
2.2 TAXES. Lumina shall be responsible for any and all sales or other
transaction taxes, duties and other similar charges payable in connection with
the sale of the Assets or the transactions and payments contemplated hereby.
3. CLOSING.
3.1 CLOSING. On the Closing Date, (a) Ask Jeeves shall pay to Lumina,
the amount in cash and other consideration set forth in Exhibit B, and (b)
Lumina shall deliver the following to Ask Jeeves: (i) a bill of sale relating to
the Assets in a form reasonably acceptable to Ask Jeeves; (ii) a duly executed
assignment of the Contracts in a form reasonably acceptable to Ask Jeeves; and
(iii) a duly executed assignment of the Intellectual Property Rights (as defined
in Section 4.3.1) included in the Assets in a form reasonably acceptable to Ask
Jeeves.
3.2 TRANSFER OF ASSETS. On the Closing Date, Lumina shall deliver to Ask
Jeeves at Ask Jeeves' premises, or at such other place as the parties to this
Agreement may mutually agree, the Assets (including without limitation, all
source code thereto and programmers' notes, test
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2
<PAGE> 7
scripts, build scripts and any and all other documentation and information
necessary and useful to understanding and using the source code for the Assets,
which shall be transferred on CD-ROM).
4. REPRESENTATIONS AND WARRANTIES OF LUMINA.
Except as disclosed or excepted in the Schedule of Exceptions (the
"Schedule"), which shall state the specific subsection of this Section 4 to
which each disclosure or exception is made, Lumina represents and warrants to
Ask Jeeves as set forth in this Section 4.
4.1 ORGANIZATION AND STANDING. Lumina is a corporation organized,
validly existing and in good standing under the laws of the State of California.
4.2 POWER AND AUTHORIZATION. Lumina has all requisite legal power and
authority to enter into and perform this Agreement in accordance with its terms.
The execution and delivery of this Agreement and the transactions contemplated
hereby have been validly and duly authorized by all necessary corporate action
on the part of Lumina and no further authorization or approval, whether from
directors or shareholders of Lumina, or governmental bodies or otherwise, is
necessary to enable Lumina to enter into and perform the same; and this
Agreement, when executed and delivered, shall constitute the legal and binding
obligation of Lumina, enforceable against Lumina in accordance with its terms.
4.3 TITLE TO ASSETS; INTELLECTUAL PROPERTY.
4.3.1 GOOD TITLE. Lumina has good and marketable title in and to
all of the Assets including any patents, patent applications, service marks,
trade names, trademarks, trademark applications, copyrights, copyright
applications, trade secrets, know-how, data or other proprietary or intellectual
property rights included in the Assets (collectively, "Intellectual Property
Rights") and such are not subject to any mortgage, pledge, lien, lease, claim,
encumbrance, charge, security interest, royalty obligations or other interest or
claim of any kind or nature whatsoever, and Lumina and does not license any
component thereof from a third party. There are no material agreements or
arrangements between Lumina and any third party which are reasonably likely to
have a material effect upon Lumina's title to and other rights respecting the
Assets. Lumina has the sole right to bring actions for infringement of any
Intellectual Property Rights included in the Assets.
4.3.2 EMPLOYEES. The Assets do not include any inventions of any
of Lumina's officers, employees or consultants made or owned prior to their
appointment by Lumina. All current or former employees and consultants have
assigned in writing all of their rights in the Intellectual Property Rights
related to the Assets to Lumina. No current or former employee or consultant of
Lumina owns or has claimed an interest in any Intellectual Property Rights
related to the Assets or, to the best of Lumina's knowledge, any other
Intellectual Property Rights directly or indirectly competitive with those
related to the Assets.
4.3.3 PROTECTION OF OWNERSHIP INTEREST. Lumina has taken and will
take all reasonable security measures to protect the secrecy, confidentiality
and value of all Intellectual Property Rights transferred in accordance with
this Agreement. Lumina has not taken any action or, to its knowledge, failed to
take an action that directly or indirectly caused the proprietary
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
3
<PAGE> 8
information contained in the Assets to enter the public domain or in any way
affected its value or Lumina's absolute and unconditional ownership thereof. No
source code or object code of any Intellectual Property Rights is subject to
escrow and such source code has not been disclosed to any third party.
4.3.4 NO LIMITATIONS ON ASSETS. With respect to the transfer of
rights in and to the Assets under this Agreement, except as to the Contracts
assigned to Ask Jeeves under Section 1.2, Ask Jeeves shall be subject to no
limitations, obligations or restrictions with regard to the sale, license,
distribution or other transfer or exploitation of the Assets, whether in the
form transferred to Ask Jeeves or after modification. All rights to any tangible
or intangible property material (including, but not limited to, all Intellectual
Property Rights in the Assets) to the Assets and used in Lumina's business as
presently conducted or currently planned by Lumina, or as conducted by any
predecessor entity to Lumina or prior owner of any portion of the Assets, have
been validly transferred to Lumina free of any adverse claims by any such
predecessor entity, or any partner, limited partner, security holder or creditor
of any such predecessor entity, and no such property rights remain in any such
entity. Lumina is under no obligation to pay any other party any royalties or
other fixed or contingent amounts based upon the sale, license, distribution or
other use or exploitation of the Assets.
4.3.5 NO VIOLATION OF THIRD PARTY RIGHTS. The use of the Assets
and the Intellectual Property Rights in the Assets in the conduct of Lumina's
business have not and do not infringe or conflict with the rights of others
under any Intellectual Property Rights in any jurisdiction in the world.
4.3.6 NO INDEMNITY OBLIGATIONS. Lumina has not agreed to
indemnify any third party for or against any infringement of any Intellectual
Property Rights.
4.3.7 YEAR 2000. To Lumina's knowledge, the Assets and the
Intellectual Property Rights in the Assets include design, performance and
functionality so that Lumina does not reasonably expect that the Assets and the
Intellectual Property Rights in the Assets will experience invalid or incorrect
results or abnormal hardware or software operation related to calendar year
2000. To Lumina's knowledge, the Assets and the Intellectual Property Rights in
the Assets include calendar year 2000 date conversion and compatibility
capabilities, including, but not limited to, date data century recognition, same
century and multiple century formula and date value calculations, and user
interface date data values that reflect the century and accurately accept date
input and process, store and output date data and date-related data, including,
without limitation, calculating, comparing, sorting and sequencing such data and
calculating leap years before, during and after the calendar year 2000 A.D.
without manual intervention.
4.4 CONFLICTING AGREEMENTS. Neither the execution nor delivery by Lumina
of this Agreement nor compliance by Lumina with the terms and provisions hereof
will (a) conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, the
bylaws or articles of incorporation of Lumina, any award of any arbitrator or
any other agreement, any regulation, law, judgment, order or the like to which
Lumina is subject or any Contract, or (b) result in the creation of any lien
upon all or any of the Assets. Lumina is not a party to, or otherwise subject to
any provision contained in, any
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
4
<PAGE> 9
instrument evidencing indebtedness, any agreement relating thereto or any other
contract or agreement which restricts or otherwise limits the transfer of the
Assets.
4.5 CAPITALIZATION. The shareholders of Lumina listed on Part 4.5 of the
Schedule beneficially own the shares listed on Part 4.5, and will be as of the
Closing Date, the sole shareholders of Lumina (the "Shareholders"). Only the
Shareholders shall have the right to receive the Shares (as defined in Exhibit
B) upon the Company's distribution of the Shares (as defined in Exhibit B) after
the Closing Date.
4.6 LITIGATION. No action, suit, proceeding or investigation is pending
or threatened against Lumina: (a) which questions the validity of this Agreement
or the License Agreement or the right of Lumina to enter into this Agreement or
the License Agreement or seeks to prevent any of the transactions contemplated
under this Agreement or the License Agreement, (b) which is reasonably likely to
have a material adverse effect on the Assets, (c) which challenges the ownership
or use, in any respect, of the Assets, or (d) which challenges the rights of
Lumina under or the validity of any of the Intellectual Property Rights. There
is no judgment, decree, injunction, rule or order of any court, governmental
department, commission agency, instrumentality or arbitrator or other similar
ruling outstanding against Lumina relating to the Assets or this transaction. No
action, suit, proceeding or investigation is pending or threatened by Lumina
against any third party relating to the Assets.
4.7 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. Lumina is not in
violation of any laws, material governmental orders, rules or regulations,
whether federal, state or local, to which Lumina or the Assets are subject
except for any such violations which are not reasonably likely to have a
material adverse effect on Lumina. Lumina has prior to the Closing Date
delivered to Ask Jeeves a true and correct list of all licenses, franchises,
permits and other governmental authorizations held by Lumina that are material
in connection with Lumina's business related to the ownership and use of the
Assets.
4.8 BULK SALES LAWS. The Bulk Sales laws of no state are applicable to
the sale and transfer of the Assets.
4.9 MATERIAL CONTRACTS, COMMITMENTS, AND PRODUCT WARRANTIES. Lumina has
supplied Ask Jeeves true and correct copies of all of the Contracts. Except for
terminated agreements, each of the Contracts is valid, binding and in full force
and effect in all material respects and enforceable by Lumina, in accordance
with its terms. Lumina is not in default under any of the Contracts. No party to
a Contract has terminated or overtly threatened termination of any contractual
arrangement with Lumina directly related to the Assets. To the knowledge of
Lumina, no other party to any of the Contracts is in material default
thereunder. Lumina has supplied to Ask Jeeves copies of any and all written
warranties by Lumina granted with respect to the Assets.
4.10 MANUFACTURING AND TECHNOLOGY RIGHTS. Lumina has not granted rights
to manufacture, publish, produce, assemble, license or sell the Intellectual
Property Rights or any of its technology to any other person and is not bound by
any agreement which affects Lumina's exclusive right to manufacture, publish,
produce, assemble, license, distribute or sell the Intellectual Property Rights.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
5
<PAGE> 10
4.11 TAXES. There are no tax liens against the Assets and there is no
basis for any such lien.
4.12 BROKERAGE. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
Lumina.
4.13 FULL DISCLOSURE. This Agreement, the Exhibits and Schedules hereto,
the License Agreement, and all other documents delivered by Lumina to Ask Jeeves
or their attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, when taken as a whole, do not
contain any untrue statement of a material fact nor, to Lumina's knowledge, omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading.
5. REPRESENTATIONS AND WARRANTIES OF ASK JEEVES.
Ask Jeeves represents and warrants to Lumina as follows:
5.1 ORGANIZATION AND STANDING. Ask Jeeves is a corporation duly
organized, validly existing and in good standing under the law of California.
5.2 POWER; AUTHORIZATION. Ask Jeeves has all requisite legal power and
authority to enter into and perform this Agreement in accordance with its terms.
The execution and delivery of this Agreement and the transactions contemplated
hereby have been validly and duly authorized by all necessary corporate action
on the part of Ask Jeeves and no further authorization or approval, whether from
directors or shareholders of Ask Jeeves or governmental bodies or otherwise, is
necessary to enable Ask Jeeves to enter into and perform the same; and this
Agreement, when executed and delivered, shall constitute the legal and binding
obligation of Ask Jeeves, enforceable against Ask Jeeves in accordance with its
terms.
5.3 CAPITALIZATION. As of April 6, 1999, Ask Jeeve's authorized capital
stock consists of (a) Eighty Million (80,000,000) shares of Common Stock,
without par value, of which Twenty Three Million One Hundred Sixty Seven
Thousand Four Hundred Sixty Six (23,167,466) shares are issued and outstanding
and of which Eleven Million Nine Hundred Forty Six Thousand Seven Hundred Forty
Five (11,946,745) shares are reserved for issuance under Ask Jeeves' 1996 Equity
Incentive Plan and of which Seventy Eight Thousand (78,000) shares are reserved
for issuance pursuant to outstanding warrants, and (b) Twenty Million
(20,000,000) shares of Preferred Stock, without par value, of which Seven
Million Five Hundred Thousand (7,500,000) shares have been designated Series A
Preferred Stock, without par value, of which Seven Million Four Hundred Nineteen
Thousand Seven Hundred Sixty Nine (7,419,769) shares are issued and outstanding
and Twelve Million Five Hundred Thousand (12,500,000) shares have been
designated Series B Preferred Stock, without par value, of which Eleven Million
Five Hundred Fifty One Thousand Six Hundred Thirteen (11,551,613) shares are
issued and outstanding. There are no outstanding options other than pursuant to
the 1996 Equity Incentive Plan.
5.4 SHARES VALIDLY ISSUED. When issued in compliance with the provisions
of this Agreement, the Shares (as defined in Exhibit C) will be validly issued,
fully paid and
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
6
<PAGE> 11
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Shares (as defined in Exhibit C) may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
5.5 CONFLICTING AGREEMENTS. Neither the execution nor delivery by Ask
Jeeves of this Agreement nor compliance by Ask Jeeves with the terms and
provisions hereof will conflict with, or result in a breach of (a) the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, the bylaws or articles of incorporation of Ask Jeeves or any
agreement to which Ask Jeeves is a party, which would prevent any of the
transactions contemplated under this Agreement or the License Agreement, or (b)
any regulation, law, judgment, order or the like to which Ask Jeeves is subject,
the default or violation of which would prevent any of the transactions
contemplated under this Agreement or the License Agreement.
5.6 LITIGATION. No action, suit, proceeding or investigation is pending
or threatened against Ask Jeeves which questions the validity of this Agreement
or the License Agreement or the right of Ask Jeeves to enter into this Agreement
or the License Agreement or seeks to prevent any of the transactions
contemplated under this Agreement or the License Agreement.
5.7 BROKERAGE. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of Ask
Jeeves.
5.8 FINANCIAL STATEMENTS. Ask Jeeves has delivered to Lumina (a) its
audited balance sheet as at December 31, 1997 and audited statement of income
and cash flows for the twelve months ending December 31, 1997, and (b) its
unaudited balance sheet as at December 31, 1998 and unaudited statement of
income and cash flows for the twelve months ending December 31, 1998
(collectively, the "Financial Statements"). The Financial Statements, together
with the notes thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, except as disclosed therein, and present fairly the financial
condition and position of Ask Jeeves as of December 31, 1998; provided, however,
that the unaudited financial statements are subject to normal recurring year end
audit adjustments (which are not expected to be material), and do not contain
all footnotes required under generally accepted accounting principles.
6. CLOSING CONDITIONS OF LUMINA. Lumina's obligations to sell the Assets
are subject to the fulfillment on or prior to the Closing Date of all of the
conditions set forth in this Section 6. Ask Jeeves acknowledges and agrees that
Lumina shall not owe Ask Jeeves any amount for a failure of the closing to occur
as a result of a closing condition.
6.1 MATERIAL ADVERSE CHANGE. Lumina shall be satisfied in its sole
discretion that the representations and warranties made by Ask Jeeves in Section
5 above are true and correct as of the Closing Date.
6.2 CONSENTS, APPROVALS AND WAIVERS. Lumina and Ask Jeeves shall have
obtained, in a manner satisfactory to Lumina and its counsel, any and all
approvals, consents, permits and
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
7
<PAGE> 12
waivers and made all filings necessary or appropriate for the sale and transfer
of the Assets under this Agreement.
6.3 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by Ask Jeeves on or prior to the Closing Date
shall have been performed or complied with in all respects.
6.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to Lumina and its counsel, and Lumina and its counsel shall have received
all such counterpart originals or certified or other copies of such documents
and instruments as they may reasonably request.
6.5 OFFER LETTERS. Ask Jeeves and the Lumina employees to whom Ask
Jeeves has offered employment prior to Closing shall have entered into offer
letters substantially in the form attached hereto as Exhibit C (each an "Offer
Letter").
6.6 LICENSE AGREEMENT. The License Agreement shall have been executed
and delivered by the parties thereto.
7. CLOSING CONDITIONS OF ASK JEEVES. Ask Jeeves' obligations to purchase
the Assets are subject to the fulfillment on or prior to the Closing Date of all
of the conditions set forth in this Section 7.
7.1 SATISFACTORY DUE DILIGENCE; MATERIAL ADVERSE CHANGE. Ask Jeeves
shall be satisfied in its sole discretion (a) that the representations and
warranties made by Lumina in Section 4 above are true and correct as of the
Closing Date, (b) that any matters included in the Schedule which Ask Jeeves
deems to be unacceptable and which have been specified in writing to Lumina have
been remedied to Ask Jeeves's satisfaction, and (c) with the results of its
business, technical, legal and financial review of the books, records,
agreements and other legal documents and business organization of Lumina.
7.2 CONSENTS, APPROVALS AND WAIVERS. Lumina and Ask Jeeves shall have
obtained, in a manner satisfactory to Ask Jeeves and its counsel, any and all
approvals, consents, permits and waivers and made all filings necessary or
appropriate for the sale and transfer of the Assets under this Agreement.
7.3 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by Lumina on or prior to the Closing Date shall
have been performed or complied with in all respects.
7.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to Ask Jeeves and its counsel, and Ask Jeeves and its counsel shall have
received all such counterpart originals or certified or other copies of such
documents and instruments as they may reasonably request.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
8
<PAGE> 13
7.5 OFFERS OF EMPLOYMENT. Ask Jeeves and the Lumina employees to whom
Ask Jeeves has offered employment prior to Closing shall have executed Offer
Letters.
7.6 LICENSE AGREEMENT. The License Agreement shall have been executed
and delivered by the parties thereto.
7.7 ESCROW AGREEMENT. The escrow agreement among Ask Jeeves, Lumina,
certain shareholders of Lumina, Max Henrion as the shareholder representative,
and ___________ as the escrow agent (the "Escrow Agreement") shall have been
executed and delivered by the parties thereto.
8. INDEMNIFICATION.
8.1 LUMINA INDEMNITY. Lumina and its successors (collectively, the
"Sellers") agree to indemnify Ask Jeeves, its affiliates, its subsidiaries, or
its successors (collectively the "Purchasers") and hold them harmless from and
against any and all liabilities, losses, damages, costs or expenses (including
without limitation reasonable legal and expert witnesses' fees and expenses)
incurred by the Purchasers, directly or indirectly, to the extent that such
liabilities, losses, damages, costs or expenses ("Damages") are occasioned by,
caused by or arise out of:
8.1.1 Any breach of any of the representations or warranties or
failure to perform any of the covenants made by the Sellers in this Agreement,
or any certificate, exhibit, instrument or other document delivered pursuant to
this Agreement; or
8.1.2 Any debts, claims, liabilities, or obligations of the
Sellers not expressly assumed by Purchaser pursuant to this Agreement; or
8.1.3 Any breach of any of the representations or warranties or
failure to perform any of the covenants made by the Sellers in the License
Agreement, or any certificate, exhibit, instrument or other document delivered
pursuant to the License Agreement.
8.2 ASK JEEVES INDEMNITY. Purchaser agrees to indemnify Seller and hold
them harmless from and against any and all liabilities, losses, damages, costs
or expenses (including without limitation reasonable legal and expert witnesses'
fees and expenses) incurred by the Sellers to the extent that such Damages are
occasioned by, caused by or arise out of:
8.2.1 any breach of any of the representations or warranties or
failure to perform any of the covenants made by Purchasers in this Agreement, or
any certificate, exhibit, instrument or other document delivered pursuant to
this Agreement; or
8.2.2 Any breach of any of the representations or warranties or
failure to perform any of the covenants made by the Purchasers in the License
Agreement, or any certificate, exhibit, instrument or other document delivered
pursuant to the License Agreement.
8.3 INDEMNIFICATION CLAIMS. If either party hereto (the "Claimant")
wishes to assert an indemnification claim against the other party hereto, the
Claimant shall deliver to the other party a written notice setting forth:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
9
<PAGE> 14
8.3.1 the specific representation and warranty alleged to have
been breached by such other party;
8.3.2 a detailed description of the facts and circumstances
giving rise to the alleged breach of such representation and warranty; and
8.3.3 a detailed description of, and a reasonable estimate of the
total amount of, the Damages actually incurred or expected to be incurred by the
Claimant as a direct result of such alleged breach.
A copy of any notice delivered to the Sellers shall be delivered by the
Purchasers to the Escrow Agent and the Shareholder Representative, each as
defined in the Escrow Agreement.
8.4 DEFENSE OF THIRD PARTY ACTIONS. If either party hereto (the
"Indemnified Party") receives notice or otherwise obtains knowledge of the
commencement or threat of any claim, demand, dispute, action, suit, examination,
audit, proceeding, investigation, inquiry or other similar matter that may give
rise to an indemnification claim against the other party hereto (the
"Indemnifying Party"), then the Indemnitee shall promptly deliver to the
Indemnified Party a written notice describing such complaint or the commencement
of such action or proceeding; provided, however, that the failure to so notify
the Indemnifying Party shall relieve the Indemnifying Party from liability under
this Agreement with respect to such claim only if, and only to the extent that,
such failure to notify the Indemnifying Party results in the forfeiture by the
Indemnifying Party of rights and defenses otherwise available to the
Indemnifying Party with respect to such claim or the opportunity to defend or
participate in the defense of said claim. The Indemnifying Party shall have the
right, upon written notice delivered to the Indemnified Party within 20 days
thereafter to assume the defense of such action or proceeding, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of the fees and disbursements of such counsel. In the event, however,
that the Indemnifying Party declines or fails to assume the defense of the
action or proceeding or to employ counsel reasonably satisfactory to the
Indemnified Party, in either case within such 20 day period, then such
Indemnified Party may employ counsel, reasonably acceptable to the Indemnifying
Party, to represent or defend it in any such action or proceeding and the
Indemnifying Party shall pay the reasonable fees and disbursements of such
counsel as incurred; provided, however, that the Indemnifying Party shall not be
required to pay the fees and disbursements of more than one counsel for all
Indemnified Parties in any jurisdiction in any single action or proceeding. In
any action or proceeding with respect to which indemnification is being sought
hereunder, the Indemnified Party or the Indemnifying Party, whichever is not
assuming the defense of such action, shall have the right to participate in such
litigation and to retain its own counsel at such party's own expense. The
Indemnifying Party or the Indemnified Party, as the case may be, shall at all
times use all commercially reasonable efforts to keep the Indemnifying Party or
the Indemnified Party, as the case may be, reasonably apprised of the status of
the defense of any action, the defense of which they are maintaining, and to
cooperate in good faith with each other with respect to the defense of any such
action. No Indemnified Party may settle or compromise any claim or consent to
the entry of any judgment with respect to which indemnification is being sought
hereunder without the prior written consent of the Indemnifying Party, which
shall not be unreasonably withheld. The Indemnifying Party shall not settle any
claim or assertion, unless the
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
10
<PAGE> 15
Indemnified Party consents in writing to such settlement, which consent shall
not be unreasonably withheld.
8.5 EXPIRATION OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties set forth in this Agreement shall terminate and
expire, and shall cease to be of any force or effect on the first anniversary of
the Closing Date, and all liability of Lumina and Ask Jeeves with respect to
such representations and warranties shall thereupon be extinguished; provided,
however, that if, prior to such first anniversary, Claimant delivers a written
notice to the other party hereto or to the Escrow Agent, then the specific
indemnification claim set forth in such notice shall survive such first
anniversary (and shall not be extinguished thereby) until the settlement of such
specific claim.
8.6 THRESHOLD. Neither the Sellers nor the Purchasers shall be required
to make any indemnification payment pursuant to Section 8.1 or 8.2,
respectively, until such time as the total amount of all Damages that have been
directly or indirectly suffered or incurred by an Indemnified Party, or to which
an Indemnified Party has or otherwise becomes subject to, exceeds $50,000 in the
aggregate. At such time as the total amount of such Damages exceeds $50,000 in
the aggregate, the Indemnified Party shall be entitled to be indemnified against
the full amount of such Damages (and not merely the portion of such Damages
exceeding $50,000).
9. POST-CLOSING COVENANTS.
9.1 FURTHER ASSURANCES. Lumina shall not voluntarily undertake any
course of action which interferes in any way with the rights obtained by Ask
Jeeves hereunder or is otherwise inconsistent with the satisfaction of its
obligations or agreements set forth in this Agreement. Lumina hereby agrees not
to contest Ask Jeeves's ownership of the Intellectual Property Rights or Ask
Jeeves's title to the Assets. Lumina shall execute, acknowledge and deliver any
further assignments, conveyances and other assurances, documents and instruments
of transfer, consistent with the terms of this Agreement, which are reasonably
requested and prepared by Ask Jeeves or its counsel and shall take any other
action, consistent with the terms of this Agreement, that may be reasonably
requested and prepared by Ask Jeeves or its counsel for the purpose of
assigning, transferring, granting, conveying, and confirming to Ask Jeeves or
reducing to its possession, any or all of the Assets or the liabilities. Ask
Jeeves shall be solely responsible for all out-of-pocket costs related to such
requests. If Ask Jeeves cannot secure Lumina's signature for any of the
foregoing after reasonable efforts, Lumina appoints Ask Jeeves as Lumina's
attorney-in-fact to take all actions Ask Jeeves deems reasonably necessary to
exercise its rights under this Section.
9.2 CONFIDENTIALITY. From and after the Closing Date, to the maximum
extent permitted by applicable law, all technical, marketing and other
information directly relating to the Assets and Intellectual Property Rights
thereto shall at all times be and remain the sole and exclusive property of Ask
Jeeves. At all times after the Closing Date, Lumina shall retain in strictest
confidence, and shall not disclose to third parties or use for its benefit or
for the benefit of any third party, all information assigned under this
Agreement or disclosed by Ask Jeeves or in any other way relating to the Assets.
Lumina understands and agrees that Ask Jeeves's remedies at law for a breach by
Lumina of its obligations under this Section will be inadequate and that Ask
Jeeves shall, in the event of any such breach, be entitled to equitable relief
(including without
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
11
<PAGE> 16
limitation injunctive relief and specific performance) in addition to all other
remedies provided under this Agreement or available to Ask Jeeves at law.
10. MISCELLANEOUS.
10.1 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of California applicable to
contracts between California residents entered into and to be performed entirely
within the State of California. Any action or proceeding brought by either party
against the other arising out of or related to this Agreement shall be brought
exclusively in a state or federal court in Santa Clara County, California.
10.2 WAIVERS; CUMULATIVE REMEDIES. Any waiver, consent or the like must
be in writing. Any waiver by either party of any breach of this Agreement by the
other party shall not constitute a waiver of any other or subsequent breach of
this Agreement. All remedies, either under this Agreement or by law or
otherwise, afforded to the parties hereunder shall be cumulative and not
alternative.
10.3 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be effective upon receipt by facsimile
with a confirming copy sent by first-class mail, postage prepaid, or five (5)
days after deposit in the U.S. postal system by certified or registered mail,
return receipt requested, postage prepaid to the addresses first set forth below
such other address as a party may designate for itself by providing notice
hereunder:
If to Lumina: If to Ask Jeeves:
Max Henrion Amy Slater
Lumina Decision Systems, Inc. Ask Jeeves, Inc.
59 N. Santa Cruz Avenue, Suite Q 918 Parker Street
Los Gatos, California 95030 Berkeley, California 94210
Fax: (408) 354-9562 Fax: (510) 649-8663
10.4 AUDIT. Each party shall provide the other with notice of an audit
by any tax authority of such party's books and records which is reasonably
likely to relate to the Assets or the sale of the Assets in this transaction.
10.5 ATTORNEYS' FEES. In any action brought to construe or enforce this
Agreement, the prevailing party shall receive in addition to any other remedy to
which it may be entitled, compensation for all costs incurred in pursuing such
action, including, but not limited to, reasonable attorneys' and expert
witnesses' fees and costs.
10.6 EXPENSES. Each party shall bear its own expenses and legal fees
incurred on its behalf with respect to this Agreement and the transaction
contemplated hereby.
10.7 SEVERABILITY. In case any provision of this Agreement is held to be
invalid or unenforceable, such provision shall be deemed amended to the extent
required to make it valid and enforceable and such amended provision and the
remaining provisions of this Agreement will remain in full force and effect.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
12
<PAGE> 17
10.8 TITLE AND HEADINGS. The titles and headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.9 SUCCESSOR AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors and assigns of the parties
hereto.
10.10 RIGHTS OF THIRD PARTIES. Nothing contained in this Agreement,
express or implied, shall be deemed to confer any rights or remedies upon, or
obligate any of the parties hereto, to any person or entity.
10.11 PUBLICITY. The terms of this Agreement shall be considered
confidential information of Ask Jeeves and Lumina. Both parties agree that the
specific provisions hereof shall not be revealed or disclosed by it without the
prior written consent of the other except to the extent such disclosure is
required by applicable law or regulation.
10.12 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Exhibits hereto
and the other documents delivered pursuant hereto constitute the full,
exclusive, complete and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof and supersedes and revokes
all other previous discussions, understanding and agreements, whether oral or
written, between the parties with regard to the subject matter hereof. Any term
of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the affected
party.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
13
<PAGE> 18
The parties to this Agreement have caused this Agreement to be executed
and delivered as of April 16, 1999.
ASK JEEVES, INC.,
a California corporation
By: /s/ Rob Wrubel
------------------------------------
Printed Name: Rob Wrubel
-------------------------
Title: CEO
---------------------------------
LUMINA DECISION SYSTEMS, INC.
a California corporation
By: /s/ Max Henrion
------------------------------------
Printed Name: Max Henrion
-------------------------
Title: CEO
----------------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE> 19
EXHIBIT A
ASSETS
[*]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE> 1
EXHIBIT 10.28
OFFICE LEASE
BETWEEN
EMERY STATION ASSOCIATES, LLC (LANDLORD)
AND
ASK JEEVES, INC. (TENANT)
EMERYSTATION PROJECT
Emeryville, California
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE ONE - BASIC LEASE PROVISIONS.........................................................1
1.01 BASIC LEASE PROVISIONS........................................................1
1.02 ENUMERATION OF EXHIBITS & RIDER(S) AND ADDENDUM...............................3
1.03 DEFINITIONS...................................................................3
ARTICLE TWO - PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING........................8
2.01 LEASE OF PREMISES.............................................................8
2.02 TERM..........................................................................8
2.03 FAILURE TO GIVE POSSESSION....................................................8
2.04 CONDITION OF PREMISES.........................................................9
2.05 PARKING.......................................................................9
ARTICLE THREE - RENT.........................................................................9
ARTICLE FOUR - RENT ADJUSTMENTS AND PAYMENTS................................................10
4.01 RENT ADJUSTMENTS.............................................................10
4.02 STATEMENT OF LANDLORD........................................................10
4.03 BOOKS AND RECORDS............................................................11
4.04 PARTIAL OCCUPANCY............................................................11
4.05 TENANT OR LEASE SPECIFIC TAXES...............................................11
ARTICLE FIVE - SECURITY DEPOSIT.............................................................12
ARTICLE SIX - SERVICES......................................................................12
6.01 LANDLORD'S GENERAL SERVICES..................................................12
6.02 ELECTRICAL SERVICES..........................................................13
6.03 ADDITIONAL AND AFTER-HOUR SERVICES...........................................13
6.04 TELEPHONE SERVICES...........................................................14
6.05 DELAYS IN FURNISHING SERVICES................................................14
6.06 CHOICE OF SERVICE PROVIDER...................................................15
6.07 SIGNAGE......................................................................15
ARTICLE SEVEN - POSSESSION, USE AND CONDITION OF PREMISES...................................15
7.01 POSSESSION AND USE OF PREMISES...............................................15
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS.......................................16
7.03 QUIET ENJOYMENT..............................................................17
ARTICLE EIGHT - MAINTENANCE.................................................................17
8.01 LANDLORD'S MAINTENANCE.......................................................17
8.02 TENANT'S MAINTENANCE.........................................................18
ARTICLE NINE - ALTERATIONS AND IMPROVEMENTS.................................................18
9.01 TENANT ALTERATIONS...........................................................18
9.02 LIENS........................................................................19
ARTICLE TEN - ASSIGNMENT AND SUBLETTING.....................................................19
10.01 ASSIGNMENT AND SUBLETTING....................................................19
10.02 RECAPTURE....................................................................20
10.03 EXCESS RENT..................................................................20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
10.04 TENANT LIABILITY.............................................................21
10.05 ASSUMPTION AND ATTORNMENT....................................................21
ARTICLE ELEVEN - DEFAULT AND REMEDIES.......................................................21
11.01 EVENTS OF DEFAULT............................................................21
11.02 LANDLORD'S REMEDIES..........................................................22
11.03 ATTORNEY'S FEES..............................................................24
11.04 BANKRUPTCY...................................................................24
11.05 LANDLORD'S DEFAULT...........................................................24
ARTICLE TWELVE - SURRENDER OF PREMISES......................................................24
12.01 IN GENERAL...................................................................24
12.02 LANDLORD'S RIGHTS............................................................25
ARTICLE THIRTEEN - HOLDING OVER.............................................................25
ARTICLE FOURTEEN - DAMAGE BY FIRE OR OTHER CASUALTY.........................................25
14.01 SUBSTANTIAL UNTENANTABILITY..................................................25
14.02 INSUBSTANTIAL UNTENANTABILITY................................................26
14.03 RENT ABATEMENT...............................................................26
14.04 WAIVER OF STATUTORY REMEDIES.................................................26
ARTICLE FIFTEEN - EMINENT DOMAIN............................................................27
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART..........................................27
15.02 TAKING OF PART...............................................................27
15.03 COMPENSATION.................................................................27
ARTICLE SIXTEEN - INSURANCE.................................................................27
16.01 TENANT'S INSURANCE...........................................................27
16.02 FORM OF POLICIES.............................................................28
16.03 LANDLORD'S INSURANCE.........................................................28
16.04 WAIVER OF SUBROGATION........................................................28
16.05 NOTICE OF CASUALTY...........................................................29
ARTICLE SEVENTEEN - WAIVER OF CLAIMS AND INDEMNITY..........................................29
17.01 WAIVER OF CLAIMS.............................................................29
17.02 INDEMNITY BY TENANT..........................................................30
ARTICLE EIGHTEEN - RULES AND REGULATIONS....................................................30
18.01 RULES........................................................................30
18.02 ENFORCEMENT..................................................................30
ARTICLE NINETEEN - LANDLORD'S RESERVED RIGHTS...............................................30
ARTICLE TWENTY - ESTOPPEL CERTIFICATE.......................................................31
20.01 IN GENERAL...................................................................31
20.02 ENFORCEMENT..................................................................31
ARTICLE TWENTY-ONE - RELOCATION OF TENANT...................................................31
ARTICLE TWENTY-TWO - REAL ESTATE BROKERS....................................................31
ARTICLE TWENTY-THREE - MORTGAGEE PROTECTION.................................................32
23.01 SUBORDINATION AND ATTORNMENT.................................................32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
23.02 MORTGAGEE PROTECTION.........................................................32
ARTICLE TWENTY-FOUR - NOTICES...............................................................33
ARTICLE TWENTY-FIVE - MISCELLANEOUS.........................................................33
25.01 LATE CHARGES.................................................................34
25.02 NO JURY TRIAL; VENUE; JURISDICTION...........................................34
25.03 NONDISCRIMINATION............................................................34
25.04 OPTION.......................................................................34
25.05 TENANT AUTHORITY.............................................................34
25.06 ENTIRE AGREEMENT.............................................................34
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE...............................35
25.08 EXCULPATION..................................................................35
25.09 ACCORD AND SATISFACTION......................................................35
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING...................................35
25.11 BINDING EFFECT...............................................................35
25.12 CAPTIONS.....................................................................35
25.13 TIME; APPLICABLE LAW; CONSTRUCTION...........................................35
25.14 ABANDONMENT..................................................................36
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES..................................36
25.16 SECURITY SYSTEM..............................................................36
25.17 NO LIGHT, AIR OR VIEW EASEMENTS..............................................36
25.18 RECORDATION..................................................................36
25.19 SURVIVAL.....................................................................36
25.20 RIDERS.......................................................................37
</TABLE>
iii
<PAGE> 5
OFFICE LEASE
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS
In the event of any conflict between these Basic Lease Provisions and any other
Lease provision, such other Lease provision shall control.
(1) BUILDING AND ADDRESS:
EmeryStation
5858 Landregan
Emeryville, California 94608
(2) LANDLORD AND ADDRESS:
Emery Station Associates, LLC
1120 Nye Street, Suite 400
San Rafael, California 94901
Notices to Landlord shall be addressed:
Emery Station Associates, LLC
c/o Wareham Development Corporation
1120 Nye Street, Suite 400
San Rafael, California 94901
With a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94901
Attention: David H. Kremer, Esq.
(3) TENANT AND CURRENT ADDRESS:
(a) Name: Ask Jeeves Inc.
(b) State of incorporation: California
Notices to Tenant shall be addressed:
Ask Jeeves Inc.
5858 Landregan, Suite No. 350
Emeryville, California 94608
Attention: President and General Counsel
With a copy to:
Stein & Lubin LLP
600 Montgomery Street, 14th Floor
San Francisco, California 94111
Attention: Mark D. Lubin, Esq.
1
<PAGE> 6
(4) DATE OF LEASE: as of April 29, 1999
(5) LEASE TERM: 61 months
(6) PROJECTED FIRST PREMISES COMMENCEMENT DATE:July 10, l999
PROJECTED SECOND PREMISES COMMENCEMENT DATE: January 1, 2000
(7) PROJECTED EXPIRATION DATE: August 30, 2004, subject to extension by
reason of the exercise of the First Expansion Option, the Second
Expansion Option, the Third Expansion Option, the First Option and the
Second Option.
(8) MONTHLY BASE RENT:
<TABLE>
<CAPTION>
MONTHLY RATE/SF
PERIOD FROM/TO OF RENTABLE AREA
<S> <C>
Months 2 to 7 2.20
Months 8 to 13 2.25
Months 14 to 37 2.50
Months 38 to Expiration Date 2.60
</TABLE>
Tenant shall not pay Monthly Base Rent during the first month of the Term, but
shall pay all other amounts otherwise payable by Tenant by reason of its
occupancy of the Premises in accordance herewith.
If Tenant chooses to occupy any or all of the Second Premises before the Second
Premises Commencement Date, Tenant shall pay janitorial, electrical, heating,
ventilation and air conditioning and other variable expenses on the Second
Premises commencing on the date the Second Premises are occupied by Tenant for
the conduct of its business. Tenant shall pay monthly Base Rent on the Second
Premises commencing on the Second Premises Commencement Date.
(9) RENTABLE AREA OF FIRST PREMISES: Approximately 25,000 square feet
RENTABLE AREA OF SECOND PREMISES: Approximately 12,000 square feet
RENTABLE AREA OF THE PREMISES: Approximately 37,000 square feet
[all rentable areas to be finalized by agreement of Tenant and
Landlord in accordance with BOMA standards and set forth in
Commencement Date Rider]
(10) SECURITY DEPOSIT: $2.49 x RSF of Premises [precise amount to be set
forth in Commencement Date Agreement]
The Security Deposit will be increased if Tenant exercises the First
Expansion Option, the Second Expansion Option or the Third Expansion Option in
accordance with the terms of each option.
(11) SUITE NUMBER OF PREMISES: 350
(12) OPERATING EXPENSES BASE YEAR FOR PREMISES: The calendar year 1999
2
<PAGE> 7
(13) TAXES BASE YEAR FOR PREMISES: The calendar year 1999
(14) TENANT'S USE OF PREMISES: General office use
(15) PARKING: Up to1 per 1000 usable square feet of Premises unreserved
parking spaces in garage
Up to 2 per 1000 usable square feet of Premises unreserved
parking spaces on surface lots
(The total number of parking spaces shall not exceed 3 cars per
1,000 square feet of usable square feet as to the First Premises
and the Second Premises respectively, subject, however, to the
provisions of the Addendum to this Lease)
[precise number to be set forth in Commencement Date Agreement]
(16) BROKERS:
Landlord's Broker: CB Richard Ellis, Inc.
155 Grand Avenue,
Oakland, California 94612
Attention: Larry Westland
Tenant's Broker: Aegis Realty Partners
101 Linden Street
Oakland, California 94607
Attention: Terrence M. McGrath; Matt Elmquist
1.02 ENUMERATION OF EXHIBITS, RIDER(S) AND ADDENDUM
The Exhibits, Rider(s) and Addendum set forth below and attached to this Lease
are incorporated in this Lease by this reference:
EXHIBIT A Plan of Premises
EXHIBIT B Workletter Agreement
EXHIBIT C Facade Signage Criteria
EXHIBIT D Rules and Regulations
RIDER 1 Commencement Date Agreement
ADDENDUM TO LEASE
1.03 DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
ADJUSTMENT YEAR: The applicable calendar year or any portion thereof after the
Operating Expenses Base Year and Taxes Base Year for which a Rent Adjustment
computation is being made.
AFFILIATE: Any corporation or other business entity that is currently owned or
controlled by, owns or controls, or is under common ownership or control with
Tenant.
BUILDING: The office building located at the address specified in Section
1.01(1). The Building also includes retail spaces.
3
<PAGE> 8
COMMON AREAS: All areas of the Project made available by Landlord from time to
time for the general common use or benefit of the tenants of the Building, and
their employees and invitees, or the public, as such areas currently exist and
as they may be changed from time to time (including the common conference
facility currently intended to be located on Level 2 of the Building).
DECORATION: Tenant Alterations which do not require a building permit and which
do not involve any of the structural elements of the Building, or any of the
Building's systems, including its electrical, mechanical, plumbing, security,
heating, ventilating, air-conditioning, communication, and fire and life safety
systems.
DEFAULT RATE: Two (2) percentage points above the rate then most recently
announced by Bank of America N.T.&S.A. at its San Francisco main office as its
base lending reference rate, from time to time announced, but in no event higher
than the maximum rate permitted by Law.
ENVIRONMENTAL LAWS: All Laws governing the use, storage, disposal or generation
of any Hazardous Material, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, and
the Resource Conservation and Recovery Act of 1976, as amended.
ESTIMATED SUBSTANTIAL COMPLETION DATE: Subject to Tenant Delay and/or
unanticipated delay by the City of Emeryville in approving the Tenant
Improvements (as defined in the Workletter) beyond the period of time normally
required to obtain approvals for similar construction projects, 60 days after
the Design Documents (as defined in the Workletter) are approved by Tenant.
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by
operation of Article Two.
FIRST EXPANSION OPTION: Shall have the meaning set forth in the Addendum.
FIRST OPTION: Shall have the meaning set forth in the Addendum.
FIRST PREMISES: The space located in the Building at the Suite Number listed in
Section 1.01(11) and depicted on Exhibit A attached hereto as the First
Premises.
FIRST PREMISES COMMENCEMENT DATE: The date specified in Section 1.01(6) as the
First Premises Projected Commencement Date, unless changed by operation of
Article Two.
FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion,
strike or labor troubles, or any cause whatsoever beyond the reasonable control
of Landlord, including water shortages, energy shortages or governmental
preemption in connection with an act of God, a national emergency, or by reason
of Law, or by reason of the conditions of supply and demand which have been or
are affected by act of God, war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become
regulated under any Environmental Law; or which are classified as hazardous or
toxic under any Environmental Law; and explosives and firearms, radioactive
material, asbestos, polychlorinated biphenyls, and petroleum products.
INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of the
Property, the property manager and the leasing manager for the Property and
their respective partners, members, directors, officers, agents and employees.
LAND: The parcel(s) of real estate on which the Building and Project are
located.
LANDLORD WORK: The construction or installation of improvements to the Premises,
to be furnished by Landlord, specifically described in the Workletter or
exhibits attached hereto.
4
<PAGE> 9
LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements,
orders, rulings or decisions adopted or made by any governmental body, agency,
department or judicial authority having jurisdiction over the Property, the
Premises or Tenant's activities at the Premises and any covenants, conditions or
restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be
amended from time to time.
LEASE YEAR: The twelve month period beginning on the first day of the first
month following the First Premises Commencement Date (unless the First Premises
Commencement Date is the first day of a calendar month in which case beginning
on the First Premises Commencement Date), and each subsequent twelve month, or
shorter, period until the Expiration Date.
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument
encumbering the Property.
NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and other holidays recognized by the Landlord
and the janitorial and other unions servicing the Building in accordance with
their contracts.
OPERATING EXPENSES: All costs, expenses and disbursements of every kind and
nature which Landlord shall pay or become obligated to pay in connection with
the ownership, management, operation, maintenance, replacement and repair of the
office portion of the Building and the Property (including the amortized portion
of any capital expenditure or improvement, together with interest thereon, and
the costs of changing utility service providers). Operating Expenses shall not
include, (i) costs of alterations of the premises of tenants of the Project,
(ii) costs of capital improvements to the Project (except for amortized portion
of capital improvements installed for the purpose of reducing Operating Expenses
or complying with applicable Laws enacted after the date hereof, but excluding
any such capital improvements arising out of or resulting from improvements,
alterations or uses by other tenants of the Building), (iii) depreciation
charges, (iv) interest and principal payments on loans (except for loans for
capital improvements which Landlord is allowed to include in Operating Expenses
as provided above), (v) ground rental payments, (vi) real estate brokerage and
leasing commissions, (vii) advertising and marketing expenses, (viii) costs of
Landlord reimbursed by insurance proceeds, (ix) expenses incurred in negotiating
leases of tenants in the Project or enforcing lease obligations of tenants in
the Project, (x) the cost of ADA compliance work with respect to the Building
unless triggered by Tenant Alterations or Tenant's unique use of the Premises,
or (xi) management fees in excess of three and one-half percent (3.5%) of gross
rentals. If any Operating Expense, though paid in one year, relates to more than
one calendar year, at the option of Landlord such expense may be proportionately
allocated among such related calendar years. Operating Expenses for the Building
that are not, in Landlord's reasonable discretion, allocable solely to either
the office or retail portion of the Building shall be equitably allocated by
Landlord in its reasonable discretion between and charged to the office and
retail portions of the Building.
OPERATING EXPENSES BASE YEAR: The calendar years designated in Section 1.01(12)
for the First Premises and the Second Premises.
PREMISES: The space located in the Building at the Suite Number listed in
Section 1.01(11) and depicted on Exhibit A attached hereto. The Premises consist
of the First Premises and Second Premises as the same may be expanded in
accordance with the terms of this Lease.
PROJECT or PROPERTY: The Project consists of the office building with retail
spaces located at the street address specified in Section 1.01(1) in Emeryville,
California, associated surface and garage parking as designated by Landlord from
time to time, landscaping and improvements, together with the Land, any
associated interests in real property, and the personal property, fixtures,
machinery, equipment, systems and
5
<PAGE> 10
apparatus located in or used in conjunction with any of the foregoing. The
Project may also be referred to as the Property.
REAL PROPERTY: The Property excluding any personal property.
RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment
Deposits, and all other charges, payments, late fees or other amounts required
to be paid by Tenant under this Lease.
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses or
Taxes. The Rent Adjustments shall be determined and paid as provided in Article
Four.
RENT ADJUSTMENT DEPOSIT: An amount equal to Landlord's estimate of the Rent
Adjustment attributable to each month of the applicable Adjustment Year. On or
before the beginning of each Adjustment Year or with Landlord's Statement
(defined in Article Four), Landlord may estimate and notify Tenant in writing of
its good faith estimate of the excess, if any, of Operating Expenses over those
for the Operating Expenses Base Year and of Taxes over those for the Taxes Base
Year. Prior to the first determination by Landlord of the amount of Operating
Expenses for the Operating Expenses Base Year and of Taxes for the Taxes Base
Year, Landlord may estimate such amounts in the foregoing calculation. The last
estimate by Landlord shall remain in effect as the applicable Rent Adjustment
Deposit unless and until Landlord notifies Tenant in writing of a change, which
notice may be given by Landlord from time to time during an Adjustment Year.
RENTABLE AREA OF THE FIRST PREMISES: The amount of square footage set forth in
Section 1.01 (9).
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in Section
1.01(9).
RENTABLE AREA OF THE SECOND PREMISES: The amount of square footage set forth in
Section 1.01 (9).
RENTABLE AREA OF THE OFFICE PORTION OF THE PROJECT: The amount of square footage
which represents the sum of the rentable area of all space intended for office
occupancy in the Project, as determined by Landlord from time to time; and
Landlord shall notify Tenant of any adjustments in such rentable area and any
corresponding change in Tenant's Share; provided, however, that, for purposes of
determining Tenant's Share, the Rentable Area of the Office Portion of the
Project shall not be less than 90% of the total rentable square feet of the
Project.
SECOND EXPANSION OPTION: Shall have the meaning set forth in the Addendum.
SECOND OPTION: Shall have the meaning set forth in the Addendum.
SECOND PREMISES: The space located in the Building at the Suite Number listed in
Section 1.01(11) and depicted on Exhibit A attached hereto as the Second
Premises.
SECOND PREMISES COMMENCEMENT DATE: The date specified in Section 1.01(6) as the
Second Premises Projected Commencement Date, unless changed by operation of
Article Two.
SECURITY DEPOSIT: The funds specified in Section 1.01(10), if any, deposited by
Tenant with Landlord as security for Tenant's performance of its obligations
under this Lease.
STANDARD OPERATING HOURS: Monday through Friday from 8:00 A.M. to 6:00 P.M. and
Saturdays from 9:00 A.M. to 1:00 P.M., excluding National Holidays.
SUBSTANTIALLY COMPLETE: The completion of the Landlord Work or Tenant Work, as
the case may be, except for minor insubstantial details of construction,
decoration or mechanical adjustments which remain to
6
<PAGE> 11
be done. Substantial Completion of the Landlord Work shall include issuance of a
temporary certificate of occupancy for the Premises by the City of Emeryville.
SUBSTANTIAL COMPLETION DELAY CREDIT: The rent credit allowed to Tenant in an
amount equal to two days free rent (at the rate of $2.20 per rentable square
foot) for the number of days from and after the Estimated Substantial Completion
Date to and including the actual date when the Landlord Work is Substantially
Complete.
TAXES: All federal, state and local governmental taxes, assessments and charges
of every kind or nature, whether general, special, ordinary or extraordinary,
which Landlord shall pay or become obligated to pay because of or in connection
with the ownership, leasing, management, control or operation of the Property or
any of its components (including any personal property used in connection
therewith), which may also include any rental or similar taxes levied in lieu of
general real and/or personal property taxes. For purposes hereof, Taxes for any
year shall be Taxes which are assessed for any period of such year, whether or
not such Taxes are billed and payable in a subsequent calendar year. There shall
be included in Taxes for any year the amount of all fees, costs and expenses
(including reasonable attorneys' fees) paid by Landlord during such year in
seeking or obtaining any refund or reduction of Taxes. Taxes for any year shall
be reduced by the net amount of any tax refund received by Landlord attributable
to such year. If a special assessment payable in installments is levied against
any part of the Property, Taxes for any year shall include only the installment
of such assessment and any interest payable or paid during such year. Taxes
shall not include any federal or state inheritance, general income, gift or
estate taxes, except that if a change occurs in the method of taxation resulting
in whole or in part in the substitution of any such taxes, or any other
assessment, for any Taxes as above defined, such substituted taxes or
assessments shall be included in the Taxes.
TAXES BASE YEAR: The calendar years designated in Section 1.01(13) for the First
Premises and the Second Premises.
TENANT ADDITIONS: Collectively, Landlord Work, Tenant Work and Tenant
Alterations.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations or
construction in or to the Premises or any Building systems serving the Premises
(excluding Landlord Work or Tenant Work); and any supplementary air-conditioning
systems installed by Landlord or by Tenant at Landlord's request pursuant to
Section 6.01(b).
TENANT DELAY: Any event or occurrence that delays the completion of the Landlord
Work which is caused by:
(i) special work, changes, alterations or additions requested or made by
Tenant in the design or finish in any part of the Premises after
approval of the Design Drawings (as described in the Workletter);
(ii) Tenant's delay in submitting plans, supplying information,
approving plans, specifications or estimates, giving authorizations or
otherwise as required in the Workletter;
(iii) failure to perform or comply with any obligation or condition
binding upon Tenant pursuant to the Workletter, including the failure to
approve and pay for such Landlord Work or other items if and to the
extent the Workletter provides they are to be approved or paid by
Tenant.
TENANT WORK: All work installed or furnished to the Premises by Tenant pursuant
to the Workletter.
TENANT'S SHARE: The percentage that represents the ratio of the Rentable Area of
the Premises to the Rentable Area of the Office Portion of the Project, as
determined by Landlord from time to time.
7
<PAGE> 12
TERM: The term of this Lease commencing on the Commencement Date and expiring on
the Expiration Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease
terminates or Tenant's right to possession of the Premises terminates.
THIRD EXPANSION OPTION: Shall have the meaning set forth in the Addendum.
WORKLETTER: The Agreement regarding the manner of completion of Landlord Work
and Tenant Work set forth on Exhibit B attached hereto.
ARTICLE TWO
PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the terms, covenants and conditions provided in
this Lease. In the event Landlord delivers possession of the First Premises or
the Second Premises to Tenant prior to the First Premises Commencement Date,
Tenant shall be subject to all of the terms, covenants and conditions of this
Lease (except with respect to the payment of Rent) as of the date of such
possession.
2.02 TERM
(a) The Commencement Date shall be the date determined as follows:
(1) If the Landlord Work is Substantially Complete on or before
the First Premises Projected Commencement Date then on the date
which is the earlier to occur of
(i) the First Premises Projected Commencement Date, or
(ii) the date Tenant first occupies all or part of the
Premises for the conduct of business; or
(2) If the Landlord Work is not Substantially Complete by the
First Premises Projected Commencement Date, then on the date on
which the Landlord Work is Substantially Complete.
(b) Within thirty (30) days following the occurrence of the First
Premises Commencement Date and the Second Premises Commencement Date, Landlord
and Tenant shall enter into an agreement (which is attached hereto as Rider 1)
confirming the First Premises Commencement Date, the Second Premises
Commencement Date, the Expiration Date, the rentable area of the Premises and
such other information set forth therein. If Tenant fails to enter into such
agreement, or fails to explain its reason(s) for not entering into such
agreement, then the First Premises Commencement Date, the Second Premises
Commencement Date and the Expiration Date shall be the dates designated by
Landlord in such agreement.
2.03 FAILURE TO GIVE POSSESSION
If the Landlord shall be unable to give possession of the Premises on the First
Premises Projected Commencement Date because the Estimated Substantial
Completion Date has not occurred, then, except as expressly provided herein,
Landlord shall not be subject to any liability for the failure to give
possession on said date. Under such circumstances the rent reserved and
covenanted to be paid herein shall not commence until the Premises are made
available to Tenant by Landlord, and no such failure to give possession on the
First Premises Projected Commencement Date shall affect the validity of this
Lease or the
8
<PAGE> 13
obligations of the Tenant hereunder. If the Lease is not terminated, Tenant
shall be entitled to a rent credit in the amount of the Substantial Completion
Delay Credit.
2.04 CONDITION OF PREMISES
Tenant shall notify Landlord in writing within sixty (60) days after the later
of Substantial Completion of the Landlord Work or when Tenant takes possession
of the Premises of any defects in the Premises claimed by Tenant or in the
materials or workmanship furnished by Landlord in completing the Landlord Work.
Except for defects stated in such notice or with respect to the compliance of
the Landlord Work with applicable Laws, Tenant shall be conclusively deemed to
have accepted the Premises "AS IS" in the condition existing on the date Tenant
first takes possession, and to have waived all claims relating to the condition
of the Premises; provided, however, that in delivering the Premises to Tenant,
Landlord represents and warrants to Tenant that the Landlord Work has been
completed in accordance with all applicable Laws. Landlord shall proceed
diligently to correct the defects stated in such notice unless Landlord disputes
the existence of any such defects. No agreement of Landlord to alter, remodel,
decorate, clean or improve the Premises or the Real Property and no
representation regarding the condition of the Premises or the Real Property has
been made by or on behalf of Landlord to Tenant, except as may be specifically
stated in this Lease or in the Workletter.
2.05 PARKING
During the Term, Tenant may use the number of garage and surface lots spaces
specified in Section 1.01(15) for parking at the prevailing rates being charged
from time to time by Landlord or its parking operator to other tenants for
similar parking rights without consideration of any discounts. Tenant may use
fewer than the number of garage and surface lot spaces specified in Section 1.01
(15) during the Term. The locations and type of parking within the garage and
surface lots shall be designated by Landlord or Landlord's parking operator from
time to time, except that Tenant shall not be obligated to accept tandem
parking. Tenant acknowledges and agrees that the parking spaces serving the
Project may include tandem parking and a mixture of spaces for compact vehicles
as well as full-size passenger automobiles, and that Tenant shall not use
parking spaces for vehicles larger than the striped size of the parking spaces.
All vehicles utilizing Tenant's parking privileges shall prominently display
identification stickers or other markers, and/or have passes or keycards for
ingress and egress, as may be required and provided by Landlord or its parking
operator from time to time. Tenant shall comply with any and all parking rules
and regulations from time to time established by Landlord or Landlord's parking
operator, including a requirement that Tenant pay to Landlord or Landlord's
parking operator a charge for loss and replacement of passes, keycards,
identification stickers or markers, and for any and all loss or other damage
caused by persons or vehicles related to use of Tenant's parking privileges.
Tenant shall notify any persons using Tenant's parking privileges that their
vehicles are not to be parked, loaded or unloaded except in accordance with this
Section, including in the areas and in the manner designated by Landlord or its
parking operator for such activities. If any vehicle is using the parking or
loading areas contrary to any provision of this Section, Landlord or its parking
operator shall have the right, in addition to all other rights and remedies of
Landlord under this Lease, to remove or tow away the vehicle without prior
notice to Tenant.
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord at the first office specified in Section
1.01(2), or to such other persons, or at such other places designated by
Landlord, without any prior demand therefor in immediately available funds and
without any deduction or offset whatsoever, Rent, including Monthly Base Rent
and Rent Adjustments in accordance with Article Four, during the Term. Monthly
Base Rent shall be paid monthly in advance on the first day of each month of the
Term, except that the first installment of Monthly Base Rent shall be paid by
Tenant to Landlord concurrently with execution of this Lease. Monthly Base Rent
shall be prorated for partial months within the Term. Unpaid Rent shall bear
interest at the Default Rate from five (5) days after the date due until paid.
Tenant's covenant to pay Rent shall be independent of every other covenant in
this Lease. Notwithstanding the foregoing, Tenant shall not be required to pay
Monthly Base Rent with respect to the
9
<PAGE> 14
Second Premises until January 1, 2000; provided however that Tenant shall pay
janitorial, electrical, heat, ventilation, and air-conditioning expenses and
other variable expenses with respect to the Second Premises commencing on the
date that Tenant occupies such space for the conduct of its business.
ARTICLE FOUR
RENT ADJUSTMENTS AND PAYMENTS
4.01 RENT ADJUSTMENTS
Tenant shall pay to Landlord Rent Adjustments with respect to each Adjustment
Year as follows:
(i) The Rent Adjustment Deposit representing Tenant's Share of
Operating Expenses for the applicable Adjustment Year in excess of
Operating Expenses for the Operating Expenses Base Year, monthly during
the Term with the payment of Monthly Base Rent; and
(ii) The Rent Adjustment Deposit representing Tenant's Share of
Taxes for the applicable Adjustment Year in excess of Taxes for the
Taxes Base Year, monthly during the Term with the payment of Monthly
Base Rent; and
(iii) Any Rent Adjustments due in excess of the Rent Adjustment
Deposits in accordance with Section 4.02. Rent Adjustments due from
Tenant to Landlord for any Adjustment Year shall be Tenant's Share of
Operating Expenses for such year in excess of Operating Expenses for the
Operating Expenses Base Year and Tenant's Share of Taxes for such year
in excess of Taxes for the Taxes Base Year.
4.02 STATEMENT OF LANDLORD
As soon as feasible after the expiration of the Operating Expenses Base Year and
the Taxes Base Year, and each Adjustment Year thereafter, but no later than
April 1 following such year (provided that if Landlord has not received
information from third parties necessary to prepare its statement by such date,
then in no event later than sixty (60) days following Landlord's receipt of such
information), Landlord will furnish Tenant a statement ("Landlord's Statement")
showing the following:
(i) Operating Expenses and Taxes for the Operating Expenses Base
Year and Taxes Base Year and thereafter for the last Adjustment Year;
(ii) The amount of Rent Adjustments due Landlord for the last
Adjustment Year, less credit for Rent Adjustment Deposits paid, if any;
and
(iii) Any change in the Rent Adjustment Deposit due monthly in
the current Adjustment Year, including the amount or revised amount due
for months preceding any such change pursuant to Landlord's Statement.
Subject to Tenant's right to contest the amounts alleged to be due, Tenant shall
pay to Landlord within thirty (30) days after receipt of such statement any
amounts for Rent Adjustments then due in accordance with Landlord's Statement.
Any amounts due from Landlord to Tenant pursuant to this Section shall be
credited to the Rent Adjustment Deposit next coming due, or refunded to Tenant
if the Term has already expired provided Tenant is not in default hereunder. No
interest or penalties shall accrue on any amounts that Landlord is obligated to
credit or refund to Tenant by reason of this Section
4.02. Absent obvious arithmetic error, Landlord's Statement shall not be subject
to subsequent modification by Landlord after delivery thereof to Tenant;
provided that if Landlord receives new or modified information from third
parties that forms the basis for Landlord's Statement, Landlord may modify
Landlord's Statement so long as Landlord delivers same to Tenant promptly
following receipt of such new or modified information.
10
<PAGE> 15
The Rent Adjustment Deposit shall be credited against Rent Adjustments due for
the applicable Adjustment Year. During the last complete calendar year or during
any partial calendar year in which the Lease terminates, Landlord may include in
the Rent Adjustment Deposit its estimate of Rent Adjustments which may not be
finally determined until after the termination of this Lease. Tenant's
obligation to pay Rent Adjustments survives the expiration or termination of the
Lease. Notwithstanding the foregoing, in no event shall the sum of Monthly Base
Rent and the Rent Adjustments be less than the Monthly Base Rent payable.
4.03 BOOKS AND RECORDS
Landlord shall maintain books and records showing Operating Expenses and Taxes
in accordance with sound accounting and management practices, consistently
applied. The Tenant or its representative shall have the right, for a period of
sixty (60) days following the date upon which Landlord's Statement is delivered
to Tenant, to examine the Landlord's books and records with respect to the items
in the foregoing statement of Operating Expenses and Taxes during normal
business hours, upon written notice, delivered at least three (3) business days
in advance. If Tenant does not object in writing to Landlord's Statement within
ninety (90) days of Tenant's receipt thereof, specifying the nature of the item
in dispute and the reasons therefor, then Landlord's Statement shall be
considered final and accepted by Tenant. Any amount due to the Landlord as shown
on Landlord's Statement, if not disputed in good faith by Tenant as provided
herein, shall be paid by Tenant when due as provided above, without prejudice to
any such written exception. Landlord and Tenant shall use reasonable efforts to
resolve any disputes regarding Landlord's Statement in good faith in as timely a
manner as practicable. If, as a result of Tenant's examination of Landlord's
books and records, the total amount of Rent Adjustments for the applicable year
are determined to be less than ninety-five percent (95%) of the amount set forth
in Landlord's Statement, Landlord shall be obligated to pay the reasonable and
verifiable cost of Tenant's representatives up to a maximum of $2,000 (and
excluding the cost of any representatives who are employees of Tenant).
4.04 PARTIAL OCCUPANCY
For purposes of determining Rent Adjustments, including Base Year Operating
Expenses, if the Building is not fully occupied during all or a portion of any
year during the Term, Landlord shall make appropriate adjustments to the
Operating Expenses for such year employing sound accounting and management
principles consistently applied, to determine the amount of Operating Expenses
that would have been paid or incurred by Landlord had the Building been fully
occupied, and the amount so determined shall be deemed to have been the amount
of Operating Expenses for such year. In the event that the Real Property is not
fully assessed for all or a portion of any year during the Term, then Taxes
shall be adjusted to an amount which would have been payable in such year,
including the Taxes Base Year (and assuming complete construction and occupancy
of the Building), if the Real Property had been fully assessed.
4.05 TENANT OR LEASE SPECIFIC TAXES
In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits and
other charges to be paid by Tenant, Tenant shall pay to Landlord, upon demand,
any and all taxes payable by Landlord (other than federal or state inheritance,
general income, gift or estate taxes) whether or not now customary or within the
contemplation of the parties hereto, if charged in lieu of general real property
taxes or assessments: (a) upon, allocable to, or measured by the Rent payable
hereunder, including any gross receipts tax or excise tax levied by any
governmental or taxing body with respect to the receipt of such rent; or (b)
upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (c) upon the measured value of Tenant's personal
property located in the Premises or in any storeroom or any other place in the
Premises or the Property, or the areas used in connection with the operation of
the Property, it being the intention of Landlord and Tenant that, to the extent
possible, such personal property taxes shall be billed to and paid directly by
Tenant; (d) resulting from Landlord Work, Tenant Work or Tenant Alterations to
the Premises, whether title thereto is in Landlord or Tenant; or (e) upon this
transaction. Taxes paid by Tenant pursuant to this Section 4.05 shall not be
included in any computation of Taxes payable pursuant to Sections 4.01 and 4.02.
11
<PAGE> 16
ARTICLE FIVE
SECURITY DEPOSIT
Tenant concurrently with the execution of this Lease shall pay to Landlord in
immediately available funds the Security Deposit. The Security Deposit may be
applied by Landlord to cure, in whole or part, any default of Tenant under this
Lease, and upon notice by Landlord of such application, Tenant shall replenish
the Security Deposit in full by paying to Landlord within thirty (30) days of
demand the amount so applied. Landlord's application of the Security Deposit
shall not constitute a waiver of Tenant's default to the extent that the
Security Deposit does not fully compensate Landlord for all losses, damages,
costs and expenses incurred by Landlord in connection with such default and
shall not prejudice any other rights or remedies available to Landlord under
this Lease or by Law. Landlord shall not pay any interest on the Security
Deposit. Landlord shall not be required to keep the Security Deposit separate
from its general accounts. The Security Deposit shall not be deemed an advance
payment of Rent or a measure of damages for any default by Tenant under this
Lease, nor shall it be a bar or defense of any action that Landlord may at any
time commence against Tenant. In the absence of evidence satisfactory to
Landlord of an assignment of the right to receive the Security Deposit or the
remaining balance thereof, Landlord may return the Security Deposit to the
original Tenant, regardless of one or more assignments of this Lease. Upon the
transfer of Landlord's interest under this Lease, Landlord's obligation to
Tenant with respect to the Security Deposit shall terminate upon transfer to the
transferee of the Security Deposit, or any balance thereof. If Tenant shall
fully and faithfully comply with all the terms, provisions, covenants, and
conditions of this Lease, the Security Deposit, or any balance thereof, shall be
returned to Tenant within thirty (30) days after Landlord recovers possession of
the Premises.
ARTICLE SIX
SERVICES
6.01 LANDLORD'S GENERAL SERVICES
(a) So long as the Lease is in full force and effect and Tenant has paid
all Rent then due, Landlord shall furnish the following services:
(1) heat, ventilation and air-conditioning ("HVAC") in the Premises during
Standard Operating Hours as necessary in Landlord's reasonable judgment
for the comfortable occupancy of the Premises under normal business
office operations, subject to compliance with all applicable voluntary
and mandatory regulations and Laws;
(2) tempered and cold water for use in lavatories in common with other
tenants from the regular supply of the Building;
(3) customary cleaning and janitorial services in the Premises five (5) days
per week, excluding National Holidays;
(4) washing of the outside windows in the Premises weather permitting at
intervals determined by Landlord (but no less than once per year);
(5) automatic passenger and swing/freight elevator service in common with
other tenants of the Building.
(b) If Tenant uses heat generating machines or equipment in the Premises
to an extent which materially and adversely affects the temperature otherwise
maintained by the air-cooling system or whenever the occupancy or electrical
load materially and adversely affects the temperature otherwise maintained by
the air-cooling system, Landlord reserves the right to install or to require
Tenant to install supplementary air-conditioning units in the Premises. Tenant
shall bear all costs and expenses related to the installation, maintenance and
operation of such units.
12
<PAGE> 17
6.02 ELECTRICAL SERVICES
(a) So long as the Lease is in full force and effect and Tenant has paid
all Rent then due, Landlord shall furnish to the Premises electric current for
general business office use, including normal lighting, normal business office
machines and customary janitorial service. Notwithstanding any provision of the
Lease to the contrary, without, in each instance, the prior written approval of
Landlord, in Landlord's prudent business judgment, Tenant shall not: (i) make
any alterations or additions to the electric equipment or systems; or (ii)
install or use or permit the installation or use of any computer or electronic
data processing equipment in the Premises other than personal computers, lap-top
computers and ancillary equipment. Tenant's use of electric current shall at no
time exceed the capacity of the wiring, feeders and risers providing electric
current to the Premises or the Building. The consent of Landlord to the
installation of electric equipment shall not relieve Tenant from the obligation
to limit usage of electricity to no more than such capacity.
(b) If and to the extent that Landlord establishes to the reasonable
satisfaction of Tenant that electric current is furnished to the Premises
materially in excess of the amount of electric current anticipated by Tenant and
Landlord to be used by Tenant, Tenant shall pay Landlord the cost of such excess
electric current, as additional Rent. The cost of such excess use and all
additional costs separately billed to Tenant pursuant to this Section shall not
be included as part of Operating Expenses. At any time and from time to time,
Landlord may in its reasonable discretion either (i) install one or more meters
to measure electric current furnished to the Premises or (ii) reasonably
estimate electric current furnished to the Premises. Tenant shall pay Landlord
for such excess electric current at the then current rates charged to Landlord
for such electricity provided to the Property by the utility provider chosen by
Landlord plus any additional reasonable cost of Landlord in keeping account of
the electric current so consumed. At Landlord's discretion, such excess use
shall be payable (i) in advance as reasonably estimated by Landlord in monthly
installments at the time prescribed for monthly installments of Monthly Base
Rent or (ii) within ten days after notice from Landlord given from time to time
of the amount due for prior excess use in accordance with the provisions of this
subsection (b).
(c) So long as the Lease is in full force and effect and Tenant has paid
all Rent then due, Landlord shall furnish to the Premises replacement lamps,
bulbs, ballasts and starters used in any normal Building lighting installed in
the Premises, except that if the replacement or repair of such items is a result
of negligence of Tenant, its employees, agents, servants, licensees, subtenants,
contractors or invitees, such cost shall be paid by Tenant within ten days after
notice from Landlord and shall not be included as part of Operating Expenses.
6.03 ADDITIONAL AND AFTER-HOUR SERVICES
At Tenant's written request, Landlord shall furnish additional quantities of any
of the services or utilities specified in Section 6.01, if Landlord can
reasonably do so, on the terms set forth herein. For services or utilities
requested by Tenant and furnished by Landlord, Tenant shall pay to Landlord as a
charge therefor Landlord's prevailing rates charged from time to time for such
services and utilities, based on Landlord's actual costs plus a mark-up not to
exceed ten percent (10%) thereof. Without limiting the generality of the
foregoing, for HVAC service beyond Standard Operating Hours, Landlord's
prevailing rate as of the date of this Lease includes a one (1) hour minimum per
activation. If Tenant shall fail to make any such payment, Landlord may, upon
notice to Tenant and in addition to Landlord's other remedies under this Lease,
discontinue any or all of such additional services.
6.04 TELEPHONE SERVICES
All telegraph, telephone, and communication connections which Tenant may desire
shall be subject to Landlord's prior written approval, in Landlord's reasonable
discretion, and the location of all wires and the work in connection therewith
shall be performed by contractors approved by Landlord, except that such
13
<PAGE> 18
approval is not required as to Tenant's telephone equipment (including cabling)
within the Premises and from the Premises in a route designated by Landlord to
any telephone cabinet or panel provided (as existing or as installed as part of
Landlord's Work, if any) on Tenant's floor for Tenant's connection to the
telephone cable serving the Building so long as Tenant's equipment does not
require connections different than or additional to those to the telephone
cabinet or panel provided. Except to the extent of such cabling within the
Premises or from the Premises to such telephone cabinet or panel, Landlord
reserves the right to approve the entity or entities providing telephone or
other communication cable installation, removal, repair and maintenance in the
Building and to restrict and control access to telephone cabinets or panels.
Tenant shall be responsible for and shall pay all costs incurred in connection
with the installation of telephone cables and communication wiring in the
Premises, including any hook-up, access and maintenance fees related to the
installation of such wires and cables in the Premises and the commencement of
service therein, and the maintenance thereafter of such wire and cables; and
there shall be included in Operating Expenses for the Building all installation,
removal, hook-up or maintenance costs incurred by Landlord in connection with
telephone cables and communication wiring serving the Building which are not
allocable to any individual users of such service but are allocable to the
Building generally. If Tenant fails to maintain all telephone cables and
communication wiring in the Premises and such failure affects or interferes with
the operation or maintenance of any other telephone cables or communication
wiring serving the Building, Landlord or any vendor hired by Landlord may enter
into and upon the Premises forthwith and perform such repairs, restorations or
alterations as Landlord deems necessary in order to eliminate any such
interference (and Landlord may recover from Tenant all of Landlord's costs in
connection therewith). If required by Landlord, no later than the Termination
Date Tenant shall remove all telephone cables and communication wiring installed
by Tenant for and during Tenant's occupancy. Tenant agrees that neither Landlord
nor any of its agents or employees shall be liable to Tenant, or any of Tenant's
employees, agents, customers or invitees or anyone claiming through, by or under
Tenant, for any damages, injuries, losses, expenses, claims or causes of action
because of any interruption, diminution, delay or discontinuance at any time for
any reason in the furnishing of any telephone or other communication service to
the Premises and the Building, unless caused by the negligence or willful
misconduct of Landlord or its agents or employees.
6.05 DELAYS IN FURNISHING SERVICES
Tenant agrees that Landlord shall not be in breach of this Lease nor be liable
to Tenant for damages or otherwise, for any failure to furnish, or a delay in
furnishing, or a change in the quantity or character of any service when such
failure, delay or change is occasioned, in whole or in part, by repairs,
improvements or mechanical breakdowns by the act or default of Tenant or other
parties other than Landlord or its employees or agents or by an event of Force
Majeure. No such failure, delay or change shall be deemed to be an eviction or
disturbance of Tenant's use and possession of the Premises, or relieve Tenant
from paying Rent or from performing any other obligations of Tenant under this
Lease, without any deduction or offset. Failure to any extent to make available,
or any slowdown, stoppage, or interruption of, the specified utility services
resulting from any cause, including changes in service provider or Landlord's
compliance with any voluntary or similar governmental or business guidelines now
or hereafter published or any requirements now or hereafter established by any
governmental agency, board, or bureau having jurisdiction over the operation of
the Property shall not render Landlord liable in any respect for damages to
either persons, property, or business, (except to the extent caused by
negligence or willful misconduct of Landlord or its agents or employees) nor be
construed as an eviction of Tenant or work an abatement of Rent, nor relieve
Tenant of Tenant's obligations for fulfillment of any covenant or agreement
hereof. Should any equipment or machinery furnished by Landlord break down or
for any cause cease to function properly, Landlord shall use reasonable
diligence to repair same promptly, but Tenant shall have no claim for abatement
of Rent or damages on account of any interruption of service occasioned thereby
or resulting therefrom, except to the extent resulting from the negligence or
willful misconduct of Landlord or its agents or employees.
6.06 CHOICE OF SERVICE PROVIDER
Tenant acknowledges that Landlord may, at Landlord's sole option, to the extent
permitted by applicable law, elect to change, from time to time, the company or
companies which provide services (including electrical
14
<PAGE> 19
service, gas service, water, telephone and technical services) to the Building,
the Premises and/or its occupants. Notwithstanding anything to the contrary set
forth in this Lease, Tenant acknowledges that Landlord has not and does not make
any representations or warranties concerning the identity or identities of the
company or companies which provide services to the Building and the Premises or
its occupants and Tenant acknowledges that the choice of service providers and
matters concerning the engagement and termination thereof shall be solely that
of Landlord. The foregoing provision is not intended to modify, amend, change or
otherwise derogate any provision of this Lease concerning the nature or type of
service to be provided or any specific information concerning the amount thereof
to be provided. Tenant agrees to cooperate with Landlord and each of its service
providers in connection with any change in service or provider.
6.07 SIGNAGE
Initial Building standard signage will be installed by Landlord in the directory
in the main lobby of the Building, in the listing of tenants in the elevator
lobby for the floor on which the Premises is located and at Tenant's main entry
door to the Premises at Landlord's sole cost and expense (but as part of the
Landlord's Base Contribution, as defined in the Workletter). Any change in such
initial signage shall be only with Landlord's prior written consent, shall
conform to Building standard signage and shall be at Tenant's sole cost and
expense. In addition, Tenant shall have the right to install non-exclusive
signage on a common monument in the main courtyard of the Building. Landlord
shall bear the cost of the monument and Tenant shall bear the cost of its
signage thereon. Tenant must submit the design of the proposed monument signage
to Landlord's for its approval, which may be given or withheld in the good faith
exercise of Landlord's discretion. In addition, Tenant shall have the right to
non-exclusive signage on the west-facing facade of the Building; provided that
Landlord shall have the right to cause the removal of such signage if Tenant
fails to exercise the Second Expansion Option. Landlord's criteria for signage
on the facade of the Building is set forth in Exhibit C attached hereto.
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
7.01 POSSESSION AND USE OF PREMISES
(a) Tenant shall be entitled to possession of the Premises when the
Landlord Work is Substantially Complete. Tenant shall occupy and use the
Premises only for the uses specified in Section 1.01(14) to conduct Tenant's
business. Tenant shall not occupy or use the Premises (or permit the use or
occupancy of the Premises) for any purpose or in any manner which: (1) is
unlawful or in violation of any Law or Environmental Law; (2) may be dangerous
to persons or property or which may increase the cost of, or invalidate, any
policy of insurance carried on the Building or covering its operations; (3) is
contrary to or prohibited by the terms and conditions of this Lease or the rules
of the Building set forth in Article Eighteen; or (4) would tend to create or
continue a nuisance.
(b) Tenant shall comply with all Environmental Laws pertaining to
Tenant's occupancy and use of the Premises and concerning the proper storage,
handling and disposal of any Hazardous Material introduced to the Premises, the
Building or the Property by Tenant or other occupants of the Premises, or their
employees, servants, agents, contractors, customers or invitees. Landlord shall
comply with all Environmental Laws applicable to the Property other than those
to be complied with by Tenant pursuant to the preceding sentence. Tenant shall
not generate, store, handle or dispose of any Hazardous Material in, on, or
about the Property without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion, except that such consent shall not be
required to the extent of Hazardous Material packaged and contained in office
products for consumer use in general business offices in quantities for ordinary
day-to-day use provided such use does not give rise to, or pose a risk of,
exposure to or release of Hazardous Material. In the event that Tenant is
notified of any investigation or violation of any Environmental Law arising from
Tenant's activities at the Premises, Tenant shall immediately deliver to
Landlord a copy of such notice. In such event or in the event Landlord
reasonably believes that a violation of Environmental Law exists,
15
<PAGE> 20
Landlord may conduct such tests and studies relating to compliance by Tenant
with Environmental Laws or the alleged presence of Hazardous Materials upon the
Premises as Landlord deems desirable, all of which shall be completed at
Tenant's expense. Landlord's inspection and testing rights are for Landlord's
own protection only, and Landlord has not, and shall not be deemed to have
assumed any responsibility to Tenant or any other party for compliance with
Environmental Laws, as a result of the exercise, or non-exercise of such rights.
Tenant hereby indemnifies, and agrees to defend, protect and hold harmless, the
Indemnitees from any and all loss, claim, demand, action, expense, liability and
cost (including attorneys' fees and expenses) arising out of or in any way
related to the presence of any Hazardous Material introduced to the Premises
during the Lease Term by any party other than Landlord. In case of any action or
proceeding brought against the Indemnitees by reason of any such claim, upon
notice from Landlord, Tenant covenants to defend such action or proceeding by
counsel satisfactory to Landlord in its reasonable discretion. If any Hazardous
Material is released, discharged or disposed of on or about the Property and
such release, discharge or disposal is not caused by Tenant or other occupants
of the Premises, or their employees, servants, agents, contractors customers or
invitees, such release, discharge or disposal shall be deemed casualty damage
under Article Fourteen to the extent that the Premises are affected thereby; in
such case, Landlord and Tenant shall have the obligations and rights respecting
such casualty damage provided under such Article.
(c) Landlord and Tenant acknowledge that the Americans With Disabilities
Act of 1990 (42 U.S.C. Section 12101 et seq.) and regulations and guidelines
promulgated thereunder, as all of the same may be amended and supplemented from
time to time (collectively referred to herein as the "ADA") establish
requirements for business operations, accessibility and barrier removal, and
that such requirements may or may not apply to the Premises, the Building and
the Project depending on, among other things: (1) whether Tenant's business is
deemed a "public accommodation" or "commercial facility", (2) whether such
requirements are "readily achievable", and (3) whether a given alteration
affects a "primary function area" or triggers "path of travel" requirements. The
parties hereby agree that: (a) Landlord shall be responsible for ADA Title III
compliance in the Common Areas, except as provided below, (b) other than with
respect to the Tenant Improvements (as defined in the Workletter), Tenant shall
be responsible for ADA Title III compliance in the Premises, including any
leasehold improvements or other work to be performed in the Premises under or in
connection with this Lease, (c) Landlord may perform, or require that Tenant
perform, and Tenant shall be responsible for the cost of, ADA Title III "path of
travel" requirements triggered by Tenant Additions in the Premises, and (d)
Landlord may perform, or require Tenant to perform, and Tenant shall be
responsible for the cost of, ADA Title III compliance in the Common Areas
necessitated by the Building being deemed to be a "public accommodation" instead
of a "commercial facility" as a result of Tenant's use of the Premises. Tenant
shall be solely responsible for requirements under Title I of the ADA relating
to Tenant's employees.
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS
(a) Tenant shall permit Landlord to erect, use and maintain pipes,
ducts, wiring and conduits in and through the Premises, so long as (i) conduits
are above ceiling level or in the planes of columns or walls, and (ii) Tenant's
use, layout or design of the Premises is not materially affected or altered.
Landlord or Landlord's agents shall have the right to enter upon the Premises in
the event of an emergency, or to inspect the Premises, to perform janitorial and
other services, to conduct safety and other testing in the Premises and to make
such repairs, alterations, improvements or additions to the Premises or the
Building or other parts of the Property as Landlord may deem necessary or
desirable (including all alterations, improvements and additions in connection
with a change in service provider or providers). Janitorial and cleaning
services shall be performed after normal business hours. Any entry or work by
Landlord may be during normal business hours with at least one (1) business
day's prior written notice (except in the case of emergencies) and Landlord
shall use reasonable efforts to ensure that any entry or work shall not
materially interfere with Tenant's occupancy of the Premises.
(b) If Tenant shall not be personally present to permit an entry into
the Premises when for any reason an entry therein shall be necessary or
permissible, Landlord (or Landlord's agents), after attempting to notify Tenant
(unless Landlord believes an emergency situation exists), may enter the Premises
without
16
<PAGE> 21
rendering Landlord or its agents liable therefor, and without relieving Tenant
of any obligations under this Lease.
(c) Landlord may enter the Premises for the purpose of conducting such
inspections, tests and studies as Landlord may deem desirable or necessary to
confirm Tenant's compliance with all Laws and Environmental Laws or for other
purposes necessary in Landlord's reasonable judgment to ensure the sound
condition of the Property and the systems serving the Property. Landlord's
rights under this Section 7.02(c) are for Landlord's own protection only, and
Landlord has not, and shall not be deemed to have assumed, any responsibility to
Tenant or any other party as a result of the exercise or non-exercise of such
rights, for compliance with Laws or Environmental Laws or for the accuracy or
sufficiency of any item or the quality or suitability of any item for its
intended use.
(d) Landlord may do any of the foregoing, or undertake any of the
inspection or work described in the preceding paragraphs without such action
constituting an actual or constructive eviction of Tenant, in whole or in part,
or giving rise to an abatement of Rent by reason of loss or interruption of
business of the Tenant, or otherwise.
(e) The review, approval or consent of Landlord with respect to any item
required or permitted under this Lease is for Landlord's own protection only,
and Landlord has not, and shall not be deemed to have assumed, any
responsibility to Tenant or any other party, as a result of the exercise or
non-exercise of such rights, for compliance with Laws or Environmental Laws or
for the accuracy or sufficiency of any item or the quality or suitability of any
item for its intended use.
7.03 QUIET ENJOYMENT
Landlord covenants, in lieu of any implied covenant of quiet possession or quiet
enjoyment, that so long as Tenant is in compliance with the covenants and
conditions set forth in this Lease, Tenant shall have the right to quiet
enjoyment of the Premises without hindrance or interference from Landlord or
those claiming through Landlord, and subject to the covenants and conditions set
forth in the Lease and to the rights of any Mortgagee or ground lessor.
ARTICLE EIGHT
MAINTENANCE
8.01 LANDLORD'S MAINTENANCE
Subject to the provisions of Articles Four and Fourteen, Landlord shall maintain
and make necessary repairs to the foundations, roofs, exterior walls, and the
structural elements of the Building, the electrical, plumbing, heating,
ventilating, air-conditioning, mechanical, communication, security and the fire
and life safety systems of the Building and those corridors, washrooms and
lobbies which are Common Areas of the Building, except that: (a) Landlord shall
not be responsible for the maintenance or repair of any floor or wall coverings
in the Premises or any of such systems which are located within the Premises and
are supplemental or special to the Building's standard systems; and (b) the cost
of performing any of said maintenance or repairs whether to the Premises or to
the Building caused by the negligence of Tenant, its employees, agents,
servants, licensees, subtenants, contractors or invitees, shall be paid by
Tenant, subject to the waivers set forth in Section 16.04. Landlord shall not be
liable to Tenant hereunder for any expense, injury, loss or damage resulting
from work done in or upon, or in connection with the use of, any adjacent or
nearby building, land, street or alley.
8.02 TENANT'S MAINTENANCE
Subject to the provisions of Article Fourteen, Tenant, at its expense, shall
keep and maintain the Premises and all Tenant Additions in good order, condition
and repair and in accordance with all Laws (except to the extent relating to
Landlord Work and covered by the representation and warranty set forth in
Section 2.04
17
<PAGE> 22
above) and Environmental Laws. Tenant shall not permit waste and shall promptly
and adequately repair all damages to the Premises and replace or repair all
damaged or broken glass in the interior of the Premises, fixtures or
appurtenances. Any repairs or maintenance shall be completed with materials of
similar quality to the original materials, all such work to be completed under
the supervision of Landlord. Any such repairs or maintenance shall be performed
only by contractors or mechanics approved by Landlord, which approval shall not
be unreasonably withheld, and whose work will not cause or threaten to cause
disharmony or interference with Landlord or other tenants in the Building and
their respective agents and contractors performing work in or about the
Building. If Tenant fails to perform any of its obligations set forth in this
Section 8.02, Landlord may, in its sole discretion and upon seven (7) business
days prior notice to Tenant (except without notice in the case of emergencies),
perform the same, and Tenant shall pay to Landlord any costs or expenses
incurred by Landlord upon demand.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT ALTERATIONS
(a) Except for completion of Tenant Work undertaken by Tenant pursuant
to the Workletter, the following provisions shall apply to the completion of any
Tenant Alterations:
(1) Tenant shall not, except as provided herein, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld,
make or cause to be made any Tenant Alterations in or to the Premises or
any Property systems serving the Premises. Prior to making any Tenant
Alterations, Tenant shall give Landlord ten (10) days prior written
notice (or such earlier notice as would be necessary pursuant to
applicable Law) to permit Landlord sufficient time to post appropriate
notices of non-responsibility. Subject to all other requirements of this
Article Nine, Tenant may undertake Decoration work without Landlord's
prior written consent. Tenant shall furnish Landlord with the names and
addresses of all contractors and subcontractors and copies of all
contracts. All Tenant Alterations shall be completed only by contractors
or mechanics approved by Landlord, which approval shall not be
unreasonably withheld, provided, however, that Landlord may, in its sole
discretion, specify the engineers and contractors to perform all work
relating to the Building's systems (including the mechanical, heating,
plumbing, security, ventilating, air-conditioning, electrical,
communication and the fire and life safety systems in the Building). The
contractors, mechanics and engineers who may be used are further limited
to those whose work will not cause or threaten to cause disharmony or
interference with Landlord or other tenants in the Building and their
respective agents and contractors performing work in or about the
Building. Landlord may further condition its consent upon Tenant
furnishing to Landlord and Landlord approving prior to the commencement
of any work or delivery of materials to the Premises related to the
Tenant Alterations such of the following as specified by Landlord:
architectural plans and specifications, opinions from Landlord's
engineers stating that the Tenant Alterations will not in any way
adversely affect the Building's systems, necessary permits and licenses,
certificates of insurance, and such other documents in such form
reasonably requested by Landlord. Landlord may, in the exercise of
reasonable judgment, request that Tenant provide Landlord with
appropriate evidence of Tenant's ability to complete and pay for the
completion of the Tenant Alterations such as a performance bond or
letter of credit. Upon completion of the Tenant Alterations, Tenant
shall deliver to Landlord an as-built mylar and digitized (if available)
set of plans and specifications for the Tenant Alterations.
(2) Tenant shall pay the cost of all Tenant Alterations and the cost of
decorating the Premises and any work to the Property occasioned thereby.
Upon completion of Tenant Alterations, Tenant shall furnish Landlord
with contractors' affidavits and full and final waivers of lien and
receipted bills covering all labor and materials expended and used in
connection therewith and such other documentation reasonably requested
by Landlord or Mortgagee.
18
<PAGE> 23
(3) Tenant agrees to complete all Tenant Alterations (i) in accordance with
all Laws, Environmental Laws, all requirements of applicable insurance
companies and in accordance with Landlord's standard construction rules
and regulations, and (ii) in a good and workmanlike manner with the use
of good grades of materials. Tenant shall notify Landlord immediately if
Tenant receives any notice of violation of any Law in connection with
completion of any Tenant Alterations and shall immediately take such
steps as are necessary to remedy such violation. In no event shall any
approvals given by Landlord under this Lease constitute any warranty by
Landlord to Tenant of the adequacy of the design, workmanship or quality
of such work or materials for Tenant's intended use or of compliance
with the requirements of Section 9.01(a)(3)(i) and (ii) above or impose
any liability upon Landlord in connection with the performance of such
work.
(b) All Tenant Additions whether installed by Landlord or Tenant, shall
without compensation or credit to Tenant, become part of the Premises and the
property of Landlord at the time of their installation and shall remain in the
Premises, unless pursuant to Article Twelve, Tenant may remove them or is
required to remove them at Landlord's request.
9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer or
supplier or any other lien to be filed against the Building, the Land, the
Premises, or any other part of the Property arising out of work performed, or
alleged to have been performed by, or at the direction of, or on behalf of
Tenant. If any such lien or claim for lien is filed, Tenant shall within twenty
(20) days of receiving notice of such lien or claim (a) have such lien or claim
for lien released of record or (b) deliver to Landlord a bond in form, content,
amount, and issued by surety, satisfactory to Landlord, indemnifying,
protecting, defending and holding harmless the Indemnitees against all costs and
liabilities resulting from such lien or claim for lien and the foreclosure or
attempted foreclosure thereof. If Tenant fails to take any of the above actions,
Landlord, in addition to its rights and remedies under Article Eleven, without
investigating the validity of such lien or claim for lien, may pay or discharge
the same and Tenant shall, as payment of additional Rent hereunder, reimburse
Landlord upon demand for the amount so paid by Landlord, including Landlord's
expenses and attorneys' fees.
ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord, which may be withheld
in Landlord's reasonable discretion, Tenant may not sublease, assign, mortgage,
pledge, hypothecate or otherwise transfer or permit the transfer of this Lease
or the encumbering of Tenant's interest therein in whole or in part, by
operation of Law or otherwise or permit the use or occupancy of the Premises, or
any part thereof, by anyone other than Tenant or its Affiliates. Landlord
acknowledges and agrees that the effective assignment of this Lease by means of
a merger of Tenant with another business entity or the acquisition of all or
substantially all of Tenant's assets by another business entity shall not
require the consent of Landlord so long as the successor entity does not have
materially less financial means as those of Tenant prior to such merger or
acquisition. Tenant agrees that the provisions governing sublease and assignment
set forth in this Article Ten shall be deemed to be reasonable. If Tenant
desires to enter into any sublease of the Premises or assignment of this Lease,
Tenant shall deliver written notice thereof to Landlord ("Tenant's Notice"),
together with the identity of the proposed subtenant or assignee and the
proposed principal terms thereof and financial and other information sufficient
for Landlord to make an informed judgment with respect to such proposed
subtenant or assignee at least thirty (30) days prior to the commencement date
of the term of the proposed sublease or assignment. Landlord shall notify Tenant
in writing of its approval or disapproval of the proposed sublease or assignment
or its decision to exercise its rights under Section 10.02 within thirty (30)
days after receipt of Tenant's Notice (and all required information).
19
<PAGE> 24
(b) With respect to Landlord's consent to an assignment or sublease,
Landlord may take into consideration any factors that Landlord may deem
relevant, and the reasons for which Landlord's denial shall be deemed to be
reasonable shall include, without limitation, the following:
(i) the business reputation or creditworthiness of any proposed
subtenant or assignee is not acceptable to Landlord in its reasonable
discretion; or
(ii) in Landlord's reasonable judgment the proposed assignee or
sublessee would diminish the value or reputation of the Building or
Landlord; or
(iii) any proposed assignee's or sublessee's use of the Premises would
violate Section 7.01 of the Lease or would violate the provisions of any
other leases of tenants in the Project; or
(c) Any sublease or assignment shall be expressly subject to the terms
and conditions of this Lease. Any subtenant or assignee shall execute such
documents as Landlord may reasonably require to evidence such subtenant or
assignee's assumption of the obligations and liabilities of Tenant under this
Lease. Tenant shall deliver to Landlord a copy of all agreements executed by
Tenant and the proposed subtenant and assignee with respect to the Premises.
Landlord's approval of a sublease, assignment, hypothecation, transfer or third
party use or occupancy shall not constitute a waiver of Tenant's obligation to
obtain Landlord's consent to further assignments or subleases, hypothecations,
transfers or third party use or occupancy.
(d) For purposes of this Article Ten, an assignment shall be deemed to
include a change in the majority control of Tenant, resulting from any transfer,
sale or assignment of shares of stock of Tenant occurring by operation of Law or
otherwise if Tenant is a corporation whose shares of stock are not traded
publicly. If Tenant is a partnership, any change in the partners of Tenant shall
be deemed to be an assignment.
10.02 RECAPTURE
Landlord shall have the option to exclude from the Premises covered by this
Lease ("recapture") the space proposed to be sublet or subject to the
assignment, effective as of the proposed commencement date of such sublease or
assignment if the sublease or assignment covers the remaining portion of the
Term. If Landlord elects to recapture, Tenant shall surrender possession of the
space proposed to be subleased or subject to the assignment to Landlord on the
effective date of recapture of such space from the Premises, such date being the
Termination Date for such space. Effective as of the date of recapture of any
portion of the Premises pursuant to this section, the Monthly Base Rent,
Rentable Area of the Premises and Tenant's Share shall be adjusted accordingly.
10.03 EXCESS RENT
Tenant shall pay Landlord on the first day of each month during the term of the
sublease or assignment, fifty percent (50%) of the amount by which the sum of
all rent and other consideration (direct or indirect) due from the subtenant or
assignee for such month exceeds: (i) that portion of the Monthly Base Rent and
Rent Adjustments due under this Lease for said month which is allocable to the
space sublet or assigned; and (ii) the following costs and expenses for the
subletting or assignment of such space: (1) brokerage commissions and attorneys'
fees and expenses, (2) the actual costs paid in making any improvements or
substitutions in the Premises required by any sublease or assignment; and (3)
"free rent" periods, costs of any inducements or concessions given to subtenant
or assignee, moving costs, and other amounts in respect of such subtenant's or
assignee's other leases or occupancy arrangements.
20
<PAGE> 25
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlord's
consent, Tenant shall not be released or discharged from any liability, whether
past, present or future, under this Lease, including any liability arising from
the exercise of any renewal or expansion option, to the extent such exercise is
expressly permitted by Landlord. Tenant's liability shall remain primary, and in
the event of default by any subtenant, assignee or successor of Tenant in
performance or observance of any of the covenants or conditions of this Lease,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said subtenant, assignee or successor. After any assignment,
Landlord may consent to subsequent assignments or subletting of this Lease, or
amendments or modifications of this Lease with assignees of Tenant, without
notifying Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto, and such action shall not relieve Tenant or any successor of
Tenant of liability under this Lease. If Landlord grants consent to such
sublease or assignment, Tenant shall pay all reasonable attorneys' fees and
expenses incurred by Landlord with respect to such assignment or sublease. In
addition, if Tenant has any options to extend the term of this Lease or to add
other space to the Premises, such options shall not be available to any
subtenant or assignee, directly or indirectly without Landlord's express written
consent, which may be withheld in Landlord's sole discretion.
10.05 ASSUMPTION AND ATTORNMENT
If Tenant shall assign this Lease as permitted herein, the assignee shall
expressly assume all of the obligations of Tenant hereunder in a written
instrument satisfactory to Landlord and furnished to Landlord not later than
fifteen (15) days prior to the effective date of the assignment. If Tenant shall
sublease the Premises as permitted herein, Tenant shall, at Landlord's option,
within fifteen (15) days following any request by Landlord, obtain and furnish
to Landlord the written agreement of such subtenant to the effect that the
subtenant will attorn to Landlord and will pay all subrent directly to Landlord
(provided that Landlord will provide Tenant with copies of all notices of
default and provide Tenant the reasonable right to cure same).
ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute
a "Default" by Tenant under this Lease:
(i) Tenant fails to pay any installment or other payment of Rent
including Rent Adjustment Deposits or Rent Adjustments within five (5)
days after the date when due;
(ii) Tenant fails to observe or perform any of the other
covenants, conditions or provisions of this Lease or the Workletter and
fails to cure such default within thirty (30) days after written notice
thereof to Tenant (or, if such cure cannot reasonably be completed
within 30 days, such longer period as is reasonably required to cure so
long as Tenant initiates such cure within 30 days and diligently
prosecutes such cure to completion), unless the default involves a
hazardous condition, which shall be cured forthwith or unless the
failure to perform is a Default for which this Lease specifies there is
no cure or grace period; or
(iii) a petition is filed by or against Tenant to declare Tenant
bankrupt or seeking a plan of reorganization or arrangement under any
Chapter of the Bankruptcy Act, or any amendment, replacement or
substitution therefor, or to delay payment of, reduce or modify Tenant's
debts, which in the case of an involuntary action is not discharged
within thirty (30) days;
(iv) Tenant is declared insolvent by Law or any assignment of
Tenant's property is made for the benefit of creditors;
21
<PAGE> 26
(v) upon the dissolution of Tenant (unless following a merger or
sale described in the second sentence of Section 10.01(a)); or
(vi) upon the fourth occurrence within any Lease Year that
Tenant fails to pay Rent within five (5) days of when due and Landlord
delivers written notice thereof, unless within thirty (30) of Landlord's
notice Tenant doubles the amount of the Security Deposit then held by
Landlord.
11.02 LANDLORD'S REMEDIES
(a) A Default shall constitute a breach of the Lease for which Landlord
shall have the rights and remedies set forth in this Section 11.02 and all other
rights and remedies set forth in this Lease or now or hereafter allowed by Law,
whether legal or equitable, and all rights and remedies of Landlord shall be
cumulative and none shall exclude any other right or remedy.
(b) With respect to a Default, at any time Landlord may terminate
Tenant's right to possession by written notice to Tenant stating such election.
Any written notice required pursuant to Section 11.01 shall constitute notice of
unlawful detainer pursuant to California Code of Civil Procedure Section 1161 if
it complies with all statutory requirements and if, at Landlord's sole
discretion, it states Landlord's election that Tenant's right to possession is
terminated after expiration of any period required by Law or any longer period
required by Section 11.01. Upon the expiration of the period stated in
Landlord's written notice of termination (and unless such notice provides an
option to cure within such period and Tenant cures the Default within such
period), Tenant's right to possession shall terminate and this Lease shall
terminate, and Tenant shall remain liable as hereinafter provided. Upon such
termination in writing of Tenant's right to possession, Landlord shall have the
right, subject to applicable Law, to re-enter the Premises and dispossess Tenant
and the legal representatives of Tenant and all other occupants of the Premises
by unlawful detainer or other summary proceedings, or otherwise as permitted by
Law, regain possession of the Premises and remove their property (including
their trade fixtures, personal property and those Tenant Additions which Tenant
is required or permitted to remove under Article Twelve), but Landlord shall not
be obligated to effect such removal, and such property may, at Landlord's
option, be stored elsewhere, sold or otherwise dealt with as permitted by Law,
at the risk of, expense of and for the account of Tenant, and the proceeds of
any sale shall be applied pursuant to Law. Upon such written termination of
Tenant's right to possession and this Lease, Landlord shall have the right to
recover damages for Tenant's Default as provided herein or by Law, including the
following damages provided by California Civil Code Section 1951.2:
(1) the worth at the time of award of the unpaid Rent which had
been earned at the time of termination;
(2) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such Rent loss that Tenant proves
could reasonably have been avoided;
(3) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the term of this Lease after the time of
award exceeds the amount of such Rent loss that Tenant proves could be
reasonably avoided; and
(4) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom (including without limitation
Landlord's unamortized costs of tenant improvements incurred in
connection with entering into this Lease if Landlord, by operation of
Law, is not entitled to recover unpaid Rent for the balance of the Term,
so long as such costs have not otherwise been taken into account,
directly or indirectly, in determining Landlord's damages). The word
"rent" as used in this Section 11.02 shall have the same meaning as the
defined term Rent in this Lease. The "worth at the time of award" of the
amount referred to in clauses (1) and (2) above
22
<PAGE> 27
is computed by allowing interest at the Default Rate. The worth at the
time of award of the amount referred to in clause (3) above is computed
by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%). For
the purpose of determining unpaid Rent under clause (3) above, the
monthly Rent reserved in this Lease shall be deemed to be the sum of the
Monthly Base Rent, monthly storage space rent, if any, and the amounts
last payable by Tenant as Rent Adjustments for the calendar year in
which Landlord terminated this Lease as provided hereinabove.
(c) Even if Tenant is in Default, this Lease shall continue in effect
for so long as Landlord does not terminate Tenant's right to possession by
written notice as provided in Section 11.02(b) above, and Landlord may enforce
all its rights and remedies under this Lease, including the right to recover
Rent as it becomes due under this Lease. In such event, Landlord shall have all
of the rights and remedies of a landlord under California Civil Code Section
1951.4 (lessor may continue Lease in effect after Tenant's Default and
abandonment and recover Rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations), or any successor
statute. During such time as Tenant is in Default, if Landlord has not
terminated this Lease by written notice and if Tenant requests Landlord's
consent to an assignment of this Lease or a sublease of the Premises, subject to
Landlord's option to recapture pursuant to Section 10.02, Landlord shall not
unreasonably withhold its consent to such assignment or sublease. Tenant
acknowledges and agrees that the provisions of Article Ten shall be deemed to
constitute reasonable limitations of Tenant's right to assign or sublet. Tenant
acknowledges and agrees that in the absence of written notice pursuant to
Section 11.02(b) above terminating Tenant's right to possession, no other act of
Landlord shall constitute a termination of Tenant's right to possession or an
acceptance of Tenant's surrender of the Premises, including acts of maintenance
or preservation or efforts to relet the Premises or the appointment of a
receiver upon initiative of Landlord to protect Landlord's interest under this
Lease or the withholding of consent to a subletting or assignment, or
terminating a subletting or assignment, if in accordance with other provisions
of this Lease.
(d) Tenant hereby waives any and all rights to relief from forfeiture,
redemption or reinstatement granted by Law (including California Civil Code of
Procedure Sections 1174 and 1179) in the event of Tenant being evicted or
dispossessed for any cause or in the event of Landlord obtaining possession of
the Premises by reason of Tenant's Default or otherwise;
(e) Notwithstanding any other provision of this Lease, a notice to
Tenant given under this Article and Article Twenty-Four of this Lease or given
pursuant to California Code of Civil Procedure Section 1161 shall be deemed
served, and Tenant's time to respond thereto, shall be governed by Article
Twenty-Four, without any additional waiting requirement under Code of Civil
Procedure Section 1011 et seq. or by other Law. For purposes of Code of Civil
Procedure Section 1162, Tenant's "place of residence", "usual place of
business", "the property" and "the place where the property is situated" shall
mean and be the Premises, whether or not Tenant has vacated same at the time of
service.
(f) The voluntary or other surrender or termination of this Lease, or a
mutual termination or cancellation thereof, shall not work a merger and shall
terminate all or any existing assignments, subleases, subtenancies or
occupancies permitted by Tenant, except if and as otherwise specified in writing
by Landlord.
(g) No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant, and no exercise by Landlord of its rights
pursuant to Section 25.15 to perform any duty which Tenant fails timely to
perform, shall impair any right or remedy or be construed as a waiver. No
provision of this Lease shall be deemed waived by Landlord unless such waiver is
in writing signed by Landlord. The waiver by Landlord of any breach of any
provision of this Lease shall not be deemed a waiver of any subsequent breach of
the same or any other provision of this Lease.
23
<PAGE> 28
11.03 ATTORNEY'S FEES
In the event any party brings any suit or other proceeding with respect to the
subject matter or enforcement of this Lease, the prevailing party (as determined
by the court, agency or other authority before which such suit or proceeding is
commenced) shall, in addition to such other relief as may be awarded, be
entitled to recover attorneys' fees, expenses and costs of investigation as
actually incurred, including court costs, expert witness fees, costs and
expenses of investigation, and all attorneys' fees, costs and expenses in any
such suit or proceeding (including in any action or participation in or in
connection with any case or proceeding under the Bankruptcy Code, 11 United
States Code Sections 101 et seq., or any successor statutes, in establishing or
enforcing the right to indemnification, in appellate proceedings, or in
connection with the enforcement or collection of any judgment obtained in any
such suit or proceeding).
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or
insolvency of Tenant:
(a) In connection with any proceeding under Chapter 7 of the Bankruptcy
Code where the trustee of Tenant elects to assume this Lease for the purposes of
assigning it, such election or assignment, may only be made upon compliance with
the provisions of (b) and (c) below, which conditions Landlord and Tenant
acknowledge to be commercially reasonable.
(b) Any election to assume this Lease under Chapter 11 or 13 of the
Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the
"Electing Party") must provide for the Electing Party to cure or provide to
Landlord adequate assurance that it will cure all monetary and nonmonetary
defaults under this Lease. Landlord and Tenant acknowledge such condition to be
commercially reasonable.
(c) If the Electing Party has assumed this Lease or elects to assign
Tenant's interest under this Lease to any other person, such interest may be
assigned only if the intended assignee has provided adequate assurance of future
performance of all of the obligations imposed on Tenant under this Lease.
(d) Landlord's acceptance of rent or any other payment from any
trustee, receiver, assignee, person, or other entity will not be deemed to have
waived, or waive, the requirement of Landlord's consent, Landlord's right to
terminate this Lease for any transfer of Tenant's interest under this Lease
without such consent, or Landlord's claim for any amount of Rent due from
Tenant.
11.05 LANDLORD'S DEFAULT
Landlord shall be in default hereunder in the event Landlord has not begun and
pursued with reasonable diligence the cure of any failure of Landlord to meet
its obligations hereunder within thirty (30) days after the receipt by Landlord
of written notice from Tenant of the alleged failure to perform. In no event
shall Tenant have the right to unilaterally terminate or rescind this Lease as a
result of Landlord's default as to any covenant or agreement contained in this
Lease, provided that the foregoing shall not restrict or limit Tenant's rights
to seek judicial relief to that effect. In addition, Tenant hereby covenants
that, prior to the exercise of any such remedies, it will give any Mortgagee who
has notified Tenant of its interest in the Building notice and a reasonable time
to cure any default by Landlord.
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good and
tenantable condition, ordinary wear and tear, and
24
<PAGE> 29
damage caused by Landlord excepted. Tenant shall deliver to Landlord all keys to
the Premises. Tenant shall remove from the Premises all movable personal
property of Tenant and Tenant's trade fixtures, including, subject to Section
6.04, cabling for any of the foregoing. Tenant shall be entitled to remove such
Tenant Additions, which at the time of their installation Landlord and Tenant
agree may or shall be removed by Tenant. Tenant shall also remove such other
Tenant Additions as required by Landlord, including any Tenant Additions
containing Hazardous Materials. Tenant immediately shall repair all damage
resulting from removal of any of Tenant's property, furnishings or Tenant
Additions, shall close all floor, ceiling and roof openings and shall restore
the Premises to a tenantable condition as reasonably determined by Landlord. If
any of the Tenant Additions which were installed by Tenant involved the lowering
of ceilings, raising of floors or the installation of specialized wall or floor
coverings or lights, then Tenant shall also be obligated to return such surfaces
to their condition prior to the commencement of this Lease. Tenant shall also be
required to close any staircases or other openings between floors. In the event
possession of the Premises is not delivered to Landlord when required hereunder,
or if Tenant shall fail to remove those items described above, Landlord may (but
shall not be obligated to), at Tenant's expense, remove any of such property and
store, sell or otherwise deal with such property as provided in Section 11.02(b)
and undertake, at Tenant's expense, such restoration work as Landlord deems
necessary or advisable.
12.02 LANDLORD'S RIGHTS
Tenant shall reimburse Landlord for all costs and expenses incurred by Landlord
in removing any of Tenant Additions that Tenant is obligated to remove at the
termination of this Lease in accordance with the provisions hereof and in
restoring the Premises to the condition required by this Lease at the
Termination Date.
ARTICLE THIRTEEN
HOLDING OVER
In the event that Tenant holds over in possession of the Premises after the
Termination Date, Tenant shall pay Landlord 150% of the monthly Rent payable for
the month immediately preceding the holding over (including increases for Rent
Adjustments which Landlord may reasonably estimate. Tenant shall also pay all
damages sustained by Landlord by reason of such retention of possession. The
provisions of this Article shall not constitute a waiver by Landlord of any
re-entry rights of Landlord and Tenant's continued occupancy of the Premises
shall be as a tenancy in sufferance.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENANTABILITY
(a) If any fire or other casualty (whether insured or uninsured) renders
all or a substantial portion of the Premises or the Building untenantable,
Landlord shall, with reasonable promptness after the occurrence of such damage,
estimate the length of time that will be required to substantially complete the
repair and restoration and shall by notice advise Tenant of such estimate
("Landlord's Notice"). If Landlord estimates that the amount of time required to
substantially complete such repair and restoration will exceed one hundred
eighty (180) days from the date such damage occurred, then Landlord, or Tenant
if all or a substantial portion of the Premises is rendered untenantable, shall
have the right to terminate this Lease as of the date of such damage upon giving
written notice to the other at any time within thirty (30) days after delivery
of Landlord's Notice, provided that if Landlord so chooses, Landlord's Notice
may also constitute such notice of termination.
(b) Unless this Lease is terminated as provided in the preceding
subparagraph, Landlord shall proceed with reasonable promptness to repair and
restore the Premises to its condition as existed prior to such casualty, subject
to reasonable delays for insurance adjustments and Force Majeure delays, and
also subject to zoning Laws and building codes then in effect. Landlord shall
have no liability to Tenant, and
25
<PAGE> 30
Tenant shall not be entitled to terminate this Lease if such repairs and
restoration are not in fact completed within the time period estimated by
Landlord so long as Landlord shall proceed with reasonable diligence to complete
such repairs and restoration, and so long as the repairs and restoration are
completed not more than sixty (60) days after the time period estimated by
Landlord.
(c) Tenant acknowledges that Landlord shall be entitled to the full
proceeds of any insurance coverage, whether carried by Landlord or Tenant, for
damages to the Premises, except for those proceeds of Tenant's insurance of its
own personal property and equipment which would be removable by Tenant at the
Termination Date. All such insurance proceeds shall be payable to Landlord
whether or not the Premises are to be repaired and restored, provided, however,
if this Lease is not terminated and the parties proceed to repair and restore
Tenant Additions at Tenant's cost, to the extent Landlord received proceeds of
Tenant's insurance covering Tenant Additions, such proceeds shall be applied to
pay directly for the cost of repairing and restoring Tenant Additions.
(d) Notwithstanding anything to the contrary herein set forth: (i)
Landlord shall have no duty pursuant to this Section to repair or restore any
portion of any Tenant Additions or to expend for any repair or restoration of
the Premises or Building amounts in excess of insurance proceeds paid to
Landlord and available for repair or restoration; and (ii) Tenant shall not have
the right to terminate this Lease pursuant to this Section if any damage or
destruction was caused by the act or neglect of Tenant, its agent or employees.
Whether or not the Lease is terminated pursuant to this Article Fourteen, in no
event shall Tenant be entitled to any compensation or damages for loss of the
use of the whole or any part of the Premises or for any inconvenience or
annoyance occasioned by any such damage, destruction, rebuilding or restoration
of the Premises or the Building or access thereto, except to the extent of
uninsured damage caused by the negligence or willful misconduct of Landlord, its
agents or employees.
(e) Any repair or restoration of the Premises performed by Tenant shall
be in accordance with the provisions of Article Nine hereof.
14.02 INSUBSTANTIAL UNTENANTABILITY
If the Premises or the Building is damaged by a casualty but neither is rendered
substantially untenantable and Landlord estimates that the time to substantially
complete the repair or restoration will not exceed one hundred eighty (180) days
from the date such damage occurred, then Landlord shall proceed to repair and
restore the Building or the Premises other than Tenant Additions, with
reasonable promptness, unless such damage is to the Premises and occurs during
the last six (6) months of the Term, in which event either Tenant or Landlord
shall have the right to terminate this Lease as of the date of such casualty by
giving written notice thereof to the other within twenty (20) days after the
date of such casualty. Notwithstanding the aforesaid, Landlord's obligation to
repair shall be limited in accordance with the provisions of Section 14.01
above.
14.03 RENT ABATEMENT
Except for the negligence or willful act of Tenant or its agents, employees,
contractors or invitees, if all or any part of the Premises are rendered
untenantable by fire or other casualty and this Lease is not terminated, Monthly
Base Rent and Rent Adjustments shall abate for that part of the Premises which
is untenantable on a per diem basis from the date of the casualty until Landlord
has Substantially Completed the repair and restoration work in the Premises
which it is required to perform, provided, that as a result of such casualty,
Tenant does not occupy the portion of the Premises which is untenantable during
such period.
14.04 WAIVER OF STATUTORY REMEDIES
The provisions of this Lease, including this Article Fourteen, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, the Premises or the Property or any part of either, and
any Law, including Sections 1932(2), 1933(4), 1941 and 1942 of the California
Civil
26
<PAGE> 31
Code, with respect to any rights or obligations concerning damage or destruction
shall have no application to this Lease or to any damage to or destruction of
all or any part of the Premises or the Property or any part of either, and are
hereby waived.
ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In the event the whole or any substantial part of the Building or of the
Premises is taken or condemned by any competent authority for any public use or
purpose (including a deed given in lieu of condemnation) and is thereby rendered
untenantable, this Lease shall terminate as of the date title vests in such
authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of
the Termination Date. Notwithstanding anything to the contrary herein set forth,
in the event the taking is for less than four (4) months, Landlord may elect
either (i) to terminate this Lease or (ii) permit Tenant to receive the entire
award attributable to the Premises in which case Tenant shall continue to pay
Rent and this Lease shall not terminate.
15.02 TAKING OF PART
In the event a part of the Building or the Premises is taken or condemned by any
competent authority (or a deed is delivered in lieu of condemnation) and this
Lease is not terminated, the Lease shall be amended to reduce or increase, as
the case may be, the Monthly Base Rent and Tenant's Proportionate Share to
reflect the Rentable Area of the Premises or Building, as the case may be,
remaining after any such taking or condemnation. Landlord, upon receipt and to
the extent of the award in condemnation (or proceeds of sale) shall make
necessary repairs and restorations to the Premises (exclusive of Tenant
Additions) and to the Building to the extent necessary to constitute the portion
of the Building not so taken or condemned as a complete architectural and
economically efficient unit. Notwithstanding the foregoing, if as a result of
any taking, or a governmental order that the grade of any street or alley
adjacent to the Building is to be changed and such taking or change of grade
makes it necessary or desirable to substantially remodel or restore the Building
or prevents the economical operation of the Building, Landlord shall have the
right to terminate this Lease upon ninety (90) days prior written notice to
Tenant.
15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sale proceeds) from
any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant's interest, if any, in such award; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant Additions
paid for by Tenant without any credit or allowance from Landlord so long as
there is no diminution of Landlord's award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANT'S INSURANCE
Tenant, at Tenant's expense, agrees to maintain in force, with a company or
companies acceptable to Landlord, during the Term: (a) Commercial General
Liability Insurance on a primary basis and without any right of contribution
from any insurance carried by Landlord covering the Premises on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage, including contractual liability covering the indemnification provisions
in this Lease, and such insurance shall be for such limits that are reasonably
required by Landlord from time to time but not less than a combined single limit
of Three Million and No/100 Dollars ($3,000,000.00); (b) Workers' Compensation
and Employers' Liability Insurance to the extent required by and in accordance
with the Laws of the State of California; (c) "All Risks" property insurance in
an amount adequate to cover the full replacement cost of all Tenant Additions,
equipment,
27
<PAGE> 32
installations, fixtures and contents of the Premises in the event of loss; (d)
in the event a motor vehicle is to be used by Tenant in connection with its
business operation from the Premises, Comprehensive Automobile Liability
Insurance coverage with limits of not less than One Million and No/100 Dollars
($1,000,000.00) combined single limit coverage against bodily injury liability
and property damage liability arising out of the use by or on behalf of Tenant,
its agents and employees in connection with this Lease, of any owned, non-owned
or hired motor vehicles; and (e) such other insurance or coverages as Landlord
reasonably requires.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each
policy shall (i) name Landlord and the Indemnitees as additional insureds
(except Workers' Compensation and Employers' Liability Insurance), (ii) be
issued by one or more responsible insurance companies licensed to do business in
the State of California reasonably satisfactory to Landlord, (iii) where
applicable, provide for deductible amounts satisfactory to Landlord and not
permit co-insurance, (iv) shall provide that such insurance may not be canceled
or amended without thirty (30) days' prior written notice to the Landlord, and
(v) each policy of "All-Risks" property insurance shall provide that the policy
shall not be invalidated should the insured waive in writing prior to a loss,
any or all rights of recovery against any other party for losses covered by such
policies. Tenant shall deliver to Landlord, certificates of insurance and at
Landlord's request, copies of all policies and renewals thereof to be maintained
by Tenant hereunder, not less than ten (10) days prior to the Commencement Date
and not less than ten (10) days prior to the expiration date of each policy.
16.03 LANDLORD'S INSURANCE
Landlord agrees to purchase and keep in full force and effect during the Term
hereof, including any extensions or renewals thereof, insurance under policies
issued by insurers of recognized responsibility, qualified to do business in the
State of California on the Building in amounts not less than the then full
replacement cost (without depreciation) of the Building (above foundations and
excluding Tenant Additions) against fire and such other risks as may be included
in standard forms of all risk coverage insurance reasonably available from time
to time. Landlord agrees to maintain in force during the Term, Commercial
General Liability Insurance covering the Building on an occurrence basis against
all claims for personal injury, bodily injury, death, and property damage. Such
insurance shall be for a combined single limit of not less than Five Million and
No/100 Dollars ($5,000,000.00). Neither Landlord's obligation to carry such
insurance nor the carrying of such insurance shall be deemed to be an indemnity
by Landlord with respect to any claim, liability, loss, cost or expense due, in
whole or in part, to Tenant's negligent acts or omissions or willful misconduct.
Without obligation to do so, Landlord may, in its sole discretion from time to
time, carry insurance in amounts greater and/or for coverage additional to the
coverage and amounts set forth above.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that, if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of the State of
California, it will include in its "All Risks" policies appropriate clauses
pursuant to which the insurance companies (i) waive all right of subrogation
against Tenant with respect to losses payable under such policies and/or (ii)
agree that such policies shall not be invalidated should the insured waive in
writing prior to a loss any or all right of recovery against any party for
losses covered by such policies.
(b) Tenant agrees to include, if obtainable at no, or minimal,
additional cost, and so long as the same is permitted under the laws of the
State of California, in its "All Risks" insurance policy or policies on Tenant
Additions, whether or not removable, and on Tenant's furniture, furnishings,
fixtures and other property removable by Tenant under the provisions of this
Lease appropriate clauses pursuant to which the insurance company or companies
(i) waive the right of subrogation against Landlord and/or any tenant of space
in the Building with respect to losses payable under such policy or policies
and/or (ii) agree that such policy or policies shall not be invalidated should
the insured waive in writing prior to a loss any or all right of recovery
against any party for losses covered by such policy or policies. If Tenant is
unable to obtain in such
28
<PAGE> 33
policy or policies either of the clauses described in the preceding sentence,
Tenant shall, if legally possible and without necessitating a change in
insurance carriers, have Landlord named in such policy or policies as an
additional insured. If Landlord shall be named as an additional insured in
accordance with the foregoing, Landlord agrees to endorse promptly to the order
of Tenant, without recourse, any check, draft, or order for the payment of money
representing the proceeds of any such policy or representing any other payment
growing out of or connected with said policies, and Landlord does hereby
irrevocably waive any and all rights in and to such proceeds and payments.
(c) Provided that Landlord's right of full recovery under its policy or
policies aforesaid is not adversely affected or prejudiced thereby, Landlord
hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Real Property and the fixtures, appurtenances and equipment therein, to
the extent the same is covered by Landlord's insurance, notwithstanding that
such loss or damage may result from the negligence or fault of Tenant, its
servants, agents or employees. Provided that Tenant's right of full recovery
under its aforesaid policy or policies is not adversely affected or prejudiced
thereby, Tenant hereby waives any and all right of recovery which it might
otherwise have against Landlord, its servants, and employees and against every
other tenant of the Real Property who shall have executed a similar waiver as
set forth in this Section 16.04 (c) for loss or damage to Tenant Additions,
whether or not removable, and to Tenant's furniture, furnishings, fixtures and
other property removable by Tenant under the provisions hereof to the extent the
same is coverable by Tenant's insurance required under this Lease,
notwithstanding that such loss or damage may result from the negligence or fault
of Landlord, its servants, agents or employees, or such other tenant and the
servants, agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if the
clauses to be included in their respective insurance policies pursuant to
subparagraphs (a) and (b) above cannot be obtained on the terms hereinbefore
provided and thereafter to furnish the other with a certificate of insurance or
copy of such policies showing the naming of the other as an additional insured,
as aforesaid. Landlord and Tenant hereby also agree to notify the other promptly
of any cancellation or change of the terms of any such policy that would affect
such clauses or naming. All such policies which name both Landlord and Tenant as
additional insureds shall, to the extent obtainable, contain agreements by the
insurers to the effect that no act or omission of any additional insured will
invalidate the policy as to the other additional insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or accident in the Premises
promptly after Tenant is aware of such event.
ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by Law, Tenant releases the Indemnitees from, and waives
all claims for, damage to person or property sustained by the Tenant or any
occupant of the Premises or the Property resulting directly or indirectly from
any existing or future condition, defect, matter or thing in and about the
Premises or the Property or any part of either or any equipment or appurtenance
therein, or resulting from any accident in or about the Premises or the
Property, or resulting directly or indirectly from any act or neglect of any
tenant or occupant of the Property or of any other person, including Landlord's
agents and servants, except to the extent caused by the negligence or willful
and wrongful act of any of the Indemnitees. Except as expressly provided
otherwise hereunder, to the extent permitted by Law, Tenant hereby waives any
consequential damages, compensation or claims for inconvenience or loss of
business, rents, or profits as a result of such injury or damage. If any such
damage, whether to the Premises or the Property or any part of either, or
whether to Landlord or to other tenants in the Property, results from any act or
neglect of Tenant, its employees, servants, agents, contractors, invitees or
customers, Tenant shall be liable therefor and Landlord
29
<PAGE> 34
may, at Landlord's option, repair such damage and Tenant shall, upon demand by
Landlord, as payment of additional Rent hereunder, reimburse Landlord within
thirty (30) days of demand for the total cost of such repairs, in excess of
amounts, if any, paid to Landlord under insurance covering such damages. Tenant
shall not be liable for any such damage caused by its acts or neglect if
Landlord or a tenant has recovered the full amount of the damage from proceeds
of insurance policies and the insurance company has waived its right of
subrogation against Tenant.
17.02 INDEMNITY BY TENANT
To the extent permitted by Law, Tenant hereby indemnifies, and agrees to
protect, defend and hold the Indemnitees harmless, against any and all actions,
claims, demands, liability, costs and expenses, including attorneys' fees and
expenses for the defense thereof, arising from Tenant's occupancy of the
Premises, from the undertaking of any Tenant Additions or repairs to the
Premises, from the conduct of Tenant's business on the Premises, or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or from any willful act or negligence of Tenant, its agents, contractors,
servants, employees, customers or invitees, in or about the Premises or the
Property or any part of either. In case of any action or proceeding brought
against the Indemnitees by reason of any such claim, upon notice from Landlord,
Tenant covenants to defend such action or proceeding by counsel satisfactory to
Landlord in its reasonable discretion. The foregoing indemnity shall not operate
to relieve Indemnitees of liability to the extent such liability is caused by
the negligence or willful and wrongful act of Indemnitees. Further, the
foregoing indemnity is subject to and shall not diminish any waivers in effect
in accordance with Section 16.04 by Landlord or its insurers to the extent of
amounts, if any, paid to Landlord under its "All-Risks" property insurance.
ARTICLE EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees
to comply with the rules and regulations listed on Exhibit D attached hereto and
with all reasonable modifications and additions thereto which Landlord may make
from time to time.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon the Landlord any duty or
obligation to enforce the rules and regulations as set forth on Exhibit D or as
hereafter adopted, or the terms, covenants or conditions of any other lease as
against any other tenant, and the Landlord shall not be liable to the Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees. Landlord shall use reasonable efforts to enforce the
rules and regulations of the Project in a uniform and non-discriminatory manner.
ARTICLE NINETEEN
LANDLORD'S RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant
and without liability to Tenant for damage or injury to persons, property or
business and without being deemed an eviction or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for offset or abatement
of Rent: (1) to change the Building's name or street address upon thirty (30)
days' prior written notice to Tenant; (2) to install, affix and maintain all
signs on the exterior and/or interior of the Building, so long as consistent
with Tenant's signage rights hereunder; (3) to designate and/or approve (subject
to Landlord's reasonable discretion and so long as consistent with Tenant's
signage rights hereunder) prior to installation, all types of signs that may be
visible from the exterior of the Premises; (4) upon reasonable notice to Tenant,
to display the Premises to prospective purchasers and lenders at reasonable
hours at any time during the Term and to
30
<PAGE> 35
prospective tenants at reasonable hours during the last twelve (12) months of
the Term; (5) to grant to any party the exclusive right to conduct any business
or render any service in or to the Building, provided such exclusive right shall
not operate to prohibit Tenant from using the Premises for the purpose permitted
hereunder; (6) to change the arrangement and/or location of entrances or
passageways, doors and doorways, corridors, elevators, stairs, washrooms or
public portions of the Building, and to close entrances, doors, corridors,
elevators or other facilities, provided that such action shall not adversely
interfere with Tenant's access to the Premises or the Building; (7) to have
access for Landlord and other tenants of the Building to any mail chutes and
boxes located in or on the Premises as required by any applicable rules of the
United States Post Office; and (8) to close the Building after Standard
Operating Hours, except that Tenant and its employees and invitees shall be
entitled to admission at all times, under such regulations as Landlord
prescribes for security purposes.
ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within fifteen (15) days after request therefor by Landlord, Mortgagee or any
prospective mortgagee or owner, Tenant agrees as directed in such request to
execute an Estoppel Certificate in recordable form, binding upon Tenant,
certifying (i) that this Lease is unmodified and in full force and effect (or if
there have been modifications, a description of such modifications and that this
Lease as modified is in full force and effect); (ii) the dates to which Rent has
been paid; (iii) that Tenant is in the possession of the Premises if that is the
case; (iv) that Landlord is not in default under this Lease, or, if Tenant
believes Landlord is in default, the nature thereof in detail; (v) that Tenant
has no offsets or defenses to the performance of its obligations under this
Lease (or if Tenant believes there are any offsets or defenses, a full and
complete explanation thereof); (vi) that the Premises have been completed in
accordance with the terms and provisions hereof or the Workletter, that Tenant
has accepted the Premises and the condition thereof and of all improvements
thereto and, to its knowledge, has no claims against Landlord or any other party
with respect thereto; (vii) that if an assignment of rents or leases has been
served upon the Tenant by a Mortgagee, Tenant will acknowledge receipt thereof
and agree to be bound by the provisions thereof; (viii) that Tenant will give to
the Mortgagee copies of all notices required or permitted to be given by Tenant
to Landlord; and (ix) to any other information reasonably requested.
20.02 ENFORCEMENT
The failure of Tenant to deliver an Estoppel Certificate and the continuation of
such failure for ten (10) days after written notice thereof by Landlord shall be
a Default for which there shall be no additional cure or grace period.
ARTICLE TWENTY-ONE
[INTENTIONALLY OMITTED]
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Tenant represents that, except for the broker(s) listed in Section 1.01(16),
Tenant has not dealt with any real estate broker, sales person, or finder in
connection with this Lease, and no such person initiated or participated in the
negotiation of this Lease, or showed the Premises to Tenant. Tenant hereby
agrees to indemnify, protect, defend and hold Landlord and the Indemnitees,
harmless from and against any and all liabilities and claims for commissions and
fees arising out of a breach of the foregoing representation. Landlord agrees to
pay any commission to which Landlord's Broker listed in Section 1.01(16) is
entitled in connection with this Lease pursuant to Landlord's written agreement
with such broker. Landlord and Tenant agree that any commission payable to
Tenant's Broker shall be paid by Tenant except to the extent Tenant's
31
<PAGE> 36
Broker and Landlord's Broker have entered into a separate agreement between
themselves to share the commission paid to Landlord's Broker by Landlord or to
the extent that Landlord has entered into a separate agreement with respect
thereto.
ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
This Lease is and shall be expressly subject and subordinate at all times to (i)
any ground or underlying lease of the Real Property, now or hereafter existing,
and all amendments, extensions, renewals and modifications to any such lease,
and (ii) the lien of any mortgage or trust deed now or hereafter encumbering fee
title to the Real Property and/or the leasehold estate under any such lease, and
all amendments, extensions, renewals, replacements and modifications of such
mortgage or trust deed and/or the obligation secured thereby, unless such ground
lease or ground lessor, or mortgage, trust deed or Mortgagee, expressly provides
or elects that the Lease shall be superior to such lease or mortgage or trust
deed; provided, however, that Tenant's agreement to subordinate is subject to
the ground or underlying lessor's or Mortgagee's recognition of this Lease and
nondisturbance of Tenant's rights hereunder upon the termination of the ground
or underlying lease or exercise of the Mortgagee's rights or remedies under the
applicable mortgage or deed of trust. If any such mortgage or trust deed is
foreclosed (including any sale of the Real Property pursuant to a power of
sale), or if any such lease is terminated, upon request of the Mortgagee or
ground lessor, as the case may be, Tenant shall attorn to the purchaser at the
foreclosure sale or to the ground lessor under such lease, as the case may be,
provided, however, that such purchaser or ground lessor shall not be (i) bound
by any payment of Rent for more than one month in advance except payments in the
nature of security for the performance by Tenant of its obligations under this
Lease; (ii) subject to any offset, defense or damages arising out of a default
of any obligations of any preceding Landlord; or (iii) bound by any amendment or
modification of this Lease made without the written consent of the Mortgagee or
ground lessor; or (iv) liable for any security deposits not actually received in
cash by such purchaser or ground lessor. This subordination shall be
self-operative and no further certificate or instrument of subordination need be
required by any such Mortgagee or ground lessor. Tenant shall execute promptly
any reasonable certificate or instrument that Landlord, Mortgagee or ground
lessor may request provided that such document provides that so long as an Event
of Default has not occurred with respect to Tenant, such Mortgagee or ground
lessor shall grant Tenant nondisturbance and recognize Tenant's rights under
this Lease. Tenant hereby constitutes Landlord as Tenant's attorney-in-fact to
execute such certificate or instrument for and on behalf of Tenant upon Tenant's
failure to do so within thirty (30) days of a request to do so. Landlord agrees
to obtain a nondisturbance agreement from the existing Mortgagee within 30 days
after the execution of this Lease by both parties.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified
mail, a copy of any notice of default served upon the Landlord by Tenant,
provided that prior to such notice Tenant has received notice (by way of service
on Tenant of a copy of an assignment of rents and leases, or otherwise) of the
address of such Mortgagee or ground lessor. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the Mortgagee or ground lessor shall have an additional thirty
(30) days after receipt of notice thereof within which to cure such default or
if such default cannot be cured within that time, then such additional notice
time as may be necessary, if, within such thirty (30) days, any Mortgagee or
ground lessor has commenced and is diligently pursuing the remedies necessary to
cure such default (including commencement of foreclosure proceedings or other
proceedings to acquire possession of the Real Property, if necessary to effect
such cure). Such period of time shall be extended by any period within which
such Mortgagee or ground lessor is prevented from commencing or pursuing such
foreclosure proceedings or other proceedings to acquire possession of the Real
Property by reason of Landlord's bankruptcy. Until the time allowed as aforesaid
for Mortgagee or ground lessor to cure such defaults has expired without cure,
Tenant shall have no right to, and shall not, terminate this Lease on
32
<PAGE> 37
account of default. This Lease may not be modified or amended so as to reduce
the Rent or shorten the Term, or so as to adversely affect in any other respect
to any material extent the rights of the Landlord, nor shall this Lease be
canceled or surrendered, without the prior written consent, in each instance, of
each ground lessor or Mortgagee who has provided Tenant written notice of its
interest.
ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be
given pursuant to this Lease must be in writing and shall be personally
delivered, sent by Federal Express or other reputable overnight courier service,
or mailed by first class, registered or certified United States mail, return
receipt requested, postage prepaid.
(b) All notices, demands or requests to be sent pursuant to this Lease
shall be deemed to have been properly given or served by delivering or sending
the same in accordance with this Section, addressed to the parties hereto at
their respective addresses listed in Sections 1.01(2) and (3).
(c) Notices, demands or requests sent by mail or overnight courier
service as described above shall be effective upon deposit in the mail or with
such courier service. However, the time period in which a response to any such
notice, demand or request must be given shall commence to run from (i) in the
case of delivery by mail, the date of receipt on the return receipt of the
notice, demand or request by the addressee thereof, or (ii) in the case of
delivery by Federal Express or other overnight courier service, the date of
acceptance of delivery by an employee, officer, director or partner of Landlord
or Tenant. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given, as indicated by advice
from Federal Express or other overnight courier service or by mail return
receipt, shall be deemed to be receipt of notice, demand or request sent.
Notices may also be served by personal service upon any officer, director or
partner of Landlord or Tenant, and shall be effective upon such service.
(d) By giving to the other party at least thirty (30) days written
notice thereof, either party shall have the right from time to time during the
term of this Lease to change their respective addresses for notices, statements,
demands and requests, provided such new address shall be within the United
States of America.
ARTICLE TWENTY-FIVE
MISCELLANEOUS
25.01 LATE CHARGES
(a) All payments required hereunder (other than the Monthly Base Rent,
Rent Adjustments, and Rent Adjustment Deposits, which shall be due as
hereinbefore provided) to Landlord shall be paid within ten (10) days after
Landlord's demand therefor. All such amounts (including Monthly Base Rent, Rent
Adjustments, and Rent Adjustment Deposits) not paid within five (5) days of when
due shall bear interest from such date until the date paid at the Default Rate
in effect on the date such payment was due.
(b) In the event Tenant is more than five (5) days late in paying any
installment of Rent due under this Lease, Tenant shall pay Landlord a late
charge equal to five percent (5%) of the delinquent installment of Rent. The
parties agree that (i) such delinquency will cause Landlord to incur costs and
expenses not contemplated herein, the exact amount of which will be difficult to
calculate, including the cost and expense that will be incurred by Landlord in
processing each delinquent payment of rent by Tenant, (b) the amount of such
late charge represents a reasonable estimate of such costs and expenses and that
such late charge shall be paid to Landlord for each delinquent payment in
addition to all Rent otherwise due hereunder. The parties further agree that the
payment of late charges and the payment of interest provided for in subparagraph
(a) above are distinct and separate from one another in that the payment of
interest is to compensate Landlord for its inability to use the money improperly
withheld by Tenant, while the payment of
33
<PAGE> 38
late charges is to compensate Landlord for its additional administrative
expenses in handling and processing delinquent payments.
(c) Payment of interest at the Default Rate and/or of late charges shall
not excuse or cure any default by Tenant under this Lease, nor shall the
foregoing provisions of this Article or any such payments prevent Landlord from
exercising any right or remedy available to Landlord upon Tenant's failure to
pay Rent when due, including the right to terminate this Lease.
25.02 NO JURY TRIAL; VENUE; JURISDICTION
Each party hereto (which includes any assignee, successor, heir or personal
representative of a party) shall not seek a jury trial, hereby waives trial by
jury, and hereby further waives any objection to venue in the County in which
the Project is located, and agrees and consents to personal jurisdiction of the
courts of the State of California, in any action or proceeding or counterclaim
brought by any party hereto against the other on any matter whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or
damage, or the enforcement of any remedy under any statute, emergency or
otherwise, whether any of the foregoing is based on this Lease or on tort law.
No party will seek to consolidate any such action in which a jury has been
waived with any other action in which a jury trial cannot or has not been
waived. It is the intention of the parties that these provisions shall be
subject to no exceptions. By execution of this Lease the parties agree that this
provision may be filed by any party hereto with the clerk or judge before whom
any action is instituted, which filing shall constitute the written consent to a
waiver of jury trial pursuant to and in accordance with Section 631 of the
California Code of Civil Procedure. No party has in any way agreed with or
represented to any other party that the provisions of this Section will not be
fully enforced in all instances. The provisions of this Section shall survive
the expiration or earlier termination of this Lease.
25.03 NONDISCRIMINATION
Tenant agrees for Tenant and Tenant's heirs, executors, administrators,
successors and assigns and all persons claiming under or through Tenant, and
this Lease is made and accepted upon and subject to the following conditions:
that there shall be no discrimination against or segregation of any person or
group of persons on account of race, color, creed, religion, sex, marital
status, national origin or ancestry (whether in the leasing, subleasing,
transferring, use, occupancy, tenure or enjoyment of the Premises or otherwise)
nor shall Tenant or any person claiming under or through Tenant establish or
permit any such practice or practices of discrimination or segregation with
reference to the use or occupancy of the Premises by Tenant or any person
claiming through or under Tenant.
25.04 OPTION
This Lease shall not become effective as a lease or otherwise until executed and
delivered by both Landlord and Tenant.
25.05 TENANT AUTHORITY
Tenant represents and warrants to Landlord that it has full authority and power
to enter into and perform its obligations under this Lease, that the person
executing this Lease is fully empowered to do so, and that no consent or
authorization is necessary from any third party. Landlord may request that
Tenant provide Landlord evidence of Tenant's authority.
25.06 ENTIRE AGREEMENT
This Lease, the Exhibits attached hereto and the Workletter contain the entire
agreement between Landlord and Tenant concerning the Premises and there are no
other agreements, either oral or written, and no other
34
<PAGE> 39
representations or statements, either oral or written, on which Tenant has
relied. This Lease shall not be modified except by a writing executed by
Landlord and Tenant.
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
If Mortgagee of Landlord requires a modification of this Lease which shall not
result in any increased cost or expense to Tenant or in any other substantial
and adverse change in the rights and obligations of Tenant hereunder, then
Tenant agrees that the Lease may be so modified.
25.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns, that
any liability or obligation under this Lease shall only be enforced against
Landlord's equity interest in the Property and, except as provided in Section
25.10 below, in no event against any other assets of the Landlord, or Landlord's
officers or directors or partners, and that any liability of Landlord with
respect to this Lease shall be so limited and Tenant shall not be entitled to
any judgment in excess of such amount.
25.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than any
installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term. Receipt
or acceptance of payment from anyone other than Tenant, including an assignee of
Tenant, is not a waiver of any breach of Article Ten, and Landlord may accept
such payment on account of the amount due without prejudice to Landlord's right
to pursue any remedies available to Landlord.
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be
entirely freed and relieved of all agreements and obligations of Landlord
hereunder accruing or to be performed after the date of such sale or transfer,
and any remaining liability of Landlord with respect to this Lease shall be
limited to the maximum of Ten Million Dollars ($10,000,000.00) and Tenant shall
not be entitled to any judgment in excess of such amount.
25.11 BINDING EFFECT
Subject to the provisions of Article Ten, this Lease shall be binding upon and
inure to the benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
25.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such Articles and Sections.
25.13 TIME; APPLICABLE LAW; CONSTRUCTION
Time is of the essence of this Lease and each and all of its provisions. This
Lease shall be construed in accordance with the Laws of the State of California.
If more than one person signs this Lease as Tenant, the obligations hereunder
imposed shall be joint and several. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the
35
<PAGE> 40
remainder of this Lease, or the application of such term, covenant or condition
to persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each item, covenant or
condition of this Lease shall be valid and be enforced to the fullest extent
permitted by Law. Wherever the term "including" or "includes" is used in this
Lease, it shall have the same meaning as if followed by the phrase "but not
limited to". The language in all parts of this Lease shall be construed
according to its normal and usual meaning and not strictly for or against either
Landlord or Tenant.
25.14 ABANDONMENT
In the event Tenant vacates or abandons the Premises but is otherwise in
compliance with all the terms, covenants and conditions of this Lease, Landlord
shall (i) have the right to enter into the Premises in order to show the space
to prospective tenants, (ii) have the right to reduce the services provided to
Tenant pursuant to the terms of this Lease to such levels as Landlord reasonably
determines to be adequate services for an unoccupied premises and (iii) during
the last six (6) months of the Term, have the right to prepare the Premises for
occupancy by another tenant upon the end of the Term. Tenant expressly
acknowledges that in the absence of written notice pursuant to Section 11.02(b)
or pursuant to California Civil Code Section 1951.3 terminating Tenant's right
to possession, none of the foregoing acts of Landlord or any other act of
Landlord shall constitute a termination of Tenant's right to possession or an
acceptance of Tenant's surrender of the Premises, and the Lease shall continue
in effect.
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES
If Tenant fails timely to perform any of its duties under this Lease or the
Workletter, Landlord shall have the right (but not the obligation), to perform
such duty on behalf and at the expense of Tenant with prior notice to Tenant,
and all sums expended or expenses incurred by Landlord in performing such duty
shall be deemed to be additional Rent under this Lease and shall be due and
payable upon demand by Landlord.
25.16 SECURITY SYSTEM
Landlord shall not be obligated to provide or maintain any security patrol or
security system. Landlord shall not be responsible for the quality of any such
patrol or system which may be provided hereunder or for damage or injury to
Tenant, its employees, invitees or others due to the failure, action or inaction
of such patrol or system.
25.17 NO LIGHT, AIR OR VIEW EASEMENTS
Any diminution or shutting off of light, air or view by any structure which may
be erected on lands of or adjacent to the Project shall in no way affect this
Lease or impose any liability on Landlord.
25.18 RECORDATION
Neither this Lease, nor any notice nor memorandum regarding the terms hereof,
shall be recorded by Tenant. Any such unauthorized recording shall be a Default
for which there shall be no cure or grace period. Tenant agrees to execute and
acknowledge, at the request of Landlord, a memorandum of this Lease, in
recordable form.
25.19 SURVIVAL
The waivers of the right of jury trial, the other waivers of claims or rights,
the releases and the obligations of Tenant under this Lease to indemnify,
protect, defend and hold harmless Landlord and/or Indemnitees shall survive the
expiration or termination of this Lease, and so shall all other obligations or
agreements which by their terms survive expiration or termination of the Lease.
36
<PAGE> 41
25.20 RIDERS
All Riders attached hereto and executed both by Landlord and Tenant shall be
deemed to be a part hereof and hereby incorporated herein.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in
Section 1.01(4) hereof.
TENANT: LANDLORD:
Ask Jeeves, Inc., EMERY STATION ASSOCIATES, LLC,
- ------------------------------- a California limited liability company
a California Corporation
- -------------------------------
By: /s/ Robert W. Wruhel By: /s/ Richard K. Robbins
---------------------------- -------------------------------------
Print Name: Robert W. Wruhel Richard K. Robbins, Managing Member
- -------------------------------
Its: Chief Executive Officer
By:
----------------------------
Print Name:
--------------------
Its:
---------------------------
37
<PAGE> 42
EXHIBIT A
PLAN OF PREMISES
Exhibit A - Page 1
<PAGE> 43
EXHIBIT B
WORKLETTER AGREEMENT
(Allowance)
This Workletter Agreement ("Workletter") is attached to and a part of a
certain Office Lease dated as of April 29, l999 executed concurrently herewith
by Emery Station Associates, LLC, a California limited liability company, as
Landlord, and Ask Jeeves Inc. a California corporation, as Tenant, for the
Premises as described therein (the "Lease").
1. Defined Terms. Capitalized terms used in this Workletter shall have
the same meanings set forth in the Lease except as otherwise specified herein
and except for terms capitalized in the ordinary course of punctuation. For
purposes of this Workletter the following capitalized terms have the following
meanings:
1.1. "Design Documents" means the layout plans and specifications
for the real property improvements to be constructed by Landlord in the Premises
which are the final product of the preliminary space planning and which (i)
include, among other things, all partitions, doors, HVAC (heating, ventilating
and air conditioning systems) distribution, ceiling systems, light fixtures,
plumbing installations, electrical installations and outlets, telephone
installations and outlets, any other installations required by Tenant, fire and
life-safety systems, wall finishes and floor coverings, whether to be newly
installed or requiring changes from the as-is condition of the Premises as of
the date of execution of the Lease, all in sufficient detail for Landlord to
commence preparation of the Construction Drawings (defined below); and (ii)
comply with all Law as applicable and as interpreted at the time of construction
of the Tenant Improvements (defined below), including, all building codes and
the ADA (defined in the Lease);
1.2 "Construction Drawings" means the final architectural plans
and specifications, and engineering plans and specifications, for the real
property improvements to be constructed by Landlord in the Premises in
sufficient detail to be submitted for governmental approvals and building
permits and to serve as the detailed construction drawings and specifications
for the contractor, and shall (i) include, among other things, all partitions,
doors, HVAC (heating, ventilating and air conditioning systems) distribution,
ceiling systems, light fixtures, plumbing installations, electrical
installations and outlets, telephone installations and outlets, any other
installations required by Tenant, fire and life-safety systems, wall finishes
and floor coverings, whether to be newly installed or requiring changes from the
as-is condition of the Premises as of the date of execution of the Lease; and
(ii) comply with all Law as applicable and as interpreted at the time of
construction of the Tenant Improvements (defined below), including all building
codes and the ADA;
1.3 "Tenant Improvements" means all real property improvements to
be constructed by Landlord as shown on the Construction Drawings, as they may be
modified as provided herein; and
1.4 "Landlord Work" means the construction and installation of
the Tenant Improvements.
2. Design Matters.
2.1. Landlord, through its architects and/or space planners
("Landlord's Architect"), shall prepare the Design Documents and the
Construction Drawings, as they may be modified as provided herein, in accordance
with the design specified by Tenant and reasonably approved by Landlord.
2.2. Tenant shall be responsible for the suitability for the
Tenant's needs and business of the design and function of all Tenant
Improvements. Tenant, at its own expense, shall devote such time and provide
such instructions as may be necessary to enable Landlord to complete the matters
described below, and Tenant shall approve such matters, within the times
described below:
(a) Tenant's written approval of the Design Documents by
May 10, l999; and
Exhibit B - Page 1
<PAGE> 44
(b) Tenant's written approval of a nonbinding preliminary
estimate ("Landlord's Preliminary Estimate") provided by Landlord of the cost of
the Tenant Improvements shown on the Design Documents within five (5) days after
receipt of such estimate; and
(c) Tenant's written approval of the Construction Drawings
within 5 days after submission to Tenant.
3. Construction; Landlord's Contribution; Tenant Improvement Costs.
3.1. Construction; Landlord's Contribution. Landlord, through its
contractor, shall complete the construction of the Tenant Improvements in a good
and workmanlike manner, up to a maximum cost to Landlord of __________ Dollars
($ ) _______ [$35.00 per usable square feet--to be inserted upon determination
of square footage in accordance with BOMA standards] ("Landlord's Base
Contribution") plus the amount, if any, by which the Tenant Improvement Costs
exceed the approved Landlord's Cost Statement, as defined in Section 4 below,
subject to Tenant's obligation to pay for increased costs resulting from Change
Orders, as further set forth in Section 5 below, or resulting from any
unanticipated requirements of the City of Emeryville in approving the Tenant
Improvements (together with Landlord's Base Contribution, "Landlord's Maximum
Contribution").
3.2. Tenant Improvement Costs. The cost of the Tenant
Improvements ("Tenant Improvement Costs") to be paid by Landlord from, but not
in excess of, Landlord's Maximum Contribution shall include:
(a) The costs of Landlord's Architect and any other
consultants retained by Landlord in connection with the preparation of Design
Documents and Constructions Drawings, and engineering costs associated with
completion of the State of California energy utilization calculations under
Title 24 legislation;
(b) All costs of obtaining from the City of Emeryville and
any other governmental authority, approvals, building permits and occupancy
permits, if any;
(c) All costs of interior design and finish schedule plans
and specifications including as-built drawings;
(d) All direct and indirect costs of procuring, installing
and constructing the Tenant Improvements, including: (i) the construction fee
for overhead and profit, but not to exceed 4% of actual hard costs, and the cost
of all on-site supervisory and administrative staff, office, equipment and
temporary services rendered or provided by Landlord's contractor in connection
with construction of the Tenant Improvements, but only to the extent
constituting a direct reimbursable job cost under standard construction
contracts; and (ii) the cost of any services or utilities made available by
Landlord;
(e) Without limiting the generality of the foregoing, the
Tenant Improvement Costs include all costs of designing, procuring, constructing
and installing Tenant Improvements in compliance with Law as applicable and as
interpreted at the time of construction of the Tenant Improvements; provided
however that Landlord will pay at its own expense and not as part of the Tenant
Improvement Costs any costs associated with complying with ADA requirements with
respect to the Building, including all rest rooms and lobby areas; and
(f) All fees payable to Landlord's architectural and
engineering firm if it is required by Tenant to redesign any portion of the
Tenant Improvements following Tenant's approval of the Construction Drawings,
and all costs in connection with any approved Change Order in accordance with
the provisions of this Workletter.
Exhibit B - Page 2
<PAGE> 45
In no event shall the Tenant Improvement Costs include (i) any costs of
procuring or installing in the Premises any trade fixtures, equipment,
furniture, furnishings, telephone equipment, cabling for any of the foregoing,
or other personal property ("Personal Property") to be used in the Premises by
Tenant, and the cost of such Personal Property shall be paid by Tenant, or (ii)
any costs or expenses of any consultants retained by Tenant with respect to
design, procurement, installation or construction of improvements or
installations, whether real or personal property, for the Premises. In addition,
Tenant Improvement Costs shall not include, and Tenant shall not be responsible
for the payment of , any management or supervisory fees of Landlord or
Landlord's Affiliates with respect to the Tenant Improvements.
In the event that Landlord's Base Contribution exceeds the Tenant
Improvement Costs, the excess shall be credited against improvements to the
Premises that otherwise are payable by Tenant, including without limitation
cabling, lighting, and carpeting, or the cost of signage that otherwise is the
obligation of Tenant. Any such excess shall be paid to Tenant upon Tenant's
presentation to Landlord of paid invoices representing the applicable cost.
Landlord shall be entitled to retain any such excess not applied to Tenant costs
described in this paragraph.
3.3. Substantial Completion of Tenant Improvements. Subject to
Tenant Delay and/or unanticipated delay by the City of Emeryville in approving
the Tenant Improvements beyond the period of time normally required to obtain
approvals for similar construction projects, Landlord shall cause the Tenant
Improvements to be Substantially Completed no later than 60 days after the
approval of the Design Documents by Tenant (the "Estimated Substantial
Completion Date"). In the event that the Tenant Improvements are not
Substantially Complete by the Estimated Substantial Completion Date, Tenant will
receive a rent credit equal to two days free rent (at the rate of $2.20 per
rentable square foot) for the number of days from and after the Estimated
Substantial Completion Date to and including the actual date that the Tenant
Work is Substantially Complete (the "Substantial Completion Delay Credit").
3.4 Limitations of Landlord's Obligations. Upon Substantial
Completion of the Tenant Improvements, Landlord shall have no further obligation
to construct improvements or construct modifications to or changes in the Tenant
Improvements, except to complete the punchlist of Landlord Work remaining to be
completed, correct any part thereof not in compliance with the Construction
Drawings and any approved modifications thereof, or comply with any applicable
representations and warranties, as provided in the Lease.
4. Costs of Tenant Improvements in Excess of Landlord's Maximum
Contribution. As soon as reasonably available after completion and approval by
both parties of the Construction Drawings, Landlord shall notify Tenant in
writing of the costs, if any, of the Tenant Improvements in excess of the
Landlord's Base Contribution (such notification shall be referred to as
"Landlord's Cost Statement"). Within five (5) days after receipt of Landlord's
Cost Statement, Tenant shall, in writing, give Landlord authorization to
complete the Tenant Improvements in accordance with the Construction Drawings,
and to the extent that there remain any costs of the Tenant Improvements in
excess of the Landlord's Base Contribution, up to the amount set forth in
Landlord's Cost Statement, Tenant shall be responsible to pay for such costs as
and when such costs become due and payable. In such authorization, Tenant may,
pursuant to the provisions of this Workletter, request a Change Order (defined
below) to the approved Construction Drawings to reduce or delete all or part of
such excess costs, but any delay in completion of the Premises resulting from
such request for a Change Order or from the changes so made or necessitated
shall be chargeable as Tenant Delay. If such written authorization is not
received by Landlord, Landlord shall not be obligated to commence work on the
Premises and any resulting delay in the completion of the Premises shall be
chargeable against Tenant as Tenant delay as provided in Section 6 of this
Workletter and in the Lease.
5. Changes. If Tenant shall request any change, addition or alteration
in the approved Construction Drawings, Landlord shall promptly give Tenant a
written estimate of (a) the cost of engineering and design services and the
construction contractor services to prepare a change order (the "Change Order")
in accordance with such request, (b) the cost of work to be performed pursuant
to such Change Order, and (c) the time delay expected because of such requested
Change Order. Within three (3) business
Exhibit B - Page 3
<PAGE> 46
days following Tenant's receipt of the foregoing written estimate, Tenant shall
notify Landlord in writing whether it approves such written estimate. If Tenant
approves such written estimate and if such cost results in an increase in the
costs set forth in Landlord's Cost Statement and is in excess of Landlord's Base
Contribution, Tenant shall be obligated to pay to the order of Landlord the cost
of preparing the Change Order and performing the work thereto as and when such
costs become due and payable. If such written authorization is not received by
Landlord within such three (3) business day period, Landlord shall not be
obligated to prepare the Change Order or perform any work in connection
therewith.
6. Tenant Delay. If the Substantial Completion of the Tenant
Improvements in the Premises is delayed due to Tenant Delay (defined in the
Lease), then Tenant shall be responsible for all costs and any expenses
occasioned by such delay, including any costs and expenses attributable to
increases in labor or materials, and the provisions of Article Two of the Lease
shall apply.
7. Entry by Tenant. Landlord hereby authorizes Tenant, with prior notice
to Landlord, to enter the Premises during construction and prior to the
Commencement Date for the Premises solely for the purpose of installing Tenant's
Personal Property (defined in Section 3.2 above) as long as such entry will not
interfere with the timely and orderly construction and completion of the
Premises. Tenant shall notify Landlord of its desired time(s) of entry, the
scope of the work to be performed, and the name(s) of the contractor(s) who will
perform such work. If Landlord objects to the scope of work or the contractor,
it shall notify Tenant as soon as practicable and the parties shall meet and
confer to resolve any reasonable objections of Landlord. Such entry shall be
without payment of Base Monthly Rent or Rent Adjustments, but such entry and all
acts and omissions in connection with it are subject to and governed by all
other provisions of the Lease, including Tenant's indemnification obligations,
insurance obligations, obligations under Article Seven and the provisions of
Section 9.02.
8. Force and Effect. The terms and conditions of this Workletter
supplement the Lease and shall be construed to be a part of the Lease and are
incorporated in the Lease. Without limiting the generality of the foregoing, any
default by any party hereunder shall have the same force and effect as a default
under the Lease. Should any inconsistency arise between this Workletter and the
Lease as to the specific matters that are the subject of this Workletter, the
terms and conditions of this Workletter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Workletter as
of the date first set forth in the Lease.
TENANT: LANDLORD:
ASK JEEVES, INC., EMERY STATION ASSOCIATES, LLC,
a California corporation a California limited liability company
By:____________________________ By:____________________________________
Print Name:____________________ Richard K. Robbins, Managing Member
Its:___________________________
By:____________________________
Print Name:____________________
Its:___________________________
Exhibit B - Page 4
<PAGE> 47
Exhibit C
FACADE SIGNAGE CRITERIA
Tenant's exterior sign shall read "Ask Jeeves" or "Ask Jeeves.com". The letters
shall occupy a rectangular space no more than 4 ft. high and 10 ft. wide that
is centered in the brisk fascade above the third floor Premises windowline. The
exact design, materials and layout shall be subject to Landlord's reasonable
approval prior to installation. Tenant is solely responsible for all design,
permitting and construction costs.
[Map of Leased Space]
Exhibit C - Page 1
<PAGE> 48
EXHIBIT D
RULES AND REGULATIONS
1. No sidewalks, entrance, passages, courts, elevators, vestibules, stairways,
corridors or halls shall be obstructed or encumbered by Tenant or used for any
purpose other than ingress and egress to and from the Premises and if the
Premises are situated on the ground floor of the Project, Tenant shall further,
at Tenant's own expense, keep the sidewalks and curb directly in front of the
Premises clean and free from rubbish.
2. No awning or other projection shall be attached to the outside walls or
windows of the Project without the prior written consent of Landlord. All
lighting fixtures hung in offices or spaces along the perimeter of the Premises
must be of a quality, type, design, bulb color, size and general appearance
approved by Landlord in its reasonable discretion.
3. Except as permitted in Tenant's Lease, no sign, advertisement, notice,
lettering, decoration or other thing shall be exhibited, inscribed, painted or
affixed by Tenant on any part of the outside or inside of the Premises or of the
Project, without the prior written consent of Landlord. In the event of the
violation of the foregoing by Tenant, Landlord may remove same without any
liability, and may charge the expense incurred by such removal to Tenant.
4. The sashes, sash doors, skylights, windows and doors that reflect or admit
light or air into the halls, passageways or other public places in the Project
shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or
other articles be placed on the window sills or in the public portions of the
Project.
5. No showcases or other articles shall be put in front of or affixed to any
part of the exterior of the Project, nor placed in public portions thereof
without the prior written consent of Landlord.
6. The water and wash closets and other plumbing fixtures shall not be used for
any purposes other than those for which they were constructed, and no sweepings,
rubbish, rags or other substances shall be thrown therein. All damages resulting
from any misuse of the fixtures shall be borne by Tenant to the extent that
Tenant or Tenant's agents, servants, employees, contractors, visitors or
licensees shall have caused the same.
7. Tenant shall not mark, paint, drill into or in any way deface any part of the
Premises or the Project. No boring, cutting or stringing of wires shall be
permitted, except with the prior written consent of Landlord, and as Landlord
may direct.
8. No animal or bird of any kind shall be brought into or kept in or about the
Premises or the Project, except seeing-eye dogs or other seeing-eye animals.
9. [OMITTED]
10. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of the Project, or neighboring
buildings or premises, or those having business with them. Tenant shall not
throw anything out of the doors, windows or skylights or down the passageways.
11. Neither Tenant nor any of Tenant's agents, servants, employees, contractors,
visitors or licensees shall at any time bring or keep upon the Premises any
flammable, combustible or explosive fluid, chemical or substance.
12. No additional locks, bolts or mail slots of any kind shall be placed upon
any of the doors or windows by Tenant, nor shall any change be made in existing
locks or the mechanism thereof. Tenant must, upon the termination of the
tenancy, restore to Landlord all keys of stores, offices and toilet rooms,
either furnished to,
Exhibit D - Page 1
<PAGE> 49
or otherwise procured by Tenant, and in the event of the loss of any keys so
furnished, Tenant shall pay to Landlord the cost thereof.
13. All removals, or the carrying in or out of any safes, freight, furniture,
construction material, bulky matter or heavy equipment of any description must
take place during the hours which Landlord or its agent may determine from time
to time. Landlord reserves the right to prescribe the weight and position of all
safes, which must be placed upon two-inch thick plank strips to distribute the
weight. The moving of safes, freight, furniture, fixtures, bulky matter or heavy
equipment of any kind must be made upon previous notice to the Building Manager
and in a manner and at times prescribed by him, and the persons employed by
Tenant for such work are subject to Landlord's prior approval. Landlord reserves
the right to inspect all safes, freight or other bulky articles to be brought
into the Project and to exclude from the Project all safes, freight or other
bulky articles which violate any of these Rules and Regulations or the Lease of
which these Rules and Regulations are a part.
14. Tenant shall not purchase towels, janitorial or maintenance or other like
service from any company or persons not approved by Landlord. Landlord shall
approve a sufficient number of sources of such services to provide Tenant with a
reasonable selection, but only in such instances and to such extent as Landlord
in its judgment shall consider consistent with security and proper operation of
the Project.
15. Landlord shall have the right to prohibit any advertising or business
conducted by Tenant referring to the Project which, in Landlord's opinion, tends
to impair the reputation of the Project or its desirability as a first class
building for offices and/or commercial services and upon notice from Landlord,
Tenant shall refrain from or discontinue such advertising.
16. Landlord reserves the right to exclude from the Project between the hours of
6:00 p.m. and 8:00 a.m. Monday through Friday, after 1:00 p.m. on Saturdays and
at all hours Sundays and legal holidays, all persons who do not present a pass
to the Project issued by Landlord. Landlord may furnish passes to Tenant so that
Tenant may validate and issue same. Tenant shall safeguard said passes and shall
be responsible for all acts of persons in or about the Project who possess a
pass issued to Tenant.
17. Tenant's contractors shall, while in the Premises or elsewhere in the
Project, be subject to and under the reasonable control and direction of the
Building Manager (but not as agent or servant of said Building Manager or of
Landlord).
18. If the Premises is or becomes infested with vermin as a result of the use or
any misuse or neglect of the Premises by Tenant, its agents, servants,
employees, contractors, visitors or licensees, Tenant shall forthwith at
Tenant's expense cause the same to be exterminated from time to time to the
satisfaction of Landlord and shall employ such licensed exterminators as shall
be approved in writing in advance by Landlord.
19. The requirements of Tenant will be attended to only upon application at the
office of the Project. Project personnel shall not perform any work or do
anything outside of their regular duties unless under special instructions from
the office of the Landlord.
20. Canvassing, soliciting and peddling in the Project are prohibited and Tenant
shall cooperate to prevent the same.
21. No water cooler, air conditioning unit or system or other apparatus shall be
installed or used by Tenant without the written consent of Landlord.
22. There shall not be used in any premises, or in the public halls, plaza
areas, lobbies, or elsewhere in the Project, either by Tenant or by jobbers or
others, in the delivery or receipt of merchandise, any hand trucks or dollies,
except those equipped with rubber tires and sideguards.
Exhibit D - Page 2
<PAGE> 50
23. Tenant, Tenant's agents, servants, employees, contractors, licensees, or
visitors shall not park any vehicles in any driveways, service entrances, or
areas posted "No Parking" and shall comply with any other parking restrictions
imposed by Landlord from time to time.
24. Tenant shall install and maintain, at Tenant's sole cost and expense, an
adequate visibly marked (at all times properly operational) fire extinguisher
next to any duplicating or photocopying machine or similar heat producing
equipment, which may or may not contain combustible material, in the Premises.
25. [OMITTED]
26. Tenant shall not use the name of the Project for any purpose other than as
the address of the business to be conducted by Tenant in the Premises, nor shall
Tenant use any picture of the Project in its advertising, stationery or in any
other manner without the prior written permission of Landlord. Landlord
expressly reserves the right at any time to change said name without in any
manner being liable to Tenant therefor.
27. Tenant shall not prepare any food nor do any cooking, operate or conduct any
restaurant, luncheonette or cafeteria for the sale or service of food or
beverages to its employees or to others, except that food and beverage
preparation by Tenant's employees using microwave ovens or coffee makers shall
be permitted provided no odors of cooking or other processes emanate from the
Premises. Tenant shall not install or permit the installation or use of any
vending machine or permit the delivery of any food or beverage to the Premises
except by such persons and in such manner as are approved in advance in writing
by Landlord.
28. The Premises shall not be used as an employment agency, a public
stenographer or typist, a labor union office, a physician's or dentist's office,
a dance or music studio, a school, a beauty salon, or barber shop, the business
of photographic, multilith or multigraph reproductions or offset printing (not
precluding using any part of the Premises for photographic, multilith or
multigraph reproductions solely in connection with Tenant's own business and/or
activities), a restaurant or bar, an establishment for the sale of
confectionery, soda, beverages, sandwiches, ice cream or baked goods, an
establishment for preparing, dispensing or consumption of food or beverages of
any kind in any manner whatsoever, or news or cigar stand, or a radio,
television or recording studio, theater or exhibition-hall, or manufacturing, or
the storage or sale of merchandise, goods, services or property of any kind at
wholesale, retail or auction, or for lodging, sleeping or for any immoral
purposes.
29. Business machines and mechanical equipment shall be placed and maintained by
Tenant at Tenant's expense in settings sufficient in Landlord's reasonable
judgment to absorb and prevent vibration, noise and annoyance. Tenant shall not
install any machine or equipment which causes noise, heat, cold or vibration to
be transmitted to the structure of the building in which the Premises are
located without Landlord's prior written consent, which consent may be
conditioned on such terms as Landlord reasonably may require. Tenant shall not
place a load upon any floor of the Premises exceeding the floor load per square
foot that such floor was designed to carry and which is allowed by Law.
30. Tenant shall not bring any Hazardous Materials onto the Premises except for
those that are in general commercial use and are incidental to Tenant's business
office operations and only in quantities suitable for immediate use.
31. Tenant shall not store any vehicle within the parking area. Tenant's parking
rights are limited to the use of parking spaces for short-term parking, of up to
twenty-four (24) hours, of vehicles utilized in the normal and regular daily
travel to and from the Project. Tenants who wish to park a vehicle for longer
than a 24-hour period shall notify the Building Manager for the Project and
consent to such long-term parking may be granted for periods up to two (2)
weeks. Any motor vehicles parked without the prior written consent of the
Building Manager for the Project for longer than a 24-hour period shall be
deemed stored in violation of this
Exhibit D - Page 3
<PAGE> 51
rule and regulation and shall be towed away and stored at the owner's expense or
disposed of as provided by Law.
32. Smoking is prohibited in the Premises, the Building and all enclosed Common
Areas of the Project, including all lobbies, all hallways, all elevators and all
lavatories.
Exhibit D - Page 4
<PAGE> 52
RIDER 1
COMMENCEMENT DATE AGREEMENT
Emery Station Associates, LLC, a California limited liability company
("Landlord"), and Ask Jeeves, Inc., a California corporation ("Tenant"), have
entered into a certain Office Lease dated as of April 29, 1999 (the "Lease").
WHEREAS, Landlord and Tenant wish to confirm and memorialize the Commencement
Date, Expiration Date and other information of the Lease as provided for in
Section 2.02(b) of the Lease;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and in the Lease, Landlord and Tenant agree as follows:
1. Unless otherwise defined herein, all capitalized terms shall have the
same meaning ascribed to them in the Lease.
2. The First Premises Commencement Date (as defined in the Lease) is
________.
The Second Premises Commencement Date (as defined in the Lease) is ____________.
3. The Expiration Date (as defined in the Lease) of the Lease is
_____________.
4. The rentable area of the First Premises is ____________ square feet.
5. The rentable area of the Second Premises is ____________ square feet.
6. The security deposit initially required under the Lease is
$_____________.
7. The number of unreserved parking spaces in the garage initially
available to Tenant is _________ and the number of unreserved parking spaces in
on surface lots initially available to Tenant is _________ (subject to the terms
of the Addendum to the Lease).
8. Tenant hereby confirms the following:
(a) That it has accepted possession of the premises pursuant
to the terms of the Lease;
(b) That the Landlord Work is Substantially Complete; and
(c) That the Lease is in full force and effect.
9. Except as expressly modified hereby, all terms and provisions of the
Lease are hereby ratified and confirmed and shall remain in full force and
effect and binding on the parties hereto.
Rider 1 - Page 1
<PAGE> 53
10. The Lease and this Commencement Date Agreement contain all of the
terms, covenants, conditions and agreements between the Landlord and the Tenant
relating to the subject matter herein. No prior other agreements or
understandings pertaining to such matters are valid or of any force and effect.
TENANT: LANDLORD:
ASK JEEVES, INC., EMERY STATION ASSOCIATES, LLC,
a California corporation a California limited liability company
By: By:
------------------------------- -------------------------------
Print Name: Richard K. Robbins, Managing Member
-----------------------
Its:
------------------------------
By:
-------------------------------
Print Name:
-----------------------
Its:
------------------------------
Rider 1 - Page 2
<PAGE> 54
ADDENDUM TO OFFICE LEASE
DATED APRIL 29, 1999
BETWEEN
EMERY STATION ASSOCIATES, LLC
AND
ASK JEEVES, INC.
This Addendum to Office Lease is attached to and forms a part of that
certain Office Lease by and between Emery Station Associates, LLC ("Landlord")
and Ask Jeeves, Inc. ("Tenant") for premises located in the building located at
5858 Landregan, Emeryville, California. Words and terms that are defined in the
Lease shall have the same meaning in this Addendum as the meaning provided in
the Lease. In the event of any inconsistency between the terms of this Addendum
and the Lease, the terms of this Addendum shall control.
1. Options to Extend.
(a) Landlord hereby grants Tenant two options to extend the term
of the Lease, each for an additional period of five (5) years (the "First
Option" and the "Second Option", respectively as the case may be), commencing
immediately after the expiration of the initial Term and the expiration of the
First Option term, respectively. The First Option and the Second Option shall
each be upon the same material terms and conditions contained in this Lease,
except that (i) the Monthly Base Rent for the Premises shall be equal to 95% of
the fair market rent for the Premises for the First Option and 100% of the fair
market rent for the Second Option, determined in the manner set forth in
subparagraph (b) below, (ii) Tenant shall accept the Premises for each option
period in an "as is" condition without any obligation of Landlord to repaint,
remodel, repair, improve or alter the Premises, and (iii) there shall be no
further options to extend the term of the Lease. Tenant's election to exercise
the First Option must be given to Landlord in writing no less than 270 days
prior to expiration of the initial Term and Tenant's election to exercise the
Second Option must be given to Landlord in writing no less than 270 days prior
to expiration of the First Option term. If Tenant properly exercises the options
granted herein, references in the Lease to the Term shall be deemed to mean the
First Option term or the Second Option term respectively as the case may be
unless the context clearly provides otherwise. Notwithstanding anything to the
contrary contained, herein, the First Option and the Second Option shall
automatically terminate without notice and shall be of no further force and
effect, whether or not Tenant has timely exercised such option, if a Default
exists at the time of exercise of either option or at the time of commencement
of either option term.
(b) If Tenant properly exercises the First Option or the Second
Option, the Monthly Base Rent during the respective option term shall be
determined in the following manner. The Monthly Base Rent shall be increased to
an amount equal to 95% of the fair market rent for the Premises as of the
commencement of the First Option term to an amount equal to 100% of the fair
market rent for the Premises as of the commencement of the Second Option Term,
in each case as specified by Landlord by notice to Tenant not less than sixty
(60) days prior to commencement of the respective option term, subject to
Tenant's right of arbitration as set forth below. For the purposes of this
Addendum, the determination of fair market rent shall take into account tenant
improvement allowances, free rent or other benefits or allowances offered
tenants that may not be reflected as reductions in the monthly rent charged by a
landlord, but reduce the overall return to a landlord. If Tenant believes that
the fair market rent specified by Landlord exceeds the actual fair market rent
for the Premises as of commencement of the respective option term, then Tenant
shall so notify Landlord within ten (10) business days following receipt of
Landlord's notice. If Tenant fails to so notify Landlord within said ten (10)
business days, Landlord's determination of the fair market rent for the Premises
for the First Option Term or the Second Option Term respectively, shall be final
and binding upon the parties. If the parties are unable to agree upon the fair
market rent for the Premises within ten (10) days after Landlord's receipt of
notice of Tenant's objection, the amount of Monthly Base Rent as of commencement
of the respective option term shall be determined as follows:
Addendum - Page 1
<PAGE> 55
(1) Within 30 days after receipt of Landlord's notice
specifying fair market rent, Tenant, at its sole expense, shall obtain and
deliver in writing to Landlord a determination of the fair market rent for the
Premises for a term equal to the respective option term from a broker ("Tenant's
broker") licensed in the State of California and engaged in the office brokerage
business in the area of Oakland, Emeryville and Berkeley, California, for at
least the immediately preceding five (5) years. If Landlord accepts such
determination, the Monthly Base Rent for the respective option term shall be
increased to an amount equal to of the amount determined by Tenant's broker.
(2) If Landlord does not accept such determination, within
15 days after receipt of the determination of Tenant's broker, Landlord shall
designate a broker ("Landlord's broker") licensed in the State of California and
engaged in the office brokerage business in the area of Oakland, Emeryville and
Berkeley, California, for at least the immediately preceding five (5) years.
Landlord's broker and Tenant's broker shall name a third broker, similarly
qualified, within five (5) days after the appointment of Landlord's broker. Each
of said three brokers shall determine the fair market rent for the Premises as
of the commencement of the respective option term for a term equal to the option
term of the Lease within 15 days after the appointment of the third broker. The
Monthly Base Rent payable by Tenant effective as of the commencement of the
First Option term or the Second Option term as the case may be, shall be
increased to an amount equal to the average of the two closest determinations.
(3) Landlord shall pay the costs and fees of Landlord's
broker in connection with any determination hereunder, and Tenant shall pay the
costs and fees of Tenant's broker in connection with such determination. The
costs and fees of any third broker shall be paid one-half by Landlord and
one-half by Tenant.
(c) If the amount of the fair market rent is not known as of the
commencement of the First Option term, then Tenant shall continue to pay the
Monthly Base Rent in effect at the expiration of the initial term until the
amount of the fair market rent is determined. If the amount of the fair market
rent is not known as of the commencement of the Second Option term, then Tenant
shall continue to pay the Monthly Base Rent in effect at the expiration of the
First Option term until the amount of the fair market rent is determined. When
either such determination is made, Tenant shall pay any deficiency to Landlord
upon demand.
2. First Expansion Option
(a) Tenant may lease additional space ("First Expansion Option")
under the following terms and conditions, if (i) Landlord receives notice
("First Expansion Notice") of Tenant's exercise of this First Expansion Option
on or before October 1, 1999 (unless the First Premises Commencement Date is
later than August 1, 1999, in which event the October 1 date shall be extended
one day for each day that the First Premises Commencement Date is later than
August 1, 1999), in which Tenant specifies the approximate Rentable Area for the
expansion which may be between 12,000 and 36,000 rentable square feet (the
"First Expansion Space"); (ii) Tenant is occupying the Premises and has not
assigned the Premises or sublet any portion of the Premises to a non-Affiliate;
and (iii) Tenant executes and returns a "First Expansion Option Amendment" in
form and substance satisfactory to Tenant in its reasonable discretion within
fifteen (15) days of its submission to Tenant.
Notwithstanding any other provision hereof, Tenant shall have the
right to extend the period of time by which it must provide Landlord the First
Expansion Notice for consecutive one (1) month periods by paying to Landlord the
sum of $12,000 prior to the date that Tenant otherwise would be obligated to
exercise such notice; provided that Tenant shall be entitled to only two (2)
such extensions.
(b) If Tenant is able to and properly exercises its First
Expansion Option:
1. Landlord shall deliver for lease to Tenant the First
Expansion Space for a term commencing ninety (90) days after the date of the
First Expansion Notice or such later date as Tenant may
Addendum - Page 2
<PAGE> 56
elect in its sole discretion, but not later than January 1, 2000 (subject to the
day for day extension described in (a) above in the event that First Premises
Commencement Date is later than August 1, 1999 and/or Tenant has exercised its
right to extend the date by which it is obligated to provide the First Expansion
Notice) (the "First Expansion Space Commencement Date"). The location of the
First Expansion Space shall be at Landlord's sole discretion on levels 2, 3 or 4
of the Building but shall be contiguous to the Premises, either horizontally or
vertically.
2. The Base Monthly Rent for the First Expansion Space
shall be determined in accordance with the schedule of Base Monthly Rent set
forth in the Basic Lease Information; the Base Year for the First Expansion
Space shall be 2000; the Expiration Date of the Lease will be extended, if
necessary, so that the Term of the Lease shall expire 60 months after the First
Expansion Space Commencement Date; the Security Deposit shall be increased to be
an amount equal to the average Monthly Base Rent for the remainder of the Term,
after giving effect to the addition of the First Expansion Space; and, Landlord
will provide an allowance of $35.00 per usable square foot and construct tenant
improvements in such expansion space in accordance with the construction
procedures established by and the terms and conditions of the Work Letter.
3. Landlord shall prepare the First Expansion Amendment to
reflect changes in Premises, Expiration Date, Monthly Base Rent, Tenant's Share,
the number of parking spaces allocated to Tenant, the Security Deposit and other
appropriate terms. A copy of the First Expansion Amendment shall be sent to
Tenant with in a reasonable time after exercise and executed by Tenant and
returned to Landlord.
(c) The commencement of payment of Monthly Base Rent and Tenant's
Share of Operating Expenses and Taxes for the First Expansion Space shall
commence on the date of Substantial Completion of the First Expansion Space and
the determination of the Expiration Date shall be based on the date of
Substantial Completion of the First Expansion Space.
(d) Upon delivery to Tenant of the First Expansion Space, it
shall be considered Premises, subject to all terms and conditions of this Lease.
(e) Notwithstanding anything to the contrary contained, herein,
the First Expansion Option shall automatically terminate without notice and
shall be of no further force and effect, whether or not Tenant has timely
exercised such option, if a Default exists at the time of exercise of the First
Expansion Option or at the time of its commencement.
3. Second Expansion Option
(a) Tenant may lease additional space ("Second Expansion Option")
under the following terms and conditions, if (i) Landlord receives notice
("Second Expansion Notice") of Tenant's exercise of this Second Expansion Option
on or before March 1, 2000, in which Tenant specifies the approximate Rentable
Area for the expansion which shall be not more than the difference between
36,000 rentable square feet and the size of the First Expansion Space and not
less than the greater of (x) 12,000 rentable square or (y) the difference
between 36,000 rentable square feet and the size of the First Expansion Space if
the First Expansion Space was more than 24,000 rentable square feet (the "Second
Expansion Space"); (ii) Tenant is occupying the Premises and has not assigned
the Premises or sublet any portion of the Premises to a non-Affiliate; and (iii)
Tenant executes and returns a "Second Expansion Option Amendment" in form and
substance satisfactory to Tenant in its reasonable discretion within fifteen
(15) days of its submission to Tenant.
Notwithstanding any other provision hereof, Tenant shall have the
right to extend the period of time by which it must provide Landlord the Second
Expansion Notice to April 1, 2000, by paying to Landlord the sum of $12,000
prior to March 1, 2000.
(b) If Tenant is able to and properly exercises its Second
Expansion Option:
Addendum - Page 3
<PAGE> 57
1. Landlord shall deliver for lease to Tenant the Second
Expansion Space for a term commencing ninety (90) days after the date of the
Second Expansion Notice or such later date as Tenant may elect in its sole
discretion, but not later than July 1, 2000 (or August 1, 2000 if Tenant has
exercised its right to extend the date by which it is obligated to provide the
Second Expansion Notice) (the "Second Expansion Space Commencement Date"). The
location of the Second Expansion Space shall be horizontally contiguous to the
Premises or the First Expansion Space.
2. The Base Monthly Rent for the Second Expansion Space
shall be determined in accordance with the schedule of Base Monthly Rent set
forth in the Basic Lease Information; the Base Year for the Second Expansion
Space shall be 2000; the Expiration Date of the Lease will be extended, if
necessary, so that the Term of the Lease shall expire 60 months after the Second
Expansion Space Commencement Date; the Security Deposit shall be increased to be
an amount equal to the average Monthly Base Rent for the remainder of the Term,
after giving effect to the addition of the Second Expansion Space; and, Landlord
will provide an allowance of $35.00 per usable square foot and construct tenant
improvements in such expansion space in accordance with the construction
procedures established by and the terms and conditions of the Work Letter.
3. Landlord shall prepare the Second Expansion Amendment
to reflect changes in Premises, Expiration Date, Monthly Base Rent, Tenant's
Share, the number of parking spaces allocated to Tenant, the Security Deposit
and other appropriate terms. A copy of the Second Expansion Amendment shall be
sent to Tenant with in a reasonable time after exercise and executed by Tenant
and returned to Landlord.
(c) The commencement of payment of Monthly Base Rent and Tenant's
Share of Operating Expenses and Taxes for the Second Expansion Space shall
commence on the date of Substantial Completion of the Second Expansion Space and
the determination of the Expiration Date shall be based on the date of
Substantial Completion of the Second Expansion Space.
(d) Upon delivery to Tenant of the Second Expansion Space, it
shall be considered Premises, subject to all terms and conditions of this Lease.
(e) Notwithstanding anything to the contrary contained, herein,
the Second Expansion Option shall automatically terminate without notice and
shall be of no further force and effect, whether or not Tenant has timely
exercised such option, if (i) Tenant has not properly exercised the First
Expansion Option, or (ii) a Default exists at the time of exercise of the Second
Expansion Option or at the time of its commencement.
4. Third Expansion Option
(a) Tenant may lease additional space ("Third Expansion Option")
under the following terms and conditions, if (i) Landlord receives notice
("Third Expansion Notice") of Tenant's exercise of this Third Expansion Option
on or before October 1, 2000, in which Tenant specifies the approximate Rentable
Area for the expansion which shall be the difference between 36,000 rentable
square feet and the aggregate size of the First Expansion Space and the Second
Expansion Space (the "Third Expansion Space"); (ii) Tenant is occupying the
Premises and has not assigned the Premises or sublet any portion of the Premises
to a non-Affiliate; and (iii) Tenant executes and returns a "Third Expansion
Option Amendment" in form and substance satisfactory to Tenant in its reasonable
discretion within fifteen (15) days of its submission to Tenant.
Addendum - Page 4
<PAGE> 58
(b) If Tenant is able to and properly exercises its Third
Expansion Option:
1. Landlord shall deliver for lease to Tenant the Third
Expansion Space for a term commencing ninety (90) days after the date of the
Third Expansion Notice or such later date as Tenant may elect in its sole
discretion, but not later than January 1, 2001 (the "Third Expansion Space
Commencement Date"). The location of the Third Expansion Space shall be
horizontally contiguous to the Premises, the First Expansion Space or the Second
Expansion Space. In no event shall the First Expansion Space, the Second
Expansion Space and the Third Expansion Space exceed an aggregate of 36,000
rentable square feet.
2. The Base Monthly Rent for the Third Expansion Space
shall be determined in accordance with the schedule of Base Monthly Rent set
forth in the Basic Lease Information; the Base Year for the Third Expansion
Space shall be 2000; the Expiration Date of the Lease will be extended, if
necessary, so that the Term of the Lease shall expire 60 months after the Third
Expansion Space Commencement Date; the Security Deposit shall be increased to be
an amount equal to the average Monthly Base Rent for the remainder of the Term,
after giving effect to the addition of the Third Expansion Space; and, Landlord
will provide an allowance of $35.00 per usable square foot and construct tenant
improvements in such expansion space in accordance with the construction
procedures established by and the terms and conditions of the Work Letter.
3. Landlord shall prepare the Third Expansion Amendment to
reflect changes in Premises, Expiration Date, Monthly Base Rent, Tenant's Share,
the number of parking spaces allocated to Tenant, the Security Deposit and other
appropriate terms. A copy of the Third Expansion Amendment shall be sent to
Tenant with in a reasonable time after exercise and executed by Tenant and
returned to Landlord.
(c) The commencement of payment of Monthly Base Rent and Tenant's
Share of Operating Expenses and Taxes for the Third Expansion Space shall
commence on the date of Substantial Completion of the Third Expansion Space and
the determination of the Expiration Date shall be based on the date of
Substantial Completion of the Third Expansion Space.
(d) Upon delivery to Tenant of the Third Expansion Space, it
shall be considered Premises, subject to all terms and conditions of this Lease.
(e) Notwithstanding anything to the contrary contained, herein,
the Third Expansion Option shall automatically terminate without notice and
shall be of no further force and effect, whether or not Tenant has timely
exercised such option, if (i) Tenant has not properly exercised the First
Expansion Option, or (ii) a Default exists at the time of exercise of the Third
Expansion Option or at the time of its commencement.
5. Space Availability. Landlord represents, warrants and covenants that,
so long as any of the expansion options described in Sections 2, 3 or 4 above
remain in effect, space within the Building shall remain available to satisfy
such options in accordance with the terms thereof (subject to the damages and
condemnation provisions of Articles 14 and 15 of the Lease). Landlord agrees
that no limitations, restrictions or waivers with respect to the amount, type or
availability of damages against Landlord contained in this Lease shall apply in
the event that Landlord breaches the provisions of this Section 5 and, to the
extent that the provisions of this Section 5 conflict with any other provision
of this Lease, this Section 5 shall prevail.
6. Termination of Third Expansion Option.
(a) Notwithstanding anything in Paragraph 4 of this Addendum to
the contrary, upon notice to Tenant at any time after Tenant has exercised the
Second Extension Option or such option has lapsed, Landlord may terminate the
Third Expansion Option if (i) another tenant or prospective tenant makes a bona
fide offer to lease at least 24,000 rentable square feet in the Building; and
(ii) at the time of such offer, Landlord must use a portion of the Third
Expansion Space to fulfill the space requirements of the other tenant or
prospective tenant and no other space in the Building is available for such
purposes ("Third
Addendum - Page 5
<PAGE> 59
Expansion Option Termination Notice").
(b) If Landlord delivers a Third Expansion Option Termination
Notice, Tenant shall notify Landlord within 20 days after receipt of the notice
of its election either (i) to accept the Third Expansion Option Space upon the
terms and conditions set forth in Section 4 above or (ii) to convert the Third
Expansion Option to apply to premises designated by Landlord and located either
in phase 2 of Emery Station or at Heritage Square (the "Third Expansion Option
Conversion"). It shall be a condition precedent to Landlord's right to exercise
its termination rights hereunder that space is available in phase 2 of Emery
Station or at Heritage Square to permit Tenant to exercise the Third Expansion
Option Conversion. If Tenant accepts the Third Expansion Option Space, the
commencement date for such space shall be 90 days after Landlord's delivery of
the Third Expansion Option Termination Notice.
(c) If Tenant does not accept the Third Expansion Option Space,
then and in such event, the Third Expansion Option Conversion shall apply to
phase 2 of Emery Station and/or Heritage Square in the same manner and upon the
same terms and conditions as are specified in Paragraph 4 of this Addendum with
respect to the exercise of the Third Expansion Option; provided, however, that
if Tenant accepts premises located at Heritage Square pursuant to the terms of
this Section 6, the Monthly Base Rent with respect to such space shall be at
fair market rent, but in no event greater than that applicable to the Premises
located in the Building. Fair market rent shall be determined in accordance with
(d) below.
(d) If Tenant exercises the Third Expansion Option and such
option applies to premises at Heritage Square in accordance with (c) above,
Landlord by notice to Tenant shall specify the fair market rent for such
premises not less than sixty (60) days prior to Third Expansion Option
Commencement Date. If Tenant believes that the fair market rent specified by
Landlord exceeds the actual fair market rent for the Third Expansion Option
Space, then Tenant shall so notify Landlord within ten (10) business days
following receipt of Landlord's notice. If Tenant fails to so notify Landlord
within said ten (10) business days, Landlord's determination of the fair market
rent for the Third Expansion Option Space shall be final and binding upon the
parties. If the parties are unable to agree upon the fair market rent for the
Third Expansion Option Space within ten (10) days after Landlord's receipt of
notice of Tenant's objection, the fair market rent shall be determined as
follows:
(1) Within 20 days after receipt of Landlord's notice
specifying fair market rent, Tenant, at its sole expense, shall obtain and
deliver in writing to Landlord a determination of the fair market rent for the
Third Expansion Option Space from a broker ("Tenant's broker") licensed in the
State of California and engaged in the office brokerage business in the area of
Oakland, Emeryville and Berkeley, California, for at least the immediately
preceding five (5) years. If Landlord accepts such determination, the Monthly
Base Rent for the Third Expansion Option Space shall be equal to the amount
determined by Tenant's broker.
(2) If Landlord does not accept such determination, within
10 days after receipt of the determination of Tenant's broker, Landlord shall
designate a broker ("Landlord's broker") licensed in the State of California and
engaged in the office brokerage business in the area of Oakland, Emeryville and
Berkeley, California, for at least the immediately preceding five (5) years.
Landlord's broker and Tenant's broker shall name a third broker, similarly
qualified, within five (5) days after the appointment of Landlord's broker. Each
of said three brokers shall determine the fair market rent for the Third
Expansion Option Space within 15 days after the appointment of the third broker.
The Monthly Base Rent payable by Tenant for the Third Expansion Option Space
shall be equal to the average of the two closest determinations.
(3) Landlord shall pay the costs and fees of Landlord's
broker in connection with any determination hereunder, and Tenant shall pay the
costs and fees of Tenant's broker in connection with such determination. The
costs and fees of any third broker shall be paid one-half by Landlord and
one-half by Tenant.
Addendum - Page 6
<PAGE> 60
7. Right of First Offer.
(a) If Tenant has exercised the First Expansion Option, the
Second Expansion Option and the Third Expansion Option, commencing on December
31, 2000, Tenant shall have the right of first offer (the "Right of First
Offer") to lease Available Premises (as hereinafter defined in Paragraph 7 (b))
. The Right of First Offer shall commence on December 31, 2000.
(b) Available Premises shall mean space which is contiguous to
any part of the Premises and which is or becomes vacant and unencumbered. Space
shall not be deemed to be Available Premises if there is a lease, lease option
or any right or option of extension, renewal, expansion, negotiation arising
pursuant to any lease or if an existing tenant renews or extends its term
whether pursuant to the terms of an extension right or otherwise.
(c) Landlord shall give Tenant written notice of any Available
Space and Tenant shall, within twenty (20) days of such notice indicate in
writing if it desires to lease the Available Space. Landlord and Tenant
thereafter shall negotiate, in good faith, for a period of twenty (20) days to
try to reach agreement upon the terms and conditions upon which Tenant will
lease the Available Space. Tenant acknowledges that the term and rent for the
Available Space may not be the same as the Term and Monthly Base Rent of this
Lease. If Landlord and Tenant are unable after such period of good faith
negotiations to reach an agreement for the lease of the Available Space,
Tenant's rights with respect to such Available Space shall be null and void and
Landlord shall be free to enter into negotiations with other prospective tenants
and enter into a lease for such space upon such terms and conditions it may
choose; provided, however, that if Tenant has accepted the offer to lease the
Available Space prior to the expiration of such time period, subject only to the
determination of fair market rent for the Available Space, and the parties are
unable to agree upon such fair market rent for the Available Space within such
time period, each shall within five (5) business days appoint a broker licensed
in the State of California and engaged in the office brokerage business in the
area of Oakland, Emeryville and Berkeley, California, for at least the
immediately preceding five (5) years, who collectively shall name a third
broker, similarly qualified, within five (5) business days after their
appointment. Each of said three brokers shall determine the fair market rent for
the Available Space and said rent shall be equal to the average of the two
closest determinations.
(d) This Right of First Offer is personal to Tenant and may not
be transferred or assigned in connection with an assignment or sublease of the
Premises, except with respect to assignments to or subleases with Affiliates.
(e) Notwithstanding anything to the contrary contained, herein,
the Right of First Offer shall automatically terminate without notice and shall
be of no further force and effect, whether or not Tenant has timely exercised
such right, if a Default exists at the time of exercise of the Right of First
Offer or at the time of the commencement of the term for the first offer space.
8. Temporary Premises. From the date of execution of this Lease by both
parties Tenant may use the available space at 5915 Hollis Street, Emeryville,
California upon the following terms and conditions:
(a) Upon the date of execution of this Lease, Tenant may
immediately occupy approximately 6,500 rentable square feet at 5915 Hollis
Street and Tenant shall have the right to occupy an additional approximately
2,500 rentable square feet upon vacancy by the existing tenant in April, 1999
(the "Hollis Street Premises").
(b) Tenant shall occupy the Hollis Street Premises on a temporary
basis until the First Premises Commencement Date. Notwithstanding anything in
the Lease to the contrary, Tenant must vacate the Hollis Street Premises on the
First Premises Commencement Date.
Addendum - Page 7
<PAGE> 61
(c) Tenant shall pay rent in the amount of $1.50 per rentable
square foot per month during the period it is occupying the Hollis Street
Premises on a full service basis. Rent shall be prorated (i) for any partial
month in which Tenant is in occupancy and (ii) for any month in which there is
an increase or decrease in the size of the premises which Tenant is occupying.
(d) Tenant shall accept the Hollis Street Premises broom clean
and otherwise in its "as is" condition existing on the date Tenant first takes
possession. Tenant hereby waives any and all claims relating to the condition of
the Hollis Street Premises. Landlord has made no representations and warranties
regarding the condition of the Hollis Street Premises and no agreement to alter,
remodel, decorate, clean or improve the Hollis Street Premises.
(e) Except for the payment of Base Monthly Rent, the occupancy of
the Hollis Street Premises shall be upon and subject to all of the terms and
conditions of this Lease, including without limitation Tenant's insurance and
indemnity obligations and Landlord's rights and remedies in the event of a
Tenant Default.
(f) Tenant shall vacate the Hollis Street Premises in the same
condition the premises were in when Tenant took occupancy, normal wear and tear
and casualty damage excepted.
9. Parking Rates. Notwithstanding the terms of Section 2.05 of the Lease
to the contrary, Landlord and Tenant hereby agree that the rates payable by
Tenant for parking shall be as follows:
(a) Unreserved Garage Spaces: $55/month during calendar year
1999; and,
(b) Unreserved Surface Lot Spaces: $35/month during calendar year
1999.
Notwithstanding the foregoing, Tenant shall not be obligated to pay parking
charges for the unreserved surface lot spaces specified in the Basic Lease
Information during the first twelve months of the Term.
Starting as of the beginning of the second Lease Year, such
parking rates may be adjusted annually by Landlord to be the lesser of (i) the
prevailing monthly rates then charged for garage and surface lot spaces in
similarly situated buildings of similar quality located in Emeryville,
California, without consideration of any discounts or (ii) an increase of $5.00
per space per month determined on a cumulative basis. For example, if the fair
market value increases $3.00 in one year and $11.00 in the second year, Landlord
may increase the parking rates $3.00 in the first year and an additional $7.00
in the second year.
In addition, Landlord agrees that it shall offer to Tenant at
Tenant's cost (based on Landlord's standard parking rate) any additional parking
spaces in either the garage or on surface lots that may be available after the
exercise of any parking rights granted to other tenants of the Building (based
on not more than 3 per 1000 square feet of premises leased to other tenants) of
Building management. Any such additional parking spaces shall be offered to
Tenant on a month-to-month basis.
TENANT: LANDLORD:
ASK JEEVES, INC. EMERY STATION ASSOCIATES, LLC,
a California corporation a California limited liability company
By: /s/ Robert W. Wruhel By: /s/ Richard K. Robbins
------------------------------- -------------------------------
Print Name: Robert W. Wruhel Richard K. Robbins, Managing Member
-----------------------
Its: Chief Executive Officer
------------------------------
By:
-------------------------------
Print Name:
-----------------------
Its:
------------------------------
Addendum - Page 8
<PAGE> 1
EXHIBIT 10.29
George Lichter
Page 1 of 3
May 20, 1999
George Lichter
Via Fax
Dear George,
We are pleased to offer you the position of President of Ask Jeeves
International for Ask Jeeves, Inc. (the "Company"). You will report to me. Your
first day of employment will be May 20, 1999 (the "Start Date").
SALARY
You will receive an annual salary of $150,000, which will be paid semi-monthly
in accordance with the Company's normal payroll procedures. You will also be
eligible to participate in any employee benefit programs that are, or may
become, available to a full-time employee at an equivalent level at Ask Jeeves.
OPTIONS
Upon your employment you will be awarded 100,000 options (the "Options") to
purchase stock in the Company pursuant to the Company's 1999 incentive stock
option plan (the Plan), vesting over a period of four years, with 25% of the
shares vesting on the first anniversary of your employment, and the remaining
shares vesting in 36 equal monthly installments thereafter, with a ten-year
term, at a price equal to the fair market value at the time the Company's Board
of Directors approves the offer.
BONUS
You will receive a bonus of $50,000, payable on the first anniversary of your
Start Date, if your performance meets or exceeds certain criteria, which will be
jointly determined by you and the Company within 60 days of your Start Date.
SEVERANCE PACKAGE
In the event that your employment is terminated without cause at any time during
your employment, you will be entitled to a severance package of six months base
salary plus immediate vesting of 6/48ths of the Options in addition to those
vested as of the date of your termination.
"Termination without cause" means termination of your employment by the Company
for reasons other than: a) indictment or conviction of any felony or of any
crime involving dishonesty; (b) participation in any fraud against the company;
(c) breach of your duties to the company including persistent unsatisfactory
performance of job duties;
<PAGE> 2
George Lichter
Page 2 of 3
May 20, 1999
d) intentional damage to any property of the company; or (e) conduct by you that
in the good faith and reasonable determination of the Company's Chief Executive
Officer or Board of Directors demonstrates gross unfitness to serve.
In the event of a change of control in the Company, you will be entitled to
immediate vesting of 6/48ths of the Options in addition to those vested, if any,
as of the date of your termination.
BENEFITS
Enclosed is a summary of current Company benefits. Our benefits, payroll and
other human resource management services are provided through TriNet Employer
Group, Inc. TriNet is a professional employer organization (PEO) contracted by
Ask Jeeves to perform selected employer responsibilities on our behalf. As a
result of our arrangement with TriNet, TriNet will be considered your employer
or record for payroll, benefits and other functions involving employer related
administration. However, your manager at Ask Jeeves will be responsible for
reviewing your performance and otherwise directing your work.
You should be aware that your employment with the Company is for no specified
period and constitutes at will employment. As a result, you are free to resign
at any time, for any reason or for no reason.
For purposes of federal immigration law, you will be required to provide to the
Company documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided to us within three (3)
business days of your date of hire or our employment relationship with you may
be terminated.
I have enclosed our Confidential Information and Invention Assignment Agreement.
If you accept this offer, please return to me a signed copy of this agreement.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Berkeley, California.
However, we agree that this arbitration provision shall not apply to any
disputes or claims relating to or arising out of the misuse or misappropriation
of the Company's trade secrets or proprietary information.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me. A duplicate original is
enclosed for your records. This letter, along with the Confidential Information
and Invention Assignment Agreement between you and the Company, sets forth the
terms of your employment with
<PAGE> 3
George Lichter
Page 3 of 3
May 20, 1999
the Company and supersedes any prior representations or agreements, whether
written or oral. This letter may not be modified or amended except by a written
agreement signed by the Company and by you. This offer expires May 20, 1999.
Welcome to Ask Jeeves!
Sincerely,
/s/ ROBERT WRUBEL
- -------------------------
Robert Wrubel
President and Chief Executive Officer
Ask Jeeves, Inc.
Enclosures
Accepted:
/S/ GEORGE LICHTER
- -------------------------
George Lichter
Dated: May 19, 1999
----
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated March 10,
1999, except for Note 7, as to which the date is June __, 1999, in Amendment
No. 2 to the Registration Statement (Form S-1) and related Prospectus of Ask
Jeeves, Inc. for the registration of 3,450,000 of its common stock.
Walnut Creek, California
April 29, 1999
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
completion of the reincorporation in Delaware and 1 for 2 reverse stock split
as described in Note 7 to the financial statements.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
June 1, 1999
