<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1999
Registration No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
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 (Primary Standard Industrial (I.R.S. Employer
of
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:
ANDREI M. MANOLIU, ESQ. JAMES N. STRAWBRIDGE, ESQ.
MICHAEL L. WEINER, ESQ. JON C. GONZALES, 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
---------------------
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>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES TO BE AGGREGATE
REGISTERED OFFERING PRICE(1)
<S> <C>
Common Stock, $.001 par value per share....................................................... $41,400,000
<CAPTION>
TITLE OF EACH CLASS OF
SECURITIES TO BE AMOUNT OF
REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, $.001 par value per share....................................................... $11,510
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(o) of the Securities Act of
1933, as amended.
---------------------
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>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED APRIL 30, 1999
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.
<PAGE>
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 $ AND
$ PER SHARE.
-------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "ASKJ."
-------------------
<TABLE>
<S> <C> <C>
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
</TABLE>
-----------------
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 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
<PAGE>
EDGAR COLORWORK DESCRIPTIONS:
INSIDE FRONT COVER OF PROSPECTUS:
TITLE: Ask a question, get an answer
SCREEN SHOT OF ASK JEEVES HOME PAGE WITH QUESTION: How can I improve my golf
game?
CAPTIONS UNDER SCREEN SHOT:
Jeeves is a friendly, trusted assistant who can help you get things done on the
Web
Establishing a new category of Web interaction
Answering more than 1.5 million questions a day with question answering services
for consumers and companies
LIST OF QUESTIONS
INSIDE GATEFOLD
TITLE: Humanizing the Internet with a fast, easy, intuitive way to find
information online
DESCRIPTION OF LEFT SIDE OF GATEFOLD:
CAPTION 1: Jeeves at your service...
SCREEN SHOT OF ASK JEEVES HOME PAGE WITH QUESTIONS: How can I improve my golf
game?
CAPTION 2: Ask a question in plain English
1) Ask.com is a popular destination site for users to get answers to
questions
SCREEN SHOT OF ASK JEEVES SECOND PAGE OF DIALOGUE QUESTIONS IN RESPONSE TO
QUESTION "HOW CAN I IMPROVE MY GOLF GAME?"
CAPTION 3: Click on the dialogue question
1) Jeeves confirms what you want to know through a set of dialogue
questions
THE FOLLOWING TEXT DESCRIBES THE CAPTIONS HIGHLIGHTING DIFFERENT ASPECTS OF THE
SCREEN SHOT
1) We offer highly targeted advertising opportunities
2) Jeeves presents other possibilities as to what can be found and
purchased online
3) We point potential buyers to electronic commerce merchants
4) Results from leading search engines supplement our answers
SCREEN SHOT OF WEB PAGE THAT CONTAINS THE ANSWER TO THE QUESTION, "HOW CAN I
IMPROVE MY GOLF GAME?"
CAPTION 4: Go directly to the Web page that answers your question
1) All answers are third party Web pages that have been selected by Ask
Jeeves editors and qualified for accuracy and relevance
DESCRIPTION OF RIGHT SIDE OF GATEFOLD:
CAPTION 1: Creating value for companies
<PAGE>
1) We develop custom question answering services to help companies connect
their customers with relevant information, products and services. Our
customers use our Corporate Question Answering Services to increase
online revenues, reduce support costs and improve customer loyalty.
CUSTOMER SCREEN SHOT WITH "POWERED BY ASK JEEVES" QUESTION BOX:
CAPTION 2: [CORPORATE CUSTOMER] selected Ask Jeeves Corporate Question Answering
Service. The service is designed to convert more visitors to its Web site into
buyers by quickly providing them with the information needed to make transaction
decisions.
CUSTOMER SCREEN SHOT WITH "POWERED BY ASK JEEVES" QUESTION BOX:
CAPTION 3: [CORPORATE CUSTOMER] uses Ask Jeeves Corporate Questioning Answer
Service to enable self-service on its Web site. [NAME OF CORPORATE CUSTOMER'S
SERVICE] helps customers easily and quickly find helpful information.
CUSTOMER SCREEN SHOT WITH "POWERED BY ASK JEEVES" QUESTION BOX
CAPTION 4: [CORPORATE CUSTOMER] engaged Ask Jeeves to develop [NAME OF CORPORATE
CUSTOMER'S SERVICE], to provide customers an easy, intuitive way to receive
online technical support and find general information relating to all [CORPORATE
CUSTOMER'S] products.
CAPTION 5: Industry leaders are Powered by Ask Jeeves
CORPORATE CUSTOMER LOGOS DISPLAYED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 6
Special Note Regarding Forward-Looking
Statements................................... 16
Use of Proceeds................................ 17
Dividend Policy................................ 17
Capitalization................................. 18
Dilution....................................... 19
Selected Financial Data........................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
<CAPTION>
PAGE
-----
<S> <C>
Business....................................... 27
Management..................................... 44
Certain Transactions........................... 55
Principal Stockholders......................... 58
Description of Capital Stock................... 61
Shares Eligible for Future Sale................ 63
Underwriters................................... 65
Legal Matters.................................. 67
Experts........................................ 67
Where You Can Find More Information............ 67
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.
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.
3
<PAGE>
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 has pioneered the development and deployment 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,
the volume of online information has made it increasingly difficult for users to
navigate effectively. 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 irrelevant results. 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 provide an easy, intuitive
and intelligent user interface and as a result to maximize returns on their
investments in Internet strategies.
We believe that our services connect users to their 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 over 1 million
questions a 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. Ask Jeeves, at
ASK.COM, provides users with relevant answers to a wide range of questions such
as "Is it raining in Paris?" to "Where can I comparison shop for cameras?" Our
Corporate Question Answering Service is designed to improve customer
satisfaction on 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 industry leaders including Compaq, Dell, Toshiba and WebTV.
------------------------
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 WWW.ASK.COM. The information in the Web site is not incorporated by
reference into this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after the
offering................................... shares
Over-allotment option........................ shares
Use of proceeds.............................. We intend to use the proceeds for general
corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... ASKJ
</TABLE>
The foregoing information is based upon shares outstanding as of April 30,
1999. Unless otherwise indicated, all information in this prospectus (1) has
been adjusted to give effect to a 1-for-2 reverse stock split to be completed
prior to this offering, subject to stockholder approval, (2) gives effect to the
conversion of all outstanding shares of preferred stock into shares of common
stock effective upon the closing of this offering, (3) assumes no exercise of
the underwriters' over-allotment option, (4) assumes no exercise of outstanding
options and warrants to purchase 5,089,875 shares of our common stock and (5)
assumes our reincorporation from California into Delaware, subject to
stockholder approval.
SUMMARY FINANCIAL DATA
The "as adjusted" column below reflects the issuance and the sale of
shares of our common stock at an assumed initial public offering
price of $ per share, and the application of net proceeds from the offering,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us, 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>
STATEMENTS 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
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------- -----------
BALANCE SHEETS DATA:
Cash and cash equivalents and short-term investments............................... $ 25,144,341 $
Working capital.................................................................... 22,622,918
Total assets....................................................................... 31,924,287
Capital leases, less current portion............................................... 33,606
Total stockholders' equity......................................................... 27,680,649
</TABLE>
5
<PAGE>
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 partners 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 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. As of March 31, 1999, we had an accumulated deficit of approximately
$9.7 million. Although our revenues have grown in recent quarters, 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
partners 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.
6
<PAGE>
FLUCTUATIONS IN OUR OPERATING RESULTS MAY NEGATIVELY IMPACT OUR STOCK PRICE
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 demand for our services, including seasonality;
- unexpected rescheduling or cancellation of significant orders;
- our ability to develop and introduce new technology;
- announcements and new technology introductions by our competitors;
- our ability to achieve required cost reductions;
- our ability to attract and retain key personnel; and
- costs relating to possible acquisitions and integration of technologies or
businesses.
Our operating expenses are based on our expectations of our future revenues
and are relatively fixed in the short term. Given our limited operating history,
user traffic on our Web site is extremely difficult to forecast accurately.
Moreover, obtaining new corporate customers is time consuming and depends on
many factors that we are not able to control, such as the allocation of
budgetary resources by potential customers. 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 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 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 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.
OUR BUSINESS REVENUE MODEL IS NOVEL AND UNPROVEN
We expect to generate substantially all of our future revenues through
Internet advertising, sales of our question answering service to corporate
customers and the facilitation of electronic commerce. 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
7
<PAGE>
could be materially adversely affected if Internet advertising does not continue
to grow or if we are unsuccessful in increasing our advertising revenues.
In addition, a portion of our revenues for the foreseeable future are
expected to be derived from 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.
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 business-to-customer
interaction, such as e-mail, call center, chat and other traditional Web
solutions. If we cannot demonstrate to corporate customers that our Corporate
Question Answering Service increases the conversion rates of browsers to
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 public relations activities. We intend to incur significant
expenditures 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.
WE MAY NOT EFFECTIVELY MANAGE OUR GROWTH
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 compete with companies that maintain commercial Web sites for users,
advertisers and electronic commerce partners. Competition could result in less
user traffic to our public Web sites, which may lead to
8
<PAGE>
a reduction in advertising revenues, a price reduction for our advertising
inventory, or a loss of market share. Any of these factors could adversely
affect our business.
In addition, we face direct competition from companies that provide Web
navigation services, including:
<TABLE>
<CAPTION>
CATEGORY FOCUS COMPETITORS
- ---------------------- --------------------------- -------------------------------------------
<S> <C> <C>
Internet content Web navigation, content AltaVista Company, Excite, Inc., Inktomi
retrieval aggregation Corporation and Yahoo, Inc.
General purpose Connectivity, community America Online, Inc. and Microsoft
online-services content, e-commerce Corporation (Microsoft Network)
Connectivity portals Connectivity, broadband AT&T Corporation (AT&T Worldnet), @Home
content, community Corporation and MindSpring Enterprises,
Inc.
</TABLE>
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 against whom we compete can be categorized as follows:
<TABLE>
<CAPTION>
CATEGORY FOCUS COMPETITORS
- ---------------------- --------------------------- -------------------------------------------
<S> <C> <C>
Web-based Search, self-help problem Inktomi Corporation, Primus
resolution and expert Telecommunication Group, Inc., Inference
systems Corporation, Verity, Inc. and Web Answers
E-mail Automated response and Aptex Software, Inc., Brightware, Inc.,
intelligent routing Egain Communications Corp., Kana
Communications, Inc. and Mustang Software,
Inc.
Chat Forums and news groups Acuity Corporation, e-Share Technologies,
Inc. and FaceTime Communications, Inc.
Phone call Customer information Clarify, Inc., Siebel Systems, Inc.,
management and incident Vantive Corporation and Remedy Corporation
tracking
</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, 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 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
9
<PAGE>
in electronic commerce. As a result, it is possible that new competitors may
emerge and rapidly acquire significant market share.
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 can automatically redirect
users to their home page. If companies prevent us from directly linking our
consumer users to a page within a third-party Web site, 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 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. 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 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.
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
10
<PAGE>
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 THE RISKS RELATED TO EXPANDING INTO 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. Specifically, our future success will largely depend on obtaining
revenues from the facilitation of electronic commerce transactions. The market
for electronic commerce services is extremely competitive. Because we have
little experience in this market, we may have limited success in this market. If
we expand our operations in this manner, we will require significant additional
development resources and 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 effected.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL
Our future success depends, in part, on the continued service of our key
management personnel, particularly Robert Wrubel, our President and Chief
Executive Officer, and David Warthen, our Chief Technical Officer. 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 key employees, would have a
material adverse effect on our business. Our future success also depends on our
ability to attract, retain and motivate highly skilled employees. Competition
for employees in our industry is intense. 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 Chief Financial Officer, Senior Vice
President of Business Development 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;
11
<PAGE>
- 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.
The servers which hosts Ask Jeeves are backed-up by remote servers. 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 for a variety of reasons. These Web sites could also be affected by
computer viruses, electronic break-ins or other similar disruptions.
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
insurance policies have low coverage limits and 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 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 partners. 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 partners 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.
12
<PAGE>
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 Untied 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. 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.
WE MAY FACE POTENTIAL COMMERCE-RELATED LIABILITIES AND EXPENSES
As part of our business, we plan to enter into agreements with sponsors,
content providers, service providers and merchants under which we are entitled
to receive a share of revenues from the purchase of goods and services by users
of our online properties. Such arrangements may expose us to additional 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.
13
<PAGE>
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. 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.
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 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. See the "Management's Discussion and Analysis of
14
<PAGE>
Financial Condition and Results of Operations--Year 2000 Compliance" section of
this prospectus for a more detailed discussion.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING
We may need to raise additional funds in the future to fund more aggressive
brand promotion or more rapid expansion, to develop new or enhanced services, to
respond to competitive pressures or to 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 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.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT
OUR STOCK PRICE
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. 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 REGARDING STOCKHOLDER APPROVAL
Our executive officers and directors will, in the aggregate, beneficially
own approximately % of our outstanding common stock following this
offering. These stockholders may be able to exercise control over all 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
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.
PROVISIONS IN OUR CHARTER OR AGREEMENTS MAY PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our certificate of incorporation and bylaws and provisions of
applicable Delaware law may discourage, delay or prevent a merger or other
change of control that a stockholder may consider favorable. Our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
and to
15
<PAGE>
determine the price and the terms, including preferences and voting rights, of
those shares without stockholder approval. Although we have no current plans to
issue additional shares of our preferred stock, any such issuance could, among
other things:
- have the effect of delaying, deferring or preventing an acquisition or a
change in control of Ask Jeeves;
- discourage bids for our common stock at a premium over the market price;
or
- adversely affect the market price of, and the voting and other rights of
the holders of, our common stock.
Furthermore, we are subject to certain Delaware laws that could have the
effect of delaying, deterring or preventing a change in control of our company.
One of these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, certain provisions of our certificate of incorporation and by-laws,
and the significant amount of common stock held by our executive officers,
directors and affiliates, could together have the effect of discouraging
potential takeover attempts or making it more difficult for stockholders to
change management.
In addition, substantially all of the 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 are currently 229,021 unvested shares of
common stock reserved pursuant to options under this plan. These provisions
could have the effect of discouraging potential takeover attempts.
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.
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. Moreover, neither we nor anyone else
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by Ask Jeeves from the sale of
shares of common stock in this offering are estimated to be $ million, or
$ million if the underwriters exercise their over-allotment option in full,
at an assumed initial public offering price of $ and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
We will use the 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.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect 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, after deducting estimated underwriting discounts and
commissions and the estimated offering expenses payable by us.
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
-------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
Capital lease obligations, less current portion..................... $ 33,606 $ 33,606 $
------------- ------------- -------------
Stockholders' equity (1):
Convertible preferred stock; 20,000,000 Shares authorized (actual
and pro forma); (5,000,000 pro forma as adjusted); issuable in
series
Series A convertible preferred stock: 7,500,000 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: 12,500,000 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: 80,000,000 shares authorized; 11,583,733 shares
issued and outstanding (actual); 150,000,000 shares authorized
and shares issued and outstanding (pro forma); 150,000,000
shares authorized and shares issued and outstanding (pro
forma as adjusted).............................................. 6,876,194 39,419,582
Deferred stock compensation....................................... (2,052,574) (2,052,574)
Accumulated deficit............................................... (9,686,359) (9,686,359)
------------- ------------- -------------
Total stockholders' equity...................................... 27,680,649 27,680,649
------------- ------------- -------------
Total capitalization.......................................... $ 27,714,255 $ 27,714,255
------------- ------------- -------------
------------- ------------- -------------
</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.
18
<PAGE>
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 shares of common stock offered hereby at an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us, the pro forma net tangible book value of Ask Jeeves, Inc. as of
March 31, 1999 would have been approximately $ million, or $ per share.
This represents an immediate increase in the pro forma net tangible book value
per share of $ per share to existing stockholders and an immediate dilution
of $ 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............................ $
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..............................................................
---------
Pro forma net tangible book value per share after the offering.............
---------
Dilution per share to new investors........................................ $
---------
---------
</TABLE>
The calculation is based on an assumed initial public offering of $ per
share, before deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by Ask Jeeves, Inc.
<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 % $ % $
New investors................................
------------ ----------- ------------- -----------
Total........................................ % $ %
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
</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>
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 selected
statements of operations data presented below for the period from June 13, 1996
(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
June 13, 1996 Year Ended Three Months
(inception) December 31, Ended March 31,
through --------------------- ---------------------
December 31, 1996 1997 1998 1998 1999
------------------ --------- ---------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENTS 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,
-------------------------------
1996 1997 1998
--------- --------- --------- AS OF
MARCH 31,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEETS DATA:
Cash and cash equivalents and short-term investments................. $ -- $ 521,247 $5,587,883 2$5,144,341
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>
20
<PAGE>
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
advertising revenues that are derived from short-term advertising contracts.
Under these contracts, the Company delivers impressions (key word, category,
run-of-site, and home page banners) to users over a specified period of time for
a fixed fee. 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 years ended December 31, 1997 and 1998 were
derived from Ask Jeeves.
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
fifteen months and twelve months, respectively. 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, maintenance and information
services are recorded as deferred revenues and are recognized ratably over the
contractual term. To date, revenues from the Corporate Question Answering
Service have not been material.
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 question processing engine. 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.
21
<PAGE>
During the year ended December 31, 1998 and the quarter 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 quarter 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. 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 quarter ended March 31, 1999, in connection with the
grant of stock options to certain members of the Company's Board of Directors
who served in management positions, 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 vesting period which
concludes in December 1999. We recorded amortization of deferred stock
compensation expense of approximately $48,000 in the quarter ended March 31,
1999.
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. See Note 4 of Notes to Financial Statements.
Because we were a development stage company during 1996 and 1997 and have a
short operating history, 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.
22
<PAGE>
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 neccessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
---------- ---------- ---------- ----------- -----------
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 to fifteen months, our corporate revenues have not
been material over the five quarters ended March 31, 1999. See Note 1 of Notes
to Financial Statements.
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.
23
<PAGE>
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
certain technology 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.
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;
- 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 partners 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 personnel;
- 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.
24
<PAGE>
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 traffic levels on
Ask Jeeves fluctuated during the summer and 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 quarter 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 quarter 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 quarter ended March 31, 1999. In addition, in the quarter
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 quarter 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 service and the amount of resources we
invest in site and content development, marketing and 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.
25
<PAGE>
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 made a preliminary assessment of the Year 2000 readiness of our
operating, financial and administrative systems, including the hardware and
software that support our systems. Our assessment plan consists of:
- quality assurance testing of its 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 will require vendors of
our other material hardware and software components to provide assurances of
their Year 2000 compliance. 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.
COSTS TO DATE
We have not incurred any material expenditures in connection with
identifying, evaluating or addressing Year 2000 compliance issues. 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.
26
<PAGE>
BUSINESS
OVERVIEW
Ask Jeeves has pioneered the development and deployment 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 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 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.
Our question answering services combine sophisticated, proprietary
technologies with human editorial judgment to create a system that gets smarter
by dynamically responding 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 a day across our
question answering services, we believe that we handle answers to a broader
range of plain English questions than any other service on the Internet.
Beginning with only 3,000 questions a day in its first month of operation,
Ask Jeeves answered over 1 million questions a 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 their 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 industry leaders including Compaq Computer
Corporation, Dell Computer Corporation, 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
27
<PAGE>
and services and provide post-sales support. According to IDC, worldwide
electronic 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 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 irrelevant results. 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.
28
<PAGE>
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 "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. We combine proprietary technologies, including natural-language
parsing software, knowledge base technology and data mining processes, with
human editorial judgment to create question answering services that become
smarter over time. 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. It is primarily
supported by advertising and electronic commerce partner 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 broader
range of plain English questions than any other service on the Internet.
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.
29
<PAGE>
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.
THE CONSUMER QUESTION ANSWERING SERVICE
Ask Jeeves, at ASK.COM, was launched in April 1997 to make finding answers
to questions easier. Since then, the knowledge base that supports Ask Jeeves has
grown from just 30,000 answers to more than 7 million answers in April 1999
through regular additions based on users' most frequently asked questions. From
425,000 unique users in September 1998, Ask Jeeves has grown to more than 1.9
million unique users in March 1999. 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
that are 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 partners who offer relevant products and
services.
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. By developing customized knowledge bases that
continually learn from the customer's questions, the Corporate Question
Answering Service is designed to enable more effective online customer
self-service. We believe that this will reduce the costs to companies associated
with phone and e-mail interactions with 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.
30
<PAGE>
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.
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 sales to 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, five customers, including Compaq Computer Corporation, Dell
Computer Corporation and WebTV, Inc., have adopted 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.
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.
31
<PAGE>
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.
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>
Entertainment Family
What parties are happening on New Year's Eve? How can I help my child with his
Where can I see a magic trick online? homework?
Where can I view the new Star Wars movie How do I train my dog?
trailer? Where can I find a good summer camp for my
Are the Rolling Stones on tour? kids?
How can I find a good restaurant in Chicago? What should I name my baby?
How much will it cost to send my child to
college?
Finance Geography
How much do I need to save for retirement? What are the Seven Wonders of the World?
What is an annuity? How deep is the ocean?
How much can I afford to spend on a house? Where can I find a current map of the
Where can I bank online? world?
How much life insurance do I need? What happens when glaciers melt?
Where are the deserts of the world?
Health Reference
How can I cure my headache? How many feet are in a mile?
Is yawning contagious? Why does the moon look larger at the
How can I get rid of allergies? horizon?
Where can I find a good gym? What does my phone number spell?
How do antioxidants work? How can I become Miss America?
Why is the sky blue?
Romance Shopping
Am I in love? How can I order pizza over the Internet?
How do I get out of the doghouse? What is a good anniversary present?
How do I write a love poem? What are the latest fashions?
What are some good date ideas? Where can I comparison shop for cameras?
How can I prepare a romantic dinner? Where can I find recommendations on
software?
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
Sports Technology
When are the Giants playing next? What are Web cookies?
Who is on the NHL's All Star Team? Where can I find good computer deals
How can I improve my golf game? online?
Who holds the all time record for innings How do I install a modem?
pitched? Where can I get anti-virus software?
What are the skiing conditions in Vail, How can I create my own Web page?
Colorado?
Who won the first World Series?
Travel
What's the weather in New York?
How can I renew my passport?
How can I optimize my frequent flier miles?
What are good travel tips for going abroad?
How can I learn a foreign language?
</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.
For example, a visitor to Ask Jeeves can enter the question:
[Screen shot of Ask Jeeves' Website home page with the question "Where can I
find a recipe for creme brulee?"]
33
<PAGE>
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 Jeeves' Website second page containing a set of dialogue
questions in response to the question "Where can I find a recipe for creme
brulee?"]
34
<PAGE>
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.
[Screen shot of a page on a third party Website 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. 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 also selectively license our Consumer Question Answering Service
knowledge base to enhance the Internet-wide search capabilities of company's Web
sites. We currently license our knowledge base to AltaVista, Infonautics and
Netscape.
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, Compaq, Dell, Toshiba and WebTV.
35
<PAGE>
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:
36
<PAGE>
<TABLE>
<S> <C>
General Information Product Information
Where are you located? What is the best printer for digital
Where can I find your recent press release? photos?
Are you hiring? What are the advantages of an online
Who are your customers? banking account?
Where can I get a copy of your most recent How can I upgrade my computer to Windows
annual report? 98?
Do you have educational software to held my
child with math?
How can I invest in mutual funds?
Transaction Support
How much tax do I have to pay if I live in How do I get rid of the black lines on my
Wisconsin? monitor?
What is your return policy? Where can I find technical support
Do you offer any packages or discounts? documentation?
Will an extra charges be added to my How do I troubleshoot my floppy disk drive?
purchase? What extra services are available through
How quickly can I receive my order? 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 finally 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 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.
37
<PAGE>
The diagram below shows the Ask Jeeves QPE and question answering process:
<TABLE>
<S> <C><C>
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 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 presented by the QPE
4) Box depicting Web page frame containing text: Answer
Caption: User is directed to the Internet destination
containing the answer
</TABLE>
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.
38
<PAGE>
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:
<TABLE>
<S> <C><C>
1) Cylinder containing text: User Log
Caption: User questions are recorded daily
2) Graphic depicting human editors
Caption: Ask Jeeves editors receive regular reports for
analysis
3) Box containing text: Tools
Caption: Editors use proprietary tools to efficiently maintain
and grow the knowledge base
4) Box depicting creation of question templates
Caption: Editors create question templates based on most
frequently asked questions
5) Box depicting development of answer templates
Caption: Editors develop answer templates, checking Web links
for relevance and credibility
6) Box depicting addition of terms and phrases
Caption: Editors add terms and phrases previously unidentified
7) Box depicting validation of Web links
Caption: Editors ensure Web links are functional and content is
still relevant
8) Cylinder containing text: Ask Jeeves
knowledge base
Caption: Ask Jeeves knowledge base gets smarter everyday
</TABLE>
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, and at
Exodus Communications in Santa Clara, California. These hosting centers provide
routing and communication lines with a variety of major Internet backbone
providers, as well as continuous monitoring and communications support. They
also provide their own power generators and multiple, redundant backup systems.
We maintain significant server over-capacity at each site so that if one hosting
facility fails, the other site can service our entire user traffic.
39
<PAGE>
CUSTOMERS
The following is a selected list of our advertisers, electronic commerce
partners and our corporate customers as of April 30, 1999:
<TABLE>
<CAPTION>
ADVERTISING ELECTRONIC COMMERCE CORPORATE CUSTOMERS
- ------------------------------------- -------------------------- -------------------------------------
<S> <C> <C>
AutoNation, Inc. CDNow, Inc. AltaVista Company
eBay, Inc. Barnes and Noble, Inc. BellSouth Corporation
Kellogg Corporation Reel.com, Inc. Compaq Computer Corporation
Eastman Kodak Company eToys Inc. Dell Computer Corporation
MSN.com Photos To Go, Inc. Infonautics Corporation
NetVision, Inc. Netscape Communications
OnNow.com Corporation
Sony Corporation Toshiba America Information
TheGlobe.com Systems, Inc.
Toshiba America Information Systems, WebTV, Inc.
Inc.
Wired Solutions
</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 certain
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 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.
40
<PAGE>
COMPETITION
We have a number of competitors in both the consumer and the corporate
areas. We compete with companies that maintain commercial Web sites for users,
advertisers and electronic commerce partners. Competition could result in less
user traffic to our public Web sites, which may lead to a reduction in
advertising revenues, a price reduction for our advertising inventory, or a loss
of market share. Any of these factors could adversely affect our business.
In addition, we face direct competition from companies that provide Web
navigation services, including:
<TABLE>
<CAPTION>
CATEGORY FOCUS COMPETITORS
- ---------------------- --------------------------- -------------------------------------------
<S> <C> <C>
Internet content Web navigation, content AltaVista Company, Excite, Inc., Inktomi
retrieval aggregation Corporation and Yahoo, Inc.
General purpose Connectivity, community America Online, Inc. and Microsoft
online-services content, e-commerce Corporation (Microsoft Network)
Connectivity portals Connectivity, broadband AT&T Corporation (AT&T Worldnet), @Home
content, community Corporation and MindSpring Enterprises,
Inc.
</TABLE>
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 against whom we compete can be categorized as follows:
<TABLE>
<CAPTION>
CATEGORY FOCUS COMPETITORS
- ---------------------- --------------------------- -------------------------------------------
<S> <C> <C>
Web-based Search, self-help problem Inktomi Corporation, Primus
resolution and expert Telecommunication Group, Inc., Inference
systems Corporation, Verity, Inc. and Web Answers
E-mail Automated response and Aptex Software, Inc., Brightware, Inc.,
intelligent routing Egain Communications Corp., Kana
Communications, Inc. and Mustang Software,
Inc.
Chat Forums and news groups Acuity Corporation, e-Share Technologies,
Inc. and FaceTime Communications, Inc.
Phone call Customer information Clarify, Inc., Siebel Systems, Inc.,
management and incident Vantive Corporation and Remedy Corporation
tracking
</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
41
<PAGE>
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. Ask Jeeves enters into confidentiality agreements with its employees,
consultants and strategic partners, and generally controls access to and
distribution of its proprietary 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.
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.
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.
42
<PAGE>
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 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.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is certain information regarding our executive officers,
directors and key employees as of April 30, 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
Amy Slater................................ 45 General Counsel and Secretary
Christine M. Davis........................ 41 Controller
A. George ("Skip") 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 has been 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 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, he founded Desktop
Software, a custom software development firm, where he served as sole proprietor
until June 1996. From 1983 to 1988 he served as Director of Engineering at
Virtual Microsystems, Inc., a software and hardware company.
44
<PAGE>
EDWARD D. BRISCOE III joined Ask Jeeves as Senior Vice President and General
Manager, Consumer Question Answering Service in 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 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 joined Ask Jeeves as Senior Vice President, Business
Development in 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 joined Ask Jeeves as Chief Financial Officer in 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 joined Ask Jeeves as Senior Vice President and General
Manager, Corporate Question Answering Service in 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.
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 worked for 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 until April 1999, Ms. Davis also served as Acting Chief
Financial Officer of the Company. From December 1997 to January 1999, she 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.
A. GEORGE ("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.
45
<PAGE>
GARRETT GRUENER is a founder of the Company and has served as a director of
Ask Jeeves since June 1996 and served as Secretary of the Company 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 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 ("Compaq"). 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 of Directors (the "Board") will
be divided into three classes designated as Class I, Class II and Class III,
respectively, 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 A. George ("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 A. George ("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 Robert A. Strauch, A. George
("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 W. Strauch received an option to purchase an aggregate of 169,470 shares
of our common stock at a weighted average exercise price of $.14 per share. A.
George ("Skip") Battle, one of our directors, received options to purchase an
aggregate of 60,000 shares of our common stock at a weighted average exercise
price of $.63 per share.
46
<PAGE>
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."
47
<PAGE>
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 OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -------------------------------
NAME GRANTED(1) 1998(2) PER SHARE(3) DATE 0% 5% 10%
- ------------------------------ ---------- ------------- ------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger A. Strauch.............. 65,028 2.6% $ .12 05/29/08
37,864 1.5 .13 07/30/08
37,500 1.5 .73 12/13/08
18,932 8.0 .13 12/13/08
47,646 1.9 .18 12/13/08
Robert W. Wrubel.............. 675,000 26.9 .46 05/25/08
375,000 15.0 .73 10/11/08
David C. Warthen.............. 9,633 4.0 .12 02/27/08
28,900 1.2 .12 05/29/08
8,413 3 .13 06/29/08
8,413 3.0 .13 07/30/08
8,414 3.0 .13 12/13/08
24,434 1.0 .18 12/13/08
Daniel H. Miller.............. 65,028 2.6 .12 05/30/08
37,864 1.5 .13 07/30/08
37,500 1.5 .73 12/13/08
18,932 8.0 .13 12/13/08
47,646 1.9 .18 12/13/08
</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 $ 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.
48
<PAGE>
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 $ 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 $ 66,578 37,500 $ $
Robert W. Wrubel............. -- -- 1,050,000
David C. Warthen............. 25,002 184,457 --
Daniel H. Miller............. 102,892 66,578 37,500
</TABLE>
- ------------------------
(1) Based on the assumed initial public offering price per share of $ ,
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 (the "1996 Option Plan") was adopted by the
Board and approved by the stockholders in December, 1996. The 1996 Option Plan
was amended in January 1999 and February 1999, which amendments were approved by
the stockholders in January 1999 and February 1999. There is currently an
aggregate of 5,973,372 shares of Common Stock authorized for issuance under the
1996 Option Plan. Options currently outstanding under the 1996 Option Plan will
continue in full force and effect under the terms of the 1996 Option Plan until
such outstanding options are exercised or terminated in accordance with their
terms.
As of April 30, 1999, Ask Jeeves had granted options under the 1996 Option
Plan to purchase an aggregate of approximately 5,823,355 shares of common stock,
of which options to purchase approximately 734,980 shares had been exercised,
options to purchase approximately 22,500 shares had been cancelled (due to
expiration or otherwise) and options to purchase approximately 5,065,875 shares
at a weighted average exercise price of approximately $ per share remained
outstanding. We will make no future grants under the 1996 Option Plan.
The 1996 Option Plan provides for the grant of incentive stock options under
the Internal Revenue Code, as amended (the "Code") to employees (including
officers and employee-directors) and nonstatutory stock options to employees,
directors and consultants. The 1996 Option Plan also provides for the grant of
restricted stock awards and stock bonuses although no such awards were granted
under the 1996 Option Plan prior to its termination. The 1996 Option 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 Option Plan is being administered by the Compensation
Committee of the Board.
The terms of stock options granted under the 1996 Option Plan may not exceed
10 years. The exercise price of options granted under the 1996 Option Plan is
determined by the Board (or committee) 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
49
<PAGE>
granted under the 1996 Option 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 Ask Jeeves 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 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 Ask Jeeves 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 Option 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 Option
Plan.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) 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 such plans of Ask Jeeves and
its affiliates) may not exceed $100,000.
The option agreements may provide that Ask Jeeves 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 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 (the "1999
Incentive Plan"), which will become effective upon stockholder approval. 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
January 1, beginning January 1, 2000, the share reserve under the 1999 Incentive
Plan shall be increased by the lesser of the following: (1) 1,750,000 shares,
(2) 5% of shares outstanding or (3) such 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 Code, to employees (including officers and
employee-directors) and nonstatutory stock options, restricted stock purchase
awards and stock bonuses to employees (including officers and
employee-directors), directors (including 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.
The terms of options granted under the 1999 Incentive Plan may not exceed 10
years. The Board (or committee) 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
50
<PAGE>
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 (or is deemed to own) 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. 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 the 1999 Incentive Plan and all
other stock plans of Ask Jeeves and its affiliates) may not exceed $100,000.
Subject to Section 162(m) of the 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 committee). 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 be granted under the 1999 Incentive
Plan. The 1999 Incentive Plan will terminate on April 15, 2009 unless sooner
terminated by the Board (or committee).
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Board adopted and the stockholders approved the Employee
Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 125,000
shares of common stock. 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 Code. Under the Purchase Plan, the Board may
authorize participation by eligible
51
<PAGE>
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 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
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 which
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, Ask Jeeves adopted a tax-qualified employee
savings and retirement plan (the "401(k) 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 the statutorily
prescribed annual limit ($10,000 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 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 Ask Jeeves, Inc. can deduct the contributions by
employees when made. Ask Jeeves may make matching or additional contributions to
the 401(k) Plan, in amounts to be determined annually by the Board. Ask Jeeves
does not expect to make matching or additional contributions to the 401(k) Plan
in 1999.
COMPENSATION ARRANGEMENTS
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. It also provides for a right to invest $1,000,000 in our
Series B
52
<PAGE>
Preferred Stock financing in which Mr. Briscoe purchased 231,032 shares at a
purchase price of $4.33 per share in March 1999. Mr. Briscoe also received a
relocation allowance of up to $150,000.
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 and certain conditions are satisfied, (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.
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 the company, 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 vest and 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. 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 vest and become immediately
exercisable.
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 (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
53
<PAGE>
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.
We expect to obtain directors' and officers' liability insurance prior to
the offering.
54
<PAGE>
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, 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 such provision, we granted Mr.
Warthen an immediately exercisable option 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 2,148,807 shares of common stock at a
purchase price of $.53 per share. 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 COMMON SHARES OF COMMON
STOCK ISSUED STOCK ISSUED
PURCHASER JUNE 1998 SEPTEMBER 1998
- ------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Roger A. Strauch....................................... 94,661 137,438
Daniel H. Miller....................................... 94,661 137,438
M. Bruce Nakao......................................... 47,330 --
A. George ("Skip") Battle.............................. 47,330 --
Garrett Gruener........................................ 94,661 137,438
Benjamin M. Rosen...................................... 141,991 584,112
5% STOCKHOLDERS
Leavitt Family Trust................................... 236,653 103,078
</TABLE>
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. In February
and March 1999, we sold an aggregate of
55
<PAGE>
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 A
preferred stock and Series B 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 member of such persons'
immediate families purchased shares of Series A preferred stock and Series B
preferred stock.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
SERIES A SERIES B
PREFERRED PREFERRED
PURCHASER STOCK STOCK
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Roger A. Strauch............................................. 106,125 --
Edward D. Briscoe III........................................ -- 231,032
Daniel H. Miller............................................. 106,125 --
M. Bruce Nakao............................................... 4,847 8,645
Amy Slater................................................... 4,847 8,520
A. George ("Skip") Battle.................................... -- 13,458
Garrett Gruener.............................................. 92,595 57,758
Benjamin M. Rosen............................................ 519,544 172,776
5% STOCKHOLDERS
CPQ Holdings, Inc............................................ 2,480,765 344,091
Entities affiliated with Highland Capital.................... -- 2,310,322
Entities affiliated with Institutional Venture Partners...... -- 1,386,328
Leavitt Family Trust......................................... 42,248 128,136
Roda Group Investment Fund I, LLC............................ -- 856,732
</TABLE>
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 (the "Voting
Agreement") with the holders of 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 the company's 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, for 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"). 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.
56
<PAGE>
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 (a "Holder") of
more than 1,000,000 shares of our capital stock (the "Co-Sale Agreement"). 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 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,
sales or series of sales that are less than 15% of the shares of capital stock
held by the Holder and estate planning transfers. 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 37,500 shares of common stock with an exercise price of $.73 per share
to each of Roger A. Strauch and Daniel H. Miller, which vest monthly over six
months. Roger A. Strauch, our Chairman of the Board, is a managing member of the
Roda Group.
LOAN TO EXECUTIVE OFFICER
In May 1998, the Board approved a loan to Robert W. Wrubel, our Chief
Executive Officer, of $75,000 at an interest rate of 7.5% per annum. The loan
was repaid in full in February 1999.
PERSONAL GUARANTEES BY EXECUTIVE OFFICERS
During 1998, Roger A. Strauch, the Chairman of the Board, and Daniel H.
Miller, former director and President of Ask Jeeves, personally guaranteed
obligations by the Company 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 Ask
Jeeves, and Ask Jeeves 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,
is a managing member of the Roda Group.
57
<PAGE>
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 Officer 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%
529 Bryant Street
Palo Alto, CA 94301
Entities affiliated with Highland Capital Partners, Inc.(4)................. 2,310,322 10.82
Two International Place
Boston, MA 02110
Entities affiliated with Institutional Venture Partners(5).................. 1,386,193 6.49
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
918 Parker Street
Berkeley, CA 94710
Roger A. Strauch(7)......................................................... 3,078,342 14.40
A. George ("Skip") Battle(8)................................................ 140,125 *
Garrett Gruener(9).......................................................... 2,820,881 13.21
Daniel J. Nova(4)........................................................... 2,310,322 10.82
Benjamin M. Rosen........................................................... 1,413,802 6.62
Geoffrey Y. Yang(5)......................................................... 1,386,193 6.49
Robert W. Wrubel(10)........................................................ 189,424 *
Daniel H. Miller(11)........................................................ 2,955,956 13.83
David C. Warthen(12)........................................................ 1,034,457 4.80
ALL EXECUTIVE OFFICERS AND DIRECTORS
as a group (14 persons)(13)............................................... 13,934,553 63.94
</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 c/o 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
58
<PAGE>
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 convertible preferred stock and
shares of common stock issued 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.
(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 the Company,
is a general partner of the General Partner of HCP IV and HEF IV and can be
deemed to be a beneficial owner of the shares held by HCP IV and HEF IV 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 the Company, is a general partner of
the the General Partner of IVP and IIF and can be deemed to be a beneficial
owner of the shares held by IVP and IIF 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 member of 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. Also includes 856,732 shares held by Roda Group
Investment Fund I, L.L.C., of which he is a managing member. 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 Alexander K. Strauch, 45,813 shares held by Roger Strauch as
Custodian Under CUTMA for Paul K. Strauch and 45,813 shares held by Roger
Strauch as Custodian Under CUTMA for Nairi S. Strauch. 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. 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 Roda Group Investment Fund I, L.L.C. Amy
Slater is the spouse of Mr. Gruener. Mr. Gruener, a director of the
Company, is a member of 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.
59
<PAGE>
(11) Includes 2,063,974 shares held by Mr. Miller. Also includes 856,732 shares
held by Roda Group Investment Fund I, L.L.C., of which he is a managing
member. Also includes 15,000 shares held by Cooper Ogden Miller
Educational Trust, Roger A. Strauch, Trustee, 1,500 shares held by Rebecca
A. 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 13,493,534 shares and 441,019 options that are currently
exercisable or exercisable within 60 days.
60
<PAGE>
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, par value, and
5,000,000 shares of preferred stock, par value per share. Upon completion of
this offering, there will be outstanding shares of common stock,
outstanding options to purchase 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 received dividends out of assets legally available thereof at such
time and in such amounts as the board of directors may from time to time
determine. Each stockholder is entitled to vote for each share of common stock
held by all on 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 to 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
shares 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
provide by resolution for 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 $.52 per share and 2,500
shares at an exercise price of $4.32 per share, respectively.
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
61
<PAGE>
such person, for three years following the date that such stockholder became an
"interested stockholder" unless:
- the transaction that resulted in the stockholders' becoming an "interested
stockholder" was approved by the board of directors prior to the date the
"interested stockholder" attained such status;
- upon consummation of the transaction that resulted in the stockholder's
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 and also 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. Such provisions include: our
board of directors are 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 the
Company, which may include services in connection with takeover defense
measures. Such provisions may have the effect of preventing changes in the
management of the Company.
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 .
LISTING
We have applied for quotation of our common stock on the Nasdaq National
Market under the trading symbol "ASKJ."
62
<PAGE>
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, we will have 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 shares
( 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 19,611,547 shares held by our directors,
executive officers and substantially all of our existing stockholders are
subject to lock-up agreements generally providing that, with certain limited
exceptions, the 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, in our case, 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 (1) or (2) is 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.
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 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 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.
63
<PAGE>
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 Equity Incentive, 1999 Equity
Incentive Plan and pursuant to certain nonstatutory stock option agreements and
(2) rights outstanding under the Employee Stock Purchase Plan. Based on the
number of shares subject to outstanding options at April 30, 1999 and currently
reserved for issuance under all such plans and agreements, such registration
statement would cover approximately 8,407,829 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 expires.
64
<PAGE>
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.............................................................................................
------------
------------
</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.
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 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.
65
<PAGE>
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 directors, officers, stockholders and option
holders has agreed that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the underwriters, it will not, during the period
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 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 restrictions described in this paragraph do not apply to:
(1) the sale of shares to the underwriters; (2) 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; (3) 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 (4)
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.
66
<PAGE>
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 common stock of Ask Jeeves.
Legal matters relating to this offering will be passed upon for the underwriters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain members of Wilson Sonsini Goodrich & Rosati beneficially own
an aggregate of 183,773 shares of common stock of Ask Jeeves.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
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.
67
<PAGE>
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>
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 April , 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
April 29, 1999
F-2
<PAGE>
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; 20,000,000 shares
authorized at March 31, 1999 (5,000,000 pro forma);
issuable in series:
Series A convertible preferred stock, no par value;
7,500,000 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;
12,500,000 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; 80,000,000 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>
ASK JEEVES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 13, 1996 THREE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
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>
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>
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>
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, 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.
F-7
<PAGE>
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)
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 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 (key word, category,
run-of-site, and home page banners) to users over a specified period of time for
a fixed fee. 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
F-8
<PAGE>
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)
impressions delivered. Substantially all of the Company's revenues for the years
ended December 31, 1997 and 1998 were derived from Ask Jeeves.
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
fifteen months and twelve months, respectively. 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 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 $748,098 and
$1,900,337, 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.
F-9
<PAGE>
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)
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 automatically
convert upon completion of the Company's initial public offering, using the as
if-converted method.
F-10
<PAGE>
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)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 13, 1996 THREE MONTHS ENDED MARCH
(INCEPTION) YEAR ENDED DECEMBER 31, 31,
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
F-11
<PAGE>
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)
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.
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.
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-12
<PAGE>
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
LEASES OPERATING 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.
F-13
<PAGE>
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
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,
-----------------------
<S> <C> <C>
1997 1998
---------- -----------
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>
Realization of deferred tax assets is dependent on future earnings, if any,
the timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance. The valuation allowance
increased by $978,634 during the year ended December 31, 1998. 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, MARCH 31,
DESIGNATED ---------------------- 1999
SERIES SHARES 1997 1998 ------------
- --------- ------------ ---------- ---------- (UNAUDITED)
<C> <S> <C> <C> <C> <C>
A Convertible......................... 7,500,000 -- 2,970,655 3,709,884
B Convertible......................... 12,500,000 -- -- 5,775,806
------------ ---------- ---------- ------------
20,000,000 -- 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
F-14
<PAGE>
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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.
During 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 $.52 to $.73. The warrants expire on various dates between May and
December 2003. The Company determined the fair value of the warrants to be
$23,780 using the Black Scholes valuation model and recorded a charge to
operations over the consulting period, which concluded in 1998.
F-15
<PAGE>
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
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.
STOCK OPTION ACTIVITY
A summary of stock option activity is set forth below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
<S> <C> <C>
WEIGHTED-AVERAGE
EXERCISE PRICE
SHARES PER SHARE
----------- -----------------
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.
F-16
<PAGE>
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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
F-17
<PAGE>
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
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 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.
F-18
<PAGE>
ASK JEEVES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
1999 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors and approved by the stockholders in April 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 125,000 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
(the "1999 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. ("Lumina") 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.
F-19
<PAGE>
INSIDE BACK COVER OF PROSPECTUS:
TITLE: How Ask Jeeves Works
GRAPHIC DEPICTING USER SITTING AT COMPUTER
CAPTION 1: 1) User visits Ask Jeeves and asks a question
BOX CONTAINING TEXT: What is a good birthday gift?
CAPTION 2: 2) The question enters the Ask Jeeves Question Processing Engine
GRAPHIC DEPICTING ASK JEEVES KNOWLEDGE BASE CONTAINING TEXT: Ask Jeeves
Knowledge Base
ADDITIONAL TEXT RELATED TO GRAPHIC: Kids, Sports, Entertainment, Travel, Health,
Computers, Shopping, Money, Family
CAPTION 3: 3)The question is matched to appropriate question templates in the
knowledge base
GRAPHIC DEPICTING PEOPLE AT COMPUTERS
CAPTION 4: Editors use proprietary tools to maintain and grow the knowledge base
BOX DEPICTING USER LOG CONTAINING TEXT: User Log
CAPTION 5: Questions and usage patterns are recorded everyday. Reports are
generated that analyze user behavior and patterns.
SCREEN SHOT OF ASK JEEVES PAGE OF DIALOGUE QUESTIONS THAT APPEAR IN
RESPONSE TO QUESTION: WHAT IS A GOOD BIRTHDAY GIFT?
CAPTION 5: 4) Set of dialogue questions displayed
BOX DEPICTING WEB PAGE FRAME WITH TEXT: Answer
CAPTION 6: 5) User is directed to the Internet destination containing the answer
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
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>
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, and $20,000 pursuant to the Asset Purchase
Agreement and Plan on Reorganization by and between the Company and Cameo
Technology, Inc.
3. On June 17, 1996, the Company issued 900,000 shares of its common stock to
David Warthen in consideration of $20,000.
4. From inception through April 30, 1999, the Company granted options to
purchase 6,403,354 shares of common stock at a weighted average exercise
price of $2.00 per share to employees, consultants, directors and other
service providers pursuant to its 1996 Option Plan and issued an aggregate
of 1,036,939 shares of its common stock to employees, consultants, directors
and other service providers for aggregate consideration of approximately
$86,348 pursuant to exercises of options granted under the 1996 Option Plan.
5. From inception through April 30, 1999, the Company granted options to
purchase 579,998 shares of common stock at a weighted average exercise price
of $0.41 per share to employees and consultants pursuant to option
agreements outside of the 1996 stock Option Plan and issued an aggregated
390,540 shares of its common stock to employees, consultants, directors and
other service providers for aggregate consideration of approximately $1,406
pursuant to exercise of such options outside of the 1996 Option Plan.
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.
7. In April 1998, the Company issued 32,600 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.
8. In November 1997, the Company issued 12,000 shares of common stock in
exchange for assets valued at $.23 per share.
9. In December 1997, the Company issued 541,829 shares of common stock for an
aggregate purchase price of $249,241 or $.46 per share to one investor.
11. In May, June and July 1998, the Company issued warrants exercisable into
21,500 shares of common stock to a consultant for services performed. The
warrants are exercisable into shares of common stock at a per share exercise
prices of $.53.
12. 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 $.53 per share to 16 investors.
13. 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
$.73 per share to 11 investors.
14. 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.
15. In December 1998, the Company issued warrants to purchase 17,500 shares of
common stock to our landlord in partial consideration for lease obligations.
The warrants were exercised in April 1999.
II-2
<PAGE>
16. 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.
17. In March 1999, the Company issued a warrant exercisable into 2,500 shares of
common stock to a consultant for services performed. The warrant is
exercisable into shares of common stock at a per share exercise price of
$4.32.
18. On April 16, 1999, the Company issued 450,000 shares of common stock in
consideration of, among other things, certain assets relating to Lumina
Decision Systems, Inc., pursuant to the Asset Purchase Agreement by and
between the Company and Lumina Decision Systems.
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 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 11, 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 1999 Equity Incentive Plan.
10.4 Form of Option Agreement for the 1999 Equity Incentive Plan.
10.5 1999 Employee Stock Purchase Plan.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
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 Development Company, L.L.C. and the Registrant dated as of January 1, 1999.
10.12+* License Agreement between the Registrant and Compaq Computer Corporation dated as of October 2, 1998.
10.13+ License and Development Agreement between the Registrant and Compaq Computer Corporation dated as of
March 31, 1999.
10.14 Consulting Services Agreement by and between the Registrant and The Roda Development Group dated as of
December 14, 1998.
10.15 Offer letter by and between the Company and M. Bruce Nakao dated as of April 16, 1999.
10.16 Offer letter by and between the Registrant and Laurence Fishkin dated as of January 11, 1999.
10.17 Offer letter by and between the Registrant and Edward Briscoe III dated as of January 18, 1999.
10.18 Offer letter by and between the Registrant and Frank Vaculin dated as of January 5, 1999.
10.19* Offer letter by and between the Registrant and Robert W. Wrubel dated as of May 22, 1998.
10.20* 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.
10.21 Common Stock Subscription Agreement, by and between the Registrant and certain investors of the
Registrant dated as of June 26, 1998.
10.22 Common Stock Subscription Agreement, by and between the Registrant and certain investors of the
Registrant dated as of August , 1998.
10.23 Series A Preferred Stock Purchase Agreement by and between the Registrant and certain investors of the
Registrant dated as of November 13, 1998.
10.24 Series B Preferred Stock Purchase Agreement by and between the Registrant and certain investors of the
Registrant dated as of February 24, 1999.
10.25+ Asset Purchase Agreement by and between the Registrant and Lumina Decision Systems, Inc. dated as of
April 16, 1999.
10.26* Form of Indemnity Agreement by and between the Registrant and each of its directors and executive
officers.
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.
* To be filed by amendment.
II-4
<PAGE>
(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 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Berkeley,
State of California, on April 30, 1999.
<TABLE>
<S> <C> <C>
ASK JEEVES, INC.
By: /s/ ROBERT W. WRUBEL
-----------------------------------------
Robert W. Wrubel
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that the persons whose signatures appear
below each severally constitutes and appoints Robert W. Wrubel, Christine M.
Davis and Amy Slater, and each of them, as true and lawful attorneys-in-fact and
agents, with full powers of substitution and resubstitution, for them in their
name, place and stead, in any and all capacities, to sign any and all amendments
(including pre-effective and post-effective amendments) to this Registration
Statement and to sign any registration statement (and any post-effective
amendments thereto) relating to the same offering as this Registration Statement
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, as amended and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all which said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do, or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER:
/s/ ROBERT W. WRUBEL
- ------------------------------ President, Chief Executive April 30, 1999
Robert W. Wrubel Officer and Director
PRINCIPAL ACCOUNTING OFFICER:
/s/ CHRISTINE M. DAVIS
- ------------------------------ Controller April 30, 1999
Christine M. Davis
ADDITIONAL DIRECTORS:
/s/ ROGER A. STRAUCH
- ------------------------------ Chairman of the Board of April 30, 1999
Roger A. Strauch Directors
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/S/ A. GEORGE ("SKIP") BATTLE
- ------------------------------ Director April 30, 1999
A. George ("Skip") Battle
/s/ BENJAMIN M. ROSEN
- ------------------------------ Director April 30, 1999
Benjamin M. Rosen
- ------------------------------ Director , 1999
Daniel J. Nova
/s/ GEOFFREY Y. YANG
- ------------------------------ Director April 30, 1999
Geoffrey Y. Yang
/s/ GARRETT GRUENER
- ------------------------------ Director April 30, 1999
Garrett Gruener
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT 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 11, 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 1999 Equity Incentive Plan.
10.4 Form of Option Agreement for the 1999 Equity Incentive Plan.
10.5 1999 Employee Stock Purchase Plan.
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 Development Company, L.L.C. and the Registrant dated as of January 1, 1999.
10.12+* License Agreement between the Registrant and Compaq Computer Corporation dated as of October 2, 1998.
10.13+ License and Development Agreement between the Registrant and Compaq Computer Corporation dated as of
March 31, 1999.
10.14 Consulting Services Agreement by and between the Registrant and the Roda Development Group dated as of
December 14, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.15 Offer letter by and between the Company and M. Bruce Nakao dated as of April 16, 1999.
10.16 Offer letter by and between the Registrant and Laurence Fishkin dated as of January 11, 1999.
10.17 Offer letter by and between the Registrant and Edward Briscoe III dated as of January 18, 1999.
10.18 Offer letter by and between the Registrant and Frank Vaculin dated as of January 5, 1999.
10.19* Offer letter by and between the Registrant and Robert W. Wrubel dated as of May 22, 1998.
10.20* 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.
10.21 Common Stock Subscription Agreement, by and between the Registrant and certain investors of the
Registrant dated as of June 26, 1998.
10.22 Common Stock Subscription Agreement, by and between the Registrant and certain investors of the
Registrant dated as of August , 1998.
10.23 Series A Preferred Stock Purchase Agreement by and between the Registrant and certain investors of the
Registrant dated as of November 13, 1998.
10.24 Series B Preferred Stock Purchase Agreement by and between the Registrant and certain investors of the
Registrant dated as of February 24, 1999.
10.25+ Asset Purchase Agreement by and between the Registrant and Lumina Decision Systems, Inc. dated as of
April 16, 1999.
10.26* Form of Indemnity Agreement by and between the Registrant and each of its directors and executive
officers.
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.
* To be filed by amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
AJ MERGER CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is AJ Merger Corporation
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Registered Agents.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware ("DGCL").
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is one hundred
million (100,000,000) shares, eighty million (80,000,000) shares of which shall
be Common Stock (the "Common Stock") and twenty million (20,000,000) shares of
which shall be Preferred Stock (the "Preferred Stock").
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in these Restated Articles of Incorporation, to fix or alter
the dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, the liquidation preferences of any wholly unissued series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or any of them; and to increase or decrease the number of shares of any
series subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease
1.
<PAGE>
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
C. Seven million five hundred thousand (7,500,000) of the authorized
shares of Preferred Stock are hereby designated "Series A Preferred Stock" (the
"Series Preferred") and twelve million five hundred thousand (12,500,000) of the
authorized shares of Preferred Stock are hereby designated "Series B Preferred
Stock" ("Series B Preferred"). The Series A Preferred and the Series B
Preferred are collectively referred to herein as the "Series Preferred."
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series Preferred are as follows:
1. DIVIDEND RIGHTS.
a. Holders of Series Preferred, in preference to the holders of
any other stock of the Company ("Junior Stock"), shall be entitled to receive,
when and as declared by the Board of Directors, but only out of funds that are
legally available therefor, cash dividends at the rate of eight percent (8%) of
the "Original Issue Price" per annum on each outstanding share of Series
Preferred (as adjusted for any stock dividends, combinations, splits
recapitalizations and the like with respect to such shares). The Original Issue
Price of the Series A Preferred shall be $1.0315 and the Original Issue Price of
the Series B Preferred shall be $2.1642. Such dividends shall be payable only
when, as and if declared by the Board of Directors and shall be non-cumulative.
b. So long as any shares of Series Preferred shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any other shares of stock
of the Company ("Junior Stock"), nor shall any shares of Junior Stock of the
Company be purchased, redeemed, or otherwise acquired for value by the Company
(except for acquisitions of Common Stock by the Company at the original issuance
price of such shares or at a repurchase price agreed on by the parties at the
issuance date of such shares pursuant to agreements which permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal not in excess of an aggregate
of $1,000,000) unless an additional dividend shall be paid with respect to all
outstanding shares of Series Preferred in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Junior Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock (with respect to which separate
provision has been made in Section 4(f) below) or (ii) the acquisition of shares
of any Junior Stock in exchange for shares of any other Junior Stock. The
holders of the Series Preferred expressly waive their rights, if any, as
described in California Corporations Code Sections 502, 503 and 506 as they
relate to repurchase of shares upon termination of employment.
2. VOTING RIGHTS. Except as otherwise provided herein, in the
Voting Agreement between the Company and the purchasers of Series Preferred or
as required by law, the Series Preferred shall be voted together with the shares
of the Common Stock of the Company as a single class and not as a separate
class, at any and all annual or special meetings of
2.
<PAGE>
shareholders of the Company, and in connection with any and all actions by
written consent, in either case upon the following basis: each holder of Series
Preferred shall be entitled to such number of votes as shall be equal to the
whole number of shares of Common Stock into which such holder's aggregate number
of shares of Series Preferred are convertible (pursuant to Section 4 hereof)
immediately after the close of business on the record date fixed for such
meeting or the effective date of such written consent. Holders of Series
Preferred shall receive the same notice with respect to any such meeting or
written consent as is provided to holders of Common Stock, such notice to be
delivered to holders of Series Preferred at the same time and in the same manner
as such notice is delivered to holders of Common Stock.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any Junior Stock, if the assets available for
distribution on all shares of Common Stock and Series Preferred on an as
converted, fully diluted basis in such liquidation or winding up are less than
or equal in the aggregate to (i) twice the Original Issue Price for the Series A
Preferred multiplied by (ii) the aggregate number of shares of Common Stock and
Series Preferred on an as converted, fully diluted basis (such multiplied value
being referred to herein as the "Liquidation Preference A"), then the holders of
Series A Preferred shall receive an amount per share of Series A Preferred equal
to two times the Original Issue Price for the Series A Preferred plus all
declared and unpaid dividends on such shares of Series A Preferred (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares) for each share of the Series A Preferred held by
them plus up to the amount, if any, available for distribution to the holders of
the Common Stock and the Series Preferred (on an as-if-converted to Common Stock
basis) pursuant to paragraph (f) below, if applicable.
b. If the assets available for distribution on all shares of
Common Stock and Series Preferred on an as converted, fully diluted basis are
more than the Liquidation Preference A, the holders of Series A Preferred shall
be entitled to be paid out of the assets of the Company, the greatest of the
following:
(i) an amount per share of the Series A Preferred equal
to one and one-half times the Original Issue Price for the Series A Preferred
plus all declared and unpaid dividends on such shares of Series A Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) for each share of the Series A Preferred
held by them plus up to the amount, if any, available for distribution to the
holders of the Common Stock and the Series Preferred (on an as-if-converted to
Common Stock basis) pursuant to paragraph (f) below, if applicable, but only
until such time as the holders of the Series A Preferred have received an
aggregate amount per share of Series A Preferred (including such liquidation
preference, dividend and participation) equal to 3.5 times the Original Issue
Price for the Series A Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares); or
3.
<PAGE>
(ii) an amount per share of the Series A Preferred equal
to the Original Issue Price for the Series A Preferred plus all declared and
unpaid dividends on such shares of Series A Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) for each share of the Series A Preferred held by them plus up to
the amount, if any, available for distribution to the holders of the Common
Stock and the Series Preferred (on an as-if-converted to Common Stock basis)
pursuant to paragraph (f) below, if applicable, but only until such time as the
holders of the Series A Preferred have received an aggregate amount per share of
Series A Preferred (including such liquidation preference, dividend and
participation) equal to 5.0 times the Original Issue Price for the Series A
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares); or
(iii) the amount, if any, available for distribution to the
holders of the Common Stock and Series Preferred (on as-if-converted to Common
Stock basis) pursuant to paragraph (f) below.
c. Upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any Junior Stock, if the assets available for
distribution on all shares of Common Stock and Series Preferred on an as
converted, fully diluted basis in such liquidation or winding up are less than
or equal in the aggregate to (i) twice the Original Issue Price for the Series B
Preferred multiplied by (ii) the aggregate number of shares of Common Stock and
Series Preferred on an as converted, fully diluted basis (such multiplied value
being referred to herein as the "Liquidation Preference B"), then the holders of
Series B Preferred shall receive an amount per share of Series B Preferred equal
to two times the Original Issue Price for the Series B Preferred plus all
declared and unpaid dividends on such shares of Series B Preferred (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares) for each share of the Series B Preferred held by
them plus up to the amount, if any, available for distribution to the holders of
the Common Stock and the Series Preferred (on an as-if-converted to Common Stock
basis) pursuant to paragraph (f) below, if applicable.
d. If the assets available for distribution on all shares of
Common Stock and Series Preferred on an as converted, fully diluted basis are
more than the Liquidation Preference B, the holders of Series B Preferred shall
be entitled to be paid out of the assets of the Company, the greatest of the
following:
(i) an amount per share of the Series B Preferred equal to
one and one-half times the Original Issue Price for the Series B Preferred plus
all declared and unpaid dividends on such shares of Series B Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) for each share of the Series B Preferred
held by them plus up the amount, if any, available for distribution to the
holders of the Common Stock and the Series Preferred (on an as-if-converted to
Common Stock basis) pursuant to paragraph (f) below, if applicable, but only
until such time as the holders of the Series B Preferred have received an
aggregate amount per share of Series B Preferred (including such liquidation
preference, dividend and participation) equal to 3.5 times the Original Issue
4.
<PAGE>
Price for the Series B Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares); or
(ii) an amount per share of the Series B Preferred equal to
the Original Issue Price for the Series B Preferred plus all declared and unpaid
dividends on such shares of Series B Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) for each share of the Series B Preferred held by them plus up to
the amount, if any, available for distribution to the holders of the Common
Stock and Series Preferred (on an as-if-converted to Common Stock basis)
pursuant to paragraph (f) below, if applicable, but only until such time as the
holders of the Series B Preferred have received an aggregate amount per share of
Series B Preferred (including such liquidation preference, dividend and
participation) equal to 5.0 times the Original Issue Price for the Series B
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares); or
(iii) the amount, if any, available for distribution to the
holders of the Common Stock and Series Preferred (on as-if-converted to Common
Stock basis) pursuant to paragraph (f) below.
e. If, upon any liquidation, distribution, or winding up of the
Company, whether voluntary or involuntary, the assets of the Company shall be
insufficient to make payment in full to all holders of Series Preferred of the
liquidation preference set forth in paragraphs (a) and (c) above, then such
assets shall be distributed among the holders of Series Preferred at the time
outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled pursuant to paragraphs (a) and (c) above.
f. After the payment of the full liquidation preferences as set
forth in Section 3(a), Section 3(b), Section 3(c) and Section 3(d) above, the
assets of the Company legally available for distribution, if any, shall be
distributed ratably to the holders of any Common Stock and, to the extent
applicable as forth in Section 3(a), Section 3(b), Section 3(c) and Section 3(d)
above, to the holders of the Series Preferred.
g. The following events shall be considered a liquidation under
this Section 3:
(i) any consolidation or merger of the Company with or
into any other corporation or other entity or person, or any other corporate
reorganization, in which the shareholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
(or the surviving corporation, if not the Company) voting power immediately
after such consolidation, merger or reorganization, or any transaction or series
of related transactions to which the Company is a party in which in excess of
fifty percent (50%) of the Company's voting power is transferred to a
corporation, entity or person (an "Acquisition"); and
(ii) a sale or other disposition for value of all or
substantially all of the assets of the Company (an "Asset Transfer").
5.
<PAGE>
h. In any of such events under this Section 3, if the
consideration received by this corporation is other than cash, its value will be
deemed its fair market value as determined in good faith by the Board of
Directors; provided that any securities shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:
(a) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such quotation system over the five (5) day
period ending two (2) days prior to the closing date of the consolidation,
merger, reorganization, Acquisition or Asset Transfer;
(b) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the five (5) day period ending two (2) days prior to the
closing date of the consolidation, merger, reorganization, Acquisition, Asset or
Transfer; and
(c) If there is no active public market, the value
shall be the fair market value thereof, as determined by the Board of Directors
in good faith upon receipt of advice from investment bankers of international
standing.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as determined in good faith by the Board of Directors.
4. CONVERSION RIGHTS.
The holders of the Series Preferred shall have the following rights with
respect to the conversion of the Series Preferred into shares of Common Stock
(the "Conversion Rights"):
a. OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the "Series Preferred Conversion Rate" then in effect for such
series of Series Preferred (determined as provided in Section 4(b)) by the
number of shares of Series Preferred for such series of Series Preferred being
converted.
b. SERIES PREFERRED CONVERSION RATE. The conversion rate in
effect at any time for conversion of any series of the Series Preferred (the
"Series Preferred Conversion Rate" for such series) shall be the quotient
obtained by dividing the Original Issue Price of such series of the Series
Preferred by the "Series Preferred Conversion Price" for such series of Series
Preferred, calculated as provided in Section 4(c).
6.
<PAGE>
c. CONVERSION PRICE. The conversion price for any series of
the Series Preferred shall initially be the Original Issue Price of such series
of the Series Preferred (the "Series Preferred Conversion Price" for such
series). Such initial Series Preferred Conversion Price for each series shall
be adjusted from time to time in accordance with this Section 4. All references
to the Series Preferred Conversion Price for each series herein shall mean the
Series Preferred Conversion Price as so adjusted.
d. MECHANICS OF CONVERSION. Each holder of Series Preferred
who desires to convert the same into shares of Common Stock pursuant to this
Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series
Preferred, and shall give written notice to the Company at such office that such
holder elects to convert the same. Such notice shall state the number of shares
of Series Preferred being converted. Thereupon, the Company shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and
shall promptly pay in cash or, to the extent sufficient funds are not then
legally available therefor, in Common Stock (at the Common Stock's fair market
value determined by the Board of Directors in accordance with Section 3(g)(i) as
of the date of such conversion), any declared and unpaid dividends on the shares
of Series Preferred being converted. Such conversion shall be deemed to have
been made at the close of business on the date of such surrender of the
certificates representing the shares of Series Preferred to be converted, and
the person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company shall at any time or from time to time after the date that the first
share of any series of Series Preferred is issued (the "Original Issue Date")
effect a subdivision of the outstanding Common Stock into a greater number of
shares without a corresponding subdivision of the Preferred Stock, the Series
Preferred Conversion Price in effect immediately before that subdivision shall
be proportionately decreased. Conversely, if the Company shall at any time or
from time to time after the Original Issue Date combine the outstanding shares
of Common Stock into a smaller number of shares without a corresponding
combination of the Preferred Stock, the Series Preferred Conversion Price in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this Section 4(e) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If
the Company at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Junior Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Series Preferred Conversion Price
that is then in effect shall be decreased as of the time of such issuance or, in
the event such record date is fixed, as of the close of business on such record
date, by multiplying the Series Preferred Conversion Price then in effect by a
fraction (i) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date, and (ii) the denominator
7.
<PAGE>
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; PROVIDED, HOWEVER, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Series Preferred Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series Preferred Conversion Price shall be adjusted pursuant to
this Section 4(f) to reflect the actual payment of such dividend or
distribution.
g. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series Preferred is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(g) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4), in any such event each holder
of Series Preferred shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property to which such
holder would have been entitled if immediately prior to such event (or, if
applicable, the record date for the determination of holders of Common Stock
entitled to participate in such event) such holder had converted its shares of
Series Preferred into shares of Common Stock in accordance with the terms
hereof, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
h. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
If at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than an Acquisition or Asset
Transfer as defined in Section 3(g) or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the holders of the Series Preferred shall
thereafter be entitled to receive upon conversion of the Series Preferred the
number of shares of stock or other securities or property to which such holder
would have been entitled if immediately prior to such event (or, if applicable,
the record date for the determination of holders of Common Stock entitled to
participate in such event) such holder had converted its shares of Series
Preferred into shares of Common Stock, subject to adjustment in respect of such
stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of Series Preferred after the capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Series Preferred Conversion Price then in effect and the
number of shares issuable upon conversion of the Series Preferred) shall be
applicable after that event and be as nearly equivalent as practicable.
i. SALE OF SHARES BELOW SERIES PREFERRED CONVERSION PRICE.
(i) If at any time or from time to time after the Original
Issue Date, the Company issues or sells, or is deemed by the express provisions
of this subsection i to have issued or sold, Additional Shares of Common Stock
(as defined in subsection i(iv) below)),
8.
<PAGE>
other than as a dividend or other distribution on any class of stock as provided
in Section 4(f) above, and other than a subdivision or combination of shares of
Common Stock as provided in Section 4(e) above, for an Effective Price (as
defined in subsection i(iv) below) less than the then effective Series Preferred
Conversion Price for any series of Series Preferred, then and in each such case
the then existing Series Preferred Conversion Price for such series shall be
reduced, as of the opening of business on the date of such issue or sale, to a
price determined by multiplying such Series Preferred Conversion Price by a
fraction (i) the numerator of which shall be (A) the number of shares of Common
Stock deemed outstanding (as defined below) immediately prior to such issue or
sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (as defined in subsection i(ii)) by the Company for the
total number of Additional Shares of Common Stock so issued or sold would
purchase at such Series Preferred Conversion Price, and (ii) the denominator of
which shall be the number of shares of Common Stock deemed outstanding (as
defined below) immediately prior to such issue or sale plus the total number of
Additional Shares of Common Stock so issued or sold or deemed to be sold. For
the purposes of the preceding sentence, the number of shares of Common Stock
deemed to be outstanding as of a given date shall be the sum of (A) the number
of shares of Common Stock actually outstanding, (B) the number of shares of
Common Stock into which the then outstanding shares of Series Preferred could be
converted if fully converted on the day immediately preceding the given date,
and (C) the number of shares of Common Stock which could be obtained throug the
exercise or conversion of all other rights, options and convertible securities
outstanding on the day immediately preceding the given date.
(ii) For the purpose of making any adjustment required
under this Section 4(i), the consideration received by the Company for any issue
or sale of securities shall (A) to the extent it consists of property other than
cash, be computed at the fair value of that property as determined in good faith
by the Board of Directors, and (B) if Additional Shares of Common Stock,
Convertible Securities (as defined in subsection i(iii) below) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, be computed as the
portion of the consideration so received that it is conclusively determined by
the Board of Directors to be allocable to such Additional Shares of Common
Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under this
Section 4(i), if the Company issues or sells any (i) stock or other securities
convertible into, Additional Shares of Common Stock (such convertible stock or
securities being herein referred to as "Convertible Securities") or (ii) rights
or options for the purchase of Additional Shares of Common Stock or Convertible
Securities and if the Effective Price of such Additional Shares of Common Stock
is less than the Series Preferred Conversion Price for any series of Series
Preferred, in each case the Company shall be deemed to have issued at the time
of the issuance of such rights or options or Convertible Securities the number
of Additional Shares of Common Stock issuable upon exercise or conversion
thereof and to have received as consideration for the issuance of such shares an
amount equal to the total amount of the consideration, if any, received by the
Company for the issuance of such rights or options or Convertible Securities,
plus, in the case of such rights or options, the amounts of consideration, if
any, payable to the Company upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the amounts of consideration, if any,
payable to the Company (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the conversion thereof; provided
that if in the case of Convertible Securities the amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the amounts of
consideration without reference to such clauses; provided further that if the
amount of consideration payable to the Company
9.
<PAGE>
upon the exercise or conversion of rights, options or Convertible Securities is
reduced over time or on the occurrence or non-occurrence of specified events
other than by reason of antidilution adjustments, the Effective Price shall be
recalculated using the figure to which such amount of consideration is reduced;
PROVIDED further that if the amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased amount of consideration payable to the Company upon the exercise
or conversion of such rights, options or Convertible Securities. No further
adjustment of the Series Preferred Conversion Price, as adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Series Preferred Conversion Price for such series as adjusted
upon the issuance of such rights, options or Convertible Securities shall be
readjusted to the Series Preferred Conversion Price for such series which would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or options
or rights of conversion of such Convertible Securities, and such Additional
Shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such rights or
options, whether or not exercised, plus the consideration received for issuing
or selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities; provided that such
readjustment shall not apply to prior conversions of Sries Preferred.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this Section 4(i), whether or not subsequently reacquired or retired by the
Company other than (A) shares of Common Stock issued upon conversion of the
Series Preferred; (B) shares of Common Stock and/or options, warrants or other
Common Stock purchase rights and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) after the Original Issue
Date to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board; (C) shares of Common Stock
issued pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date; (D) shares of Common Stock issued for
10.
<PAGE>
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination; (E) shares of Common Stock or Preferred Stock
issued pursuant to any equipment leasing arrangement or debt financing from a
bank or similar financial institution in which the equity coverage is 50% or
less of the debt financing amount; and (F) shares of the Company's Common Stock
or Preferred Stock issued at or above the fair market value of such stock (as
determined in good faith by the Board of Directors) in connection with strategic
transactions involving the Company and other entities, including, without
limitation, (i) joint ventures, marketing or licensing arrangements or (ii)
technology transfer or long term supply agreements arrangements; PROVIDED that
such strategic transaction(s) and the issuance of shares therein, has been
approved by the Company's Board of Directors and PROVIDED, FURTHER that such
strategic transaction(s) includes a material commercial component such as a
license, a long term supply agreement or the like which is entered into at the
same time as the issuance of the Common Stock. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 4(i), into the
aggregate consideration received, or deemed to have been received by the Company
for such issue under this Section 4(i), for such Additional Shares of Common
Stock.
j. CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Series Preferred Conversion Price for the number of shares
of Common Stock or other securities issuable upon conversion of the Series
Preferred, if the Series Preferred is then convertible pursuant to this Section
4, the Company, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series Preferred at the
holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (i) the
consideration received or deemed to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (ii) the Series Preferred Conversion Price at the time in effect, (iii)
the number of Additional Shares of Common Stock and (iv) the type and amount, if
any, of other property which at the time would be received upon conversion of
the Series Preferred.
k. NOTICES OF RECORD DATE. In connection with (i) any taking
by the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any Acquisition (as defined in Section
3(g)) or other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 3(g)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall mail a
notice to each holder of Series Preferred at least twenty (20) days prior to the
record date specified therein specifying (A) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or
11.
<PAGE>
winding up is expected to become effective, and (C) the date, if any, that is to
be fixed as to when the holders of record of Junior Stock shall be entitled to
exchange their shares of Junior Stock for securities or other property
deliverable upon such Acquisition, reorganization, reclassification, transfer,
consolidation, merger, Asset Transfer, dissolution, liquidation or winding up.
The foregoing provisions are intended, among other things, to ensure that
holders of Series Preferred are provided a reasonable opportunity to convert
their shares of Series Preferred into Common Stock so that such holders are able
to participate fully, as holders of Common Stock, in the transactions and events
referred to in the preceding sentence of this clause (j).
l. AUTOMATIC CONVERSION.
(i) Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Series
Preferred Conversion Price for each series, (A) at any time upon the affirmative
election of the holders of at least a majority of the outstanding shares of each
series of Series Preferred, voting as separate classes, or (B) immediately upon
the closing of a firmly underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock for the account of the Company in which (i)
the per share price is at least $3.25, if such event occurs within twelve (12)
months after the Original Issue Date of the Series B Preferred, or $4.35
thereafter (as adjusted for stock splits, dividends, recapitalizations and the
like), and (ii) the gross cash proceeds to the Company (after deduction of
underwriting discounts, commissions and fees) are at least $10,000,000. Upon
such automatic conversion, any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 4(d).
(ii) Upon the occurrence of the event specified in
paragraph (i) above, the outstanding shares of Series Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; PROVIDED, HOWEVER, that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series Preferred are either delivered to the Company or its transfer agent as
provided below, or the holder notifies the Company or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series Preferred, the holders of Series Preferred shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for the Series Preferred. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series Preferred surrendered were convertible on the date on which such
automatic conversion occurred, and any declared and unpaid dividends shall be
paid in accordance with the provisions of Section 4(d).
12.
<PAGE>
m. FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Company shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board
of Directors) on the date of conversion.
n. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series Preferred, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
o. NOTICES. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Company.
p. PAYMENT OF TAXES. The Company will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series Preferred
so converted were registered.
5. REDEMPTION.
a. The Company shall be obligated to redeem the Series
Preferred as follows:
(i) The holders of at least a majority of the then
outstanding shares of Series Preferred, voting together as a separate class, may
require the Company, to the extent it may lawfully do so, to redeem the Series
Preferred in three (3) annual installments beginning on the fifth anniversary of
the Original Issue Date for the Series B Preferred, and ending on the date two
(2) years from such first redemption date (each a "Redemption Date"). The
Company shall effect such redemptions on the applicable Redemption Date by
paying in
13.
<PAGE>
cash in exchange for the shares of Series Preferred to be redeemed a sum equal
to the Original Issue Price per share of Series Preferred (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) plus eight percent (8%) per annum of the Original Issue
Price per share of Series Preferred calculated from the Original Issue Date for
the Series B Preferred through the Redemption Date plus declared and unpaid
dividends with respect to such shares. The total amount to be paid for the
Series Preferred is hereinafter referred to as the "Redemption Price." The per
share number of shares of Series Preferred that the Company shall be required to
redeem on any one Redemption Date shall be equal to the amount determined by
dividing (A) the aggregate number of shares of Series Preferred outstanding
immediately prior to the Redemption Date by (B) the number of remaining
Redemption Dates (including the Redemption Date to which such calculation
applies). Shares subject to redemption pursuant to this Section 5(a) shall be
redeemed from each holder of Series Preferred on a pro rata basis.
(ii) At least thirty (30) days but no more than sixty (60)
days prior to the first Redemption Date, the Company shall send a notice (a
"Redemption Notice") to all holders of Series Preferred to be redeemed setting
forth (A) the Redemption Price for the shares to be redeemed; and (B) the place
at which such holders may obtain payment of the Redemption Price upon surrender
of their share certificates. If the Company does not have sufficient funds
legally available to redeem all shares to be redeemed at the Redemption Date,
then it shall redeem such shares pro rata (based on the portion of the aggregate
Redemption Price payable to them) to the extent possible and shall redeem the
remaining shares to be redeemed as soon as sufficient funds are legally
available.
b. On or prior to the Redemption Date, the Company shall
deposit the Redemption Price of all shares to be redeemed with a bank or trust
company having aggregate capital and surplus in excess of $100,000,000, as a
trust fund, with irrevocable instructions and authority to the bank or trust
company to pay, on and after such Redemption Date, the Redemption Price of the
shares to their respective holders upon the surrender of their share
certificates. Any moneys deposited by the Company pursuant to this Section 5(b)
for the redemption of shares thereafter converted into shares of Common Stock
pursuant to Section 4 hereof no later than the fifth (5th) day preceding the
Redemption Date shall be returned to the Company forthwith upon such conversion.
The balance of any funds deposited by the Company pursuant to this Section 5(b)
remaining unclaimed at the expiration of one (1) year following such Redemption
Date shall be returned to the Company promptly upon its written request.
c. On or after such Redemption Date, each holder of shares of
Series Preferred to be redeemed shall surrender such holder's certificates
representing such shares to the Company in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares
represented by such certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after such Redemption Date, unless
there shall have been a default in payment of the Redemption Price or the
Company is unable to pay the Redemption Price due to not having sufficient
legally available funds, all rights of the holders of such shares as holders of
Series Preferred (except the right to receive the Redemption Price without
interest upon surrender of their certificates), shall cease and terminate with
respect to such shares; provided that in the event that shares of Series
Preferred are not redeemed due to a default in payment by the Company or because
the Company does not have sufficient legally available
14.
<PAGE>
funds, such shares of Series Preferred shall remain outstanding and shall be
entitled to all of the rights and preferences provided herein.
d. The Conversion Rights (as defined in Section 4) for such
Series Preferred shall terminate as to the shares designated for redemption at
the close of business on the fifth (5th) day preceding the Redemption Date,
unless default is made in payment of the Redemption Price.
6. NO REISSUANCE OF SERIES PREFERRED.
No share or shares of Series Preferred acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be reissued; and
in addition, the Articles of Incorporation shall be appropriately amended to
effect the corresponding reduction in the Company's authorized stock.
7. PREEMPTIVE RIGHTS.
a. SUBSEQUENT OFFERINGS. Pursuant to written agreement, the
Company has granted to each holder of Series Preferred a right of first refusal
to purchase such holder's PRO RATA share of all Equity Securities, as defined
below, that the Company may, from time to time, propose to sell and issue, other
than the Equity Securities excluded by Section 7(f) below. Each holder's PRO
RATA share is equal to the ratio of (a) the number of shares of the Company's
Common Stock (including all shares of Common Stock issued or issuable upon
conversion of the Shares) which such holder is deemed to be a holder immediately
prior to the issuance of such Equity Securities to (b) the total number of
shares of the Company's outstanding Common Stock (including all shares of Common
Stock issued or issuable upon conversion of the Series Preferred or upon the
exercise of any outstanding warrants or options) immediately prior to the
issuance of the Equity Securities. The term "Equity Securities" shall mean (i)
any Common Stock, Preferred Stock or other security of the Company, (ii) any
security convertible, with or without consideration, into any Common Stock,
Preferred Stock or other security (including any option to purchase such a
convertible security), (iii) any security carrying any warrant or right to
subscribe to or purchase any Common Stock, Preferred Stock or other security or
(iv) any such warrant or right.
b. EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each holder of Series Preferred written notice
of its intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each holder of
Series Preferred shall have fifteen (15) days from the giving of such notice to
agree to purchase its PRO RATA share of the Equity Securities for the price and
upon the terms and conditions specified in the notice by giving written notice
to the Company and stating therein the quantity of Equity Securities to be
purchased. Notwithstanding the foregoing, the Company shall not be required to
offer or sell such Equity Securities to any holder of Series
15.
<PAGE>
Preferred who would cause the Company to be in violation of applicable federal
securities laws by virtue of such offer or sale.
c. ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the
holders of Series Preferred fail to exercise in full the rights of first
refusal, the Company shall have ninety (90) days thereafter to sell the Equity
Securities in respect of which the holders' rights were not exercised, at a
price and upon terms and conditions no more favorable to the purchasers thereof
than specified in the Company's notice to the holders of Series Preferred
pursuant to Section 7(b) above. If the Company has not sold such Equity
Securities within ninety (90) days of the notice provided pursuant to Section
7(b) above, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the holders of Series
Preferred in the manner provided above.
d. TERMINATION AND WAIVER OF RIGHTS OF FIRST REFUSAL. The
rights of first refusal shall terminate upon the earlier of (i) effective date
of the registration statement pertaining to the Company's first firm commitment
underwritten public offering, (ii) an Asset Transfer or (iii) an Acquisition.
The rights of first refusal may be amended, or any provision waived with the
written consent of the Series Preferred holding a majority of the shares of
registrable securities held by all holders of Series Preferred.
e. TRANSFER OF RIGHTS OF FIRST REFUSAL. Subject to certain
restrictions, the rights of first refusal of each holder of Series Preferred may
be transferred to the same parties.
f. EXCLUDED SECURITIES. The rights of first refusal shall have
no application to any of the following Equity Securities:
(i) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary in consideration for
services, pursuant to stock purchase or stock option plans or other arrangements
that are approved by the Company's Board of Directors;
(ii) stock issued pursuant to any rights or agreements
outstanding as of, options and warrants outstanding; and stock issued pursuant
to any such rights or agreements; PROVIDED that the rights of first refusal
applied with respect to the initial sale or grant by the Company of such rights
or agreements;
(iii) any Equity Securities issued for consideration other
than cash pursuant to Asset Transfer or Acquisition;
(iv) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(v) shares of Common Stock issued upon conversion of the
Series Preferred;
16.
<PAGE>
(vi) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing from a bank or similar financial
institution in which the equity coverage is 50% or less of the debt financing
amount;
(vii) any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act; and
(viii)shares of the Company's Common Stock or Preferred
Stock issued at or above the fair market value of such stock (as determined in
good faith by the Company's Board of Directors) in connection with strategic
transactions involving the Company and other entities, including, without
limitation, (i) joint ventures, marketing or licensing arrangements or (ii)
technology transfer or long term supply agreements arrangements; PROVIDED that
such strategic transaction(s) and the issuance of shares therein, has been
approved by the Company's Board of Directors and PROVIDED, FURTHER that such
strategic transaction(s) includes a material commercial component such as a
license, a long term supply agreement or the like which is entered into at the
same time as the issuance of the Equity Securities.
e. Any repeal or modification of this Article shall only be prospective
and shall not effect the rights under this Article in effect at the time of the
alleged occurrence of any action or omission to act giving rise to liability.
V.
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
B. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the stockholders entitled to
vote. The Board of Directors shall also have the power to adopt, amend or
repeal Bylaws.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its stockholders through bylaw provisions or through agreements with the
agents, or through stockholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times that the corporation is subject to Section 2115(b) of the CGCL, to
the limits on such excess indemnification set forth in Section 204 of the CGCL.
17.
<PAGE>
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this reservation.
18.
<PAGE>
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
Michael Weiner Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day of
__________, 1999 by the undersigned who affirms that the statements made herein
are true and correct.
---------------------------------
Michael Weiner
Sole Incorporator
19.
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of ___________, by and between ASK JEEVES, INC., a
California corporation ("the Company"), and AJ MERGER CORPORATION, a Delaware
corporation ("Merger Sub"). The Company and Merger Sub are sometimes referred
to as the "Constituent Corporations."
The authorized capital stock of the Company consists of ___________ shares
of Common Stock, and ____________ shares of Preferred Stock. The authorized
capital stock of Merger Sub, upon effectuation of the transactions set forth in
this Merger Agreement, will consist of _____________ shares of Common Stock,
$.001 par value, and _______________ shares of Preferred Stock, $.001 par value.
The directors of the Constituent Corporations deem it advisable and to the
advantage of the Constituent Corporations that the Company merge into Merger Sub
upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that the Company shall
merge into Merger Sub on the following terms, conditions and other provisions:
1. TERMS AND CONDITIONS.
1.1 MERGER. The Company shall be merged with and into Merger Sub (the
"Merger"), and Merger Sub shall be the surviving corporation (the "Surviving
Corporation") effective upon the date that this Merger Agreement is filed with
the Secretary of State of Delaware (the "Effective Date").
1.2 NAME CHANGE. On the Effective Date, the name of Merger Sub shall
be Ask Jeeves, Inc.
1.3 SUCCESSION. On the Effective Date, Merger Sub shall continue its
corporate existence under the laws of the State of Delaware, and the separate
existence and corporate organization of the Company, except insofar as it may be
continued by operation of law, shall be terminated and cease.
1.4 TRANSFER OF ASSETS AND LIABILITIES. On the Effective Date, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and all
and singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, of each of
the Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger;
1.
<PAGE>
provided, however, that the liabilities of the Constituent Corporations and of
their shareholders, directors and officers shall not be affected and all rights
of creditors and all liens upon any property of either of the Constituent
Corporations shall be preserved unimpaired, and any claim existing or action or
proceeding pending by or against either of the Constituent Corporations may be
prosecuted to judgment as if the Merger had not taken place except as they may
be modified with the consent of such creditors and all debts, liabilities and
duties of or upon each of the Constituent Corporations shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it.
1.5 COMMON STOCK OF THE COMPANY AND MERGER SUB. On the Effective Date,
by virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, each share of Common Stock of
the Company issued and outstanding immediately prior thereto shall be converted
into one (1) fully paid and nonassessable share of the Common Stock of Merger
Sub and each share of Common Stock of Merger Sub issued and outstanding
immediately prior thereto shall be cancelled and returned to the status of
authorized but unissued shares.
1.6 PREFERRED STOCK OF THE COMPANY AND MERGER SUB. On the Effective
Date, by virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, each share of Series A Preferred
Stock of the Company issued and outstanding immediately prior thereto shall be
converted into one (1) fully paid and nonassessable share of Series A Preferred
Stock of Merger Sub and each share of Series B Preferred Stock of the Company
issued and outstanding immediately prior thereto shall be converted into one (1)
fully paid and nonassessable share of Series B Preferred Stock of Merger Sub.
1.7 STOCK CERTIFICATES. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock or of the Preferred Stock of the Company shall be deemed for all
purposes to evidence ownership of and to represent the shares of Merger Sub into
which the shares of the Company represented by such certificates have been
converted as herein provided and shall be so registered on the books and records
of the Surviving Corporation or its transfer agents. The registered owner of
any such out-standing stock certificate shall, until such certificate shall have
been surrendered for transfer or conversion or otherwise accounted for to the
Surviving Corporation or its transfer agent, have and be entitled to exercise
any voting and other rights with respect to and to receive any dividend and
other distributions upon the shares of Merger Sub evidenced by such outstanding
certificate as above provided.
1.8 OPTIONS. On the Effective Date, the Surviving Corporation will
assume and continue the Company's Amended and Restated 1996 Equity Incentive
Plan, 1999 Equity Incentive Plan, and 1999 Employee Stock Purchase Plan and
the outstanding and unexercised portions of all options to purchase Common
Stock of the Company, including without limitation all options outstanding
under such stock plans and any other outstanding options, shall be converted
into options of Merger Sub, such that an option for one (1) share of the
Company shall be converted into an option for one (1) share of Merger Sub,
with no change in the exercise price of the Merger Sub option. No other
changes in the terms and conditions of such options will occur. Effective on
the Effective Date, Merger Sub hereby assumes the outstanding and unexercised
portions of such options and the obligations of the Company with respect
thereto.
2.
<PAGE>
1.9 WARRANTS. On the Effective Date, the Surviving Corporation will
assume and continue warrants of the Company, and the outstanding and unexercised
portions of all warrants shall be converted into warrants of Merger Sub, such
that a warrant for one (1) share of the Company shall be converted into a
warrant for one (1) share of Merger Sub, with no change in the exercise price of
the Merger Sub warrant. No other changes in the terms and conditions of such
warrants will occur. Effective on the Effective Date, Merger Sub hereby assumes
the outstanding and unexercised portions of such warrants and the obligations of
the Company with respect thereto.
1.10 EMPLOYEE BENEFIT PLANS. On the Effective Date, the Surviving
Corporation shall assume all obligations of the Company under any and all
employee benefit plans in effect as of such date. On the Effective Date, the
Surviving Corporation shall adopt and continue in effect all such employee
benefit plans upon the same terms and conditions as were in effect immediately
prior to the Merger and shall reserve that number of shares of Merger Sub Common
Stock with respect to each such employee benefit plan as is proportional to the
number of shares of the Company Common Stock (if any) so reserved on the
Effective Date.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.
2.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Merger Sub in effect on the Effective Date shall
continue to be the Certificate of Incorporation and Bylaws of the Surviving
Corporation, except that Article I of the Certificate of Incorporation and
Bylaws of the Surviving Corporation shall, effective upon the filing of this
Merger Agreement with the Secretary of State of the State of Delaware, be
amended to read in its entirety as follows: "The name of this corporation is
Ask Jeeves, Inc."
2.2 DIRECTORS. The directors of the Company immediately preceding the
Effective Date shall become the directors of the Surviving Corporation on and
after the Effective Date to serve until the expiration of their terms and until
their successors are elected and qualified.
2.3 OFFICERS. The officers of the Company immediately preceding the
Effective Date shall become the officers of the Surviving Corporation on and
after the Effective Date to serve at the pleasure of its Board of Directors.
3. MISCELLANEOUS.
3.1 FURTHER ASSURANCES. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of the Company such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other action,
as shall be appropriate or necessary in order to vest or perfect in or to
conform of record or otherwise, in the Surviving Corporation the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of the Company and otherwise to
carry out the purposes of this Merger Agreement, and the officers and directors
of the Surviving Corporation are fully authorized in the name and on behalf of
the Company or otherwise to take any and all such action and to execute and
deliver any and all such deeds and other instruments.
3.2 AMENDMENT. At any time before or after approval by the
shareholders of the Company, this Merger Agreement may be amended in any manner
(except that, after the
3.
<PAGE>
approval of the Merger Agreement by the shareholders of the Company, the
principal terms may not be amended without the further approval of the
shareholders of the Company) as may be determined in the judgment of the
respective Board of Directors of Merger Sub and the Company to be necessary,
desirable, or expedient in order to clarify the intention of the parties hereto
or to effect or facilitate the purpose and intent of this Merger Agreement.
3.3 CONDITIONS TO MERGER. The obligations of the Constituent
Corporations to effect the transactions contemplated hereby is subject to
satisfaction of the following conditions (any or all of which may be waived by
either of the Constituent Corporations in its sole discretion to the extent
permitted by law):
(a) the Merger shall have been approved by the shareholders of the
Company in accordance with applicable provisions of the General Corporation Law
of the State of California; and
(b) the Company, as sole stockholder of Merger Sub, shall have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware; and
(c) any and all consents, permits, authorizations, approvals, and
orders deemed in the sole discretion of the Company to be material to
consummation of the Merger shall have been obtained.
3.4 ABANDONMENT OR DEFERRAL. At any time before the Effective Date,
this Merger Agreement may be terminated and the Merger may be abandoned by the
Board of Directors of either the Company or Merger Sub or both, notwithstanding
the approval of this Merger Agreement by the shareholders of the Company or
Merger Sub, or the consummation of the Merger may be deferred for a reasonable
period of time if, in the opinion of the Boards of Directors of the Company and
Merger Sub, such action would be in the best interest of such corporations. In
the event of termination of this Merger Agreement, this Merger Agreement shall
become void and of no effect and there shall be no liability on the part of
either Constituent Corporation or its Board of Directors or shareholders with
respect thereto, except that the Company shall pay all expenses incurred in
connection with the Merger or in respect of this Merger Agreement or relating
thereto.
3.5 COUNTERPARTS. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.
4.
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by the Board of Directors of the Company and Merger Sub, is hereby executed on
behalf of each said corporation and attested by their respective officers
thereunto duly authorized.
ASK JEEVES, INC.,
a California corporation
By:
----------------------------------------------
Robert Wrubel
President and Chief Executive Officer
ATTEST:
By:
----------------------------------------------
Amy Slater
Secretary
MERGER SUB,
a Delaware corporation
By:
----------------------------------------------
Robert Wrubel
President and Chief Executive Officer
ATTEST:
By:
----------------------------------------------
Amy Slater
Secretary
5.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ASK JEEVES, INC.
ASK JEEVES, INC., a corporation organized and existing under the laws of
the state of Delaware (the "Corporation") hereby certifies that:
1. The name of the Corporation is Ask Jeeves, Inc. The Corporation was
originally incorporated under the name AJ Merger Corporation.
2. The date of filing of the Corporation's original Certificate of
Incorporation was ____________.
3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the Corporation.
4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.
5. The Amended and Restated Certificate of Incorporation so adopted reads
in full as set forth in Exhibit A attached hereto and is hereby incorporated by
reference.
IN WITNESS WHEREOF, the undersigned has signed this certificate this
_________, 1999 and hereby affirms and acknowledges under penalty of perjury
that the filing of this Amended and Restated Certificate of Incorporation is the
act and deed of Ask Jeeves, Inc.
ASK JEEVES, INC.
By
--------------------------------------
Robert Wrubel
President and Chief Executive Officer
ATTEST:
- -----------------------
Amy Slater
Secretary
1.
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
1.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ASK JEEVES, INC.
I.
The name of this corporation is Ask Jeeves, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Registered Agents.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is one hundred
fifty-five million (155,000,000) shares. One hundred fifty million
(150,000,000) shares shall be Common Stock, each having a par value of
one-tenth of one cent ($.001). five million (5,000,000) shares shall be
Preferred Stock, each having a par value of one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
1.
<PAGE>
V.
A. For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
1. BOARD OF DIRECTORS. The management of the business and the
conduct of the affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed exclusively by one or more resolutions adopted by the
Board of Directors.
2. CLASSIFIED BOARD.
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the Initial Public Offering, the
term of office of the Class III directors shall expire and Class III directors
shall be elected for a full term of three years. At each succeeding annual
meeting of stockholders, directors shall be elected for a full term of three
years to succeed the directors of the class whose terms expire at such annual
meeting. During such time or times that the corporation is subject to Section
2115(b) of the California General Corporation Law ("CGCL"), this Section A.2.a
of this Article V shall become effective and be applicable only when the
corporation is a "listed" corporation within the meaning of Section 301.5 of the
CGCL.
b. In the event that the corporation is subject to Section
2115(b) of the CGCL AND is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL, Section A. 2. a. of this Article V
shall not apply and all directors shall be shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL AND is not a
"listed" corporation or ceases to be a "listed" corporation under Section 301.5
of the CGCL. During this time, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the
2.
<PAGE>
number of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
d. Notwithstanding the foregoing provisions of this section,
each director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. REMOVAL OF DIRECTORS.
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
a. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3. a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.
4. BOARD VACANCIES.
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
3.
<PAGE>
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B. BYLAWS.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
4.
<PAGE>
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
Notwithstanding any other provisions of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
or series of the Voting Stock required by law, this Certificate of Incorporation
or any Preferred Stock Designation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock, voting together as a single
class, shall be required to alter, amend or repeal Articles V, VI, and VI.
5.
<PAGE>
BYLAWS
OF
ASK JEEVES, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1. Registered Office. . . . . . . . . . . . . . . . .1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . .1
ARTICLE II CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . .1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . .1
ARTICLE III STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . .1
Section 4. Place Of Meetings. . . . . . . . . . . . . . . . .1
Section 5. Annual Meetings. . . . . . . . . . . . . . . . . .1
Section 6. Special Meetings . . . . . . . . . . . . . . . . .3
Section 7. Notice Of Meetings . . . . . . . . . . . . . . . .4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . .5
Section 9. Adjournment And Notice Of Adjourned Meetings . . .5
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . .5
Section 11. Joint Owners Of Stock. . . . . . . . . . . . . . .6
Section 12. List Of Stockholders . . . . . . . . . . . . . . .6
Section 13. Action Without Meeting . . . . . . . . . . . . . .6
Section 14. Organization . . . . . . . . . . . . . . . . . . .7
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 15. Number And Term Of Office. . . . . . . . . . . . .8
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . .8
Section 17. Classes of Directors . . . . . . . . . . . . . . .8
Section 18. Vacancies. . . . . . . . . . . . . . . . . . . . .9
Section 19. Resignation. . . . . . . . . . . . . . . . . . . 10
Section 20. Removal. . . . . . . . . . . . . . . . . . . . . 10
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . 10
Section 22. Quorum And Voting. . . . . . . . . . . . . . . . 11
Section 23. Action Without Meeting . . . . . . . . . . . . . 11
Section 24. Fees And Compensation. . . . . . . . . . . . . . 12
Section 25. Committees . . . . . . . . . . . . . . . . . . . 12
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C> <C>
Section 26. Organization . . . . . . . . . . . . . . . . . . 13
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 27. Officers Designated. . . . . . . . . . . . . . . 13
Section 28. Tenure And Duties Of Officers. . . . . . . . . . 14
Section 29. Delegation Of Authority. . . . . . . . . . . . . 15
Section 30. Resignations . . . . . . . . . . . . . . . . . . 15
Section 31. Removal. . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION. . . . . . . . . . . . . . . . . . . 15
Section 32. Execution Of Corporate Instruments . . . . . . . 15
Section 33. Voting Of Securities Owned By The Corporation. . 16
ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . 16
Section 34. Form And Execution Of Certificates . . . . . . . 16
Section 35. Lost Certificates. . . . . . . . . . . . . . . . 16
Section 36. Transfers. . . . . . . . . . . . . . . . . . . . 17
Section 37. Fixing Record Dates. . . . . . . . . . . . . . . 17
Section 38. Registered Stockholders. . . . . . . . . . . . . 18
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . 18
Section 39. Execution Of Other Securities. . . . . . . . . . 18
ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 40. Declaration Of Dividends . . . . . . . . . . . . 19
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . 19
ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 42. Fiscal Year. . . . . . . . . . . . . . . . . . . 19
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 19
Section 43. Indemnification Of Directors, Executive
Officers, Other Officers, Employees And Other Agents. . . . . 19
ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 44. Notices. . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XIII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 24
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C> <C>
Section 45. Amendments . . . . . . . . . . . . . . . . . . . 24
ARTICLE XIV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . 24
Section 46. Loans To Officers. . . . . . . . . . . . . . . . 24
</TABLE>
iii.
<PAGE>
BYLAWS
OF
ASK JEEVES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other
1.
<PAGE>
business to be properly brought before an annual meeting by a stockholder
pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation,
(ii) such other business must be a proper matter for stockholder action under
the General Corporation Law of Delaware, (iii) if the stockholder, or the
beneficial owner on whose behalf any such proposal or nomination is made, has
provided the corporation with a Solicitation Notice (as defined in this Section
5(b)), such stockholder or beneficial owner must, in the case of a proposal,
have delivered a proxy statement and form of proxy to holders of at least the
percentage of the corporation's voting shares required under applicable law to
carry any such proposal, or, in the case of a nomination or nominations, have
delivered a proxy statement and form of proxy to holders of a percentage of the
corporation's voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed to
be nominated by such stockholder, and must, in either case, have included in
such materials the Solicitation Notice, and (iv) if no Solicitation Notice
relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must not
have solicited a number of proxies sufficient to have required the delivery of
such a Solicitation Notice under this Section 5. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the ninetieth (90th) day
nor earlier than the close of business on the one hundred twentieth (120th) day
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced more
than thirty (30) days prior to or delayed by more than thirty (30) days after
the anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the one hundred twentieth (120th) day prior to such annual meeting
and not later than the close of business on the later of the ninetieth (90th)
day prior to such annual meeting or the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth: (A) as to each person whom
the stockholder proposed to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (B) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (C) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number of
shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, and (iii) whether either such stockholder
or beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of the proposal, at least the percentage of the
corporation's voting shares required under applicable law to carry the proposal
or, in the case of a nomination or nominations, a sufficient
2.
<PAGE>
number of holders of the corporation's voting shares to elect such nominee or
nominees (an affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than fifty percent (50%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
At any time or times that the corporation is subject to Section 2115(b) of the
California
3.
<PAGE>
General Corporation Law ("CGCL"), stockholders holding five percent (5%) or more
of the outstanding shares shall have the right to call a special meeting of
stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the
event the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in
4.
<PAGE>
person or by proxy, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Any stockholder so waiving notice of such meeting shall be bound by
the proceedings of any such meeting in all respects as if due notice thereof had
been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, in all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders. Except as otherwise provided by statute,
the Certificate of Incorporation or these Bylaws, directors shall be elected by
a plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast by the holders of shares ofsuch
class or classes or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
5.
<PAGE>
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation
6.
<PAGE>
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the Delaware General Corporation Law if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been given in
accordance with Section 228 of the Delaware General Corporation Law.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
7.
<PAGE>
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the Initial Public Offering and during such time or times that the
corporation is not subject to Section 2115(b) of the CGCL, the directors shall
be divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following the closing of the Initial Public
Offering (assuming the corporation is not subject to Section 2115(b) of the
CGCL), the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the second annual
meeting of stockholders following the Initial Public Offering (assuming the
corporation is not subject to Section 2115(b) of the CGCL), the term of office
of the Class II directors shall expire and Class II directors shall be elected
for a full term of three years. At the third annual meeting of stockholders
following the Initial Public Offering (assuming the corporation is not subject
to Section 2115(b) of the CGCL), the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders (assuming the
corporation is not subject to Section 2115(b) of the CGCL), directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
(b) In the event that the corporation is subject to Section 2115(b)
of the CGCL and is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL, Section A. 2. a. of this Article V
shall not apply and all directors shall be shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.
(c) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL and is not a
"listed" corporation or ceases to be a "listed" corporation under Section 301.5
of the CGCL. During this time, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes
8.
<PAGE>
to which such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
(d) Notwithstanding the foregoing provisions of this section, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of Incorporation,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Bylaw in the case of the death,
removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law.
(c) At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in
office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent (5%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or
9.
<PAGE>
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor. (CGCL Section 305(c).)
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
(b) Following any date on which the corporation is no longer subject
to Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section 20(a) above shall no longer apply and removal shall be as provided in
Section 141(k) of the Delaware General Corporation Law.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of
10.
<PAGE>
Directors and publicized among all directors. No formal notice shall be
required for regular meetings of the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the
11.
<PAGE>
directors present, unless a different vote be required by law, the Certificate
of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any
12.
<PAGE>
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may
13.
<PAGE>
assign such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation
at any one time unless specifically prohibited therefrom by law. The salaries
and other compensation of the officers of the corporation shall be fixed by or
in the manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER. the chief executive officer of
the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and officers of
the corporation. The Chief Executive Officer shall preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present.
(d) DUTIES OF PRESIDENT. Unless some other officer has been elected
Chief Executive Officer of the corporation, the President shall be the chief
executive officer of the corporation and shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and officers of the corporation. The President shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers, as the Board of Directors shall designate from time
to time.
(e) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(f) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other
14.
<PAGE>
duties and have such other powers, as the Board of Directors shall designate
from time to time. The President may direct any Assistant Secretary to assume
and perform the duties of the Secretary in the absence or disability of the
Secretary, and each Assistant Secretary shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the Chief Executive Officer. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The Chief Executive Officer may direct the
Treasurer or any Assistant Treasurer, or the Controller or any Assistant
Controller to assume and perform the duties of the Chief Financial Officer in
the absence or disability of the Chief Financial Officer, and each Treasurer and
Assistant Treasurer and each Controller and Assistant Controller shall perform
other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the Chief
Executive Officer shall designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other
15.
<PAGE>
person or persons, to execute on behalf of the corporation any corporate
instrument or document, or to sign on behalf of the corporation the corporate
name without limitation, or to enter into contracts on behalf of the
corporation, except where otherwise provided by law or these Bylaws, and such
execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in
full or in summary, all of the powers, designations, preferences, and rights,
and the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the
16.
<PAGE>
corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative participating, optional or
othe special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Delaware General Corporation Law.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
17.
<PAGE>
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant
18.
<PAGE>
Treasurer; PROVIDED, HOWEVER, that where any such bond, debenture or other
corporate security shall be authenticated by the manual signature, or where
permissible facsimile signature, of a trustee under an indenture pursuant to
which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
19.
<PAGE>
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify
its directors and executive officers (for the purposes of this Article XI,
"executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law or any other applicable law; PROVIDED, HOWEVER, that the
corporation may modify the extent of such indemnification by individual
contracts with its directors and executive officers; and, PROVIDED, FURTHER,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law or any other applicable law.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination
20.
<PAGE>
is made demonstrate clearly and convincingly that such person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to the
best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law or any other applicable law for the corporation
to indemnify the claimant for the amount claimed. In connection with any claim
by an executive officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such executive officer is or was a director of the corporation)
for advances, the corporation shall be entitled to raise a defense as to any
such action clear and convincing evidence that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law or any
other applicable law, nor an actual determination by the corporation (including
its Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct. In any suit brought by a director or executive officer to
enforce a right to indemnifiation or to an advancement of expenses hereunder,
the burden of proving that the director or executive officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
21.
<PAGE>
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law or any other applicable law, the corporation, upon
approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full to the full extent under any other applicable
law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
22.
<PAGE>
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
23.
<PAGE>
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least
24.
<PAGE>
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock of the corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
25.
<PAGE>
ASK JEEVES, INC.
1996 EQUITY INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. SHARES SUBJECT TO THE PLAN.. . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Number of Shares Available. . . . . . . . . . . . . . . . . . . . 1
2.2 Adjustment of Shares. . . . . . . . . . . . . . . . . . . . . . . 1
3. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. ADMINISTRATION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Committee Authority.. . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Committee Discretion. . . . . . . . . . . . . . . . . . . . . . . 2
4.3 Exchange Act Requirements.. . . . . . . . . . . . . . . . . . . . 2
5. OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.1 Form of Option Grant. . . . . . . . . . . . . . . . . . . . . . . 3
5.2 Date of Grant.. . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.3 Exercise Period.. . . . . . . . . . . . . . . . . . . . . . . . . 3
5.4 Exercise Price. . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.5 Method of Exercise. . . . . . . . . . . . . . . . . . . . . . . . 3
5.6 Termination.. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.7 Limitations on Exercise.. . . . . . . . . . . . . . . . . . . . . 4
5.8 Limitations on ISOs.. . . . . . . . . . . . . . . . . . . . . . . 4
5.9 Modification, Extension or Renewal. . . . . . . . . . . . . . . . 4
5.10 No Disqualification.. . . . . . . . . . . . . . . . . . . . . . . 5
6. RESTRICTED STOCK.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1 Form of Restricted Stock Award. . . . . . . . . . . . . . . . . . 5
6.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.3 Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. STOCK BONUSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.1 Awards of Stock Bonuses.. . . . . . . . . . . . . . . . . . . . . 6
7.2 Code Section 162(m).. . . . . . . . . . . . . . . . . . . . . . . 6
7.3 Terms of Stock Bonuses. . . . . . . . . . . . . . . . . . . . . . 6
7.4 Form of Payment.. . . . . . . . . . . . . . . . . . . . . . . . . 7
7.5 Termination During Performance Period.. . . . . . . . . . . . . . 7
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
8. PAYMENT FOR SHARE PURCHASES. . . . . . . . . . . . . . . . . . . . . . . 7
8.1 Payment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.2 Loan Guaranties.. . . . . . . . . . . . . . . . . . . . . . . . . 8
9. WITHHOLDING TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.1 Withholding Generally.. . . . . . . . . . . . . . . . . . . . . . 8
9.2 Stock Withholding.. . . . . . . . . . . . . . . . . . . . . . . . 8
10. PRIVILEGES OF STOCK OWNERSHIP. . . . . . . . . . . . . . . . . . . . . . 9
10.1 Voting and Dividends. . . . . . . . . . . . . . . . . . . . . . . 9
10.2 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 9
11. TRANSFERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
12. RESTRICTIONS ON SHARES.. . . . . . . . . . . . . . . . . . . . . . . . . 9
13. CERTIFICATES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14. ESCROW; PLEDGE OF SHARES.. . . . . . . . . . . . . . . . . . . . . . . . 9
15. EXCHANGE AND BUYOUT OF AWARDS. . . . . . . . . . . . . . . . . . . . . .10
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE.. . . . . . . . . . . . .10
17. NO OBLIGATION TO EMPLOY. . . . . . . . . . . . . . . . . . . . . . . . .10
18. CORPORATE TRANSACTIONS.. . . . . . . . . . . . . . . . . . . . . . . . .10
18.1 Assumption or Replacement of Awards by Successor. . . . . . . . .10
18.2 Other Treatment of Awards.. . . . . . . . . . . . . . . . . . . .11
18.3 Assumption of Awards by the Company.. . . . . . . . . . . . . . .11
19. ADOPTION AND SHAREHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . .11
20. TERM OF PLAN.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
21. AMENDMENT OR TERMINATION OF PLAN.. . . . . . . . . . . . . . . . . . . .12
22. NONEXCLUSIVITY OF THE PLAN.. . . . . . . . . . . . . . . . . . . . . . .12
23. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
</TABLE>
ii.
<PAGE>
ASK JEEVES, INC.
1996 EQUITY INCENTIVE PLAN
AS ADOPTED ON DECEMBER 26, 1996
APPROVED BY THE SHAREHOLDERS ON DECEMBER 26, 1996
ADJUSTED FOR STOCK SPLIT EFFECTIVE NOVEMBER 12, 1997
AMENDED BY THE BOARD OF DIRECTORS ON JANUARY 11, 1999
APPROVED BY THE SHAREHOLDERS ON JANUARY 19, 1999
AMENDED BY THE BOARD OF DIRECTORS ON FEBRUARY 18, 1999
APPROVED BY THE SHAREHOLDERS ON FEBRUARY 18, 1999
AS ADJUSTED FOR 1-FOR-2 REVERSE STOCK SPLIT
1. PURPOSE. The purpose of the 1996 Equity Incentive Plan (the "Plan")
of Ask Jeeves, Inc., a California corporation (the "Company"), is to provide
incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock and
Stock Bonuses. Capitalized terms not defined in the text are defined in Section
23.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and
18, the total number of Shares reserved and available for grant and issuance
pursuant to the Plan shall be Five Million Nine Hundred Seventy Three
Thousand Three Hundred Seventy Two (5,973,372) Shares. Subject to Sections
2.2 and 18, Shares shall again be available for grant and issuance in
connection with future Awards under the Plan that: (a) are subject to
issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (b) are subject to an
Award granted hereunder but are forfeited; or (c) are subject to an Award
that otherwise terminates without Shares being issued.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under the Plan; (b) the
Exercise Prices of and number of Shares subject to outstanding Options; and (c)
the number of Shares subject to other outstanding Awards shall be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
PROVIDED, HOWEVER, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company, or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors, consultants and advisors of the
Company or any Parent, Subsidiary or Affiliate of the
1.
<PAGE>
Company; PROVIDED, HOWEVER, such consultants and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one Award under
the Plan.
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. The Plan shall be administered by the
Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of the Plan, and to the direction of the Board,
the Committee shall have full power to implement and carry out the Plan. The
Committee shall have the authority to:
(a) construe and interpret the Plan, any Award Agreement
and any other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations
relating to the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination, in tandem with, in replacement of, or as alternatives to, other
Awards under the Plan or any other incentive or compensation plan of the Company
or any Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile
any inconsistency in the Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable
for the administration of the Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the
Committee with respect to any Award shall be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
the Plan or Award, at any later time, and such determination shall be final and
binding on the company and all persons having an interest in any Award under the
Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under the Plan to Participants who are not Insiders
of the Company.
2.
<PAGE>
4.3 EXCHANGE ACT REQUIREMENTS. If the Company is subject to the
Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two (2) persons (who are members of the Board), each
of whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and
shall determine whether such Options shall be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under the Plan
shall be evidenced by an Award Agreement which shall expressly identify the
Option as an ISO or NQSO ("Stock Option Agreement"), and be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee shall from time to time approve, and which shall comply with and be
subject to the terms and conditions of the Plan.
5.2 DATE OF GRANT. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
the Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 EXERCISE PERIOD. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement; PROVIDED, HOWEVER, that no Option shall be exercisable after
the expiration of ten (10) years from the date the Option is granted, and
provided further that no Option granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall be exercisable after the expiration of
five (5) years from the date the Option is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number or percentage as the
Committee determines.
5.4 EXERCISE PRICE. The Exercise Price shall be determined by
the Committee when the Option is granted and may be not less than eighty-five
percent (85%) of the Fair Market Value of the Shares on the date of grant;
provided that (i) the Exercise Price of an ISO shall be not less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant; and (ii) the Exercise Price of any Option granted to a Ten Percent
Shareholder shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of the Plan.
5.5 METHOD OF EXERCISE. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such
3.
<PAGE>
representations and agreements regarding Participant's investment intent and
access to information and other matters, if any, as may be required or desirable
by the Company to comply with applicable securities laws, together with payment
in full of the Exercise Price for the number of Shares being purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option shall always be subject to
the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then Participant may exercise such Participant's Options
only to the extent that such Options would have been exercisable upon the
Termination Date no later than three (3) months after the Termination Date (or
such shorter time period as may be specified in the Stock Option Agreement), but
in any event, no later than the expiration date of the Options.
(b) If the Participant is terminated because of death or
Disability (or the Participant dies within three (3) months of such
termination), then Participant's Options may be exercised only to the extent
that such Options would have been exercisable by Participant on the Termination
Date and must be exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after the Termination
Date (or such shorter time period as may be specified in the Stock Option
Agreement), but in any event no later than the expiration date of the Options;
PROVIDED, HOWEVER, that in the event of termination due to Disability other than
as defined in Section 22(e)(3) of the Code, any ISO that remains exercisable
after ninety (90) days after the date of termination shall be deemed a NQSO.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option; PROVIDED, HOWEVER, that such minimum number will not prevent Participant
from exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
the Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) shall not exceed One Hundred
Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of
grant with respect to which ISOs are exercisable for the first time by a
Participant during any calendar year exceeds One Hundred Thousand Dollars
($100,000), the Options for the first One Hundred Thousand Dollars ($100,000)
worth of Shares to become exercisable in such calendar year shall be ISOs and
the Options for the amount in excess of One Hundred Thousand Dollars ($100,000)
that become exercisable in that calendar year shall be NQSOs. In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date of the Plan to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISOs, such different limit shall be
automatically incorporated herein and shall apply to any Options granted after
the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor; PROVIDED, HOWEVER, that any such action may
not without the written consent of
4.
<PAGE>
Participant, impair any of Participant's rights under any Option previously
granted. Any outstanding ISO that is modified, extended, renewed or otherwise
altered shall be treated in accordance with Section 424(h) of the Code. The
Committee may reduce the Exercise Price of outstanding Options without the
consent of Participants affected by a written notice to them; PROVIDED, HOWEVER,
that the Exercise Price may not be reduced below the minimum Exercise price that
would be permitted under Section 5.4 of the Plan for Options granted on the date
the action is taken to reduce the Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision in
the Plan, no term of the Plan relating to ISOs shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee shall determine to whom an offer will be made, the number of
Shares the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares shall be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a
Restricted Stock Award made pursuant to the Plan shall be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that shall be in such form
(which need not be the same for each Participant) as the Committee shall from
time to time approve, and shall comply with and be subject to the terms and
conditions of the Plan. The offer of Restricted Stock shall be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If
such person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer shall terminate, unless otherwise determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award shall be determined by the Committee and shall be at
least eighty-five percent (85%) of the Fair Market Value of the Shares on the
date the Restricted Stock Award is granted, except in the case of a sale to a
Ten Percent Shareholder, in which case the Purchase Price shall be one hundred
percent (100%) of the Fair Market Value. Payment of the Purchase Price may be
made in accordance with Section 8 of the Plan.
6.3 RESTRICTIONS. Restricted Stock Awards shall be subject to
such restrictions as the Committee may impose. The Committee may provide for
the lapse of such restrictions in installments and may accelerate or waive such
restrictions, in whole or in part, based on length of service, performance or
such other factors or criteria as the Committee may determine. Restricted Stock
Awards which the Committee intends to qualify under Code Section 162(m) shall be
subject to a performance-based goal. Restrictions on such stock shall lapse
based on one or more of the following performance goals: stock price, market
share, sales increases, earning per share, return on equity, cost reductions, or
any other similar performance
5.
<PAGE>
measure established by the Committee. Such performance measures shall be
established by the Committee, in writing, no later than the earlier of (a)
ninety (90) days after the commencement of the performance period with respect
to which the Restricted Stock award is made and (b) the date as of which
twenty-five percent (25%) of such performance period has elapsed.
7. STOCK BONUSES.
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be
awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the
"Stock Bonus Agreement") that shall be in such form (which need not be the same
for each Participant) as the Committee shall from time to time approve, and
shall comply with and be subject to the terms and conditions of the Plan subject
to Section 7.2 herein, a Stock Bonus may be awarded upon satisfaction of such
performance goals as are set out in advance in Participant's individual Award
Agreement (the "Performance Stock Bonus Agreement") that shall be in such form
(which need not be the same for each Participant) as the Committee shall from
time to time approve, and shall comply with and be subject to the terms and
conditions of the Plan. Stock Bonuses may vary from Participant to Participant
and between groups of Participants, and may be based upon such other criteria as
the Committee may determine; PROVIDED, HOWEVER, that performance-based bonuses
shall be restricted to individuals earning at least Fifty Thousand Dollars
($50,000) per year and of adequate sophistication and sufficiently empowered to
achieve the performance goals.
7.2 CODE SECTION 162(m). A Stock Bonus that the Committee
intends to qualify for the performance-based exception under Code Section 162(m)
shall only be awarded based upon the attainment of one or more of the following
performance goals: stock price, market share, sales increases, earning per
share, return on equity, cost reductions, or any other similar performance
measure established by the Committee. Such performance measures shall be
established by the Committee, in writing, no later than the earlier of: (a)
ninety (90) days after the commencement of the performance period with respect
to which the Stock Bonus award is made; and (b) the date as of which twenty-five
percent (25%) of such performance period has elapsed.
7.3 TERMS OF STOCK BONUSES. The Committee shall determine the
number of Shares to be awarded to the Participant and whether such Shares shall
be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction
of performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee shall determine: (a) the nature, length and starting date of any
period during which performance is to be measured (the "Performance Period") for
each Stock Bonus; (b) the performance goals and criteria to be used to measure
the performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria as may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make
6.
<PAGE>
such adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.4 FORM OF PAYMENT. The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of
cash, whole Shares, including Restricted Stock, or a combination thereof, either
in a lump sum payment or in installments, all as the Committee shall determine.
7.5 TERMINATION DURING PERFORMANCE PERIOD. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
shall be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee
shall determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 PAYMENT. Payment for Shares purchased pursuant to the Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of Shares that either (1) have been owned
by Participant for more than six (6) months and have been paid for within the
meaning of SEC Rule 144 (and, if such shares were purchased from the Company by
use of a promissory note, such note has been fully paid with respect to such
Shares); or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274 of the
Code; PROVIDED, HOWEVER, that Participants who are not employees of the Company
shall not be entitled to purchase Shares with a promissory note unless the note
is adequately secured by collateral other than the Shares.
(d) by waiver of compensation due or accrued to Participant
for services rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise of an
Option, and provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from
Participant and a broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby the Participant irrevocably elects
to exercise the Option and to sell a portion of the Shares so purchased to pay
for the Exercise Price, and whereby the NASD Dealer
7.
<PAGE>
irrevocably commits upon receipt of such Shares to forward the Exercise Price
directly to the Company; or
(2) through a "margin" commitment from Participant
and an NASD Dealer whereby Participant irrevocably elects to exercise the Option
and to pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; or
(g) by any combination of the foregoing.
8.2 LOAN GUARANTIES. The Committee may help the Participant pay
for Shares purchased under the Plan by authorizing a guaranty by the Company of
a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Awards granted under the Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under the Plan, payments
in satisfaction of Awards are to be made in cash, such payment shall be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, then except as provided below, the election
shall be irrevocable as to the particular Shares as to which the election is
made;
(c) all elections shall be subject to the consent or
disapproval of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the election may not be made
within six (6) months of the date of grant of the Award, except as otherwise
permitted by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the
election to use stock with- holding must be irrevocably made at least six (6)
months prior to the Tax Date (although such election may be revoked at any time
at least six (6) months prior to the Tax Date), or (B) the exercise of the
Option or election to
8.
<PAGE>
use stock withholding must be made in the ten (10) day period beginning on the
third day following the release of the Company's quarterly or annual summary
statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six
(6) months after the delivery of Shares under Section 83(b) of the Code, the
Participant shall receive the full number of Shares with respect to which the
exercise occurs, but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 VOTING AND DIVIDENDS. No Participant shall have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
shall be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; PROVIDED, HOWEVER, that
if such Shares are Restricted Stock, then any new, additional or different
securities the Participant may become entitled to receive with respect to such
Shares by virtue of a stock dividend, stock split or any other change in the
corporate or capital structure of the Company shall be subject to the same
restrictions as the Restricted Stock.
10.2 FINANCIAL STATEMENTS. The Company shall provide financial
statements to each Participant prior to such Participant's purchase of Shares
under the Plan, and to each Participant annually during the period such
Participant has Awards outstanding; PROVIDED, HOWEVER, the Company shall not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under the Plan, and any interest
therein, shall not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of
the Participant an Award shall be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under the Plan shall be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares,
9.
<PAGE>
together with stock powers or other instruments of transfer approved by the
Committee, appropriately endorsed in blank, with the Company or an agent
designated by the Company to hold in escrow until such restrictions have lapsed
or terminated, and the Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates. Any Participant who is permitted
to execute a promissory note as partial or full consideration for the purchase
of Shares under the Plan shall be required to place and deposit with the Company
all or part of the Shares so purchased as collateral to secure the payment of
Participant's obligation to the Company under the promissory note; PROVIDED,
HOWEVER, that the Committee may require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company shall have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant shall be required to
execute and deliver a written pledge agreement in such form as the Committee
shall from time to time approve. The Shares purchased with the promissory note
may be released from the pledge on a pro rata basis as the promissory note is
paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed, as they are in effect on the date of grant of the
Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in the Plan, the Company shall have no obligation to issue or
deliver certificates for Shares under the Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) completion of any registration or other qualification
of such shares under arty state or federal law or ruling of any governmental
body that the Company determines to be necessary or advisable. The Company
shall be under no obligation to register the Shares with the SEC or to effect
compliance with the registration, qualification or listing requirements of any
state securities laws, stock exchange or automated quotation system, and the
Company shall have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted
under the Plan shall confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent, Subsidiary or Affiliate of the Company or limit in any
way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.
18. CORPORATE TRANSACTIONS.
10.
<PAGE>
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the
event of (a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the company and the Awards granted under the Plan are assumed or replaced by the
successor corporation, which assumption shall be binding on all Participants);
(b) a dissolution or liquidation of the Company; (c) the sale of substantially
all of the assets of the Company; or (d) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company), any or all outstanding Awards may be assumed
or replaced by the successor corporation (if any), which assumption or
replacement shall be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to shareholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant.
In the event such successor corporation (if any) refuses to assume or
substitute Options, as provided above, pursuant to a transaction described in
this Subsection 18.1, such Options shall expire on such transaction at such time
and on such conditions as the Board shall determine.
18.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under the Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under the Plan if the terms of such assumed award could be applied to an Award
granted under the Plan. Such substitution or assumption shall be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under the Plan if the other company had applied the rules of
the Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award shall remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted approximately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become effective
on the date that it is adopted by the Board (the "Effective Date"). The Plan
shall be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with
11.
<PAGE>
applicable laws, within twelve months before or after the Effective Date. Upon
the Effective Date, the Board may grant Awards pursuant to the Plan; PROVIDED,
HOWEVER, that: (a) no Option may be exercised prior to initial shareholder
approval of the Plan; (b) no Option granted pursuant to an increase in the
number of Shares approved by the Board shall be exercised prior to the time such
increase has been approved by the shareholders of the Company; and (c) in the
event that shareholder approval is not obtained within the time period provided
herein, all Awards granted hereunder shall be cancelled, any Shares issued
pursuant to any Award shall be cancelled and any purchase of Shares hereunder
shall be rescinded. After the Company becomes subject to Section 16(b) of the
Exchange Act, the Company will comply with the requirements of Rule 16b-3 (or
its successor), as amended, with respect to shareholder approval.
20. TERM OF PLAN. The Plan will terminate ten (10) years from the
Effective Date or, if earlier, the date of shareholder approval of the Plan.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to the Plan; PROVIDED, HOWEVER, that the Board shall not, without the approval
of the shareholders of the Company, amend the Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act
or Rule 16b-3 (or its successor), as amended, thereunder.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board, the submission of the Plan to the shareholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in the Plan, the following terms shall have
the following meanings:
"AFFILIATE" means any corporation that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control
with, another corporation, where "control" (including the terms "controlled by"
and "under common control with") means the possession, direct or indirect, of
the power to cause the direction of the management and policies of the
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"AWARD" means any award under the Plan, including any Option, Restricted
Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
12.
<PAGE>
"COMMITTEE" means the committee appointed by the Board to administer the
Plan, or if no committee is appointed, the Board.
"COMPANY" means Ask Jeeves, Inc., a corporation organized under the laws of
the State of California, or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent, partial or
total, as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during the period that
person is a member of the Committee and for one (1) year prior to service as a
member of the Committee, been granted or awarded equity securities pursuant to
the Plan or any other plan of the Company or any Parent, Subsidiary or Affiliate
of the Company, except in accordance with the requirements set forth in Rule
16b-3(c)(2)(i) (and any successor regulation thereto) as promulgated by the SEC
under Section 16(b) of the Exchange Act, as such rule is amended from time to
time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1 934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its last reported sale price on the Nasdaq National Market or,
if no such reported sale takes place on such date, the average of the closing
bid and asked prices;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, the last reported sale price or, if no
such reported sale takes place on such date, the average of the closing bid and
asked prices on the principal national securities exchange on which the Common
Stock is listed or admitted to trading;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid arid asked prices
on such date, as reported by The Wall Street Journal, for the over-the-counter
market; or
(d) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
"INSIDER" means an officer or director of the Company or any other person
whose transactions in the Company's Common Stock are subject to Section 16 of
the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
13.
<PAGE>
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time of the granting of
an Award under the Plan, each of such corporations other than the Company owns
stock possessing fifty percent (50%), or more, of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under the Plan.
"PLAN" means this Ask Jeeves, Inc. 1996 Equity Incentive Plan, as amended
from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1 933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for issuance
under the Plan, as adjusted pursuant to Sections 2 and 15, and any successor
security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant
to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time of granting of
the Award, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing fifty percent (50%), or more, of the total
combined voting power of all classes of stock in one of the other corporations
in such claim.
"TERMINATION" or "TERMINATED" means, for purposes of the Plan with respect
to a Participant, that the Participant has ceased to provide services as an
employee, director, consultant or adviser, to the Company or a Parent,
Subsidiary or Affiliate of the Company, except in the case of sick leave,
military leave, or any other leave of absence approved by the Committee;
PROVIDED, HOWEVER, that such leave is for a period of not more than ninety (90)
days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee shall have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "Termination Date").
14.
<PAGE>
NO. < < STOCKOPTIONNO > >
ASK JEEVES, INC.
1996 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), is made and entered into as
of the date of grant set forth below (the "Date of Grant") by and between ASK
JEEVES, INC., a California corporation (the "Company"), and the participant
named below ("Participant"). Capitalized terms not defined herein shall have
the meaning ascribed to them in the Company's 1996 Equity Incentive Plan (the
"Plan").
PARTICIPANT: < < NAME > >
ADDRESS:
TOTAL OPTION SHARES:
EXERCISE PRICE PER SHARE: $
DATE OF GRANT:
VESTING COMMENCEMENT DATE:
EXPIRATION DATE:
TYPE OF STOCK OPTION:
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an
option (the "Option") to purchase the total number of shares of Common Stock of
the Company set forth above (the "Shares") at the Exercise Price Per Share set
forth above (the "Exercise Price"), subject to all of the terms and conditions
of this Agreement and the Plan. If designated as an Incentive Stock Option
above, the Option is intended to qualify as an "incentive stock option" ("ISO")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. EXERCISE PERIOD.
2.1 EXERCISE PERIOD OF OPTION. Provided Participant
continues to be an employee of the Company or any Subsidiary or Parent
throughout the specified period, the Option shall become exercisable as
to portions of the Shares as follows: (a) Twenty-five percent (25%) of
the Shares subject to this Option shall vest on the first anniversary of
the Vesting Commencement Date; and (b) 2.08333% of the Shares subject to
this Option shall vest at the end of each month thereafter. If
<PAGE>
application of the vesting percentage causes a fractional Share, such
Share shall be rounded down to a whole Share.
2.2 ACCELERATION OF VESTING
2.2.1 CORPORATE TRANSACTION. In the event of a
"corporate transaction" as such transactions are set forth in Section 18.1 of
the Plan (a "Corporate Transaction"), which occurs prior to the first
anniversary of the Vesting Commencement Date, any and all Shares subject to this
Option which would otherwise have vested under the terms of this Stock Option
Agreement on the later of (i) the first anniversary of the First Vesting Date or
(ii) six months following the date of the Corporate Transaction, whether or not
such Shares are fully vested on the effective date of such Corporate
Transaction, shall automatically become fully vested and exercisable immediately
prior to the effective date of such Corporate Transaction. In the event of a
Corporate Transaction which occurs after the first anniversary of the First
Vesting Date, subject to the terms and conditions of this Option Agreement, all
additional Shares shall vest six (6) months earlier than the original vesting
schedule applicable to such Shares as set forth in Section 2.1 above. In
addition, in the event of a Corporate Transaction, UNLESS this Option is, in
connection with the Corporate Transaction, either (i) assumed by the successor
corporation or Parent thereof or (ii) replaced with a comparable Option with
respect to shares of the capital stock of the successor corporation or Parent
thereof, or (iii) replaced with a cash incentive program of the successor
corporation which preserves the compensation element of this Option existing at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to this Option, THEN the
balance of all Shares under this Agreement which do not become fully exercisable
pursuant to the preceding sentence, shall automatically become fully vested and
exercisable immediately prior to the effective date of such Corporate
Transaction. The determination of Option comparability under clause (ii) above
shall be made by the Committee, and its determination shall be final, binding
and conclusive.
(a) Effective upon the consummation of the Corporate
Transaction, all outstanding Options hereunder shall terminate and cease to
remain outstanding, except to the extent assumed by the successor corporation or
its Parent.
(b) The portion of any Incentive Stock Option
accelerated under this Section 2.2.1 in connection with a Corporate Transaction
shall remain exercisable as an Incentive Stock Option under the Code only to the
extent the $100,000 dollar limitation of Section 422(d) of the Code is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
excess portion of such Option shall be exercisable as a Non-Qualified Stock
Option.
2.3 EXPIRATION. This Option shall in any event expire no
later than the Expiration Date set forth above and must be exercised, if at all,
on or before the Expiration Date, unless earlier terminated pursuant to this
Section 2.
3. TERMINATION.
<PAGE>
3.1 TERMINATION FOR ANY REASON EXCEPT DEATH OR DISABILITY.
If Participant is Terminated for any reason, except death or Disability, the
Option, to the extent (and only to the extent) that it would have been
exercisable by Participant on the date of Termination, may be exercised by
Participant no later than three (3) months after the date of Termination, but in
any event no later than the Expiration Date.
3.2 TERMINATION BECAUSE OF DEATH OR DISABILITY. If
Participant is Terminated because of death or Disability of Participant, the
Option, to the extent that it is exercisable by Participant on the date of
Termination, may be exercised by Participant (or Participant's legal
representative) no later than twelve (12) months after the date of Termination,
but in any event no later than the Expiration Date.
3.3 NO OBLIGATION TO EMPLOY. Nothing in the Plan or this
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent, Subsidiary or Affiliate of
the Company, or limit in any way the right of the Company or any Parent,
Subsidiary or Affiliate of the Company to terminate Participant's employment or
other relationship at any time, with or without cause.
4. MANNER OF EXERCISE.
4.1 STOCK OPTION EXERCISE AGREEMENT. To exercise this
Option, Participant (or in the case of exercise after Participant's
death, Participant's executor, administrator, heir or legatee, as the
case may be) must deliver to the Company an executed stock option
exercise agreement in the form as may be approved by the Company from
time to time (the "Exercise Agreement"), which shall set forth, INTER
ALIA, Participant's election to exercise the Option, the number of
Shares being purchased, any restrictions imposed on the Shares and any
representations, warranties and agreements regarding Participant's
investment intent and access to information as may be required by the
Company to comply with applicable securities laws. If someone other
than Participant exercises the Option, then such person must submit
documentation reasonably acceptable to the Company that such person has
the right to exercise the Option.
4.2 LIMITATIONS ON EXERCISE. The Option may not be exercised
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. The Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which the Option is then exercisable.
4.3 PAYMENT. The Exercise Agreement shall be accompanied by
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where expressly approved by the Committee and where permitted by law:
<PAGE>
(a) by cancellation of indebtedness of the Company to
the Participant;
(b) by waiver of compensation due or accrued to
Participant for services rendered;
(c) provided that a public market for the Company's
stock exists, (1) through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of Securities Dealers
(an "NASD Dealer") whereby Participant irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for the exercise price
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company, or (2) through a "margin"
commitment from Participant and an NASD Dealer whereby Participant irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or
(d) by any combination of the foregoing.
4.4 TAX WITHHOLDING. Prior to the issuance of the Shares
upon exercise of the Option, Participant must pay or provide for any applicable
federal or state withholding obligations of the Company. If the Committee
permits, Participant may provide for payment of withholding taxes upon exercise
of the Option by requesting that the Company retain Shares with a Fair Market
Value equal to the minimum amount of taxes required to be withheld. In such
case, the Company shall issue the net number of Shares to the Participant by
deducting the Shares retained from the Shares issuable upon exercise.
4.5 ISSUANCE OF SHARES. Provided that the Exercise Agreement
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option
is an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (1) the date two years
after the Date of Grant, and (2) the date one year after transfer of such Shares
to Participant upon exercise of the Option, Participant shall immediately notify
the Company in writing of such disposition. Participant agrees that Participant
may be subject to income tax withholding by the Company on the compensation
income recognized by Participant from the early disposition by payment in cash
or out of the current wages or other compensation payable to Participant.
<PAGE>
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of the Option
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Participant with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Participant understands that the Company is under no obligation to
register or qualify the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. The Option may not be transferred
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Participant only by Participant. The
terms of the Option shall be binding upon the executors, administrators,
successors and assigns of Participant.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the
Date of Grant of some of the federal and state tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
8.1 EXERCISE OF ISO. If the Option qualifies as an ISO,
there will be no regular federal or state income tax liability upon the exercise
of the Option, although the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal income tax purposes and may subject the Participant
to the alternative minimum tax in the year of exercise.
8.2 EXERCISE OF NONQUALIFIED STOCK OPTION. If the Option
does not qualify as an ISO, there may be a regular federal or state income tax
liability upon the exercise of the Option. Participant will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. The Company will be required to withhold from
Participant's compensation or collect from Participant and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
8.3 DISPOSITION OF SHARES. If the Shares are held for more
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of the Option (and, in the case of an ISO, are disposed of more
than two years after the Date of Grant), any gain realized on disposition of the
Shares will be treated as long term capital gain for federal and state income
tax purposes. If Shares purchased under an ISO are disposed of within one year
of exercise or within two years after the Date of
<PAGE>
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any,
of the Fair Market Value of the Shares on the date of exercise over the Exercise
Price. The Company will be required to withhold from Participant's compensation
or collect from Participant and pay to the applicable taxing authorities an
amount equal to a percentage of this compensation income at the time of
exercise.
9. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of
the rights of a shareholder with respect to any Shares until Participant
exercises the Option and pays the Exercise Price.
10. PUBLIC OFFERING LOCK-UP. For a period not to exceed one hundred
eighty (180) days following the date of the first effective registration
statement of the Company's common stock, Participant shall not sell, pledge or
otherwise transfer any Shares to any person or entity. In addition, Participant
agrees to execute, in connection with the initial public offering of the
Company's securities, such other documents confirming and/or restating the
"lock-up" provisions of this section.
11. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
12. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
This Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
13. NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile or telecopier.
14. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Participant and Participant's heirs, executors, administrators, legal
representatives, successors and
<PAGE>
assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California as such laws are applied
to agreements between California residents entered into and to be performed
entirely within California.
16. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Participant has executed
this Agreement in duplicate as of the Effective Date.
ASK JEEVES, INC.
A CALIFORNIA CORPORATION
BY:
---------------------------
<PAGE>
PARTICIPANT ACKNOWLEDGES AND UNDERSTANDS THAT THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT"), OR ANY
APPLICABLE STATE LAW IN RELIANCE UPON ONE OR MORE SPECIFIC EXEMPTIONS CONTAINED
IN THE ACT AND ANY APPLICABLE STATE LAW, WHICH MAY INCLUDE RELIANCE ON RULE 701
PROMULGATED UNDER THE ACT, IF AVAILABLE, OR WHICH MAY DEPEND UPON (I)
PARTICIPANT'S BONA FIDE INVESTMENT INTENTION IN ACQUIRING THESE SECURITIES;
(II) PARTICIPANT'S INTENTION TO HOLD THESE SECURITIES IN COMPLIANCE WITH FEDERAL
AND STATE SECURITIES LAWS; (III) PARTICIPANT HAVING NO PRESENT INTENTION OF
SELLING OR TRANSFERRING ANY PART THEREOF (RECOGNIZING THAT THE OPTION IS NOT
TRANSFERABLE) IN VIOLATION OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS; AND
(IV) THERE BEING CERTAIN RESTRICTIONS ON TRANSFER OF THE SHARES SUBJECT TO THE
OPTION;
PARTICIPANT UNDERSTANDS THAT THE SHARES SUBJECT TO THIS OPTION, IN ADDITION TO
OTHER RESTRICTIONS ON TRANSFER, MUST BE HELD INDEFINITELY UNLESS SUBSEQUENTLY
REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE LAW, OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE; THAT RULE 144, THE USUAL EXEMPTION FROM
REGISTRATION UNDER THE ACT, IS ONLY AVAILABLE AFTER THE SATISFACTION OF CERTAIN
HOLDING PERIODS AND IN THE PRESENCE OF A PUBLIC MARKET FOR THE SHARES; THAT
THERE IS NO CERTAINTY THAT A PUBLIC MARKET FOR THE SHARES WILL EXIST, AND THAT
OTHERWISE IT WILL BE NECESSARY THAT THE SHARES BE SOLD PURSUANT TO ANOTHER
EXEMPTION FROM REGISTRATION WHICH MAY BE DIFFICULT TO SATISFY; AND
PARTICIPANT UNDERSTANDS THAT THE CERTIFICATE REPRESENTING THE SHARES WILL BEAR A
LEGEND PROHIBITING THEIR TRANSFER IN THE ABSENCE OF THEIR REGISTRATION OR THE
OPINION OF COUNSEL FOR THE COMPANY THAT REGISTRATION IS NOT REQUIRED.
DATED: SIGNED:
--------------------- -----------------------------------------
OPTIONEE
RESIDENCE ADDRESS:
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE>
ASK JEEVES, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED APRIL 16, 1999
APPROVED BY STOCKHOLDERS MAY __, 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>
(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>
(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>
(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>
(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 each subsequent January 1, commencing January
1, 2000, equal to the lesser of (i) five percent (5%) of the total number of
shares of Common Stock outstanding on such date, (ii) one million seven
hundred fifty thousand (1,750,000) 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>
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 one million
(1,000,000) 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>
(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>
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>
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>
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>
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>
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>
(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>
(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 upon approval 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>
ASK JEEVES, INC.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, Ask Jeeves, Inc. (the "Company") has granted you an option
under its 1999 Equity Incentive Plan (the "Plan") to purchase the number of
shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as provided
in the Plan, to the extent that the aggregate Fair Market Value (determined at
the time of grant) of the shares of Common Stock with respect to which your
option plus all other incentive stock options you hold are exercisable for the
first time by you during any calendar year (under all plans of the
1
<PAGE>
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
your option(s) or portions thereof that exceed such limit (according to the
order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full
upon exercise of all or any part of your option. You may elect to make payment
of the exercise price in cash or by check or in any other manner PERMITTED BY
YOUR GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
(c) Pursuant to the following deferred payment alternative:
(i) Not less than one hundred percent (100%) of the
aggregate exercise price, plus accrued interest, shall be due four (4) years
from date of exercise or, at the Company's election, upon termination of your
Continuous Service.
(ii) 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
portion of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(iii) 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 be made in cash and not by deferred payment.
(iv) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and,
2
<PAGE>
in order to secure the payment of the deferred exercise price to the Company
hereunder, if the Company so requests, you must tender to the Company a
promissory note and a security agreement covering the purchased shares of Common
Stock, both in form and substance satisfactory to the Company, or such other or
additional documentation as the Company may request.
5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also
comply with other applicable laws and regulations governing your option, and you
may not exercise your option if the Company determines that such exercise would
not be in material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three (3) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(c) twelve (12) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the tenth (10th) anniversary of the Date of Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if
3
<PAGE>
you otherwise exercise your option more than three (3) months after the date
your employment terminates.
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or
an Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
11. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
4
<PAGE>
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in
connection with such share withholding procedure shall be your sole
responsibility.
(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
12. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
13. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option
and those of the Plan, the provisions of the Plan shall control.
5
<PAGE>
ASK JEEVES, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON APRIL 16, 1999
APPROVED BY THE STOCKHOLDERS ON MAY __, 1999
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).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
1
<PAGE>
(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 one hundred twenty-five
thousand (125,000) shares of the Company's common stock (the "Common Stock").
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.
(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
2
<PAGE>
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;
(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.
3
<PAGE>
(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 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.
4
<PAGE>
(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 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
5
<PAGE>
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 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
6
<PAGE>
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).
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
7
<PAGE>
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 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
8
<PAGE>
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 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.
9
<PAGE>
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan
at any time. The Plan shall automatically terminate if all the shares subject
to the Plan pursuant to subparagraph 3(a) are issued. 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>
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 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 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 [*] 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 [*]
set forth in the Exhibit A that describes the scope of work for that
Knowledgebase (the "Monthly Maintenance Obligations"). In 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.
<PAGE>
event Customer requires maintenance and update services beyond the
Monthly Maintenance Obligations, Ask Jeeves will provide those
services [*].
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 [*] 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 [*] after the Effective Date
it will not deliver to [*], a [*] 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 [*], fully-paid, nontransferable, non-sublicensable,
worldwide license for 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"):
[*] [*]
[*] [*]
[*] [*]
The Knowledgebase Creation Fees will be invoiced [*] upon execution of
this Agreement and the [*] on the [*] for each of the Knowledgebases.
For purposes of this Agreement the [*] is defined as the date on which
[*].
[*] = 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>
b. KNOWLEDGEBASE MAINTENANCE FEE. Customer agrees to pay Ask Jeeves for
maintenance of the Knowledgebases (the "Knowledgebase Maintenance
Fees") as follows:
Project Monthly Fee
[*] [*]
[*] [*]
[*] [*]
The Knowledgebase Maintenance Fee for each of the Knowledgebases will
be [*] beginning on the Release Date for each of the Knowledgebases.
If the Release Date for each Knowledgebase is a day other than the
[*], the Maintenance Fee will be [*]. The Knowledgebase Maintenance
Fee for the [*].
c. USAGE FEE. Customer agrees to pay Ask Jeeves a [*], as defined below.
Each Answer provided in excess of [*], provided, however, that the
[*]. Customer [*]. 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 [*]. The [*], if any, will
be [*].
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 [*] from invoice
date.
f. TAXES. [*] will also [*] reserves the right to promptly pay all taxes
due directly to the applicable taxing authorities under [*] 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 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:
[*] [*]
[*] [*]
[*] [*]
Ask Jeeves agrees that for the term of this Agreement (including any
extensions) the maximum professional services fees it will charge will
be [*].
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 [*], 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 [*]
[*] = 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>
disclosed by the audit. Such inspection shall be at the [*] expense;
however, if the audit reveals overdue payments [*] of the payments owed to
date, the [*] shall immediately pay the cost of such audit, and the
inspecting party may conduct another audit during the [*]. 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 [*] 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, [*]. Customer further agrees to comply with [*].
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.
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 [*] 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 [*] written notice to the
other party, given not more than [*] prior to the expiration of
the Initial Term or not more than [*] prior to the expiration of
any quarter during a Renewal Term.
(2) By Ask Jeeves, upon [*] 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 [*] 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 reserves the right to terminate Maintenance and
Support
[*] = 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>
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 [*] from the date of delivery to Customer, provided that
this warranty does not cover defects due to Customer's misuse of the
media; (c) [*], 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:
(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
[*] = 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>
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 ($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.
[*] = 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>
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.
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
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
[*] = 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>
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, 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>
EXHIBIT A1
[*]
[*] = 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>
EXHIBIT A2
[*]
[*] = 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>
EXHIBIT A3
[*]
[*] = 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>
EXHIBIT B
[*]
[*] = 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>
EXHIBIT C
[*]
[*] = 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>
EXHIBIT D
ASK JEEVES-COMPAQ
COMPAQ TRAVEL GUIDELINES FOR
CONTRACTORS AND CONSULTANTS
4/98 revision
[*]
[*] = 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.
14.
<PAGE>
EXHIBIT E
TECHNICAL SUPPORT GUIDELINES
[*]
[*] = 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.
15.
<PAGE>
EXHIBIT F
MUTUAL NON-DISCLOSURE AGREEMENT
[*]
[*] = 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.
16.
<PAGE>
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT (the "Agreement") is made and entered
into by and between ASK JEEVES, INC., a California corporation (the
"Company"), and the RODA GROUP, L.L.C. (including each representative of the
Roda Group, L.L.C. who may provide services to the Company under this
Agreement, the "Consultant"), effective this 14th day of December, 1998.
RECITALS
WHEREAS, the Company desires Consultant's services with respect to the
management, operations and business development of the Company, and
Consultant agrees to provide such advice and services to the Company through
a consulting relationship with the Company; and
WHEREAS, the issuance of options to purchase Common Stock of the Company
hereunder is in connection with and in furtherance of the Company's
compensation of Consultant and is intended to comply with the provisions of
Rule 701 promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
NOW THEREFORE, in consideration of the mutual obligations specified in
this Agreement, the parties agree to the following:
1. CONSULTING SERVICES ENGAGEMENT. The Company hereby retains
Consultant, and Consultant hereby accepts such retention, to perform
consulting services for the Company as set forth herein.
(a) SCOPE. Consultant shall provide consulting services
("Services") to the Company as defined in Exhibit A attached hereto.
Consultant shall begin providing Services on December 31, 1998 (the "Start
Date").
(b) PERFORMANCE AND TIME COMMITMENT. Consultant shall render the
Services on a full time basis at the Company's principal place of business,
other Company locations, or at other places upon mutual agreement of the
parties.
(c) PROFESSIONAL STANDARDS. The manner and means used by
Consultant to perform the Services desired by the Company are in the
discretion and supervision of the Chief Executive Officer of the Company.
Consultant's Services, and the results thereof, will be performed with and be
the product of the highest degree of professional skill and expertise.
(d) INDEPENDENT CONTRACTOR STATUS. It is understood and agreed
that Consultant is an independent contractor, is not an agent or employee of
the Company, and is not authorized to act on behalf of the Company.
Consultant agrees not to hold him or herself out as, or give any person any
reason to believe that he or she is, an employee, agent, or partner of the
Company. Consultant will not be eligible for any employee benefits, nor will
the Company make deductions from any amounts payable to Consultant for taxes
or insurance. All payroll and
1.
<PAGE>
employment taxes, insurance, and benefits shall be the sole responsibility of
Consultant. Consultant retains the right (as limited in Section 3) to
provide services for others during the term of this Agreement and is not
required to devote his or her services exclusively for the Company.
(e) INITIAL SERVICE PROVIDERS. The Services shall initially be
provided by Roger Strauch and Daniel Miller (each an "Initial Service
Provider" and collectively the "Initial Service Providers"). In the event
either Initial Service Provider ceases to provide the Services to Company,
Company, in the sole discretion of the Company's Chief Executive Officer, may
approve the appointment of a suitable replacement by Consultant (each a
"Subsequent Service Provider"). If such replacement is not approved, the
Company may terminate the Agreement in accordance with Section 7 below. Each
Subsequent Service Provider shall agree in writing to be bound by Section 3,
4 and 5 of this Agreement.
2. COMPENSATION.
(a) In consideration of Consultant's availability to provide
Services on a full time basis, the Company shall pay Consultant (i) Two
Hundred Thousand Dollars ($200,000) per year, to be paid in equal monthly
installments (each monthly installment being a "Cash Payment") and (ii) a
grant of an option to purchase an aggregate of One Hundred Fifty Thousand
(150,000) shares of the Company's Common Stock (the "Option"), subject to the
approval of the Board of Directors of the Company at an exercise price equal
to the fair market value on the date of such grant. The current fair market
value is $0.3638. The Option is not intended to qualify and will not be
treated as an "incentive stock option" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended. The Option will be issued on
or about the Start Date, and will be evidenced by and subject to the
limitations contained in a Nonstatutory Stock Option Agreement in
substantially the form attached as Exhibit B hereto ("the Option Agreement").
Subject to the limitations contained in the Option Agreement, the Options
shall vest equally over the six month period commencing on the Start Date.
In the event the Services are no longer provided by Consultant, the Option
shall cease to vest.
(b) In the event either Initial Service Provider ceases to provide
the Services and a suitable replacement under Section 1(e) above is not
appointed, then (i) all remaining Cash Payments payable to and earned by
Consultant shall be reduced by one-half and (ii) the Options, to the extent not
already vested, shall vest equally over a twelve month period commencing on the
Start Date.
(c) In connection with the Services, Consultant shall:
(i) Provide general management services to Ask Jeeves, Inc.
(Roger Strauch)
(ii) Provide general sales and business development services to
Ask Jeeves, Inc. (Daniel Miller).
2.
<PAGE>
(d) The Company shall reimburse Consultant for expenses actually
incurred by Consultant in performing the Services, including but not limited
to travel and accommodation expenses, so long as such expenses are reasonable
and necessary as determined by the Company. Consultant shall maintain
adequate books and records relating to any expenses to be reimbursed and
shall submit requests for reimbursement in a timely manner and form
acceptable to the Company.
3. NO CONFLICT OF INTEREST.
During the term of this Agreement, Consultant will not accept work,
enter into a contract, or accept an obligation from any third party,
inconsistent or incompatible with Consultant's obligations, or the scope of
services rendered for Client, under this Agreement. Consultant warrants that
there is no other contract or duty on its part inconsistent with this
Agreement. Consultant agrees to indemnify the Company from any and all loss
or liability incurred by reason of the alleged breach by Consultant of any
services agreement with any third party.
4. MAINTAINING CONFIDENTIAL INFORMATION.
(a) COMPANY INFORMATION. During the term of this Agreement and in
the course of Consultant's performance hereunder, Consultant may receive or
otherwise be exposed to confidential and proprietary information relating to
the Company's technology know-how, data, inventions, developments, plans
business practices, and strategies. Such confidential and proprietary
information of the Company (collectively referred to as "Information") may
include but not be limited to: (i) confidential and proprietary information
supplied to Consultant with the legend "Company Confidential" or equivalent;
(ii) the Company's marketing and customer support strategies, financial
information (including revenue, costs, profits and pricing methods), internal
organization, employee information, and customer lists; (iii) the Company's
technology, including, inventions, development efforts, data, software, trade
secrets, processes, methods, product and know-how and show-how; (iv) all
derivatives, improvements, additions, modifications, and enhancements to any
of the above, including any such information or material created or developed
by Consultant under this Agreement; and (v) information of third parties as
to which the Company has an obligation of confidentiality.
Consultant acknowledges the confidential and secret character of
the Information and agrees that the Information is the sole, exclusive and
extremely valuable property of the Company. Accordingly, Consultant agrees
not to reproduce any of the Information without the applicable prior written
consent of the Company, not to use the Information except in the performance
of this Agreement, and not to disclose all or any part of the Information in
any form to any third party, either during or after the term of this
Agreement. Upon termination of this Agreement for any reason, including
expiration of term, Consultant agrees to cease using and to return to the
Company all whole and partial copies and derivatives of the Information,
whether in Consultant's possession or under Consultant's direct or indirect
control.
(b) OTHER EMPLOYER INFORMATION. Consultant agrees that during its
engagement with the Company, Consultant will not improperly use or disclose
any proprietary
3.
<PAGE>
information or trade secrets of his or her former or concurrent employers or
companies, if any, and that he or she will not bring onto the premises of the
Company any unpublished documents or any property belonging to his or her
former or concurrent employers or companies unless consented to in writing by
said employers or companies.
(c) THIRD PARTY INFORMATION. Consultant recognizes that the
Company has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company's
part to maintain the confidentiality of such information and, in some cases,
to use it only for certain limited purposes. Consultant agrees that the
Company and such third parties, both during the term of this Agreement and
thereafter, are owed a duty to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person,
firm or corporation (except in a manner that is consistent with the Company's
agreement with the third party) or use it for the benefit of anyone other
than the Company or such third party (consistent with the Company's agreement
with the third party).
5. INVENTIONS.
(a) DISCLOSURE OF INVENTIONS. Consultant shall promptly and fully
disclose to the Company any and all ideas, improvements, inventions,
know-how, techniques and works of authorship learned, conceive or developed
by Consultant pursuant to this Agreement (the "Service Product"). Consultant
agrees to keep and maintain adequate and current records (in the form of
notes, sketches, drawings and in any other form that may be required by the
Company) of all work performed relating to the Services, including all
proprietary information developed relating thereto, and such records shall be
available to and remain the sole property of the Company at all times.
(b) INVENTIONS ASSIGNED TO THE COMPANY. Consultant agrees that
any and all Service Product shall be the sole and exclusive property of the
Company. Consultant hereby assigns to the Company all of Consultant's right,
title and interest in and to any and all Service Product. Consultant
explicitly acknowledges and agrees that all works of authorship contained in
the Service Product are "works for hire" under the copyright laws of the
United States, and that the Company shall own the copyright in all such works
of authorship.
Consultant further agrees that the Company is and shall be vested
with all rights, title and interests, including patent, copyright, trade
secret and trademark rights, in all of Consultant's Service Product under
this Agreement.
6. TERM OF AGREEMENT. This Agreement shall commence as of the date set
forth above, and it shall continue for twelve (12) months. Thereafter, the
Agreement may be renewed for successive twelve month periods, unless sooner
terminated by either party by written notice to the other party given at least
thirty (30) days prior to the expiration of any monthly renewal term, provided,
however that options to purchase shares of the Company's Common Stock shall be
granted upon the sole discretion of the Company. In the event of termination,
Consultant shall cease work immediately after giving or receiving such notice or
termination, unless otherwise advised by the Company, shall return to the
Company all Information, Service
4.
<PAGE>
Product, and other materials belonging to the Company, and shall notify the
Company of costs incurred up to the termination date. Sections 4, 5 and 6 of
this Agreement shall survive any termination of this Agreement.
7. TERMINATION BY THE COMPANY. Notwithstanding Section 6 above, the
Company may terminate this Agreement with or without cause, at any time upon
thirty (30) days prior written notice to Consultant. The Company also may
terminate this Agreement or the Services: (i) upon thirty (30) days written
notice in the event of a material breach by Consultant of this Agreement or
any Service, PROVIDED THAT, such breach remains uncured at the end of such
thirty (30) day period; (ii) immediately in its sole discretion upon
Consultant's material breach of Sections 4 ("Maintaining Confidential
Information").
8. COMPLIANCE WITH APPLICABLE LAWS. Consultant warrants that all
material supplied and work performed under this Agreement complies with or
will comply with all applicable United States and foreign laws and
regulations.
9. ASSIGNMENT; BENEFIT. This Agreement is for the personal services
of Consultant and may not be assigned by Consultant or the Company, nor shall
it be assignable by operation of law by either party, without the prior
written consent of the other party. The parties' rights and obligations
under this Agreement will bind and inure to the benefit of their respective
successors, heirs, executors, and administrators and permitted assigns.
10. LEGAL AND EQUITABLE REMEDIES. Consultant hereby acknowledges and
agrees that in the event of any breach of this Agreement by Consultant,
including, without limitation, the actual or threatened disclosure of
Information or Service Product without the prior express written consent of
the Company, the Company will suffer an irreparable injury, such that no
remedy at law will afford it adequate protection against, or appropriate
compensation for, such injury. Accordingly, Consultant hereby agrees that the
Company shall be entitled to specific performance of Consultant's obligations
under this Agreement, as well as such further relief as may be granted by a
court of competent jurisdiction.
11. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by
and construed according to the laws of the State of California. If any
provision of this Agreement is found by a court of competent jurisdiction to
be unenforceable, that provision shall be severed and the remainder of this
Agreement shall continue in full force and effect.
12. WAIVER. The waiver by the Company of a breach of any provision of
this Agreement by Consultant shall not operate or be construed as a waiver of
any other or subsequent breach by Consultant.
13. INJUNCTIVE RELIEF FOR BREACH. Consultant's obligations under this
Agreement are of a unique character that gives them particular value; breach of
any of such obligations will result in irreparable and continuing damage to the
Company for which there will be no adequate remedy at law; and, in the event of
such breach, the Company will be entitled to injunctive relief
5.
<PAGE>
and/or a decree for specific performance, and such other and further relief
as may be proper (including monetary damages if appropriate).
14. COMPLETE UNDERSTANDING; MODIFICATION. This Agreement, together
with its Exhibits, constitutes the final, exclusive and complete
understanding and agreement of the Company and Consultant with respect to the
subject matter hereof. Any waiver, modification or amendment of any
provision of this Agreement shall be effective only if in writing and signed
by a Company officer.
15. NOTICES. Any notices required or permitted hereunder shall be
given to the appropriate party at the address specified below or at such
other address as the party shall specify in writing. Such notice shall be
deemed given upon personal delivery to the appropriate address or sent by
certified or registered mail, three days after the date of mailing.
6.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
ASK JEEVES, INC. THE RODA GROUP, L.L.C.
By: /s/ Robert Wrubel By: /s/ Roger Strauch
--------------------------- --------------------------------
Title: Chief Executive Officer Title: Managing Member
------------------------ ------------------------------
Address: 918 Parker Street Address: 918 Parker Street
---------------------- ---------------------------
Berkeley, CA 94710 Berkeley, CA 94710
---------------------- ---------------------------
ROGER STRAUCH
/s/ Roger Strauch
-----------------------------------
DANIEL MILLER
/s/ Daniel Miller
-----------------------------------
7.
<PAGE>
EXHIBIT A
SERVICES
Nature of Services:
General management services, as approved by CEO and board of directors.
General business development services, as approved by CEO and board of
directors.
8.
<PAGE>
EXHIBIT B
NONSTATUTORY STOCK OPTION
9.
<PAGE>
April 16, 1999
Bruce Nakao
13620 Hill Way
Los Altos Hills, CA 94022
Dear Bruce,
We are pleased to offer you the position of Chief Financial Officer for Ask
Jeeves, Inc. (the "Company"). You will report to Robert Wrubel. Your first day
of employment will be April 19, 1999 (the "Start Date").
SALARY
You will receive an annual salary of $175,000, 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 500,000 options to purchase stock in
the Company (the "Options") pursuant to the Company 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 grant of the Options.
SEVERANCE BENEFITS
In the event your employment is terminated without cause at any time during your
employment, you will be entitled to receive the following:
1. If the Company terminates your employment without cause, you will be paid
severance pay in an amount equal to six months of your base salary
(subject to standard withholding); and
2. Accelerated vesting of Options as follows:
(a) If prior to April 19, 2000 your employment with Ask Jeeves
terminates without cause, whether at the Company's option or
yours, and a transition has been accomplished to a successor CFO
approved by the Company's Board of Directors, 200,000 of the
Options will immediately vest upon your termination.
(b) If prior to April 19, 2000 Ask Jeeves terminates your employment
without cause and a transition has not been accomplished to a
successor CFO
<PAGE>
approved by the Company's Board of Directors, 200,000 of the
Options will immediately vest.
(c) At any time after April 19, 2000, if your employment with Ask
Jeeves terminates without cause, whether at the Company's option
or yours, and a transition has been accomplished to a successor
CFO approved by the Company's Board of Directors, an additional
75,000 of the Options, in addition to the number of Options vested
as of the date of your termination (but not exceeding in the
aggregate the total number of Options granted you) will
immediately vest.
(d) At any time after April 19, 2000, if the Company terminates your
employment without cause and a transition has not been
accomplished to a successor CFO approved by the Company's Board of
Directors, an additional 75,000 of the Options, in addition to the
number of Options vested as of the date of your termination (but
not exceeding in the aggregate the total number of Options granted
you) will immediately vest.
"Termination without cause" means a termination of your employment for reasons
other than: (i) indictment or conviction of any felony or of any crime involving
dishonesty; (ii) participation in any fraud against the company; (iii) breach of
your duties to the company including persistent unsatisfactory performance of
job duties; (iv) intentional damage to any property of the company; (v) conduct
by you that in the good faith and reasonable determination of the Company's
Board of Directors demonstrates gross unfitness to serve.
Under any circumstances other than those set forth above, you will not be
eligible for any severance benefits. Notwithstanding any different provisions
in the Stock Option Agreement governing the grant of your Options, the
provisions set forth above concerning accelerated vesting of certain of those
Options control.
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. Similarly, the Company is free to
conclude its employment relationship with you at any time, with or without
cause.
<PAGE>
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 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 April 19, 1999.
Welcome to Ask Jeeves!
Sincerely,
/s/ Robert Wrubel
Robert Wrubel
President and Chief Executive Officer
Enclosures
Accepted:
/s/ Bruce Nakao Date: April 16, 1999
- ---------------------------------- -------------------
Bruce Nakao
<PAGE>
[LETTERHEAD]
January 11, 1999
Mr. Larry Fishkin
2542 Washington Street
San Francisco, CA 94115
Dear Larry:
I am pleased to offer you a position AS VICE PRESIDENT, BUSINESS DEVELOPMENT for
Ask Jeeves, Inc. ("the Company"). Your first day of employment will be January
18, 1999 (your "Start Date"). You will report to Rob Wrubel, president and CEO.
BASE SALARY
You will receive an annual salary of $130,000, 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 Vice President of Business Development at Ask Jeeves.
BONUS
You will be eligible to receive a bonus of $50,000, payable at the end of 1999,
based on criteria which will be jointly determined between you and the Company
within 30 days of your Start Date.
Please note that this bonus plan is for 1999 only, and future bonus plans, if
any, will be defined at a later date.
OPTIONS
Upon your employment you will be awarded an option to purchase 450,000 shares of
the Company's common stock pursuant to the Company 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 of the shares as of the date of board
approval of your options.
SEVERANCE PACKAGE
The Company shall have the right to terminate your employment with the Company
at any time with or without cause. "Cause" for termination shall mean:
<PAGE>
Larry Fishkin
01/11/99
Page 2
(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; or
(d) intentional damage to any property of the Company.
In the event that your employment is subject to an involuntary termination
without cause at any time during your employment due to a change in control of
the Company, you will be entitled to a severance package of six months base
salary plus immediate vesting of 12/48th of the options promised to you under
this offer of employment, in addition to those that would be vested at the date
of your termination under the company's incentive stock option plan.
Involuntary Termination shall mean the termination of Service which occurs by
reason of:
(i) involuntary dismissal or discharge by the Corporation for reasons
other than Cause, or;
(ii) such individual's voluntary resignation following (A) a change in
position with the Corporation which materially reduces his level of
responsibility, (B) a reduction in his level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
15% or (C) a relocation of such individual's place of employment by
more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
You will not be eligible for this severance package in the event that your
employment is subject to involuntary termination for reasons other than change
of control of the Company.
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 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.
Enclosed is a summary of current Company benefits. 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 Ask Jeeves' arrangement with TriNet, TriNet will be considered your employer
of record for payroll, benefits, and other functions involving employer related
administration, including your new hire enrollment processing. However, as Ask
Jeeves is the company for which you will perform service, we will retain the
right to control and direct your work, its results, and the manner and means by
which your work is accomplished.
<PAGE>
Larry Fishkin
01/11/99
Page 3
For purposes of federal immigration law, you will be required to provide 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 the Company and supercedes any prior
representations or agreements, whether written or oral. This letter may not be
amended or modified except by written agreement signed by the Company and by
you. This offer expires on January 11, 1999.
Welcome to Ask Jeeves!
Sincerely,
/s/ Robert Wrubel
Robert Wrubel
President
Ask Jeeves, Inc.
Enclosures
Accepted:
<PAGE>
Larry Fishkin
01/11/99
Page 4
/s/ Larry Fishkin January 11, 1999
- ------------------------- ----------------
Larry Fishkin Date
<PAGE>
[LETTERHEAD]
January 18, 1999
Mr. Ted Briscoe
Dear Ted:
I am pleased to offer you a position as CHIEF MARKETING OFFICER for Ask Jeeves,
Inc. ("the Company"). Your first day of employment will be January 20, 1999
(your "Start Date"). You will report to Robert Wrubel, president and CEO.
As Chief Marketing Officer, you will be responsible for the overall marketing
efforts for Ask Jeeves, Inc., including:
- Marketing for Ask Jeeves sites (ask.com, Ajkids.com)
- Marketing for Ask Jeeves customer service
- Corporate marketing strategy
- Corporate communications
- Identification of market opportunities
BASE SALARY
You will receive an annual salary of $170,000, 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 Chief Marketing Officer at Ask Jeeves.
BONUS
You will receive a guaranteed a bonus of $30,000, payable on the first year
anniversary of your Start Date.
You will also be eligible to receive an additional bonus of $100,000, payable on
the first anniversary of your Start Date, based on criteria which will be
jointly determined between you and the Company within 30 days of your Start
Date.
Please note that this bonus plan is for 1999 only, and future bonus plans, if
any, will be defined at a later date.
OPTIONS
Upon your employment you will be awarded an option to purchase 800,000 shares of
the Company's common stock pursuant to the Company incentive stock option
<PAGE>
Ted Briscoe
01/18/99
Page 2
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 $0.3638 per share.
INVESTMENT
You will be invited to invest $1 million on the same terms and conditions, and
at the same time, as the other Series B Preferred investors. Closing is expected
to take place in late January or early February.
RELOCATION EXPENSE
The company will reimburse relocation related expenses for you and your family,
including:
- Temporary housing
- Travel
- Commission on the sale of your current home
- Moving costs for household
- Closing costs on the purchase of a house
We request that you try to spend less than $150,000 in this relocation effort.
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 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.
Enclosed is a summary of current Company benefits. 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 Ask Jeeves' arrangement with TriNet, TriNet will be considered your employer
of record for payroll, benefits, and other functions involving employer related
administration, including your new hire enrollment processing. However, as Ask
Jeeves is the company for which you will perform service, we will retain the
right to control and direct your work, its results, and the manner and means by
which your work is accomplished.
For purposes of federal immigration law, you will be required to provide 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.
<PAGE>
Ted Brisoe
01/18/99
Page 3
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 the Company and supercedes any prior
representations or agreements, whether written or oral. This letter may not be
amended or modified except by written agreement signed by the Company and by
you. This offer expires on January 18, 1999.
Welcome to Ask Jeeves!
Sincerely,
/s/ Robert Wrubel
Robert Wrubel
President
Ask Jeeves, Inc.
Enclosures
Accepted:
/s/ Ted Briscoe January 18, 1999
- ------------------------- ----------------
Ted Briscoe Date
<PAGE>
[LETTERHEAD]
January 5, 1999
Mr. Frank Vaculin
2715 Deer Meadow Drive
Danville CA 94506
Dear Frank:
I am pleased to offer you a position AS VICE PRESIDENT, WORLDWIDE CORPORATE AND
CONSUMER SALES for Ask Jeeves, Inc. ("the Company"). Your first day of
employment will be January 21, 1999 (your "Start Date"). You will report to Rob
Wrubel.
JOB DESCRIPTION
You will be in charge of all sales activities at Ask Jeeves, including:
- Meeting revenue targets
- Hiring, motivating, managing and retaining a sales force
- Defining, communicating and refining the sales plan and strategy
- Defining the sales infrastructure required
- Defining and implementing partnerships as appropriate
- Maintaining yourself and the competition abreast of the competitive
landscape
- Coordinating with business development and production groups at Ask
Jeeves
BASE SALARY
You will receive an annual salary of $175,000, 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 Vice President of Sales at Ask Jeeves.
BONUS
You will be eligible to receive bonuses in 1999 based on the total recognized
revenues you achieve. This bonus will be paid on a quarterly basis, as soon as
final recognized revenues (unaudited) for the prior quarter are calculated.
<PAGE>
Frank Vaculin
01/05/99
Page 2
The bonus will be equal to 1.0% (one percent) of recognized revenue, as defined
below.
For the purposes of calculating this bonus, the following revenues will be
INCLUDED in the revenue figures:
- Ad sales revenues
- E commerce revenues
- Corporate systems (license, knowledgebase creation, maintenance, per
click fees, revenue sharing)
- Knowledgebase licensing revenues
- In general, all revenues derived from the day to day operations of the
company.
For the purposes of calculating this bonus, the following revenues will be
excluded in the revenue figures:
- Any revenues deriving from a merger or acquisition with another
company.
"Recognized Revenue" means revenue that is recognized on the Company's financial
statements, materially in accordance with generally accepted accounting
practices and Company policies.
Please note that this bonus plan is for 1999 only, and future bonus plans, if
any, will be defined at a later date.
GUARANTEED MINIMUM DRAW ON BONUS
Ask Jeeves will guarantee a total minimum draw of $40,000 of this bonus during
the six months following your Start Date. The prorated portion of this minimum
draw will be included in your regularly scheduled paychecks.
The minimum draw will be applied against all bonuses earned during the 12 months
following your Start Date.
No minimum draw will be guaranteed beyond the six-month anniversary of your
Start Date.
OPTIONS
Upon your employment you will be awarded an option to purchase 600,000 shares of
the Company's common stock pursuant to the Company 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 of the shares as of the date of board
approval of your options (which fair market value is expected to be the same as
the current fair market value of $0.3638 per share).
<PAGE>
Frank Vaculin
01/05/99
Page 3
SEVERANCE PACKAGE
The Company shall have the right to terminate your employment with the Company
at any time with or without cause. "Cause" for termination shall mean: (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; (d)
intentional damage to any property of the Company, or (e) conduct by you 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 a severance package of six months base
salary plus six months expected bonus (with a total of expected bonus and salary
not to exceed $150,000). In the event that your termination is due to change of
control of the Company, you will be entitled to the severance package defined in
the previous sentence plus immediate vesting of 6/48th of the options granted to
you under this offer of employment, in addition to those that would be vested at
the date of your termination under the company's incentive stock option plan.
In all other circumstances, you will not be eligible for a severance package.
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 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.
Enclosed is a summary of current Company benefits. 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 Ask Jeeves' arrangement with TriNet, TriNet will be considered your employer
of record for payroll, benefits, and other functions involving employer related
administration, including your new hire enrollment processing. However, as Ask
Jeeves is the company for which you will perform service, we will retain the
right to control and direct your work, its results, and the manner and means by
which your work is accomplished.
For purposes of federal immigration law, you will be required to provide 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.
<PAGE>
Frank Vaculin
01/05/99
Page 4
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 of 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 the Company and supercedes any prior
representations or agreements, whether written or oral. This letter may not be
amended or modified except by written agreement signed by the Company and by
you. This offer expires on January 8, 1999.
Welcome to Ask Jeeves!
Sincerely,
/s/ Robert Wrubel
Robert Wrubel
President
Ask Jeeves, Inc.
Enclosures
Accepted:
/s/ Frank Vaculin
- -------------------------
Frank Vaculin Date January 5, 1999
<PAGE>
ASK JEEVES, INC.
COMMON STOCK SUBSCRIPTION AGREEMENT
This COMMON STOCK SUBSCRIPTION AGREEMENT ("Agreement") is made as of June
1, 1998, by and among ASK JEEVES, INC., a California corporation (the "Company")
and the investors listed on SCHEDULE I attached hereto (individually, a
"Purchaser" and collectively, "Purchasers").
1. AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has authorized the issuance and sale to
Purchasers of four million two hundred and ninety seven thousand six hundred and
fifteen (4,297,615) shares of its Common Stock (the "Shares").
1.2 SALE. Subject to the terms and conditions hereof, the Company hereby
agrees to issue and sell to Purchasers, and Purchasers hereby agree to purchase
from the Company, the Shares free and clear of all liens, encumbrances and
charges whatsoever for a purchase price of Twenty-Six and Forty-One Hundredths
Cents ($.2641) per share that number of shares of Common Stock set forth
opposite each Purchaser's name on Schedule I.
1.3 CLOSING. The closing of the sale of purchase of the Shares under this
Agreement shall be held on June 22, 1998 at the Palo Alto office of Cooley
Godward LLP, or at such other time and place as the Company and Purchasers may
agree.
1.4 DELIVERY. At the closing and upon full payment of the purchase price
of the Shares, the Company will deliver to each Purchaser a certificate
representing the Shares, dated the date of the Closing.
2. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as follows:
(a) Purchaser is acquiring the Shares for Purchaser's own account,
not as nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act").
(b) Purchaser understands that (i) the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
that they must be held by Purchaser indefinitely, and that Purchaser must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities
<PAGE>
Act or is exempt from such registration; (ii) each certificate representing the
Shares will be endorsed with the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS
ASSIGNEE(S) AS PROVIDED IN THE BYLAWS OF THE COMPANY."
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Shares unless the conditions specified in the foregoing
legend are satisfied.
(c) Purchaser has been furnished with all the information necessary
to make an informed investment decision. Purchaser has been given access to
such information relating to the Company as Purchaser has requested.
(d) By reason of Purchaser's business or financial experience,
Purchaser has the capacity to make the decision referred to in subsection (c)
above.
(e) Purchaser is an accredited investor within the meaning of
Regulation D under the Securities Act.
(f) Purchaser is aware that the Shares may not be sold pursuant to
Rule 144 adopted under the Securities Act unless certain conditions are met and
until Purchaser has held the Shares for the applicable holding period. Among
the conditions for use of Rule 144 is the availability of specified current
public information about the Company. Purchaser recognizes that the Company
presently has no plans to make such information available to the public.
Each Purchaser further agrees not to make any disposition of any of the
Shares in any event unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and
(B) Purchaser shall have given the Company an
2
<PAGE>
opinion of counsel, which opinion and counsel shall be satisfactory to the
Company, to the effect that such disposition will not require registration of
the Shares under the Securities Act.
(g) Purchaser is not relying on the Company for any tax advice and
has had the opportunity to obtain his, her or its own tax advice.
(h) Purchaser is not relying on the Company to continue to elect to
be treated as an S Corporation for tax purposes for any period of time.
(i) Purchaser is not expecting or relying on the Company for any tax
advantages to result from the transaction contemplated by this Agreement.
3. MISCELLANEOUS.
3.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California. Each party hereby expressly consents to the personal
jurisdiction of the state and federal courts located in San Mateo and Santa
Clara Counties, California for any lawsuit arising from or related to this
Agreement.
3.2 CHAPTER S ELECTION. Purchasers hereby consent and agree that the
Company is currently and shall continue to be treated as an S Corporation for
tax purposes and agree to execute such other documents that the Company requests
in order to make such election. Nothing in this Section 3.2 shall be construed
as an obligation on the part of the Company to continue to elect to be treated
as an S Corporation, and it shall be in the Company's sole discretion to decide
whether to continue such election.
3.3 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by Purchasers and the closing
of the transaction contemplated hereby.
3.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
3.5 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
3.6 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subject matter
hereof.
3
<PAGE>
3.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
FURTHER ACTION. Each party shall, without further consideration, take such
further action and execute and deliver such further documents as may be
reasonably requested by the other party in order to carry out the provisions and
purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this COMMON STOCK
SUBSCRIPTION AGREEMENT as of the day and year first set forth above.
COMPANY: PURCHASERS:
ASK JEEVES, INC.
By: /s/ Curtis Vredenburg By: /s/ Investors listed on Schedule I
-------------------------------- ----------------------------------
Print Name: Curtis Vredenburg Print Name:
------------------------ ---------------------------
Title: Chief Financial Officer Title:
----------------------------- --------------------------------
4
<PAGE>
SCHEDULE I
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NAME OF INVESTOR/ADDRESS NUMBER OF SHARES DOLLAR AMOUNT
<S> <C> <C>
Leavitt Family Trust 473,306 $125,000
Melody Kean Haller 378,644 $100,000
Daniel Miller 189,322 $50,000
Garret Gruener 189,322 $50,000
Roger Strauch 189,322 $50,000
Jeffrey D. Saper 189,322 $50,000
Robert L. Raede & Ellen Sue Raede TTEE 189,322 $50,000
FBO The Raede Family Trust DTD 5/29/96
A. Nathaniel Goldhaber 189,322 $50,000
P. Kirk Hobbs 189,322 $50,000
Kevin D. Schon & Suzanne C. Schon 378,644 $100,000
Revocable Trust Dated July 29, 1994
Rod N. Turner 265,051 $70,000
Stanley L. Cook TTE FBO SLC Investment 189,322 $50,000
Pension Fund
David Allen Hoffman and Joan E. Sarnat 378,644 $100,000
Living Trust
Gerald K. & Vero Leo Revocable Trust 94,661 $25,000
8/14/89
A. George Battle 94,661 $25,000
M. Bruce Nakao 1994 Trust 94,661 $25,000
Margaret L. Taylor 94,661 $25,000
J. Thomas Bentley 94,661 $25,000
Charles M. Finnie 94,661 $25,000
Benjamin M. Rosen 283,983 $75,000
Guy Nohra 56,797 $15,000
TOTAL: 4,297,611 $1,135,000
</TABLE>
5
<PAGE>
ASK JEEVES, INC.
COMMON STOCK SUBSCRIPTION AGREEMENT
This COMMON STOCK SUBSCRIPTION AGREEMENT ("Agreement") is made as of
August 26, 1998, by and among ASK JEEVES, INC., a California corporation (the
"Company") and the investors listed on SCHEDULE I attached hereto (individually,
a "Purchaser" and collectively, "Purchasers").
1. AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has authorized the issuance and sale to
Purchasers of three million seven hundred ten thousand (3,710,830) shares of its
Common Stock (the "Shares").
1.2 SALE. Subject to the terms and conditions hereof, the Company hereby
agrees to issue and sell to Purchasers, and Purchasers hereby agree to purchase
from the Company, the Shares free and clear of all liens, encumbrances and
charges whatsoever for a purchase price of Thirty Six and Third Eight
Hundredths Cents ($.3638) per share that number of shares of Common Stock set
forth opposite each Purchaser's name on Schedule I.
1.3 CLOSING. The closing of the sale of purchase of the Shares under this
Agreement shall be held on August 31, 1998 at the Palo Alto office of Cooley
Godward LLP, or at such other time and place as the Company and Purchasers may
agree.
1.4 DELIVERY. At the closing and upon full payment of the purchase price
of the Shares, the Company will deliver to each Purchaser a certificate
representing the Shares, dated the date of the Closing.
2. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as follows:
(a) Purchaser is acquiring the Shares for Purchaser's own account,
not as nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act").
(b) Purchaser understands that (i) the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
that they must be held by Purchaser indefinitely, and that Purchaser must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration; (ii) each certificate representing the Shares
will be endorsed with the following legend:
<PAGE>
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS
ASSIGNEE(S) AS PROVIDED IN THE BYLAWS OF THE COMPANY."
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Shares unless the conditions specified in the foregoing
legend are satisfied.
(c) Purchaser has been furnished with all the information necessary
to make an informed investment decision. Purchaser has been given access to
such information relating to the Company as Purchaser has requested.
(d) By reason of Purchaser's business or financial experience,
Purchaser has the capacity to make the decision referred to in subsection (c)
above.
(e) Purchaser is an accredited investor within the meaning of
Regulation D under the Securities Act.
(f) Purchaser is aware that the Shares may not be sold pursuant to
Rule 144 adopted under the Securities Act unless certain conditions are met and
until Purchaser has held the Shares for the applicable holding period. Among
the conditions for use of Rule 144 is the availability of specified current
public information about the Company. Purchaser recognizes that the Company
presently has no plans to make such information available to the public.
Each Purchaser further agrees not to make any disposition of any of the
Shares in any event unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and
(B) Purchaser shall have given the Company an opinion of counsel, which opinion
and counsel shall be satisfactory to the Company, to the effect that such
disposition will not require registration of the Shares under the Securities
Act.
2
<PAGE>
3. MISCELLANEOUS.
3.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California. Each party hereby expressly consents to the personal
jurisdiction of the state and federal courts located in San Mateo and Santa
Clara Counties, California for any lawsuit arising from or related to this
Agreement.
3.2 CHAPTER S ELECTION. Purchasers hereby consent and agree that the
Company is currently and shall continue to be treated as an S Corporation for
tax purposes and agree to execute such other documents that the Company requests
in order to make such election. Nothing in this Section 3.2 shall be construed
as an obligation on the part of the Company to continue to elect to be treated
as an S Corporation, and it shall be in the Company's sole discretion to decide
whether to continue such election.
3.3 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by Purchasers and the closing
of the transaction contemplated hereby.
3.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
3.5 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
3.6 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subject matter
hereof.
3.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
3.8 FURTHER ACTION. Each party shall, without further consideration, take
such further action and execute and deliver such further documents as may be
reasonably requested by the other party in order to carry out the provisions and
purposes of this Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this COMMON STOCK
SUBSCRIPTION AGREEMENT as of the day and year first set forth above.
COMPANY: PURCHASERS:
ASK JEEVES, INC.
--------------------------------------
[Print Name of Purchaser]
By: /s/ Curtis Vredenburg By: /s/ Investors Listed on Schedule I
--------------------------- -----------------------------------
Print Name: Curtis Vredenburg Print Name:
------------------- ---------------------------
Title: VP Finance & Operations Title:
------------------------ --------------------------------
4
<PAGE>
SCHEDULE I
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
INVESTOR NAME $ AMOUNT NUMBER OF SHARES
<S> <C> <C>
Conway, Ron $ 125,000 343,595
Curry, Adam $ 50,000 137,438
Godfrey, Peter $ 50,000 137,438
Grener, Garrett $ 75,000 206,157
Leavitt, Steven $ 75,000 206,157
McClelland, Carter $ 50,000 137,438
Miller, Daniel $ 100,000 274,876
Porat, Mark $ 50,000 137,438
Rosen, Ben $ 425,000 1,168,224
Sevin, LJ $ 225,000 618,472
Strauch, Roger $ 100,000 274,876
Total $1,350,000 3,710,830
</TABLE>
5
<PAGE>
ASK JEEVES, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. AGREEMENT TO SELL AND PURCHASE.. . . . . . . . . . . . . . . . . . . . . 1
1.1 Authorization of Shares.. . . . . . . . . . . . . . . . . . . . . 1
1.2 Sale and Purchase.. . . . . . . . . . . . . . . . . . . . . . . . 1
2. CLOSING, DELIVERY AND PAYMENT. . . . . . . . . . . . . . . . . . . . . . 1
2.1 Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Subsequent Sales of Shares. . . . . . . . . . . . . . . . . . . . 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . 2
3.1 Organization, Good Standing and Qualification.. . . . . . . . . . 2
3.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Capitalization; Voting Rights.. . . . . . . . . . . . . . . . . . 3
3.4 Authorization; Binding Obligations. . . . . . . . . . . . . . . . 3
3.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 4
3.6 Liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7 Agreements; Action. . . . . . . . . . . . . . . . . . . . . . . . 4
3.8 Obligations to Related Parties. . . . . . . . . . . . . . . . . . 5
3.9 Changes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.10 Title to Properties and Assets; Liens, etc. . . . . . . . . . . . 6
3.11 Patents and Trademarks. . . . . . . . . . . . . . . . . . . . . . 6
3.12 Compliance with Other Instruments.. . . . . . . . . . . . . . . . 7
3.13 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 Tax Returns and Payments. . . . . . . . . . . . . . . . . . . . . 8
3.15 Employees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.16 Proprietary Information and Inventions Agreements.. . . . . . . . 8
3.17 Registration Rights.. . . . . . . . . . . . . . . . . . . . . . . 8
3.18 Compliance with Laws; Permits.. . . . . . . . . . . . . . . . . . 8
3.19 Offering Valid. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.20 Accounting Controls.. . . . . . . . . . . . . . . . . . . . . . . 9
3.21 Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
3.22 Environmental and Safety Laws.. . . . . . . . . . . . . . . . . . 9
3.23 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.. . . . . . . . . . . . 9
4.1 Requisite Power and Authority.. . . . . . . . . . . . . . . . . .10
4.2 Investment Representations. . . . . . . . . . . . . . . . . . . .10
4.3 Transfer Restrictions.. . . . . . . . . . . . . . . . . . . . . .11
5. CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . .11
5.1 Conditions to Purchasers' Obligations at the Closing. . . . . . .11
5.2 Conditions to Obligations of the Company. . . . . . . . . . . . .12
6. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
6.1 Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . .13
6.2 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
6.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . .13
6.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . .13
6.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .14
6.6 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . . . .14
6.7 Delays or Omissions.. . . . . . . . . . . . . . . . . . . . . . .14
6.8 Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
6.9 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.10 Attorneys' Fees.. . . . . . . . . . . . . . . . . . . . . . . . .15
6.11 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . . . .15
6.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.13 Broker's Fees.. . . . . . . . . . . . . . . . . . . . . . . . . .15
6.14 Exculpation Among Purchasers. . . . . . . . . . . . . . . . . . .15
6.15 Pronouns. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.16 Additional Investors. . . . . . . . . . . . . . . . . . . . . . .15
6.17 California Corporate Securities Law.. . . . . . . . . . . . . . .15
</TABLE>
ii.
<PAGE>
ASK JEEVES, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of November 10, 1998, by and among Ask Jeeves, Inc., a
California corporation (the "Company") and each of those persons and entities,
severally and not jointly, whose names are set forth on the Schedule of
Purchasers attached hereto as Exhibit A (which persons and entities are
hereinafter collectively referred to as "Purchasers" and each individually as a
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an aggregate
of Seven Million Five Hundred Thousand (7,500,000) shares of its Series A
Preferred Stock (the "Shares");
WHEREAS, Purchasers desire to purchase the Shares on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to Purchasers on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as
defined in Section 2 below), the Company shall have authorized (i) the sale and
issuance to Purchasers of the Shares and (ii) the issuance of such shares of
Common Stock to be issued upon conversion of the Shares (the "Conversion
Shares"). The Shares and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Restated Articles of
Incorporation of the Company, as amended, in the form attached hereto as Exhibit
B (the "Restated Charter").
1.2 SALE AND PURCHASE. Subject to the terms and conditions
hereof, at the Closing (as hereinafter defined) the Company hereby agrees to
issue and sell to each Purchaser, severally and not jointly, and each Purchaser
agrees to purchase from the Company, severally and not jointly, the number of
Shares set forth opposite such Purchaser's name on Exhibit A, at a purchase
price of $1.0315 per share.
2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares
under this Agreement (the "Closing") shall take place at 10:00 a.m. on the date
hereof, at the offices of
1.
<PAGE>
Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California 94306 or at such other time or place as the Company and Purchasers
may mutually agree (such date is hereinafter referred to as the "Closing Date").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares to be purchased at the Closing by each Purchaser, against
payment of the purchase price therefor by check, wire transfer made payable to
the order of the Company, cancellation of indebtedness or any combination of the
foregoing.
2.3 SUBSEQUENT SALES OF SHARES. At any time on or before the
30th day following the Closing, the Company may sell up to the balance of the
authorized shares of Series A Preferred Stock not sold at the Closing to
existing shareholders and their affiliates as may be approved by the Board of
Directors of the Company. All such sales shall be made on the terms and
conditions set forth in this Agreement, the Investor Rights Agreement (as
defined below) and the Voting Agreement (as defined below), including, without
limitation, the representations and warranties by such Purchasers as set forth
in Section 4. Any Shares of Series A Preferred Stock sold pursuant to this
Section 2.3 shall be deemed to be "Shares" for all purposes under this Agreement
and any purchasers thereof shall be deemed to be "Purchasers" for all purposes
under this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on a Schedule of Exceptions delivered by the Company to
the Purchasers at the Closing, the Company hereby represents and warrants to
each Purchaser as of the date of this Agreement as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California. The Company has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement, the Investor Rights Agreement substantially in the form
attached hereto as Exhibit C (the "Investor Rights Agreement"), the Voting
Agreement substantially in the form attached hereto as Exhibit D (the "Voting
Agreement") and the Management Rights Letter substantially in the form attached
hereto as Exhibit E (the "Management Rights Letter") (collectively, the "Related
Agreements"), to issue and sell the Shares and the Conversion Shares and to
carry out the provisions of this Agreement, the Related Agreements and the
Restated Charter and to carry on its business as presently conducted and as
presently proposed to be conducted. The Company is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.
2.
<PAGE>
3.2 SUBSIDIARIES. The Company owns no equity securities of any
other corporation, limited partnership or similar entity. The Company is not a
participant in any joint venture, partnership or similar arrangement.
3.3 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock
of the Company, immediately prior to the Closing, will consist of fifty million
(50,000,000) shares of Common Stock, twenty-two million three hundred four
thousand five hundred eight-six (22,304,586) shares of which are issued and
outstanding and five million thirteen thousand two hundred eighty-six
(5,013,286) shares of which are reserved for future issuance to employees
pursuant to outstanding options under the Company's 1996 Equity Incentive Plan,
forty three thousand (43,000) shares upon the exercise of certain warrants to
purchase Common Stock of the Company, and ten million (10,000,000) shares of
Preferred Stock, seven million five hundred thousand (7,500,000) of which are
designated Series A Preferred Stock, four million, nine hundred sixty one
thousand five hundred thirty (4,961,530) shares of which are issued and
outstanding. All issued and outstanding shares of the Company's Common Stock
(a) have been duly authorized and validly issued (b) are fully paid and
nonassessable, and (c) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities. The rights, preferences,
privileges and restrictions of the Shares are as stated in the Restated Charter.
Subject to adjustment as set forth in the Restated Charter, each series of
Preferred Stock is convertible into Common Stock on a one-for-one basis. The
Conversion Shares have been duly and validly reserved for issuance. Other than
the shares reserved for issuance under the Company's 1996 Equity Incentive Plan,
and except as may be granted pursuant to the Related Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or shareholder agreements, or agreements of
any kind for the issuance by the Company or purchase or acquisition from the
Company of any of its securities. When issued in compliance with the provisions
of this Agreement and the Restated Charter, the Shares and the Conversion Shares
will be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances; provided, however, that the Shares and the Conversion
Shares 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.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers, directors and shareholders necessary for
the authorization of this Agreement and the Related Agreements, the performance
of all obligations of the Company hereunder and thereunder at the Closing and
the authorization, sale, issuance and delivery of the Shares pursuant hereto and
the Conversion Shares pursuant to the Restated Charter has been taken or will be
taken prior to the Closing. The Agreement and the Related Agreements, when
executed and delivered, will be valid and binding obligations of the Company
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; (b) general principles
of equity that restrict the availability of equitable remedies; and (c) to the
extent that the enforceability of the indemnification provisions in Section 2.9
of the Investor Rights Agreement may be limited by applicable laws. The sale of
the Shares and the subsequent conversion of the Shares into Conversion Shares
are not and will not be
3.
<PAGE>
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with.
3.5 FINANCIAL STATEMENTS. The Company has been made available to
each Purchaser (a) its unaudited balance sheet as at December 31, 1997 and
unaudited statement of income and cash flows for the twelve months ending
December 31, 1997 and (b) its unaudited balance sheet as at August 31, 1998 (the
"Statement Date") and unaudited consolidated statement of income and cash flows
for the eight month period ending on the Statement Date (collectively, the
"Financial Statements"). The Financial Statements, together with the notes
thereto, are complete and correct in all material respects, 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 results of operations of the
Company as of December 31, 1997 and the Statement Date; 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.
3.6 LIABILITIES. The Company has no material liabilities and, to
the best of its knowledge, knows of no material contingent liabilities not
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to the Statement Date which have not
been, either in any individual case or in the aggregate, materially adverse.
3.7 AGREEMENTS; ACTION.
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to, the Company in excess of $10,000
(other than obligations of, or payments to, the Company arising from purchase or
sale agreements entered into in the ordinary course of business), or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company (other than licenses arising from the purchase of "off the
shelf" or other standard products), or (iii) provisions restricting or affecting
the development, manufacture or distribution of the Company's products or
services, or (iv) indemnification by the Company with respect to infringements
of proprietary rights (other than indemnification obligations arising from
purchase or sale agreements entered into in the ordinary course of business).
(b) The Company has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money borrowed
or any other liabilities (other than with respect to indebtedness and other
obligations incurred in the ordinary course of business and as disclosed in the
Financial Statements) individually in excess of $10,000 or, in the case of
indebtedness and/or liabilities individually less than $10,000, in excess of
$25,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
4.
<PAGE>
(c) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of
the Company to officers, directors, shareholders, or employees of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company). Except as may be disclosed in the Financial
Statements, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation.
3.9 CHANGES. Since the Statement Date, there has not been:
(a) Any change in the assets, liabilities, financial
condition or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition or operations of
the Company;
(b) Any resignation or termination of any key officers of
the Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) To the best of its knowledge, any material change,
except in the ordinary course of business, in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
5.
<PAGE>
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) To the best of its knowledge, any labor organization
activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the
Company is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of the Company; or
(m) Any other event or condition of any character that,
either individually or cumulatively, has or, to the best of its knowledge, may
materially and adversely affected the business, assets, liabilities, financial
condition, operations or prospects of the Company.
3.10 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its properties and assets, including the properties
and assets reflected in the most recent balance sheet included in the Financial
Statements, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent, (b) minor liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (c)
those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.
3.11 PATENTS AND TRADEMARKS. To the best of its knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes necessary for its business as now
conducted and as presently proposed to be conducted, without any known or
asserted infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as presently proposed, would violate any
of the patents, trademarks, service marks, trade names,
6.
<PAGE>
copyrights or trade secrets or other proprietary rights of any other person or
entity. The Company is not aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
that would conflict with the Company's business as presently proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as presently proposed will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their employment
by the Company, except for inventions, trade secrets or proprietary information
that have been assigned to the Company.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Restated Charter or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, any statute, rule or regulation applicable to the
Company which would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. The
execution, delivery, and performance of and compliance with this Agreement, and
the Related Agreements, and the issuance and sale of the Shares pursuant hereto
and of the Conversion Shares pursuant to the Restated Charter, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term,
or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.13 LITIGATION. There is no action, suit, proceeding or
investigation pending or to the Company's knowledge currently threatened in
writing against the Company that questions the validity of this Agreement, or
the Related Agreements or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing.
The foregoing includes, without limitation, actions pending or threatened in
writing (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
7.
<PAGE>
3.14 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
3.15 EMPLOYEES. The Company has no collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's knowledge, threatened with respect to the
Company. No employee has any agreement or contract, written or verbal,
regarding his employment. To the Company's knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company because of the nature of the
business to be conducted by the Company; and to the Company's knowledge the
continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company has not received any notice
alleging that any such violation has occurred. No employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The Company
is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any officer, key
employee or group of key employees.
3.16 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
current employee and officer of the Company has executed a Proprietary
Information and Inventions Agreement in the form of Exhibit F attached hereto.
No current employee or officer of the Company has excluded works or inventions
made prior to his or her employment with the Company from his or her assignment
of inventions pursuant to such employee or officer Proprietary Information and
Inventions Agreement.
3.17 REGISTRATION RIGHTS. Except as required pursuant to the
Investor Rights Agreement, the Company is presently not under any obligation,
and has not granted any rights, to register (as defined in Section 1.1 of the
Investor Rights Agreement) any of the Company's presently outstanding securities
or any of its securities that may hereafter be issued.
3.18 COMPLIANCE WITH LAWS; PERMITS. The Company is not in
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders,
8.
<PAGE>
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection with
the execution and delivery of this Agreement and the issuance of the Shares or
the Conversion Shares, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of the Company
and believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.19 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 4.2 hereof, the offer,
sale and issuance of the Shares and the Conversion Shares will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any agent on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Shares to any
person or persons so as to bring the sale of such Shares by the Company within
the registration provisions of the Securities Act or any state securities laws.
3.20 ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting controls sufficient to provide assurance that: (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements materially in conformity with generally accepted
accounting principles and to maintain accountability for assets; (3) access to
assets is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.21 MINUTE BOOKS. The minute books of the Company provided to
the Purchasers contain a complete summary of all meetings of directors and
shareholders since the time of incorporation.
3.22 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company
is not in violation of any applicable statue, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
stature, law or regulation.
3.23 INSURANCE. The Company has fire and casualty insurance
policies with coverage customary for companies similarly situated to the
Company.
9.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All action on Purchaser's part required for the lawful execution
and delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, (b) general
principles of equity that restrict the availability of equitable remedies, and
(c) to the extent that the enforceability of the indemnification provisions of
Section 2.9 of the Investor Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under the
Securities Act. Purchaser also understands that the Shares are being offered
and sold pursuant to an exemption from registration contained in the Securities
Act based in part upon Purchaser's representations contained in the Agreement.
Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser must bear the economic
risk of this investment indefinitely unless the Shares (or the Conversion
Shares) are registered pursuant to the Securities Act, or an exemption from
registration is available. Purchaser understands that the Company has no
present intention of registering the Shares, the Conversion Shares or any shares
of its Common Stock. Purchaser also understands that there is no assurance that
any exemption from registration under the Securities Act will be available and
that, even if available, such exemption may not allow Purchaser to transfer all
or any portion of the Shares or the Conversion Shares under the circumstances,
in the amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) GENERAL SOLICITATION. Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement.
10.
<PAGE>
(d) ACCREDITED INVESTOR. Purchaser represents that it is
an accredited investor within the meaning of Regulation D under the Securities
Act.
(e) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements and Business Plan and has had an opportunity to discuss
the Company's business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has also had the opportunity to
ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares, and, if issued, the Conversion Shares must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act as in effect from
time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about the
Company, the resale occurring following the required holding period under Rule
144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on Exhibit A; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located at
the address or addresses of the Purchaser set forth on Exhibit A.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Shares and, if issued, the Conversion Shares are subject to
restrictions on transfer as set forth in the Investor Rights Agreement.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING.
Purchasers' obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct in all material respects as of the Closing
Date with the same force and effect as if they had been made as of the Closing
Date, and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which Purchasers and the
Company are subject.
11.
<PAGE>
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
(d) FILING OF RESTATED CHARTER. The Restated Charter shall
have been filed with the Secretary of State of the State of California.
(e) CORPORATE DOCUMENTS. The Company shall have delivered
to Purchasers or their counsel, copies of all corporate documents of the Company
as Purchasers shall reasonably request.
(f) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Shares shall have been duly authorized
and reserved for issuance upon such conversion.
(g) COMPLIANCE CERTIFICATE. The Company shall have
delivered to Purchasers a Compliance Certificate, executed by the President of
the Company, dated the Closing Date, to the effect that the conditions specified
in subsections (a), (c) and (f) of this Section 5.1 have been satisfied.
(h) INVESTOR RIGHTS AGREEMENT. The Investor Rights
Agreement shall have been executed and delivered by the parties thereto.
(i) VOTING AGREEMENT. The Voting Agreement shall have been
executed and delivered by the parties thereto.
(j) MANAGEMENT RIGHTS LETTER. The Management Rights Letter
shall have been executed and delivered by the parties thereto.
(k) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company an opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit G.
(l) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares at each Closing is subject to the
satisfaction, on or prior to such Closing, of the following conditions:
12.
<PAGE>
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by those Purchasers acquiring Shares in
Section 4 hereof shall be true and correct in all material respects at the date
of the Closing, with the same force and effect as if they had been made on and
as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by such Purchasers on or before the Closing.
(c) FILING OF RESTATED CHARTER. The Restated Charter shall
have been filed with the Secretary of State of the State of California.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights
Agreement shall have been executed and delivered by the Purchasers.
(e) VOTING AGREEMENT. The Voting Agreement shall have been
executed and delivered by the parties thereto.
(f) MANAGEMENT RIGHTS LETTER. The Management Rights Letter
shall have been executed and delivered by the parties thereto.
(g) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely in
California.
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and
13.
<PAGE>
entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified through any
subsequent sales provided by Section 2.3 of this Agreement only upon the written
consent of the Company and holders of at least fifty percent (50%) of the Shares
(treated as if converted and including any Conversion Shares into which the
Shares have been converted that have not been sold to the public).
(b) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under the Agreement may be
waived through any subsequent sales provided by Section 2.3 of this Agreement
only with the written consent of the holders of at least fifty percent (50%) of
the Shares (treated as if converted and including any Conversion Shares into
which the Shares have been converted that have not been sold to the public).
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Articles, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any Purchaser's
part of any breach, default or noncompliance under this Agreement, the Related
Agreements or under the Restated Articles or any waiver on such party's part of
any provisions or conditions of the Agreement, the Related Agreements, or the
Restated Articles must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Related Agreements, the Restated Articles, by law, or otherwise
afforded to any party, shall be cumulative and not alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on Exhibit A attached hereto or at
14.
<PAGE>
such other address as the Company or Purchaser may designate by ten (10) days
advance written notice to the other parties hereto.
6.9 EXPENSES. Each party shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of the Agreement.
6.10 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
6.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.13 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 6.13 being untrue.
6.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm, or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Conversion Shares.
6.15 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
6.16 ADDITIONAL INVESTORS. Notwithstanding anything to the
contrary contained herein, if the Company shall issue additional shares of its
Series A Preferred Stock pursuant to the Agreement, any purchaser of such shares
of Series A Preferred Stock may become a party to this Agreement by executing
and delivering an additional counterpart signature page to this Agreement and
shall be deemed a "PURCHASER" hereunder.
15.
<PAGE>
6.17 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
16.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SERIES A PREFERRED
STOCK PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
ASK JEEVES, INC. INVESTOR
By: /s/ Robert W. Wrubel By: /s/ Investors Listed on Exhibit A
-------------------------------- -------------------------------------
President
Name:
----------------------------------
Title:
---------------------------------
Address:
-------------------------------
----------------------------------------
----------------------------------------
Phone Number: ( )
--------------------
Facsimile: ( )
----------------------
SIGNATURE PAGE
17.
<PAGE>
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Restated Articles of Incorporation Exhibit B
Investor Rights Agreement Exhibit C
Voting Agreement Exhibit D
Management Rights Letter Exhibit E
Proprietary Information and Exhibit F
Inventions Agreement
Form of Legal Opinion Exhibit G
19.
<PAGE>
EXHIBIT A
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
AGGREGATE
NAME SHARES PURCHASE PRICE
- -------------------------------------------- -------------- ------------------
<S> <C> <C>
CPQ Holdings, Inc. 4,961,530 $5,117,818
J. Thomas Bentley 9,695 $10,000.39
Charles M. Finnie 9,695 $10,000.39
Garrett Gruener 185,191 $191,024.52
Melody Kean Haller 18,146 $18,717.60
P. Kirk Hobbs 9,695 $10,000.39
David Allen Hoffman and Joan E. Sarnat 18,146 $18,717.60
Living Turst 12-15-95
Russell S. Holdstein, Trustee for the 15,578 $16,068.71
Holdstein Revocable Trust U/T/D 6/12/83
Leavitt Family Trust U/T/D 4-20-89 84,497 $87,158.66
Gerald K. and Vera Leo Revocable Trust 9,695 $10,000.39
8/14/89
Daniel Miller 212,250 $218,935.88
M. Bruce Nakao 1994 Trust 9,695 $10,000.39
Benjamin Rosen 69,597 $71,789.31
969,492 $1,000,031.00
</TABLE>
1.
<PAGE>
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
AGGREGATE
NAME SHARES PURCHASE PRICE
- -------------------------------------------- -------------- ------------------
<S> <C> <C>
Kevin D. Schon and Suzanne C. Schon 18,146 $18,717.60
Revocable Trust dated July 29, 1994
LJ Sevin 29,640 $30,573.66
242,365 $249,999.50
Strauch Kulhanjian Family Trust 212,250 $218,935.88
Margaret L. Taylor 9,695 $10,000.39
George J. Still, Jr. 24,237 $25,000.47
Amy Slater 9,695 $10,000.39
GC&H Investments 24,237 $25,000.47
24,237 $25,000.47
Ronald Conway 48,473 $49,999.90
Angel Investors, L.P. 193,892 $199,999.60
TOTAL: 7,419,769 $7,653,491.56
--------- -------------
--------- -------------
</TABLE>
<PAGE>
EXHIBIT E
MANAGEMENT RIGHTS LETTER
November 10, 1998
CPQ Holdings, Inc.
20555 S.H. 249
Houston, TX 77070-2698
RE: MANAGEMENT RIGHTS
Ladies and Gentlemen:
This letter will confirm our agreement that pursuant to the purchase of
5,133,301 shares of Series A Preferred Stock of Ask Jeeves, Inc. (the "Company")
by CPQ Holdings, Inc. ("Investor"), Investor will be entitled to the following
contractual management rights, in addition to rights to nonpublic financial
information, inspection rights, and other rights specifically provided to all
investors in the current financing:
1. The Company shall allow one representative designated by the Investor to
attend all meetings of the Company's Board of Directors in a nonvoting capacity,
and in connection therewith, the Company shall give such representative copies
of all notices, minutes, consents and other materials, financial or otherwise,
which the Company provides to its Board of Directors at the same time and in the
same manner it provides the materials to the Board; PROVIDED, HOWEVER, that the
Company reserves the right to exclude such representative from such meetings if
such meetings are to discuss clients or prospective clients that are competitive
with the Investor or its subsidiaries; and PROVIDED, FURTHER, that the Company
reserves the right to exclude such representative from access to any material or
meeting or portion thereof where legal advice is sought or offered if the
distribution of such material to the representative or the presence of the
representative as such meeting or portion thereof would invalidate the Company's
attorney-client privilege.
2. Investor and its affiliates shall have the right to review all written
disclosures by the Company regarding Investor or its affiliates; PROVIDED,
HOWEVER, that following an "IPO", if disclosure by the Company is required by
law, then the Company shall give Investor and its affiliates at least three (3)
business days notice of such written disclosure and Investor and its affiliates
shall promptly provide their comments, if any, to the Company. The Company shall
have the right to review all written disclosures by Investor or its affiliates
regarding the Company or its affiliates. The term sheet and the terms set forth
herein shall not be disclosed in writing by either party without the prior
consent of the other party, which consent shall not be unreasonably withheld.
1
<PAGE>
3. The Company shall notify Investor in writing at least fifteen (15) days
before the Company knowingly sells any securities of the Company to a then
current employee of the Investor or its affiliates who is known by the Company
to be an employee of Investor or its affiliates.
The Company and Investor agree to abide by the terms of the Non-Disclosure
Agreement dated August 6, 1998 and Investor agrees, to hold in confidence and
trust and not disclose any confidential information provided to or learned by
it in connection with its rights under this letter.
The rights described in paragraphs 1 and 3 herein shall terminate and be of
no further force or effect upon the earlier of (i) consummation of the sale of
the Company's securities pursuant to a registration statement filed by the
Company under the Securities Act of 1933, as amended, in connection with the
firm commitment underwritten offering of its securities to the general public
(an "IPO") or (ii) upon (a) the acquisition of all or substantially all of the
assets of the Company or (b) an acquisition of the Company by another
corporation or entity by consolidation, merger or other reorganization in which
the holders of the Company's outstanding voting stock immediately prior to such
transaction own, immediately after such transaction, securities representing
less than fifty percent (50%) of the voting power of the corporation or other
entity surviving such transaction (a "Change in Control").
The confidentiality provision hereof will survive any such termination.
Very truly yours,
ASK JEEVES, INC.
By: /s/ Robert Wrubel
---------------------------------
Title: Chief Executive Officer
------------------------------
Agreed and accepted:
CPQ HOLDINGS, INC.
By: /s/ Rod Stchrock
---------------------------------
Title: Vice President
------------------------------
<PAGE>
ASK JEEVES, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. AGREEMENT TO SELL AND PURCHASE............................................1
1.1 Authorization of Shares..........................................1
1.2 Sale and Purchase................................................1
2. CLOSING, DELIVERY AND PAYMENT.............................................2
2.1 Closing..........................................................2
2.2 Delivery.........................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................2
3.1 Organization, Good Standing and Qualification....................2
3.2 Subsidiaries.....................................................3
3.3 Capitalization; Voting Rights....................................3
3.4 Authorization; Binding Obligations...............................3
3.5 Financial Statements.............................................4
3.6 Liabilities......................................................4
3.7 Agreements; Action...............................................4
3.8 Obligations to Related Parties...................................5
3.9 Changes..........................................................5
3.10 Title to Properties and Assets; Liens, etc.......................6
3.11 Patents and Trademarks...........................................6
3.12 Compliance with Other Instruments................................7
3.13 Litigation.......................................................7
3.14 Tax Returns and Payments.........................................8
3.15 Employees........................................................8
3.16 Proprietary Information and Inventions Agreements................8
3.17 Registration Rights..............................................8
3.18 Compliance with Laws; Permits....................................8
3.19 Offering Valid...................................................9
3.20 Accounting Controls..............................................9
3.21 Minute Books.....................................................9
3.22 Environmental and Safety Laws....................................9
i.
<PAGE>
3.23 Insurance........................................................9
3.24 Full Disclosure..................................................9
3.25 Qualified Small Business........................................10
3.26 Real Property Holding Corporation...............................10
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.........................10
4.1 Requisite Power and Authority...................................10
4.2 Investment Representations......................................10
4.3 Transfer Restrictions...........................................11
5. CONDITIONS TO CLOSING....................................................12
5.1 Conditions to Purchasers' Obligations at the Closing............12
5.2 Conditions to Obligations of the Company........................13
6. MISCELLANEOUS............................................................14
6.1 Governing Law...................................................14
6.2 Survival........................................................14
6.3 Successors and Assigns..........................................14
6.4 Entire Agreement................................................14
6.5 Severability....................................................14
6.6 Amendment and Waiver............................................14
6.7 Delays or Omissions.............................................14
6.8 Notices.........................................................15
6.9 Expenses........................................................15
6.10 Attorneys' Fees.................................................15
6.11 Titles and Subtitles............................................15
6.12 Counterparts....................................................15
6.13 Broker's Fees...................................................15
6.14 Exculpation Among Purchasers....................................16
6.15 Pronouns........................................................16
6.16 California Corporate Securities Law.............................16
6.17 Additional Investors............................................16
</TABLE>
ii.
<PAGE>
ASK JEEVES, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of February 24, 1999, by and among ASK JEEVES, INC., a
California corporation (the "Company") and each of those persons and entities,
severally and not jointly, whose names are set forth on the Schedule of
Purchasers attached hereto as EXHIBIT A (which persons and entities are
hereinafter collectively referred to as "Purchasers" and each individually as a
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an aggregate
of eleven million five hundred fifty one thousand six hundred thirteen
(11,551,613) shares of its Series B Preferred Stock (the "Shares");
WHEREAS, Purchasers desire to purchase the Shares on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to Purchasers on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined
in Section 2 below), the Company shall have authorized (i) the sale and issuance
to Purchasers of the Shares and (ii) the issuance of such shares of Common Stock
to be issued upon conversion of the Shares (the "Conversion Shares"). The
Shares and the Conversion Shares shall have the rights, preferences, privileges
and restrictions set forth in the Restated Articles of Incorporation of the
Company, as amended, in the form attached hereto as EXHIBIT B (the "Restated
Charter").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined) the Company hereby agrees to issue and sell
to each Purchaser, severally and not jointly, and each Purchaser agrees to
purchase from the Company, severally and not jointly, the number of Shares set
forth opposite such Purchaser's name on EXHIBIT A, at a purchase price of
$2.1642 per share.
1.3 SUBSEQUENT SALES OF SHARE. At any time on or before the 45th day
following the Closing, the Company may sell up to the balance of the authorized
shares of Series B Preferred Stock not sold at the Closing to such persons as
may be approved by the Board of Directors of the Company and the holders of a
majority of the outstanding Series B
1
<PAGE>
Preferred Stock. All such sales shall be made on the terms and conditions set
forth in this Agreement, including, without limitation, the representations and
warranties by such Purchasers as set forth in Section 4. Any shares of Series B
Preferred Stock sold pursuant to this Section 1.3 shall be deemed to be "SHARES"
for all purposes under this Agreement and any purchasers thereof shall be deemed
to be "PURCHASERS" for all purposes under this Agreement. If the Company does
not sell all the Shares by the 45th day following the Closing, the Purchasers
hereunder shall have the right to purchase such remaining Shares on a pro rata
basis. The Company may not sell any additional shares of Series B Preferred
Stock except pursuant to this section without the consent of the Purchasers of a
majority in interest of the Shares.
2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "Closing") shall take place at 10:00 a.m. on the date
hereof, at the offices of Cooley Godward LLP, Five Palo Alto Square, 3000
El Camino Real, Palo Alto, California 94306 or at such other time or place as
the Company and Purchasers may mutually agree (such date is hereinafter referred
to as the "Closing Date").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares to be purchased at the Closing by each Purchaser, against
payment of the purchase price therefor by check, wire transfer made payable to
the order of the Company or any combination of the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on a Schedule of Exceptions delivered by the Company to
the Purchasers prior to the execution and delivery hereof, the Company hereby
represents and warrants to each Purchaser as of the date of this Agreement as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Amended and Restated Investor Rights Agreement substantially
in the form attached hereto as EXHIBIT C (the "Investor Rights Agreement"), the
Amended and Restated Voting Agreement substantially in the form attached hereto
as Exhibit D (the "Voting Agreement"), and the Co-Sale Agreement substantially
in the form attached hereto as Exhibit E (the "Co-Sale Agreement")
(collectively, the "Related Agreements"), to issue and sell the Shares and the
Conversion Shares and to carry out the provisions of this Agreement, the Related
Agreements and the Restated Charter and to carry on its business as presently
conducted and as presently proposed to be conducted. The Company is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
material adverse effect on the Company or its business.
2
<PAGE>
3.2 SUBSIDIARIES. The Company owns no equity securities of any other
corporation, limited liability company or general partnership or similar entity.
The Company is not a participant in any joint venture, partnership or similar
arrangement.
3.3 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of
the Company, immediately prior to the Closing, will consist of eighty million
(80,000,000) shares of Common Stock, twenty-two million seven hundred sixteen
thousand one hundred fifty-four (22,716,154) shares of which are issued and
outstanding, eleven million nine hundred forty six thousand seven hundred forty
five (11,946,745) shares of which are reserved for issuance to employees
pursuant to the Company's 1996 Equity Incentive Plan of which five hundred
seventy four thousand seven hundred thirty three (574,733) shares have been
exercised pursuant to options (and are reflected in the outstanding Common Stock
referenced above) eight million fifty six thousand two hundred twenty seven
(8,056,227) shares are reserved for outstanding options and three million three
hundred fifteen thousand seven hundred eighty five (3,315,785) shares are
reserved for future issuance of options, seventy eight thousand (78,000) shares
of which are reserved for the exercise of certain warrants to purchase Common
Stock of the Company and seven million four hundred nineteen thousand seven
hundred sixty nine (7,419,769) shares of which are reserved for issuance upon
conversion of the Series A Preferred Stock, and twenty million (20,000,000)
shares of Preferred Stock, seven million five hundred thousand (7,500,000) of
which are designated Series A Preferred Stock, seven million four hundred
nineteen thousand seven hundred sixty nine (7,419,769) shares of which are
issued and outstanding, and twelve million five hundred thousand (12,500,000) of
which are designated Series B Preferred Stock, none of which are issued and
outstanding. All issued and outstanding shares of the Company's Common Stock
and Series A Preferred Stock (a) have been duly authorized and validly issued
(b) are fully paid and nonassessable, and (c) were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. The
rights, preferences, privileges and restrictions of the Shares are as stated in
the Restated Charter. Subject to adjustment as set forth in the Restated
Charter, each series of Preferred Stock is convertible into Common Stock on a
one-for-one basis. The Conversion Shares have been duly and validly reserved
for issuance. Other than the shares reserved for issuance under the Company's
1996 Equity Incentive Plan, and except as may be granted pursuant to the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
shareholder agreements, or agreements of any kind for the issuance by the
Company or purchase or acquisition from the Company of any of its securities.
When issued in compliance with the provisions of this Agreement and the Restated
Charter, the Shares and the Conversion Shares will be validly issued, fully paid
and nonassessable, and will be free of any liens, encumbrances or pre-emptive
rights; provided, however, that the Shares and the Conversion Shares 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.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and shareholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder and thereunder at the Closing and the
authorization, sale, issuance and delivery of the Shares pursuant hereto and the
Conversion Shares pursuant to the Restated Charter has been
3
<PAGE>
taken or will be taken prior to the Closing. The Agreement and the Related
Agreements, when executed and delivered, will be valid and binding obligations
of the Company enforceable in accordance with their terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights; (b) general
principles of equity that restrict the availability of equitable remedies; and
(c) to the extent that the enforceability of the indemnification provisions in
Section 2.9 of the Investor Rights Agreement may be limited by applicable laws.
The sale of the Shares and the subsequent conversion of the Shares into
Conversion Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
3.5 FINANCIAL STATEMENTS. The Company has been made available to
each Purchaser (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 (the "Statement
Date") and unaudited consolidated statement of income and cash flows for the
twelve month period ending on the Statement Date (collectively, the "Financial
Statements"). The Financial Statements, together with the notes thereto, are
complete and correct in all material respects, 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 results of operations of the Company as of
December 31, 1997 and the Statement Date; 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.
3.6 LIABILITIES. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities not disclosed
in the Financial Statements, except current liabilities incurred in the ordinary
course of business subsequent to the Statement Date which have not been, either
in any individual case or in the aggregate, materially adverse.
3.7 AGREEMENTS; ACTION.
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to, the Company in excess of $50,000
(other than obligations of, or payments to, the Company arising from purchase or
sale agreements entered into in the ordinary course of business), or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company (other than licenses arising from the purchase of "off the
shelf" or other standard products), or (iii) provisions restricting or affecting
the development, manufacture or distribution of the Company's products or
services, or (iv) indemnification by the Company with respect to infringements
of proprietary rights.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock,
4
<PAGE>
(ii) incurred any indebtedness for money borrowed or any other liabilities
(other than with respect to indebtedness and other obligations incurred in the
ordinary course of business and as disclosed in the Financial Statements)
individually in excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of $100,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights.
(c) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, shareholders, or employees of the Company other
than (a) for payment of salary for services rendered on a basis consistent with
past practice, (b) reimbursement for reasonable expenses incurred on behalf of
the Company and (c) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of the Company).
Except as may be disclosed in the Financial Statements, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.9 CHANGES. Since the Statement Date, there has not been:
(a) Any change in the assets, liabilities, financial condition
or operations of the Company from that reflected in the Financial Statements,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has or is expected to materially adversely
affect such assets, liabilities, financial condition or operations of the
Company;
(b) Any resignation or termination of any key officers of the
Company;
(c) To the best of its knowledge, any material change, except in
the ordinary course of business, in the contingent obligations of the Company by
way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
5
<PAGE>
(f) Any direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(j) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(k) Any change in any material agreement to which the Company is
a party or by which it is bound which is material and adverse to the Company or
materially and adversely affects the business, assets, liabilities, financial
condition, operations or prospects of the Company; or
(l) Any other event or condition of any character that, either
individually or cumulatively, has or, to the best of its knowledge, may
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company.
3.10 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, including the properties and
assets reflected in the most recent balance sheet included in the Financial
Statements, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent, and (b) minor liens
and encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.
3.11 PATENTS AND TRADEMARKS. To the best of its knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, Internet domain names, trade secrets,
licenses, information and other proprietary rights and processes necessary for
its business as now conducted and as presently proposed to be conducted, without
any known or asserted infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to
6
<PAGE>
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products. The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as presently proposed, would violate any of the patents, trademarks,
service marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
their duties to the Company or that would conflict with the Company's business
as presently proposed to be conducted. Neither the execution nor delivery of
this Agreement, nor the carrying on of the Company's business by the employees
of the Company, nor the conduct of the Company's business as presently proposed
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or proprietary
information that have been assigned to the Company.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Restated Charter or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, any statute, rule or regulation applicable to the
Company which would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. The
execution, delivery, and performance of and compliance with this Agreement, and
the Related Agreements, and the issuance and sale of the Shares pursuant hereto
and of the Conversion Shares pursuant to the Restated Charter, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term,
or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.13 LITIGATION. There is no action, suit, proceeding or investigation
pending or to the Company's knowledge currently and overtly threatened against
the Company nor is the Company aware of any basis for any such action, suit,
proceeding or investigation that would question the validity of this Agreement,
or the Related Agreements or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company. The foregoing includes, without limitation, actions pending or
threatened in writing (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary
7
<PAGE>
to any of their former employers, or their obligations under any agreements with
prior employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.14 TAX RETURNS AND PAYMENTS. The Company has filed all tax returns
(federal, state and local) required to be filed by it. To the best of the
Company's knowledge all taxes due and payable by the Company on or before the
Closing have been paid or will be paid prior to the time they become delinquent.
The Company has not been advised (a) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof, or (b) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is not
adequately provided for.
3.15 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment, including without limitation any agreement or understanding
concerning employee benefit plans or health insurance. To the Company's
knowledge, no employee of the Company, nor any consultant with whom the Company
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company
because of the nature of the business to be conducted by the Company; and to the
Company's knowledge the continued employment by the Company of its present
employees, and the performance of the Company's contracts with its independent
contractors, will not result in any such violation. The Company has not
received any notice alleging that any such violation has occurred. No employee
of the Company has been granted the right to continued employment by the Company
or to any material compensation following termination of employment with the
Company. The Company is not aware that any officer or any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any officer, key
employee or group of key employees.
3.16 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each current
employee and officer of the Company has executed a Proprietary Information and
Inventions Agreement in the form of EXHIBIT F attached hereto. To the Company's
knowledge, no officer or employee of the Company is in violation of the terms of
any such agreement. No current employee or officer of the Company has excluded
works or inventions made prior to his or her employment with the Company from
his or her assignment of inventions pursuant to such employee or officer
Proprietary Information and Inventions Agreement.
3.17 REGISTRATION RIGHTS. Except as required pursuant to the Investor
Rights Agreement, the Company is presently not under any obligation, and has not
granted any rights, to
8
<PAGE>
register (as defined in Section 1.1 of the Investor Rights Agreement) any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued.
3.18 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of
any applicable statute, rule, regulation, order or restriction of any domestic
or foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which violation would
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection with
the execution and delivery of this Agreement and the issuance of the Shares or
the Conversion Shares, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of the Company
and believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.19 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any agent on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Shares or other
securities of the Company to any person or persons so as to bring the sale of
such Shares by the Company within the registration provisions of the Securities
Act or any state securities laws.
3.20 ACCOUNTING CONTROLS. The Company maintains a system of internal
accounting controls sufficient to provide assurance that: (1) transactions are
executed in accordance with management's general or specific authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements materially in conformity with generally accepted accounting
principles and to maintain accountability for assets; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.21 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers contain a complete summary of all meetings of directors and
shareholders since the time of incorporation.
3.22 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable statue, law or regulation relating to the
environment or
9
<PAGE>
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
3.23 INSURANCE. The Company has fire and casualty insurance policies
with coverage customary for companies similarly situated to the Company.
3.24 FULL DISCLOSURE. To the Company's knowledge, neither this
Agreement, the Exhibits hereto, the Related Agreements nor any other document
delivered by the Company to Purchasers or their attorneys or agents in
connection herewith or therewith or with the transactions contemplated hereby or
thereby, contain any untrue statement of a material fact nor, to the Company's
knowledge, omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
3.25 QUALIFIED SMALL BUSINESS. The Company represents and warrants to
the Purchasers that, to the best of its knowledge, the Company is a "qualified
small business" within the meaning of Section 1202(d) of the Internal Revenue
Code of 1986, as amended (the "Code"), as of the date hereof and the Shares
should qualify as "qualified small business stock" as defined in Section 1202(c)
of the Code as of the date hereof.
3.26 REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Code Section 897(c)(2) and
any regulations promulgated thereunder.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser severally and not jointly hereby represents and warrants to
the Company with respect to itself as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
corporate or partnership power and authority to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (b) general principles
of equity that restrict the availability of equitable remedies, and (c) to the
extent that the enforceability of the indemnification provisions of Section 2.9
of the Investor Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither
the Shares nor the Conversion Shares have been registered under the Securities
Act. Purchaser also understands that the Shares are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon Purchaser's representations contained in the Agreement. Purchaser
hereby represents and warrants as follows:
10
<PAGE>
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares or the Conversion Shares under the circumstances, in the amounts
or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) GENERAL SOLICITATION. Purchaser is aware of no publication
of any advertisement in connection with the transactions contemplated in the
Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and Business Plan and has had an opportunity to discuss the
Company's business, management and financial affairs with directors, officers
and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has also had the opportunity to
ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares, and, if issued, the Conversion Shares must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act as in effect from
time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about the
Company, the resale occurring following the required holding period under Rule
144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on EXHIBIT A; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located at
the address or addresses of the Purchaser set forth on Exhibit A.
11
<PAGE>
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Shares and, if issued, the Conversion Shares are subject to
restrictions on transfer as set forth in the Investor Rights Agreement.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING. Purchasers'
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct in all material respects as of the Closing
Date with the same force and effect as if they had been made as of the Closing
Date, and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which Purchasers and the
Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
(d) FILING OF RESTATED CHARTER. The Restated Charter shall have
been filed with the Secretary of State of the State of California.
(e) CORPORATE DOCUMENTS. The Company shall have delivered to
Purchasers or their counsel, copies of all corporate documents of the Company as
Purchasers shall reasonably request.
(f) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(g) COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchasers a Compliance Certificate, executed by the President of the Company,
dated the Closing Date, to the effect that the conditions specified in
subsections (a), (c) and (f) of this Section 5.1 have been satisfied.
(h) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement
shall have been executed and delivered by the parties thereto.
12
<PAGE>
(i) VOTING AGREEMENT. The Voting Agreement shall have been
executed and delivered by the parties thereto.
(j) CO-SALE AGREEMENT. The Co-Sale Agreement shall have been
executed and delivered by the parties thereto.
(k) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company an opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as EXHIBIT G.
(l) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(m) CERTIFICATE AS TO DISQUALIFIED PERSONS. The Company shall
have executed and delivered to Highland Capital Partners a Certificate as to
Disqualified Persons, dated as of the Closing Date, in form and substance
satisfactory to Highland Capital Partners.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares at each Closing is subject to the
satisfaction, on or prior to such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by those Purchasers acquiring Shares in Section 4 hereof
shall be true and correct in all material respects at the date of the Closing,
with the same force and effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by such Purchasers on or before the Closing.
(c) FILING OF RESTATED CHARTER. The Restated Charter shall have
been filed with the Secretary of State of the State of California.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
shall have been executed and delivered by the Purchasers.
(e) VOTING AGREEMENT. The Voting Agreement shall have been
executed and delivered by the parties thereto.
(f) CO-SALE AGREEMENT. The Co-Sale Agreement shall have been
executed and delivered by the parties thereto.
13
<PAGE>
(g) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all governmental consents, permits and waivers necessary for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and performed entirely in California.
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified through any
subsequent sales provided by Section 2.3 of this Agreement only upon the written
consent of the Company and holders of at least sixty-six and two-thirds percent
(662/3%) of the Shares (treated as if converted and including any Conversion
Shares into which the Shares have been converted that have not been sold to the
public).
(b) The obligations of the Company and the rights of the holders
of the Shares and the Conversion Shares under the Agreement may be waived only
with the written consent of the holders of at least sixty-six and two-thirds
percent (662/3%) of the Shares (treated as if converted and including any
Conversion Shares into which the Shares have been converted that have not been
sold to the public).
14
<PAGE>
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Charter, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any Purchaser's
part of any breach, default or noncompliance under this Agreement, the Related
Agreements or under the Restated Charter or any waiver on such party's part of
any provisions or conditions of the Agreement, the Related Agreements, or the
Restated Charter must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Related Agreements, the Restated Charter, by law, or otherwise
afforded to any party, shall be cumulative and not alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Company's principal offices at 918 Parker Street, Berkeley, CA and to Purchaser
at the address set forth on the signature page hereof or at such other address
as the Company or Purchaser may designate by ten (10) days advance written
notice to the other parties hereto.
6.9 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement. The Company shall reimburse the reasonable fees of and expenses
of one special counsel for the Purchasers, not to exceed $15,000, incurred in
connection with the negotiation, execution, delivery and performance of this
Agreement.
6.10 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
6.11 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
15
<PAGE>
6.13 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 6.13 being untrue.
6.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Shares and Conversion
Shares.
6.15 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
6.16 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
6.17 ADDITIONAL INVESTORS. Notwithstanding anything to the contrary
contained herein, if the Company shall issue additional shares of its Series B
Preferred Stock pursuant to this Agreement, any purchaser of such shares of
Series B Preferred Stock may become a party to this Agreement by executing and
delivering an additional counterpart signature page to this Agreement and shall
be deemed a "PURCHASER" hereunder.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SERIES B PREFERRED
STOCK PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
ASK JEEVES, INC. INVESTOR
By: /s/ Robert W. Wrubel By: /s/ Investors Listed on Exhibit A
-------------------------------- -------------------------------------
President
Name:
----------------------------------
Title:
---------------------------------
Address:
-------------------------------
----------------------------------------
----------------------------------------
Phone Number: ( )
--------------------
Facsimile: ( )
-----------------------
SIGNATURE PAGE
<PAGE>
Schedule of Purchasers Exhibit A
Restated Articles of Incorporation Exhibit B
Investor Rights Agreement Exhibit C
Amended and Restated Voting Agreement Exhibit D
Co-Sale Agreement Exhibit E
Proprietary Information and Exhibit F
Inventions Agreement
Form of Legal Opinion Exhibit G
<PAGE>
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
AGGREGATE
NAME SHARES PURCHASE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Highland Capital Partners IV Limited 4,435,819 $ 9,599,999.48
Partnership
Highland Entrepreneurs' Fund IV 184,826 $ 400,000.43
Limited Partnership
CPQ Holdings, Inc. 688,183 $ 1,489,365.65
Institutional Venture Partners VIII, 2,730,801 $ 5,909,999.52
L.P.
IVM Investment Fund VIII, LLC 41,586 $ 90,000.42
Amy Slater 17,040 $ 36,877.97
Roda Group Investment Fund I, L.L.C 1,713,464 $ 3,708,278.89
Garrett Gruener 115,516 $ 249,999.73
Benjamin M. Rosen 345,552 $ 747,843.64
Leavitt Family Trust U/T/D April 20, 256,272 $ 554,623.86
1989
Angel Investors, L.P. 26,894 $ 58,203.99
LJ Sevin 123,513 $ 267,306.83
Ronald & Gayle Conway as Trustees of 54,381 $ 117,691.36
the Conway Family Trust dated 9/25/96
Melody Kean Haller 55,036 $ 119,108.91
<PAGE>
AGGREGATE
NAME SHARES PURCHASE PRICE
- --------------------------------------------------------------------------------
David Allen Hoffman and Joan E. Sarnat 55,036 $ 119,108.91
Living Trust dated 12/15/95
Kevin D. Schon and Suzanne C. Schon 55,036 $ 119,108.91
Revocable Trust, dated 7/29/94
George J. Still, Jr 3,362 $ 7,276.04
Russell Holdstein, Trustee for the 47,246 $ 102,249.79
Holdstein Revocable Trust U/T/D
6/12/83
P. Kirk Hobbs 27,604 $ 59,740.58
A. George Battle 26,916 $ 58,251.61
M. Bruce Nakao 1994 Trust 17,291 $ 37,421.18
J. Thomas Bentley 16,598 $ 35,921.39
Margaret L. Taylor 15,904 $ 34,419.44
Gerald K. and Vera Leo Revocable Trust 14,475 $ 31,326.80
dated 8/14/89
Charles Finnie 14,475 $ 31,326.80
GC&H Investments 6,723 $ 14,549.92
Edward D. Briscoe III 462,064 $ 999,998.91
TOTAL: 11,551,613 $ 25,000,000.86
---------- -----------------
---------- -----------------
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<C> <S> <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>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<C> <S> <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>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<C> <S> <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>
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 4.11
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
EXHIBIT B
PAYMENT TERMS
On the Closing Date, Ask Jeeves shall deliver to Lumina the following:
(1) by wire transfer or check made payable to Lumina, the amount of
$700,000;
(2) 450,000 shares of the common stock of Ask Jeeves (the "Shares").
Within five (5) business days following the Closing Date, Lumina shall
deliver the following:
(1) 150,000 Shares to State Street Bank and Trust Company of California,
N.A. (the "Escrow Agent") pursuant to a distribution to the Shareholders in
accordance with the terms of the Escrow Agreement; and
(2) 300,000 Shares to the Shareholders pursuant to a distribution.
Within six (6) business days following the Closing Date, the Employees (as
defined below) shall deliver between 213,018 and 221,614 Shares (the "Buyback
Shares") to Ask Jeeves to be held in escrow subject to the following right of
repurchase by Ask Jeeves contained in the Offer Letters (the "Buyback Option"):
If an Employee's continuous service with Ask Jeeves is voluntarily
terminated by such Employee or by Ask Jeeves with Cause, Ask Jeeves will have
the right at any time within ninety (90) days after such Employee's termination
of continuous service with Ask Jeeves to purchase from such Employee such
Employee's pro rata portion of the Buyback Shares then subject to the Buyback
Option, at the price per share of $0.25. For purposes of the Buyback Option,
"Employee" shall mean a former employee of Lumina who accepts an offer of
employment by Ask Jeeves pursuant to an Offer Letter at or prior to the Closing
Date. Twenty-Five percent (25%) of the Buyback Shares will be released from the
Buyback Option on the date which is six months following the Closing Date of the
Asset Purchase Agreement to which this Exhibit B is attached. An additional
4.16667% of the Buyback Shares will be released from the Buyback Option monthly
thereafter. For the purpose of the Buyback Option, "Cause" shall mean (a) an
intentional refusal or failure to follow lawful and reasonable directions of the
Board of Directors of Ask Jeeves or the Chief Executive Officer or Chief
Technical Officer; (b) a willful and habitual neglect of duties as reasonably
determined by the Chief Executive Officer or Chief Technical Officer; or (c) a
conviction of a felony involving moral turpitude which is reasonably likely to
inflict or has inflicted material injury on Ask Jeeves. For the purpose of the
Buyback Option, an Employee will be deemed to have been terminated without Cause
and, therefore, the Buyback Option will terminate with respect to such Employee,
if the Employee voluntarily terminates for "Good Reason". Termination for "Good
Reason" shall occur in the event that (a) there is a diminution in the
Employees' office, title, duties, salary or benefits from the Closing Date, (b)
Ask Jeeves breaches its Offer Letter with such Employee, (c) such Employee is
disabled or dies, or (d) the Employee is relocated to an office that is more
than twenty (20) miles away from Lumina's current office in Los Gatos.
[ * ] = 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>
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 April , 1999, in the Registration
Statement (Form S-1) and related Prospectus of Ask Jeeves, Inc. for the
registration of of its common stock.
/s/ ERNST & YOUNG LLP
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
April 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 7-MOS YEAR YEAR 3-MOS
3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 MAR-31-1998
MAR-31-1999
<PERIOD-START> JUN-13-1996 JAN-01-1997 JAN-01-1998 JAN-01-1998
JAN-01-1999
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 MAR-31-1998
MAR-31-1999
<CASH> 0 521 5,588 0
23,125
<SECURITIES> 0 0 0 0
5,169
<RECEIVABLES> 0 20 236 0
1,056
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 0 541 5,973 0
26,833
<PP&E> 0 71 941 0
2,151
<DEPRECIATION> 0 (4) (106) 0
(210)
<TOTAL-ASSETS> 0 608 6,808 0
31,925
<CURRENT-LIABILITIES> 0 65 1,196 0
4,211
<BONDS> 0 0 46 0
34
0 0 0 0
0
0 0 6,088 0
32,543
<COMMON> 0 1,099 4,772 0
6,876
<OTHER-SE> 0 0 (477) 0
(2,053)
<TOTAL-LIABILITY-AND-EQUITY> 0 608 6,808 0
31,925
<SALES> 0 0 0 0
0
<TOTAL-REVENUES> 0 0 593 15
1,132
<CGS> 0 0 0 0
0
<TOTAL-COSTS> 0 0 1,059 68
1,522
<OTHER-EXPENSES> 108 452 3,848 286
4,610
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 0 0 0 0
0
<INCOME-PRETAX> (108) (448) (4,314) (339)
(5,000)
<INCOME-TAX> 0 0 0 0
0
<INCOME-CONTINUING> (108) (448) (4,314) (339)
(5,000)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> (108) (448) (4,262) (335)
(4,869)
<EPS-PRIMARY> (0.08) (0.13) (0.51) (0.06)
(0.43)
<EPS-DILUTED> (0.08) (0.13) (0.51) (0.06)
(0.43)
</TABLE>
